Q2 Holdings (QTWO 0.39%) released third-quarter 2018 results on Tuesday after the market closed, highlighting the continued growth of its flagship digital-banking platform and incremental contributions of recent acquisitions.

Shares initially popped as much as 6% on Wednesday in response before settling modestly higher on the day. Let's take a closer look at what Q2 Holdings had to say about its start to the second half and what we should be watching in the coming quarters.

Q2 Holdings results: The raw numbers


Q3 2018

Q3 2017

Year-Over-Year Growth


$60.5 million

$50.1 million


GAAP net income (loss)

($8.8 million)

($5.8 million)


GAAP earnings (loss) per diluted share




DATA SOURCE: Q2 HOLDINGS. GAAP = generally accepted accounting principles.

What happened with Q2 Holdings this quarter?

  • Adjusted EBITDA grew 58.3% year over year, to $5.7 million.
  • These results were well above Q2's guidance provided in August that called for revenue of $59.7 million to $60.3 million and adjusted EBITDA of $5 million to $5.4 million.
  • Excluding items like stock-based compensation and acquisition expenses, Q2 generated non-GAAP net income of $4.1 million, or $0.09 per share, up from $0.03 per share in the same year-ago period. 
  • Q2 signed a top 50 credit union customer in the northeastern U.S. with over $5 billion in assets.
  • Registered users increased 24% year over year and 8% sequentially from last quarter, to 12.3 million.
  • Q2 Open signed eight deals during the quarter, including a reseller agreement with a "large payments provider" for its biller-direct product.

What management had to say

Q2 Holdings CEO Matt Flake stated:

We saw solid sales performance in the quarter, highlighted by record bookings for Q2 Open and adding a top 50 credit union. Our delivery teams had an outstanding quarter as we added more than 900,000 registered users, a record for a single quarter. Looking ahead, our pipeline is healthy and we believe will be even stronger with the addition of Cloud Lending. I am optimistic that we are positioned well for strong bookings in the fourth quarter.

Recall that, in August, Q2 announced its $105 million agreement to acquire California-based lending and leasing platform specialist Cloud Lending. Q2 continues to expect the deal will close before the end of the year.

Looking ahead

For the fourth quarter of 2018, excluding the impending acquisition of Cloud Lending, Q2 expects revenue of $64.9 million to $65.3 million, or year-over-year growth of 26%. Cloud Lending should add roughly $1 million to $2 million in revenue after purchase-accounting adjustments, resulting in a new range of $65.9 million to $67.3 million.

For the full year excluding Cloud Lending, Q2 now expects revenue of $238.8 million to $239.2 million, marking a slight $0.8 million increase from the bottom end of its previous range. Revenue including Cloud Lending should be $239.8 million to $241.2 million, or growth of 24% from 2017. Q2 also reduced its full-year adjusted EBITDA guidance to a range of $18 million to $19.4 million, with the change primarily reflecting the Cloud Lending purchase.

All told, there was little not to like in this slightly better-than-expected quarterly report from a long-term investor's perspective. Q2 continues to draw new large customers for its core platforms and is solidifying its industry leadership with the addition of Cloud Lending. Even with shares up nearly 40% so far in 2018, I think the stock will continue to outperform.