Q2 Holdings (NYSE:QTWO) Beats Q1 Sales Targets But Quarterly Guidance Underwhelms

Adam Hejl /
2022/05/02 4:37 pm EDT

Banking software provider Q2 (NYSE:QTWO) reported Q1 FY2022 results topping analyst expectations, with revenue up 15% year on year to $134 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $140.2 million, 0.19% below analyst estimates. Q2 Holdings made a GAAP loss of $23.5 million, improving on its loss of $25.6 million, in the same quarter last year.

Is now the time to buy Q2 Holdings? Access our full analysis of the earnings results here, it's free.

Q2 Holdings (QTWO) Q1 FY2022 Highlights:

  • Revenue: $134 million vs analyst estimates of $132.5 million (1.21% beat)
  • EPS (non-GAAP): $0.03 vs analyst estimates of $0.06 (-$0.03 miss)
  • Revenue guidance for Q2 2022 is $140.2 million at the midpoint, 0.19% below analyst estimates
  • The company reconfirmed revenue guidance for the full year, at $579.5 million at the midpoint
  • Free cash flow was negative $12.7 million, down from positive free cash flow of $33.6 million in previous quarter
  • Gross Margin (GAAP): 45%, down from 45.7% same quarter last year

“The first quarter represented a solid start to the year,” said Q2 CEO Matt Flake.

Founded in 2004 by Hank Seale, Q2 (NYSE:QTWO) offers software as a service that enables small banks provide online banking and consumer lending services to their clients.

Consumers these days are accustomed to frictionless digital experiences from online shopping to ordering food or hailing a cab. Financial services firms are notoriously risk averse in adopting modern software, often lacking the resources or competency to develop the digital solutions in-house. That drives demand for software as a service platforms that allows banks and other finance institutions to offer the digital services without having to run or maintain them.

Sales Growth

As you can see below, Q2 Holdings's revenue growth has been strong over the last year, growing from quarterly revenue of $116.5 million, to $134 million.

Q2 Holdings Total Revenue

This quarter, Q2 Holdings's quarterly revenue was once again up 15% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.18 million in Q1, compared to $5.15 million in Q4 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Q2 Holdings is expecting revenue to grow 13.4% year on year to $140.2 million, slowing down from the 26.6% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 17.1% over the next twelve months.

There are others doing even better than Q2 Holdings. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Q2 Holdings's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 45% in Q1.

Q2 Holdings Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.45 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and we would like to see it start improving.

Key Takeaways from Q2 Holdings's Q1 Results

With a market capitalization of $2.95 billion Q2 Holdings is among smaller companies, but its more than $413.6 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

Q2 Holdings topped analysts’ revenue expectations this quarter, even if just narrowly. That feature of these results really stood out as a positive. On the other hand, revenue growth is overall a bit slower these days and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $53.03 per share.

Should you invest in Q2 Holdings right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.