Q2 Holdings (NYSE:QTWO) Beats Q1 Sales Targets, Provides Encouraging Quarterly Guidance

Jabin Bastian /
2024/05/01 5:07 pm EDT

Banking software provider Q2 (NYSE:QTWO) reported Q1 CY2024 results topping analysts' expectations, with revenue up 8.2% year on year to $165.5 million. Guidance for next quarter's revenue was also better than expected at $170.5 million at the midpoint, 1.7% above analysts' estimates. It made a GAAP loss of $0.23 per share, down from its loss of $0.01 per share in the same quarter last year.

Is now the time to buy Q2 Holdings? Find out by accessing our full research report, it's free.

Q2 Holdings (QTWO) Q1 CY2024 Highlights:

  • Revenue: $165.5 million vs analyst estimates of $163.2 million (1.4% beat)
  • EPS: -$0.23 vs analyst estimates of -$0.33 (30.3% beat)
  • Revenue Guidance for Q2 CY2024 is $170.5 million at the midpoint, above analyst estimates of $167.6 million
  • The company slightly raised its revenue and adjusted EBITDA guidance for the full year, both of which are above expectations
  • Gross Margin (GAAP): 49.7%, up from 47.9% in the same quarter last year
  • Free Cash Flow of $6.02 million, down 79.8% from the previous quarter
  • Market Capitalization: $3.09 billion

“We had a strong start to the year with highlights across the business,” said Q2 CEO Matt Flake.

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

Banking Software

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 mediocre over the last three years, growing from $116.5 million in Q1 2021 to $165.5 million this quarter.

Q2 Holdings Total Revenue

Q2 Holdings's quarterly revenue was only up 8.2% year on year, which might disappoint some shareholders. Additionally, its growth did slow down compared to last quarter as the company's revenue increased by just $3.39 million in Q1 compared to $7.15 million in Q4 CY2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Q2 Holdings is expecting revenue to grow 10.3% year on year to $170.5 million, in line with the 10.1% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 10.9% over the next 12 months before the earnings results announcement.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Q2 Holdings's free cash flow came in at $6.02 million in Q1, turning positive over the last year.

Q2 Holdings Free Cash Flow

Q2 Holdings has generated $48.86 million in free cash flow over the last 12 months, or 7.7% of revenue. This FCF margin enables it to reinvest in its business without depending on the capital markets.

Key Takeaways from Q2 Holdings's Q1 Results

It was good to see Q2 Holdings's strong revenue guidance for next quarter, which topped analysts' expectations. We were also happy its revenue narrowly outperformed Wall Street's estimates. Lastly, the company raised its full year guidance for revenue and adjusted EBITDA. Zooming out, we think this was a really solid quarter, showing that the company is staying on track. The stock is up 2.4% after reporting and currently trades at $52.99 per share.

So should you invest in Q2 Holdings right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.