Summary
Q2 Holdings opened fiscal 2021 with first quarter revenue of $116.5 million, up 26.1% from $92.4 million in the prior-year quarter. Management attributed most of the increase to cross sales of additional solutions to new and existing customers and to growth in registered users, which together added $20.1 million. Higher transaction volumes contributed $3.5 million, and Paycheck Protection Program solutions added $0.6 million. Registered users on the Q2 Platform reached 18.3 million at March 31, 2021, up 19% year over year and 3% from the fourth quarter of 2020.
Margins and losses both improved. Gross profit rose 35.5% to $53.2 million, and gross margin climbed 3.1 percentage points to 45.7%. The operating loss narrowed to $17.5 million from $27.2 million, and operating margin improved 14.4 percentage points to negative 15.0%. Net loss was $25.7 million, or $0.46 per diluted share, compared with a loss of $34.1 million a year earlier. Cost of revenues grew more slowly than revenue, sales and marketing expense was roughly flat, and general and administrative expense declined. On a non-GAAP basis, gross margin was 52.6%, down from 53.1% in the prior-year quarter but up from 48.3% in the fourth quarter of 2020, and adjusted EBITDA was $9.9 million, up from negative $0.1 million a year earlier and $6.1 million in the fourth quarter of 2020.
The sales pipeline showed momentum in larger accounts. A Tier 1 $8 billion bank signed a digital banking contract covering retail, small business and commercial solutions. Two Tier 1 customers, including a $10 billion bank, signed digital acquisition and onboarding contracts, and two enterprise customers, a top-25 and a top-50 U.S. bank, signed loan pricing contracts. The banking-as-a-service team supported the debit card launch of a top 10 fintech client. The company had 450 installed customers at December 31, 2020 and warned that pandemic-related delays will slow the rate of new installs in 2021. Retention remains steady: the revenue retention rate was 122% for 2020, and annual churn was 5.9% that year.
Cash flow was negative but far better than a year ago. Net cash used in operating activities was $5.5 million for the quarter, compared with $15.8 million in the prior-year quarter. Capital expenditures were $6.1 million, up from $4.6 million. Deferred revenue, current portion, rose 38.5% to $88.9 million, and remaining performance obligations rose 8.3% to $1.3 billion. Management said existing liquidity and expected operating cash flow should cover the company's requirements for the next twelve months.
Guidance calls for more growth. For the second quarter of 2021, the company guides to non-GAAP revenue of $122.0 million to $123.5 million, which would be 23% to 25% year-over-year growth, and adjusted EBITDA of $8.5 million to $9.1 million. For the full year 2021, it raised non-GAAP revenue guidance to $495.0 million to $498.0 million, which would be 22% growth, and set adjusted EBITDA at $32.0 million to $34.0 million, or 6% to 7% of non-GAAP revenue. ClickSWITCH, acquired on April 1, should contribute low-to-mid-single-digit millions of revenue and a similar adjusted EBITDA loss, recognized ratably over the next three quarters.
Risks remain substantial. The pandemic continues to delay some purchasing decisions and implementations, and management expects sales performance across all solutions to run slower in 2021 than it would have without COVID-19. Larger Tier 1 deals bring more variability and longer implementation cycles, which makes booking timing harder to predict. The company also cited competition, cybersecurity and data breach exposure, and its debt load, including the maturity schedule on its convertible notes. Integrating ClickSWITCH and keeping hiring on plan round out the list.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2021 | Q4 FY2020 | QoQ | Q1 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $116.5M | $109.0M | +6.9% | $92.4M | +26.1% |
| Gross profit | $53.2M | $44.5M | +19.5% | $39.3M | +35.5% |
| Gross margin | 45.7% | 40.8% | +4.8 pp | 42.5% | +3.1 pp |
| Research & development | $26.8M | $25.2M | +6.3% | $25.0M | +7.4% |
| Sales & marketing | $19.8M | $17.7M | +11.8% | $19.9M | -0.3% |
| General & administrative | $18.8M | $17.1M | +10.4% | $19.1M | -1.4% |
| Total operating expenses | $70.7M | $65.0M | +8.8% | $66.5M | +6.4% |
| Operating income (loss) | -$17.5M | -$20.5M | +14.5% | -$27.2M | +35.6% |
| Operating margin | -15.0% | -18.8% | +3.8 pp | -29.4% | +14.4 pp |
| Net income (loss) | -$25.7M | -$37.8M | +32.2% | -$34.1M | +24.8% |
| Net margin | -22.0% | -34.7% | +12.7 pp | -36.9% | +14.9 pp |
| Customers | 1 | — | — | — | — |
Risks
Management states that given the uncertainty that still surrounds the COVID-19 pandemic, it expects sales performance across all of its solutions to continue to be slower during the year ending December 31, 2021 than it otherwise would have been without the pandemic, and that the duration and impacts remain highly unpredictable and may continue to disrupt historical seasonality trends. The company also notes it may continue to see negative impacts of COVID-19 on bookings, revenues, gross margins and cash flows from operations, though it anticipates gradual improvement during 2021 versus 2020.
The pandemic and related restrictions have made more complex projects, such as implementations of new technology solutions, harder for financial institutions to execute, and the company has experienced and expects to continue to experience delays in some implementations and the associated revenue recognition. It also expects the pandemic to continue to slow the rate at which it adds new Installed Customers during 2021 relative to what growth would have been absent the pandemic, after reporting 450 Installed Customers as of December 31, 2020.
The company has experienced customers requesting reduced or extended payment terms as part of pandemic-related cost reduction measures, which it has made conditional on associated contract extensions, and has experienced contract terminations with customers that became insolvent as a result of COVID-19. Annual churn was 5.9% for the year ended December 31, 2020 versus 5.1% for 2019 and 5.0% for 2018, and the company says downgrades and cancellations may adversely affect churn and its revenue retention rate of 122% for 2020.
Revenue growth depends on customers adding Registered Users, and management states it has no control or influence over whether End Users of its digital banking platform elect to become Registered Users of its customers' digital banking services. Registered Users were 18.3 million at March 31, 2021 compared with 15.4 million at March 31, 2020, but the company says it is unable to predict the long-term impact of the pandemic on Registered User growth as new Installed Customer additions have slowed.
SaaS KPIs
All quarters →Registered Users
Non-GAAP gross margin
Adjusted EBITDA
Installed Customers
Non-GAAP Operating Income
Non-GAAP revenue
Summary, forecast, risks and KPIs are extracted from Q2 Holdings, Inc.'s SEC filings for Q1 FY2021 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.