Summary
Q2 Holdings reported second quarter revenue of $123.6 million, up 26.6 percent from the same quarter a year earlier, and first-half revenue of $240.1 million, up 26.4 percent. The GAAP net loss narrowed to $30.1 million in the quarter while the operating loss narrowed to $19.9 million. Diluted loss per share narrowed to $0.53. Operating margin improved to -16.1%, helped by revenue growing faster than the biggest expense lines. Growth came mainly from selling additional solutions to new and existing customers and from a larger registered user base, with a smaller contribution from higher transaction volumes.
Gross profit rose 24.7 percent to $55.3 million, though gross margin slipped to 44.8%. Non-GAAP revenue was $124.2 million, up 26 percent year over year. Non-GAAP gross margin was 51.9 percent, down from 53.9 percent a year earlier. Adjusted EBITDA was $9.9 million, up from $8.1 million in the prior-year quarter.
Cash generation swung positive. Operating cash flow was $11.5 million for the quarter, a reversal from the prior-year period. Capital expenditures were $8.3 million, down 18.4 percent. Deferred revenue, current portion, stood at $89.2 million at June 30, 2021, up 30.8 percent year over year, and remaining performance obligations were $1.3 billion, up 8.3 percent. The company ended the quarter with cash, cash equivalents and investments of $411.3 million.
Registered users on the Q2 platform reached 18.8 million, up 16 percent year over year and 3 percent sequentially. Signed deals included an enterprise, top-30 US bank for loan origination and ClickSWITCH contracts; a Tier 2 credit union for a broad digital transformation led by retail and small business digital banking; a Tier 1 institution with $24 billion in assets for loan pricing, data platform and Centrix risk management; and a loan pricing and data platform contract with an existing Tier 1 digital banking customer with $23 billion in assets. The company also launched the Q2 Innovation Studio and closed its acquisition of ClickSWITCH on April 1, 2021. During the quarter it repurchased $37.1 million aggregate principal amount of its 0.75% convertible notes due 2023 for $63.7 million in cash.
Guidance is non-GAAP. For the third quarter of 2021, the company guided to revenue of $125.0 million to $126.5 million, growth of 19 to 21 percent, and adjusted EBITDA of $6.2 million to $6.8 million. For the full fiscal year 2021, it guided to revenue of $497.5 million to $499.5 million, growth of 22 to 23 percent, and adjusted EBITDA of $33.2 million to $34.7 million, or 7 percent of non-GAAP revenue. Management said deal activity could begin returning to pre-pandemic levels in the back half of the year.
Risks remain meaningful. COVID-19 continues to delay purchasing decisions and implementations, and the company expects sales performance across all of its solutions to be slower in 2021 than it would otherwise be. Larger Tier 1 deals bring more variability and longer, more complex implementations. Revenue retention was 122 percent for the year ended December 31, 2020, and annual churn was 5.9 percent for 2020, so growth depends on expanding existing relationships. Consolidation among financial institutions, competition, cyberattacks and data breaches, integration of acquired businesses, convertible note repayment obligations and higher operating expenses all remain open items.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2021 | Q1 FY2021 | QoQ | Q2 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $123.6M | $116.5M | +6.1% | $97.6M | +26.6% |
| Gross profit | $55.3M | $53.2M | +4.0% | $44.4M | +24.7% |
| Gross margin | 44.8% | 45.7% | -0.9 pp | 45.5% | -0.7 pp |
| Research & development | $29.4M | $26.8M | +9.8% | $23.6M | +24.5% |
| Sales & marketing | $20.6M | $19.8M | +3.9% | $16.3M | +26.2% |
| General & administrative | $18.7M | $18.8M | -0.7% | $17.2M | +8.7% |
| Total operating expenses | $75.3M | $70.7M | +6.5% | $76.7M | -1.8% |
| Operating income (loss) | -$19.9M | -$17.5M | -13.9% | -$32.3M | +38.3% |
| Operating margin | -16.1% | -15.0% | -1.1 pp | -33.1% | +17.0 pp |
| Net income (loss) | -$30.1M | -$25.7M | -17.4% | -$39.0M | +22.7% |
| Net margin | -24.4% | -22.0% | -2.4 pp | -39.9% | +15.6 pp |
| Diluted EPS | -$0.53 | — | — | — | — |
| Customers | 1 | 1 | ±0.0% | — | — |
Risks
MD&A states that during the first half of fiscal 2021 the company has experienced, and expects to continue experiencing, sales performance across all solutions that is slower than it otherwise would have been for the year ending December 31, 2021, with continued delays and unpredictability in customer purchasing decisions and delays in some implementations and the associated revenue recognition.
The company expects to continue to see negative impacts of COVID-19 on its bookings, revenues, gross margins and cash flows from operations, citing supply chain constraints, significant price increases for certain goods and services, new variants and unpredictable re-opening, though it anticipates gradual improvement during 2021 compared to the impacts experienced in 2020.
Cost of revenues increased 28.3% for the quarter ended June 30, 2021 while revenue rose 26.6%, and gross margin declined 0.7 pp to 44.8% in the quarter. MD&A also notes customers requested reduced or extended payment terms during the pandemic and that COVID-19 may continue to pressure gross margins.
Annual churn was 5.9% for the year ended December 31, 2020, the high end of the 3.5% to 5.9% range over the last nine years, and MD&A warns that pandemic-related delays in purchasing decisions and contract extensions may result in downgrades and cancellations, with contract terminations already experienced from customers who became insolvent.
Total other income (expense), net widened 51.6% to a net expense of $10.0 million for the quarter ended June 30, 2021, driven by higher interest expense on the convertible notes and a $1.5 million loss on early extinguishment of debt. The company repurchased $37.1 million principal of the 2023 Notes for $63.7 million in cash, and convertible notes including interest represent $691.1 million of contractual obligations at June 30, 2021.
MD&A states the company expects hiring rates to accelerate in 2021 and that many investments will occur in advance of realizing any benefit, which may make it difficult to determine if resources are being allocated effectively, while operating expenses are expected to increase in absolute dollars.
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 Q2 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.