Q2 Holdings (NYSE:QTWO) Posts Q4 Sales In Line With Estimates, Guides For 9.8% Growth Next Year
Banking software provider Q2 (NYSE:QTWO) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 10.6% year on year to $162.1 million. On the other hand, next quarter's revenue guidance of $163.2 million was less impressive, coming in 1.1% below analysts' estimates. It made a GAAP loss of $0.31 per share, down from its profit of $0.06 per share in the same quarter last year.
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Q2 Holdings (QTWO) Q4 FY2023 Highlights:
Revenue: $162.1 million vs analyst estimates of $161.5 million (small beat)
EPS: -$0.31 vs analyst estimates of -$0.32 (1.9% beat)
Revenue Guidance for Q1 2024 is $163.2 million at the midpoint, below analyst estimates of $165 million
Management's revenue guidance for the upcoming financial year 2024 is $686 million at the midpoint, in line with analyst expectations and implying 9.8% growth (vs 10.5% in FY2023)
Free Cash Flow of $29.82 million, up from $9.28 million in the previous quarter
Gross Margin (GAAP): 50.2%, up from 45.2% in the same quarter last year
Market Capitalization: $2.47 billion
“We closed out 2023 with our best bookings performance in company history, which included our two largest deals ever,” 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 unremarkable over the last two years, growing from $131.9 million in Q4 FY2021 to $162.1 million this quarter.
This quarter, Q2 Holdings's quarterly revenue was once again up 10.6% year on year. We can see that Q2 Holdings's revenue increased by $7.15 million quarter on quarter, which is a solid improvement from the $436,000 increase in Q3 2023. Shareholders should applaud the acceleration of growth.
Next quarter's guidance suggests that Q2 Holdings is expecting revenue to grow 6.7% year on year to $163.2 million, slowing down from the 14.1% year-on-year increase it recorded in the same quarter last year. For the upcoming financial year, management expects revenue to be $686 million at the midpoint, growing 9.8% year on year compared to the 10.4% increase in FY2023.
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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 $29.82 million in Q4, down 24.2% year on year.
Q2 Holdings has generated $39.65 million in free cash flow over the last 12 months, or 6.3% of revenue. This FCF margin enables it to reinvest in its business without depending on the capital markets.
Key Takeaways from Q2 Holdings's Q4 Results
Q2 Holdings delivered a decent gross margin improvement this quarter, along side with a small beat on the top line. Guidance shows the growth is slow but steady. Overall, this was a mixed quarter for Q2 Holdings. The stock is up 1.6% after reporting and currently trades at $42.5 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.
