Q2 Holdings Inc (NYSE:QTWO), a SaaS provider of cloud-based banking solutions, with principal offices in Austin, Texas, plans to raise $93.1 million in its upcoming IPO this week.
The firm will offer 7.8 million shares, at an expected price range of $11-$13 per share. If the IPO can reach the midpoint of that range at $12 per share, QTWO will command a market value of $433 million.
QTWO filed on February 12, 2014.
Lead Underwriters: JP Morgan Securities LLC, Stifel Nicolaus & Company Inc
Underwriters: Canaccord Genuity Inc, Needham & Company LLC, Raymond James and Associates Inc, RBC Capital Markets LLC
QTWO provides secure, cloud-based virtual banking solutions for regional and community financial institutions (RCFIs), allowing those institutions to deliver a suite of virtual banking services and provide services to retail and commercial account holders across multiple devices. The firm develops solutions around a platform that integrates its solutions with one another and with customers' internal systems to create a unified virtual banking system that affords a consistent experience for account holders.
QTWO seeks to take advantage of the growing needs of RCFIs for online banking solutions, driven by the increasing tendency of banking customers to use online banking services to find the most competitive banks. RCFIs often lack the resources required to create and manage their own virtual banking services, making it difficult for them to compete with large national banks; QTWO allows RCFIs to deploy the online services they need in order to attract and maintain customer bases.
QTWO offers the following figures in its S-1 balance sheet for the year ended December 31, 2013:
Net Loss: ($17,875,000.00)
Total Assets: $61,108,000.00
Total Liabilities: $55,372,000.00
Stockholders' Equity: ($36,316,000.00)
QTWO has seen growing revenues over the course of the past three years, with total revenues of $27.0 million, $41.1 million, and $56.9 million in 2011, 2012, and 2013, respectively. However, these revenue gains have been accompanied by increasing losses; QTWO lost $3.0 million, $8.8 million, and $17.9 million over the same periods, respectively.
QTWO faces numerous competitors, some of which have greater technical and financial capacities than QTWO. Point system competitors include NCR Corporation (NYSE:NCR), First Data Corporation, ACI Worldwide Inc (NASDAQ:ACIW), Fundtech Ltd, and Bottomline Technologies (NASDAQ:EPAY). QTWO also competes with core processing vendors including Fiserv Inc (NASDAQ:FISV), Jack Henry and Associates Inc (NASDAQ:JKHY), and Fidelity National Information Services Inc (NYSE:FIS).
Matthew P. Flake has served as President of Q2 Holdings since 2008, CEO since October 2013, and previously Vice President of Sales. Flake also serves as the CEO of the firm's sole operating subsidiary, Q2 Software Inc. He previously served as a Regional Sales Director with S1 Corporation and a Regional Sales Manager with Q-Up Systems Inc. Mr. Flake holds a B.A. in Business from Baylor University.
We're positive on this IPO in the proposed price range of $11 to $13.
We are in a very positive IPO environment for technology IPOs since the beginning of 2014.
QTWO is the leader in its field.
Financial Institutions will be spending huge amounts of money over the next few years for Web Based Banking.
QTWO has a highly qualified management team, and the firm's product is certainly in demand, as evidenced by its substantial revenue growth.
However, the increasing losses, which have accompanied this growth, are troubling. It's also clear that QTWO faces significant competition, both from similar firms and from banks creating their own virtual banking systems.
It should be noted that the firm's reliance on the financial services sector means that any downturn in that sector could prove troubling to QTWO.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in QTWO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.