Q2 Holdings, Inc. (“Q2”) (NYSE: QTWO), a leading provider of digital
transformation solutions for banking and lending, today announced the
upsizing and pricing of its $275 million aggregate principal amount of
Convertible Senior Notes due 2026 (the “Notes”) in a private placement
to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended (the “Securities Act”). Q2 also
granted a 13-day option to the initial purchasers to purchase up to an
additional $41.25 million aggregate principal amount of Notes. The
private placement of Notes was upsized from the previously announced
$200 million aggregate principal amount and is expected to close on or
about June 10, 2019, subject to the satisfaction of customary closing
conditions.
The Notes will be unsecured, unsubordinated obligations of Q2 and will
pay interest semiannually at an annual rate of 0.75% and will be
convertible into cash, shares of Q2’s common stock or a combination of
cash and shares of Q2’s common stock, at Q2’s election, based on the
applicable conversion rate at such time. The Notes have an initial
conversion rate of 11.2851 shares of Q2’s common stock per $1,000
principal amount of Notes (which is equivalent to an initial conversion
price of approximately $88.61 per share of Q2’s common stock),
representing an initial conversion premium of approximately 27.5% above
the initial price to the public of $69.50 per share in Q2’s concurrent
underwritten follow on public offering of common stock described below.
The conversion rate is subject to adjustment in some events but will not
be adjusted for any accrued and unpaid interest. Holders of the Notes
will have the right to require Q2 to repurchase all or a portion of
their Notes upon the occurrence of a fundamental change (as defined in
the indenture governing the Notes) at a purchase price of 100% of their
principal amount plus any accrued and unpaid interest. The Notes will
mature on June 1, 2026, unless repurchased, redeemed or converted in
accordance with their terms prior to such date. Prior to the close of
business on the business day immediately preceding March 1, 2026, the
Notes will be convertible only upon the satisfaction of certain
conditions and during certain periods, and thereafter at any time prior
to the close of business on the second scheduled trading day immediately
preceding the maturity date regardless of these conditions.
Q2 may not redeem the notes prior to June 5, 2023. On or after June 5,
2023, Q2 may redeem for cash all or any portion of the Notes, at Q2’s
option, if the last reported sale price of Q2’s common stock has been at
least 130% of the conversion price then in effect for at least 20
trading days (whether or not consecutive) during any 30 consecutive
trading-day period (including the last trading day of such period)
ending on, and including, the trading day immediately preceding the date
on which Q2 provides notice of redemption at a redemption price equal to
100% of the principal amount of the Notes to be redeemed, plus accrued
and unpaid interest.
In connection with the private placement, Q2 entered into privately
negotiated capped call transactions with option counterparties that
included one or more of the initial purchasers or their affiliates. The
capped call transactions cover, subject to anti-dilution adjustments,
the number of shares of common stock underlying the Notes sold in the
private placement. If the initial purchasers exercise their option to
purchase additional Notes, Q2 may enter into additional capped call
transactions with the option counterparties. The capped call
transactions are generally expected to reduce potential dilution to Q2’s
common stock upon conversion of the Notes and/or offset any cash
payments Q2 is required to make in excess of the principal amount of
converted Notes, as the case may be.
Q2 estimates that it will receive net proceeds from the private
placement of approximately $266.8 million (or approximately $306.9
million if the initial purchasers exercise their option to purchase
additional notes in full). Q2 intends to use $35.4 million of the net
proceeds to pay the cost of the capped call transactions (or $40.8
million if the initial purchasers exercise their option to purchase
additional notes in full). Q2 intends to use the remainder of the net
proceeds for general corporate purposes, including working capital,
capital expenditures, potential acquisitions and strategic transactions;
however, Q2 has not designated any specific uses and has no current
agreements with respects to any material acquisition or strategic
transactions. If the initial purchasers exercise their option to
purchase additional notes, Q2 intends to use a portion of the net
proceeds to fund the cost of entering into additional capped call
transactions. Any remaining net proceeds from the sale of additional
notes will be used for general corporate purposes.
Q2 has been advised that, in connection with establishing their initial
hedges of the capped call transactions, the option counterparties and/or
their affiliates (i) expect to purchase shares of Q2’s common stock
and/or enter into derivative transactions with respect to Q2’s common
stock concurrently with, or shortly after, the pricing of the Notes and
(ii) may modify their hedge positions by entering into or unwinding
derivative transactions with respect to Q2’s common stock and/or
purchasing or selling Q2’s common stock or other securities of Q2 in
secondary market transactions following the pricing of the Notes and
prior to the maturity of the Notes. These activities could have the
effect of increasing, or preventing a decline in, the market price of
Q2’s common stock concurrently with, or shortly following, the pricing
of the Notes. The effect, if any, of these activities, including the
direction or magnitude, on the market price of Q2’s common stock will
depend on a variety of factors, including market conditions, and cannot
be ascertained at this time. Any of these activities could, however,
adversely affect the market price of Q2’s common stock.
Q2 also announced today the upsizing and pricing of a public offering of
2,637,986 shares of Q2’s common stock, with 2,517,986 shares to be sold
by Q2 and 120,000 shares to be sold by a selling stockholder. Q2 also
granted the underwriters a 30-day option to purchase up to an additional
395,698 shares of Q2’s common stock from Q2. The private placement of
Notes is not contingent upon the concurrent public offering of common
stock, and the concurrent public offering of common stock is not
contingent upon the private placement of Notes. The public offering of
common stock is expected to close on June 10, 2019, subject to customary
closing conditions.
This press release is neither an offer to sell nor a solicitation of an
offer to buy the Notes or the shares of common stock issuable upon
conversion of the Notes, if any, nor shall there be any sale of these
securities in any state or jurisdiction in which such an offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such state or
jurisdiction. Any offer of these securities will be made only by means
of a private offering memorandum.
The Notes and the shares of common stock issuable upon conversion of the
Notes, if any, have not been registered under the Securities Act, or the
securities laws of any other jurisdiction, and may not be offered or
sold in the United States absent registration or an applicable exemption
from registration requirements.
Forward-looking Statements:
This press release contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995
regarding the planned offering. Words such as “anticipates,”
“estimates,” “expects,” “projects,” “forecasts,” “intends,” “plans,”
“will,” “believes” and words and terms of similar substance used in
connection with any discussion identify forward-looking statements.
These forward-looking statements are based on management’s current
expectations and beliefs about future events and are inherently
susceptible to uncertainty and changes in circumstances. Except as
required by law, Q2 is under no obligation to, and expressly disclaim
any obligation to, update or alter any forward-looking statements
whether as a result of such changes, new information, subsequent events
or otherwise. With respect to the planned offering, such uncertainties
and circumstances include whether Q2 will consummate the offering on the
anticipated terms of the notes, if at all, and the use of the net
proceeds from the offering; and whether the capped call transactions
will become effective. Various factors could also adversely affect Q2’s
operations, business or financial results in the future and cause Q2’s
actual results to differ materially from those contained in the
forward-looking statements, including those factors discussed in detail
in the “Risk Factors” sections contained in Q2’s Annual Report on Form
10-K for the year ended December 31, 2018, filed with the Securities and
Exchange Commission and available on the SEC Filings section of the
Investor Services section of Q2’s website at http://investors.q2ebanking.com/.
About Q2 Holdings, Inc.
Q2, a financial experience company headquartered in Austin, Texas,
builds stronger communities by strengthening the financial institutions
that serve them. We empower banks, credit unions and other financial
services providers to be the ever-present companion on an account
holder’s financial journey—helping our customers unlock new
opportunities, grow their businesses and improve efficiencies. To learn
more about Q2, visit www.q2ebanking.com.
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