Qualys, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. Qualys provides cloud-based IT security, vulnerability management and compliance subscriptions, generally recognized over subscription terms.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $96.8 million | $86.3 million; up 12.2% |
| Gross profit / margin | $75.1 million / 77.6% | $67.8 million / 78.6% |
| Operating income (loss) / margin | $(2.7) million / (2.8)% | $20.4 million / 23.7% |
| Net income / diluted EPS | $0.2 million / $0.01 | $18.7 million / $0.46 |
| Adjusted EBITDA (non-GAAP) | $44.6 million; 46% of revenue | $38.2 million; 44% of revenue |
| Operating cash flow | $57.9 million | $52.4 million |
| Cash, cash equivalents and marketable securities | $458.2 million | $454.5 million at December 31, 2020 |
At March 31, 2021, total assets were $729.9 million, total liabilities $332.8 million and stockholders’ equity $397.1 million. The filing presents no borrowing debt; finance leases are described as immaterial. Current assets were $464.1 million versus current liabilities of $259.7 million. Deferred revenue totaled $247.9 million, including $218.9 million current. Management said existing liquidity and operating cash flows should fund operations for at least the next 12 months.
Material changes and notable items
- Revenue increased $10.5 million, attributed to subscription growth from existing customers and new customers. Revenue rose in both the U.S. and foreign markets.
- Operating expenses rose $30.4 million, chiefly because general and administrative expense increased $30.9 million. This included a $27.3 million stock-compensation charge from accelerated vesting after former CEO Philippe Courtot’s March 2021 resignation due to health issues; total stock-based compensation was $38.2 million versus $10.0 million a year earlier.
- GAAP operating results and net income fell sharply despite revenue growth. Gross margin edged down, while adjusted EBITDA increased; the non-GAAP measure excludes stock-based compensation and other specified items.
- Operating cash flow rose to $57.9 million, supported by non-cash stock compensation and working-capital cash inflows, including stronger collections. Investing cash flow was $23.2 million, largely from net sales and maturities of marketable securities. Financing cash use was $46.4 million, including $31.0 million in share repurchases and $17.6 million in employee tax payments on net-settled equity awards.
- Qualys repurchased 269,000 shares for approximately $31.0 million; about $170.8 million remained authorized for repurchases at quarter-end.
Outlook, risks and contingencies
- The filing provides no specific quarterly or full-year revenue or earnings guidance. Management expects continued investment in data-center capacity, sales and marketing, research and development, and international expansion; these plans may increase expenses.
- Management reported no significant business disruption from COVID-19 to date, but said the pandemic’s future effects remain uncertain. Sales and marketing costs were affected by reduced trade-show and travel spending.
- Qualys disclosed a December 2020 security incident involving a service provider’s Accellion file-transfer server. Its investigation found that attackers obtained certain information; affected customers were notified as considered required or appropriate. The company has incurred response costs and may incur further security-related costs.
- Risks highlighted include competition and pricing pressure, subscription renewals and sales-cycle variability, dependence on channel partners (about 40% of Q1 revenue), service and data-center continuity, cybersecurity and privacy regulation, foreign-exchange exposure, and the CEO transition. The company stated that no ongoing legal proceeding had a reasonably possible material loss as of March 31, 2021.
- Management concluded disclosure controls were effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported. The quarter’s effective tax rate was 110.3%, reflecting a pretax loss and excess tax benefits related to stock compensation.
Key facts for investors to verify
- How much of the sharp GAAP earnings decline is attributable to the one-time accelerated-vesting charge, and what ongoing stock-based compensation implies for future margins and dilution.
- Whether subscription growth, renewals, deferred revenue and remaining performance obligations support continued revenue growth; remaining performance obligations were $220.9 million at quarter-end.
- Whether the Accellion incident results in additional costs, claims, customer impacts or regulatory action.
- Execution and leadership continuity following the former CEO’s departure and the appointment of Saikat Thakar as CEO in April 2021.
- Cash deployment, including ongoing repurchases, and whether strong operating cash flow persists as working-capital conditions change.