Qualys, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Financial statements are unaudited. Qualys provides cloud-based IT security, vulnerability management and compliance subscriptions, generally recognized over subscription terms.
Financial performance
Amounts below are in millions, except per-share data and percentages.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $119.9 | $99.7 | $233.3 | $196.5 |
| Gross profit | $94.8 | $78.2 | $184.3 | $153.2 |
| Gross margin | 79% | 78% | 79% | 78% |
| Operating income | $33.0 | $29.4 | $66.5 | $26.7 |
| Net income | $26.6 | $21.1 | $52.0 | $21.4 |
| Diluted EPS | $0.67 | $0.53 | $1.31 | $0.53 |
| Operating cash flow | Not separately provided | Not separately provided | $112.9 | $112.2 |
- Q2 revenue increased 20.3% year over year; management attributed growth primarily to upsells to existing customers across IT security, compliance, web application security, asset management, container security and vulnerability management.
- Q2 operating income rose 12.4%; operating margin was approximately 27% versus 29% a year earlier. Q2 net margin was approximately 22% versus 21%.
- First-half net income increased substantially year over year, while first-half operating expenses fell 7% to $117.7 million. The comparison is affected by $27.3 million of accelerated stock-based compensation expense recorded in Q1 2021 after former CEO Philippe Courtot’s disability-related departure. First-half 2022 operating margin was approximately 29% versus 14% in 2021.
- Adjusted EBITDA, a non-GAAP measure, was $54.4 million in Q2 (45% of revenue), versus $46.7 million (47%). First-half adjusted EBITDA was $108.6 million (47%), versus $91.3 million (46%). The filing cautions that this measure excludes items and should be considered alongside GAAP results.
Cash, liquidity and capital allocation
- Cash, cash equivalents and marketable securities totaled $499.2 million at June 30, 2022, including $80.3 million held outside the U.S.; this compares with $516.5 million at year-end 2021. Current assets were $551.7 million and current liabilities $327.4 million.
- The company reported no debt. Current liabilities include $275.7 million of current deferred revenue. Total operating lease liabilities were approximately $42.9 million.
- First-half operating cash flow was $112.9 million. Investing used $14.4 million and financing used $114.8 million; cash, cash equivalents and restricted cash decreased $16.4 million.
- Financing outflows included $117.8 million of share repurchases. The board expanded the repurchase authorization to $900 million in May; approximately $354.0 million remained available at June 30. Shares outstanding were 38.5 million at quarter-end, versus 39.1 million at December 31, 2021.
- Remaining performance obligations were $270.2 million, including $81.1 million expected in the remaining six months of 2022. The amount excludes certain short-term contracts and unexercised renewals.
Outlook, risks and notable items
- Management said it expects revenue growth from new and existing customers to continue, but this filing provides no numerical revenue or earnings guidance. It believes existing liquidity and expected operating cash flow will fund operations for the next 12 months and beyond.
- Management reported no significant business disruption from COVID-19 to date and did not expect a significant impact for the remainder of 2022, while noting uncertainty remains.
- Key risks include subscription renewals and customer spending, competition and pricing pressure, scaling and availability of the cloud platform, cybersecurity incidents and product errors, channel-partner reliance, foreign-exchange exposure, international operations, and economic weakness or reduced IT spending. The company cited heightened cyber risks related to geopolitical events.
- Qualys suspended services to customers in Russia and Belarus effective March 2022; related revenue was not material for the periods disclosed.
- Foreign-exchange losses were $1.7 million in Q2 and $2.4 million for the first half, contributing to lower other income. Management said a 10% adverse currency move, after hedging, would not be material. A hypothetical 100-basis-point interest-rate increase would reduce marketable-securities fair value by $2.2 million.
- Marketable securities had $3.3 million of total unrealized losses at June 30. Management said the decline was not credit-related and it had the ability and intent to hold affected securities until recovery of amortized cost.
- No ongoing legal proceeding was assessed as having at least a reasonable possibility of a material loss as of June 30. Management concluded disclosure controls were effective; no material change in internal control over financial reporting was identified.
Most important facts for investors to verify
- Whether subscription growth, renewals and customer upsells sustain the reported 20.3% Q2 revenue growth; also monitor deferred revenue and remaining performance obligations.
- Whether operating-margin performance is repeatable as R&D and sales and marketing costs rise, and account for stock-based compensation in assessing profitability.
- How the substantial share-repurchase program affects liquidity, share count and shareholder returns relative to reinvestment needs.
- Exposure to foreign exchange, interest-rate changes, marketable-securities valuation and the cash-tax timing effects of mandatory R&D capitalization.
- Developments in cybersecurity, cloud-platform resilience, channel relationships and macroeconomic or geopolitical risks that could affect customer demand or service delivery.