Qualys, Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
Qualys provides cloud-based IT security, vulnerability management and compliance subscriptions. This unaudited quarterly report covers the three and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Subscription revenue is generally recognized ratably over contract terms.
Financial performance and liquidity
Amounts are in millions of U.S. dollars except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $104.9 | $93.1 | $301.4 | $268.2 |
| Gross profit / margin | $82.5 / 78.6% | $72.5 / 77.8% | $235.7 / 78.2% | $210.2 / 78.4% |
| Operating income / margin | $32.0 / 30.5% | $26.3 / 28.3% | $58.6 / 19.5% | $72.2 / 26.9% |
| Net income | $27.8 | $22.7 | $49.1 | $67.8 |
| Diluted EPS | $0.70 | $0.56 | $1.22 | $1.66 |
| Operating cash flow | Not separately provided | Not separately provided | $160.7 | $141.3 |
| Adjusted EBITDA (non-GAAP) | $50.3 | $45.1 | $141.6 | $126.1 |
- Q3 revenue grew 12.7% year over year; nine-month revenue grew 12.4%, reflecting increased subscriptions from new and existing customers. Foreign customers accounted for $7.4 million of the Q3 revenue increase and $19.6 million of the nine-month increase.
- Q3 net income rose 22.1% year over year, while nine-month net income fell 27.5%. Nine-month operating income declined 18.8%, chiefly reflecting elevated general and administrative expense, including accelerated stock-based compensation.
- At September 30, cash and cash equivalents were $145.7 million, and marketable securities totaled $336.1 million; together these were $481.8 million. Current assets were $452.9 million and current liabilities $284.7 million. The filing reports no material borrowing debt; lease liabilities were $49.5 million in total, including current and noncurrent amounts.
- Nine-month investing cash flow was positive $19.1 million, largely due to net sales and maturities of securities, offset by $20.1 million of property and equipment purchases and the TotalCloud asset acquisition. Financing used $108.3 million, including $94.9 million of repurchases and $24.2 million of taxes on net share settlements. Cash, cash equivalents and restricted cash increased $71.6 million.
- Deferred revenue totaled $265.1 million at quarter-end. Remaining performance obligations were $248.5 million, excluding certain short-term contracts and unexercised renewals.
Changes, outlook, risks and unusual items
- Q3 gross margin improved to 78.6% from 77.8%; operating margin improved to 30.5% from 28.3%. For the nine-month period, operating margin contracted to 19.5% from 26.9%, largely due to a $27.3 million stock-compensation charge from accelerated vesting after former CEO Philippe Courtot’s March 2021 departure for health reasons. Nine-month stock-based compensation was $56.2 million versus $29.9 million a year earlier.
- Management said existing cash, securities and operating cash flows should be sufficient to fund operations for at least the next 12 months. It expects continued investment in sales and marketing, research and development, and data-center capacity; the filing provides no specific financial guidance.
- On November 3, 2021, after quarter-end, the board authorized an additional $200 million for repurchases, bringing total authorization to $700 million. Approximately $106.9 million remained under the prior authorization at September 30.
- Qualys reported no significant business disruption from COVID-19 to date but said the future effects remain uncertain. Key risks include subscription renewals and sales execution, competition and product innovation, cyber incidents, service availability across seven data centers, channel-partner reliance, international and foreign-exchange exposure, and privacy regulation.
- The company disclosed a December 2020 security incident involving an Accellion file-transfer server; attackers obtained certain information, affected customers were notified as considered required or appropriate, and response and security-enhancement costs were incurred. Management said no material loss from ongoing legal proceedings was reasonably possible as of September 30, 2021.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level, with no reported material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether subscription growth and renewals sustain the reported 12% range of revenue growth, including the contribution of foreign markets and channel partners.
- How operating margins develop as investment continues, and the extent to which stock-based compensation—particularly the CEO-related acceleration—affects comparisons and dilution.
- Cash generation, repurchase pace and remaining authorization following the post-quarter $200 million increase.
- Any subsequent developments, costs or customer effects related to the Accellion incident, and any material legal, privacy or cybersecurity exposure.
- The effects of foreign-exchange movements, interest-rate changes and COVID-19-related economic uncertainty on results and liquidity.