Qualys, Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed February 22, 2021. This is an annual report, not a standalone fourth-quarter filing. Qualys provides cloud-based IT security, vulnerability management, and compliance subscriptions. It reported more than 19,000 customers in over 130 countries.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $363.0 million | $321.6 million | +13% |
| Gross profit / margin | $283.7 million / 78% | $252.1 million / 78% | Margin unchanged |
| Operating income / margin | $96.7 million / 27% | $72.3 million / 22% | +34% |
| Net income / diluted EPS | $91.6 million / $2.24 | $69.3 million / $1.68 | +32% / +33% |
| Adjusted EBITDA / margin | $169.5 million / 47% | $138.3 million / 43% | +23% |
| Operating cash flow | $180.1 million | $160.6 million | +12% |
FY2020 revenue growth reflected $31.0 million of growth from existing customers and $10.4 million from customers added during the year. Foreign-customer revenue grew 15%; U.S. revenue grew 12%. Adjusted EBITDA is a non-GAAP measure; the company cautions that it should be considered alongside GAAP results and cash flows.
Q4 2020, unaudited: Revenue was $94.8 million versus $84.7 million in Q4 2019; operating income was $24.4 million versus $19.5 million; net income was $23.8 million versus $20.7 million; diluted EPS was $0.59 versus $0.50.
Liquidity, cash flow, and capital
- Cash, cash equivalents, and marketable securities totaled $454.5 million at year-end, including $30.7 million held outside the United States. Cash and short-term marketable securities were $356.0 million.
- Cash from operations was $180.1 million. Investing used $80.9 million, including $30.0 million of property and equipment purchases; financing used $112.6 million, primarily reflecting $126.7 million of share repurchases.
- Cash, cash equivalents, and restricted cash decreased $13.4 million during the year. Management said liquidity and operating cash flow should fund operations for at least 12 months.
- No borrowings or other conventional debt are identified in the presented balance sheet. Operating lease liabilities totaled $57.4 million; contractual operating lease and purchase obligations totaled $108.8 million.
- Deferred revenue was $244.0 million ($213.5 million current), up from $213.1 million combined in 2019. Remaining performance obligations were $210.8 million, with $103.2 million expected to be recognized in 2021; this excludes certain short-term contracts and unexercised renewals.
- Expected 2021 capital expenditures: $30 million to $35 million. The board increased the repurchase authorization to $500 million in February 2021; the program is discretionary and may be suspended or terminated.
Material changes and management commentary
- Operating margin improved from 22% to 27%, with operating expenses falling from 56% to 51% of revenue. Sales and marketing expense declined 4%, largely due to lower event and travel costs during COVID-19; R&D expense rose 6%, and G&A rose 14%, including higher legal and compliance costs.
- Interest income declined, contributing to lower other income. Stock-based compensation increased to $40.0 million from $34.9 million. A June 2020 modification of certain performance awards resulted in $7.5 million of expected incremental expense, of which $0.9 million was recognized in 2020.
- The company introduced VMDR and EDR in 2020 and acquired Spell Security assets for $1.5 million to expand EDR capabilities.
- Management said COVID-19 had not caused significant business disruption and was not expected to have a significant business impact in 2021, while emphasizing substantial uncertainty. Employees shifted to remote work; travel and events were curtailed.
- In February 2021, the company announced CEO Philippe Courtot was taking medical leave and President and Chief Product Officer Sumedh Thakar had become interim CEO.
- Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor concluded controls were effective at December 31, 2020. The auditor identified stock-based-compensation tax effects as a critical audit matter.
Risks, contingencies, and unusual items
- Key risks include cybersecurity incidents or service interruptions, failure to detect vulnerabilities, competition and pricing pressure, customer renewals and spending, dependence on channel partners (42% of FY2020 revenue), and reliance on third-party data centers and vendors.
- COVID-19, macroeconomic weakness, international operations and currency movements, privacy regulation, and the ability to innovate and scale the platform could adversely affect results. Approximately 21% of revenue and 28% of expenses were in foreign currencies in 2020; the company uses currency forwards to hedge exposures.
- No material loss from ongoing legal proceedings was considered reasonably possible at year-end. The company noted litigation outcomes are inherently uncertain. It also recorded a $11.2 million valuation allowance against certain deferred tax assets.
- Repurchases reduced cash and retained earnings; the company repurchased 352,000 shares in Q4 for approximately $34.4 million, at an average $98.18 in October, $91.86 in November, and $106.27 in December. No cash dividends are planned for the foreseeable future.
Most important facts for investors to verify
- Whether revenue growth, renewals, customer expansion, and the $210.8 million of remaining performance obligations convert into sustained future growth.
- Whether improved operating margins persist as Qualys increases investment in R&D, sales, infrastructure, and data centers; assess stock-based compensation and the non-GAAP adjustments in Adjusted EBITDA.
- How customer demand, collections, and operating costs evolve after the pandemic-related changes to travel, events, and work arrangements.
- Leadership continuity following the CEO’s medical leave, and progress integrating newer products and acquired technology.
- Capital allocation: planned capital expenditures, continued repurchases, and the impact of lease commitments; confirm the filing’s debt and liquidity disclosures against subsequent filings.