Qualys, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited U.S. GAAP results; comparisons are with the three months ended March 31, 2021. Qualys provides cloud-based IT security, vulnerability management and compliance subscriptions.
Financial performance and position
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q1 2022 | Q1 2021 | Change / context |
|---|---|---|---|
| Revenue | $113.4 | $96.8 | Up 17.2%; growth came from renewals and new customers across several solution categories. |
| Gross profit / margin | $89.4 / 78.8% | $75.1 / 77.6% | Margin improved about 1.2 percentage points. |
| Operating income (loss) / margin | $33.5 / 29.6% | ($2.7) / (2.8%) | Improvement largely reflects much lower stock-based compensation versus the prior-year period. |
| Net income / diluted EPS | $25.4 / $0.64 | $0.2 / $0.01 | Prior-year results included a $27.3 million charge for accelerated vesting of former CEO equity awards. |
| Adjusted EBITDA (non-GAAP) | $54.3 / 48% of revenue | $44.6 / 46% | Increased; the measure excludes stock-based compensation and other specified items. |
| Operating cash flow | $79.0 | $57.9 | Higher, including working-capital cash generation. |
| Capital expenditures | $7.6 | $6.3 | Primarily computer equipment. |
| Cash, cash equivalents and marketable securities | $539.5 at March 31 | $516.5 at December 31, 2021 | Includes $86.2 million of cash held outside the U.S. |
Liquidity and obligations: Current assets were $573.2 million and current liabilities were $318.5 million. The filing lists no debt; liabilities include deferred revenue and operating lease obligations. Deferred revenue totaled $298.1 million, and remaining performance obligations were $281.2 million, subject to disclosed exclusions for short-term contracts and unexercised renewals. Purchase commitments were $77.6 million.
Cash increased by $29.0 million during the quarter. Financing cash use included $46.6 million for share repurchases. The company said existing liquidity and expected operating cash flows should fund operations for the next 12 months and beyond.
Material changes versus Q1 2021
- Revenue rose $16.7 million, with increases in both U.S. and foreign markets and through direct and partner channels. Partners generated 41% of Q1 2022 revenue.
- Operating expenses fell to $55.9 million from $77.8 million, principally because Q1 2021 general and administrative expense included $27.3 million of accelerated-vesting stock compensation. Excluding that unusual charge, the comparison is substantially different.
- Research and development expense increased 30.2% to $23.1 million, primarily from personnel costs and higher investment. Sales and marketing expense increased 12.0% to $20.1 million.
- Income tax expense was $7.9 million versus a $2.4 million tax benefit. The company cited the new mandatory capitalization of R&D expenses beginning January 1, 2022, and the prior-year accelerated-vesting tax effects.
- Marketable securities had $2.3 million of net unrealized losses at March 31, 2022, versus $0.5 million of net unrealized losses at year-end. Management said the decline was not credit-loss related and it intended and was able to hold securities through recovery.
Outlook, commentary and risks
- No specific numerical revenue or earnings guidance is included in the supplied filing text. Management expects revenue growth from new and existing customers to continue and said it did not expect COVID-19 to have a significant business impact in 2022, while noting uncertainty remains.
- Qualys cited investment in research and development, global sales personnel, marketing and cloud infrastructure; these investments may increase expenses. Results may fluctuate with renewals, sales timing, customer IT spending, competition and the subscription revenue-recognition model.
- Russia and Belarus services were suspended effective March 2022 following Russia’s invasion of Ukraine and related sanctions. Revenue from those markets was not material in the periods cited.
- Key risks include cyberattacks or service outages, dependence on third-party cloud platforms and channel partners, competition and pricing pressure, foreign-exchange exposure, privacy and regulatory obligations, and the ability to renew subscriptions and attract customers. The filing also describes a 2020 security incident involving an Accellion file-transfer server.
- As of March 31, 2022, management reported no ongoing legal proceeding with a reasonably possible material loss. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
The board authorized an additional $200 million for the repurchase program on May 4, 2022, after quarter-end, increasing total authorization to $900 million. Approximately $225.2 million remained available at March 31.
Important facts for investors to verify
- How much of reported profit growth reflects underlying operating performance versus the prior-year $27.3 million accelerated-vesting expense and changes in stock-based compensation.
- Whether revenue growth, renewals, customer additions and the 41% partner-channel contribution continue in subsequent quarters.
- Cash-flow durability, including the contribution from deferred revenue, collections and other working-capital movements.
- Portfolio valuation and interest-rate exposure: management estimated a 100-basis-point rate increase would reduce marketable-securities fair value by $2.1 million.
- Execution and financial effects of the expanded share repurchase authorization, international operations and Russia/Belarus service suspension.