Qualys, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Qualys provides cloud-based IT security, vulnerability management and compliance subscriptions, generally recognized ratably over contract terms.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $99.7 million | $88.8 million | $196.5 million | $175.1 million |
| Gross profit / margin | $78.2 million / 78% | $69.9 million / 79% | $153.2 million / 78% | $137.7 million / 79% |
| Operating income / margin | $29.4 million / 29% | $25.5 million / 29% | $26.7 million / 14% | $45.9 million / 26% |
| Net income / diluted EPS | $21.1 million / $0.53 | $26.3 million / $0.64 | $21.4 million / $0.53 | $45.0 million / $1.10 |
| Adjusted EBITDA | $46.7 million | $42.8 million | $91.3 million | $81.0 million |
Revenue grew 12.2% year over year in both Q2 and H1, driven by subscriptions from new and existing customers. Q2 operating income increased, while H1 operating income and net income declined substantially. H1 general and administrative expense rose to $53.3 million from $21.7 million, primarily reflecting $27.3 million of accelerated stock-based compensation after former CEO Philippe Courtot’s departure due to disability. The H1 income tax provision was $6.3 million versus $4.3 million; Q2’s was $8.7 million versus $0.8 million, with a 29.2% Q2 effective tax rate.
Cash flow and liquidity: H1 operating cash flow was $112.2 million, compared with $81.6 million; investing cash flow was negative $9.2 million and financing cash flow negative $79.9 million. Capital expenditures were $12.9 million. Financing outflows included $63.3 million of share repurchases and $21.0 million of taxes on net share settlement of equity awards. Cash, cash equivalents and marketable securities totaled $471.1 million at June 30, 2021, including $97.3 million cash and cash equivalents. The company said available liquidity and operating cash flow should fund operations for at least 12 months. No debt balance is reported; operating lease liabilities totaled $52.7 million.
Current and noncurrent deferred revenue totaled $256.9 million at June 30, 2021, versus $244.0 million at December 31, 2020. Remaining performance obligations were $225.7 million, excluding short-term contracts and unexercised renewals. Partners generated about 41% of H1 revenue. Foreign customers accounted for approximately 38% of H1 revenue.
Material changes and unusual items
- H1 GAAP results were significantly affected by $27.3 million in accelerated stock-based compensation tied to the former CEO’s departure. H1 total stock-based compensation was $46.8 million, compared with $19.4 million a year earlier.
- Q2 revenue increased 12.2%, while gross margin was approximately one percentage point lower than the prior-year quarter. H1 operating margin fell to 14% from 26%, mainly reflecting the unusual compensation charge.
- The board had authorized $500 million in total share repurchases. During H1 the company repurchased 585,000 shares for approximately $63.2 million; $138.6 million remained available at quarter-end. The program was scheduled to expire February 14, 2022.
- The former CEO resigned in March 2021; the current CEO received a performance-based award whose vesting depends on revenue growth and free-cash-flow-per-share growth over 2021–2023.
Outlook, risks and contingencies
The filing provides no specific financial guidance for future periods. Management expects continued investment in sales and marketing, research and development, and data-center infrastructure; it also expects these investments and related expenses to increase in absolute dollars. Management reported no significant business disruption from COVID-19 to date but said the full effects remain uncertain.
Key risks include subscription renewals and customer demand, competition and pricing pressure, long and variable sales cycles, dependence on channel partners, international and foreign-exchange exposure, scaling and service continuity at eight data centers, and cybersecurity, privacy and product-performance risks. The filing describes a December 2020 Accellion file-transfer server vulnerability through which attackers obtained certain information; Qualys notified affected customers and incurred response costs, with possible further security-related costs. The company reported no ongoing legal proceeding with a reasonably possible material loss as of June 30, 2021. It also disclosed indemnification commitments but had recorded no liability for them.
Management concluded disclosure controls were effective as of June 30, 2021 and reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Assess underlying operating trends separately from the former CEO-related stock-compensation charge, and compare GAAP results with adjusted EBITDA, which excludes stock-based compensation and other items.
- Check renewal, new-subscription and bookings trends against deferred revenue and remaining performance obligations; neither measure includes all potential future renewals.
- Monitor the effective tax rate and the timing or variability of stock-based compensation tax benefits.
- Review the scope, remediation costs and any subsequent developments related to the Accellion incident and associated customer notifications.
- Track share repurchases, cash available after capital returns, and the extent to which repurchases offset equity-award dilution.