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May 2, 2017

Qualys Announces First Quarter 2017 Financial Results

Latest Releases

Revenue Growth of 15% Year-Over-Year
Non-GAAP Normalized Revenue Growth of 18% Year-Over-Year
GAAP EPS: $0.56
Non-GAAP EPS: $0.20

REDWOOD CITY, Calif., – May 2, 2017 – Qualys, Inc. (NASDAQ: QLYS), a pioneer and leading provider of cloud-based security and compliance solutions, today announced financial results for the first quarter ended March 31, 2017. For the quarter, the Company reported revenues of $53.1 million, GAAP net income of $21.9 million, non-GAAP net income of $8.0 million, Adjusted EBITDA of $16.8 million, GAAP earnings per diluted share of $0.56 and non-GAAP earnings per diluted share of $0.20.

"We started 2017 with a strong first quarter including expanding our market opportunity with additional solutions that we introduced at the RSA Conference in February," said Philippe Courtot, chairman and CEO of Qualys. "We announced new capabilities and services, including expansion of our virtual and cloud scanning capabilities into all major elastic environments and two new solutions, File Integrity Monitoring and Indication of Compromise detection. We are confident in our long-term strategy to become the ubiquitous security and compliance platform providing enterprises, large and small, with two-second visibility across their global IT assets, helping them secure their digital transformation and consolidating multiple on-premise security and compliance solutions, resulting in significant cost savings."

First Quarter 2017 Financial Highlights

Revenues: Revenues for the first quarter of 2017 increased by 15% to $53.1 million compared to $46.2 million for the same quarter in 2016. Non-GAAP normalized for the impact of FX and the MSSP (Managed Security Service Provider) contract, revenues increased by 18% over the same quarter in 2016.

Gross Profit: GAAP gross profit for the first quarter of 2017 increased by 11% to $40.8 million compared to $36.7 million for the same quarter in 2016. GAAP gross margin percentage was 77% for the first quarter of 2017 compared to 79% for the same quarter in 2016. Non-GAAP gross profit for the first quarter of 2017 increased by 11% to $41.3 million compared to $37.1 million for the same quarter in 2016. Non-GAAP gross margin percentage was 78% for the first quarter of 2017 compared to 80% for the same quarter in 2016.

Operating Income: GAAP operating income for the first quarter of 2017 was $7.7 million compared to $7.6 million for the same quarter in 2016. Non-GAAP operating income for the first quarter of 2017 was $12.0 million compared to $12.3 million for the same quarter in 2016.

Net Income: GAAP net income for the first quarter of 2017 was $21.9 million, or $0.56 per diluted share, compared to $4.8 million, or $0.13 per diluted share, for the same quarter in 2016. Non-GAAP net income for the first quarter of 2017 was $8.0 million, or $0.20 per diluted share, compared to non-GAAP net income of $8.0 million, or $0.21 per diluted share, for the same quarter in 2016.

Adjusted EBITDA: Adjusted EBITDA (a non-GAAP financial measure) for the first quarter of 2017 increased by 4% to $16.8 million compared to $16.1 million for the same quarter in 2016. As a percentage of revenues, Adjusted EBITDA was 32% for the first quarter of 2017 compared to 35% for the same quarter in 2016.

First Quarter 2017 Business Highlights

Select New Customers:

Business Highlights:

Financial Performance Outlook

Second Quarter 2017 Guidance : Management expects revenues for the second quarter of 2017 to be in the range of $54.3 million to $55.1 million, representing 12% to 14% growth over the same quarter in 2016 or estimated 16% to 17% growth normalized for the impact of FX and the MSSP contract. GAAP net income per diluted share is expected to be in the range of $0.15 to $0.17, which assumes an effective income tax rate of 0%. Non-GAAP net income per diluted share is expected to be in the range of $0.19 to $0.21, which assumes an effective non-GAAP income tax rate of 36%. Second quarter 2017 EPS estimates are based on approximately 39.4 million weighted average diluted shares outstanding for the quarter.

Full Year 2017 Guidance : Management now expects revenues for the full year 2017 to be in the range of $225 million to $228 million, up from the previous guidance range of $224 million to $228 million. Expected growth over the full year 2016 is 14% to 15% or estimated 17% to 18% growth normalized for the impact of FX and the MSSP contract. GAAP net income per diluted share is expected to be in the range of $1.00 to $1.06, which assumes an effective income tax rate of (55%). Non-GAAP net income per diluted share is expected to be in the range of $0.81 to $0.86, which assumes an effective non-GAAP income tax rate of 36%. Full year 2017 EPS estimates are based on approximately 39.6 million weighted average diluted shares outstanding.

Investor Conference Call

Qualys will host a conference call and live webcast to discuss its first quarter 2017 financial results at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time) on Tuesday, May 2, 2017. To access the conference call, dial (877) 881-2609 in the U.S. or +1 (970) 315-0463 for international participants with conference ID # 99557940. The live webcast of Qualys' earnings conference call and investor presentation can also be accessed at https://investor.qualys.com/events.cfm . A replay of the conference call will be available through the same webcast link following the end of the call.

About Qualys, Inc.

Qualys, Inc. (NASDAQ: QLYS) is a pioneer and leading provider of cloud-based security and compliance solutions with over 9,300 customers in more than 100 countries, including a majority of each of the Forbes Global 100 and Fortune 100. The Qualys Cloud Platform and integrated suite of solutions help organizations simplify security operations and lower the cost of compliance by delivering critical security intelligence on demand and automating the full spectrum of auditing, compliance and protection for IT systems and web applications. Founded in 1999, Qualys has established strategic partnerships with leading managed service providers and consulting organizations including Accenture, BT, Cognizant Technology Solutions, Deutsche Telekom, Fujitsu, HCL Technologies, HP Enterprise, IBM, Infosys, NTT, Optiv, SecureWorks, Tata Communications, Verizon and Wipro. The company is also a founding member of the Cloud Security Alliance (CSA). For more information, please visit www.qualys.com .

Qualys, the Qualys logo and QualysGuard are proprietary trademarks of Qualys, Inc. All other products or names may be trademarks of their respective companies.

Legal Notice Regarding Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements in this press release include, but are not limited to, statements related to: the growth of our business, including adoption of our existing solutions and our new offerings to both existing and new customers; our expectations regarding the introduction of new solutions; the capabilities of our platform; the expansion of our partnerships and the related benefits of such partnerships; our strategy and our business model and our ability to execute such strategy; our guidance for revenues, GAAP EPS and non-GAAP EPS for the second quarter and full year 2017, and our expectations for the number of weighted average diluted shares outstanding and effective income tax rate for the second quarter and full year 2017. Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include our ability to continue to develop platform capabilities and solutions; the ability of our platform and solutions to perform as intended; customer acceptance and purchase of our existing solutions and new solutions; real or perceived defects, errors or vulnerabilities in our products or services; our ability to retain existing customers and generate new customers; the budgeting cycles, seasonal buying patterns and length of our sales cycle; our ability to manage costs as we increase our customer base and the number of our platform solutions; the market for cloud solutions for IT security and compliance not increasing at the rate we expect; competition from other products and services; fluctuations in currency exchange rates, unexpected fluctuations in our effective tax rate on a GAAP and non-GAAP basis, our ability to effectively manage our rapid growth and our ability to anticipate future market needs and opportunities; any unanticipated accounting charges; and general market, political, economic and business conditions in the United States as well as globally. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on February 24, 2017. The forward-looking statements in this press release are based on information available to Qualys as of the date hereof, and Qualys disclaims any obligation to update any forward-looking statements, except as required by law.

Non- GAAP Financial Measures

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Qualys monitors operating measures of non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, and non-GAAP net income per diluted share. In computing these non-GAAP financial measures, Qualys excludes the effects of stock-based compensation expense and non-recurring expenses. Qualys also monitors Adjusted EBITDA (defined as earnings before interest, taxes, depreciation, amortization, stock-based compensation, other (income) expense, net and non-recurring expenses) and free cash flow (defined as cash provided by operating activities less purchases of property and equipment, and capitalized software development costs). Estimated impact of the MSSP contract signed in Feb 2016 refers to the difference between the estimated revenue recognized under the new terms in the MSSP contract and the estimated revenue that would have been recognized without the MSSP contract, assuming an appropriate renewal rate. The percentage impact is the net benefit, only in the contract year in which it occurred. Qualys believes that these non-GAAP operating metrics help illustrate underlying trends in its business that could otherwise be masked by the effect of the income or expenses, as well as the related tax effects, that are excluded in non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and Adjusted EBITDA.

Furthermore, Qualys uses these operating measures to establish budgets and operational goals for managing its business and evaluating its performance. Qualys monitors free cash flow as a liquidity measure to provide useful information to management and investors about the amount of cash generated by the Company that, after the acquisition of property and equipment and capitalized software development costs, can be used for strategic opportunities, including investing in its business, making strategic acquisitions and strengthening the balance sheet. Qualys also believes that non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share, Adjusted EBITDA and free cash flow provide additional tools for investors to use in comparing its recurring core business operating results over multiple periods with other companies in its industry.

We have not reconciled non-GAAP net income per diluted share guidance to GAAP net income per diluted share because we do not provide guidance on the various reconciling cash and non-cash items between GAAP net income and non-GAAP net income (i.e., stock-based compensation and non-recurring expenses). The actual dollar amount of reconciling items in the second quarter and full year 2017 is likely to have a significant impact on the Company's GAAP net income per diluted share in the second quarter and full year 2017, respectively. Accordingly, a reconciliation of the non-GAAP net income per diluted share guidance to the corresponding non-GAAP net income per diluted share is not available without unreasonable effort.

In order to provide a more complete picture of recurring core operating business results, the Company's non-GAAP net income and non-GAAP net income per diluted share include tax adjustments required to achieve the effective tax rate on a non-GAAP basis, which could differ from the GAAP effective tax rate. The Company believes the non-GAAP effective tax rate, which is 36% in 2017, is a reasonable estimate under its global operating structure. The Company intends to re-evaluate the non-GAAP effective tax rate on an annual basis. However, it may adjust this rate during the year to take into account events or trends that it believes materially impact the estimated annual rate. The non-GAAP effective tax rate could be subject to change for a number of reasons, including but not limited to, significant changes resulting from tax legislation, material changes in geographic mix of revenues and expenses and other significant events.

The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of the non-GAAP financial measures discussed in this press release to the most directly comparable GAAP financial measures is included with the financial statements contained in this press release. Management uses both GAAP and non- GAAP information in evaluating and operating its business internally and as such has determined that it is important to provide this information to investors.

Qualys, Inc. Anchor

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

 

Three Months Ended

 

March 31,

 

2017

 

2016

Revenues

$

53,121

 

 

$

46,248

 

Cost of revenues (1)

12,294

 

 

9,551

 

Gross profit

40,827

 

 

36,697

 

Operating expenses:

 

 

 

Research and development  (1)

9,823

 

 

8,109

 

Sales and marketing (1)

16,014

 

 

14,167

 

General and administrative (1)

7,334

 

 

6,824

 

Total operating expenses

33,171

 

 

29,100

 

Income from operations

7,656

 

 

7,597

 

Other income (expense), net:

 

 

 

Interest expense

(2

)

 

(13

)

Interest income

481

 

 

250

 

Other expense, net

(26

)

 

(69

)

Total other income (expense), net

453

 

 

168

 

Income before income taxes

8,109

 

 

7,765

 

(Benefit from) provision for income taxes

(13,821

)

 

2,982

 

Net income

$

21,930

 

 

$

4,783

 

Net income per share:

 

 

 

Basic

$

0.60

 

 

$

0.14

 

Diluted

$

0.56

 

 

$

0.13

 

Weighted average shares used in computing net income per share:

 

 

 

Basic

36,493

 

 

34,619

 

Diluted

38,845

 

 

37,838

 

 

 

 

 

 

 

 

 

(1) Includes stock-based compensation as follows:

 

 

 

 

 

 

 

Cost of revenues

$

501

 

 

$

379

 

Research and development

1,221

 

 

1,295

 

Sales and marketing

1,084

 

 

1,249

 

General and administrative

1,526

 

 

1,774

 

Total stock-based compensation

$

4,332

 

 

$

4,697

 

Qualys, Inc. Anchor

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands)

 

Three Months Ended

 

March 31,

 

2017

 

2016

Net income

$

21,930

 

 

$

4,783

 

Available-for-sale investments:

 

 

 

Change in net unrealized gain (loss) on investments, net of tax

(62

)

 

229

 

Less: reclassification adjustment for net realized gain (loss) included in

   net income, net of tax

(8

)

 

12

 

Net change

(70

)

 

241

 

Other comprehensive income (loss), net

(70

)

 

241

 

Comprehensive income

$

21,860

 

 

$

5,024

 

Qualys, Inc. Anchor

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

March 31,

 

December 31,

 

2017

 

2016

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

109,651

 

 

$

86,737

 

Short-term investments

135,128

 

 

157,119

 

Accounts receivable, net

41,639

 

 

47,024

 

Prepaid expenses and other current assets

9,043

 

 

9,808

 

Total current assets

295,461

 

 

300,688

 

Long-term investments

63,684

 

 

45,725

 

Property and equipment, net

40,823

 

 

39,401

 

Deferred tax assets, net

37,279

 

 

16,590

 

Intangible assets, net

894

 

 

987

 

Goodwill

317

 

 

317

 

Restricted cash

1,200

 

 

1,200

 

Other noncurrent assets

1,863

 

 

2,096

 

Total assets

$

441,521

 

 

$

407,004

 

Liabilities and Stockholders’ Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

4,338

 

 

$

2,051

 

Accrued liabilities

13,338

 

 

13,317

 

Deferred revenues, current

120,044

 

 

114,964

 

Total current liabilities

137,720

 

 

130,332

 

Deferred revenues, noncurrent

18,461

 

 

15,528

 

Other noncurrent liabilities

872

 

 

2,731

 

Total liabilities

157,053

 

 

148,591

 

Stockholders’ equity:

 

 

 

Common stock

37

 

 

36

 

Additional paid-in capital

262,620

 

 

266,794

 

Accumulated other comprehensive loss

(226

)

 

(156

)

Retained earnings (accumulated deficit)

22,037

 

 

(8,261

)

Total stockholders’ equity

284,468

 

 

258,413

 

Total liabilities and stockholders’ equity

$

441,521

 

 

$

407,004

 

Qualys, Inc. Anchor

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

Three Months Ended March 31,

 

2017

 

2016

Cash flows from operating activities:

 

 

 

Net income

$

21,930

 

 

$

4,783

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization expense

4,820

 

 

3,834

 

Bad debt expense

10

 

 

80

 

Loss on disposal of property and equipment

2

 

 

 

Stock-based compensation

4,332

 

 

4,697

 

Amortization of premiums and accretion of discounts on investments

426

 

 

208

 

Excess tax benefits from stock-based compensation

 

 

(3,095

)

Deferred income taxes

(22,559

)

 

(1,086

)

Excess tax benefits included in deferred tax assets

8,368

 

 

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable

5,375

 

 

(169

)

Prepaid expenses and other assets

981

 

 

573

 

Accounts payable

255

 

 

2,026

 

Accrued liabilities

463

 

 

2,822

 

Deferred revenues

8,012

 

 

2,059

 

Other noncurrent liabilities

10

 

 

406

 

Net cash provided by operating activities

32,425

 

 

17,138

 

Cash flows from investing activities:

 

 

 

Purchases of investments

(60,201

)

 

(49,450

)

Sales and maturities of investments

63,738

 

 

52,176

 

Purchases of property and equipment

(4,543

)

 

(4,181

)

Capitalized software development costs

 

 

(118

)

Net cash used in investing activities

(1,006

)

 

(1,573

)

Cash flows from financing activities:

 

 

 

Proceeds from exercise of stock options

5,602

 

 

2,113

 

Excess tax benefits from stock-based compensation

 

 

3,095

 

Payments for taxes related to employee net share settlement of equity awards

(14,107

)

 

 

Net cash (used in) provided by financing activities

(8,505

)

 

5,208

 

Net increase in cash and cash equivalents

22,914

 

 

20,773

 

Cash and cash equivalents at beginning of period

86,737

 

 

91,698

 

Cash and cash equivalents at end of period

$

109,651

 

 

$

112,471

 

Qualys, Inc. Anchor

RECONCILIATION OF NON-GAAP DISCLOSURES

EBITDA AND ADJUSTED EBITDA

(Unaudited)

(in thousands)

 

 

Three Months Ended

 

March 31,

 

2017

 

2016

Net income

$

21,930

 

 

$

4,783

 

Depreciation and amortization of property and equipment

4,727

 

 

3,724

 

Amortization of intangible assets

93

 

 

110

 

Interest expense

2

 

 

13

 

(Benefit from) Provision for income taxes

(13,821

)

 

2,982

 

EBITDA

12,931

 

 

11,612

 

Stock-based compensation

4,332

 

 

4,697

 

Other (income) expense, net

(455

)

 

(181

)

Adjusted EBITDA

$

16,808

 

 

$

16,128

 

Qualys, Inc. Anchor

RECONCILIATION OF NON-GAAP DISCLOSURES

(Unaudited)

(in thousands, except per share data)

 

Three Months Ended

 

March 31,

 

2017

 

2016

GAAP Cost of revenues

$

12,294

 

 

$

9,551

 

Less: Stock-based compensation

(501

)

 

(379

)

Non-GAAP Cost of revenues

$

11,793

 

 

$

9,172

 

 

 

 

 

GAAP Gross profit

$

40,827

 

 

$

36,697

 

Plus: Stock-based compensation

501

 

 

379

 

Non-GAAP Gross profit

$

41,328

 

 

$

37,076

 

 

 

 

 

GAAP Research and development

$

9,823

 

 

$

8,109

 

Less: Stock-based compensation

(1,221

)

 

(1,295

)

Non-GAAP Research and development

$

8,602

 

 

$

6,814

 

 

 

 

 

GAAP Sales and marketing

$

16,014

 

 

$

14,167

 

Less: Stock-based compensation

(1,084

)

 

(1,249

)

Non-GAAP Sales and marketing

$

14,930

 

 

$

12,918

 

 

 

 

 

GAAP General and administrative

$

7,334

 

 

$

6,824

 

Less: Stock-based compensation

(1,526

)

 

(1,774

)

Non-GAAP General and administrative

$

5,808

 

 

$

5,050

 

 

 

 

 

GAAP Operating expenses

$

33,171

 

 

$

29,100

 

Less: Stock-based compensation

$

(3,831

)

 

$

(4,318

)

Non-GAAP Operating expenses

$

29,340

 

 

$

24,782

 

 

 

 

 

GAAP Income from operations

$

7,656

 

 

$

7,597

 

Plus: Stock-based compensation

4,332

 

 

4,697

 

Non-GAAP Income from operations

$

11,988

 

 

$

12,294

 

 

 

 

 

GAAP Net income

$

21,930

 

 

$

4,783

 

Plus: Stock-based compensation

4,332

 

 

4,697

 

Less: Tax adjustment

(18,300

)

 

(1,504

)

Non-GAAP Net income

$

7,962

 

 

$

7,976

 

 

 

 

 

Non-GAAP Net income per share:

 

 

 

   Basic

$

0.22

 

 

$

0.23

 

   Diluted

$

0.20

 

 

$

0.21

 

Weighted average shares used in computing non-GAAP net income per share:

 

 

 

Basic

36,493

 

 

34,619

 

Diluted

38,845

 

 

37,838

 

Qualys, Inc. Anchor

RECONCILIATION OF NON-GAAP DISCLOSURES

FREE CASH FLOWS

(Unaudited)

(in thousands)

 

Three Months Ended March 31,

 

2017

 

2016

GAAP Cash flows provided by operating activities

$

32,425

 

 

$

17,138

 

Less:

 

 

 

Purchases of property and equipment

(4,543

)

 

(4,181

)

Capitalized software development costs

 

 

(118

)

Non-GAAP Free cash flows

$

27,882

 

 

$

12,839

 

Qualys, Inc. Anchor

RECONCILIATION OF U.S. GAAP REVENUE GROWTH AND

CURRENT DEFERRED REVENUE GROWTH TO NON-GAAP NORMALIZED GROWTH

(Unaudited)

(in thousands)

Reconciliation of U.S. GAAP Revenue Growth to Non-GAAP Normalized Growth

 

Three Months Ended March 31,

 

2017

 

2016

Revenues

$

53,121

 

 

$

46,248

 

Y/Y Revenue Change as Reported Under U.S. GAAP

14.9

%

 

23.4

%

  Plus: Impact of MSSP Contract Signed in Feb 2016

2.2

%

 

(2.6

)%

  Plus: Foreign Exchange Impact

1.1

%

 

2.4

%

Normalized Revenue Growth

18.2

%

 

23.2

%

 

Three Months Ended

 

Year Ended

 

June 30, 2017

 

December 31, 2017

Revenue Guidance Range

$

54,300

 

 

$

55,100

 

 

$

225,000

 

 

$

228,000

 

Y/Y Revenue Change as Reported Under U.S. GAAP

12.0

%

 

13.7

%

 

13.7

%

 

15.2

%

  Plus: Estimated Impact of MSSP Contract Signed in Feb 2016

2.0

%

 

2.1

%

 

1.5

%

 

1.6

%

  Plus: Estimated Foreign Exchange Impact

1.5

%

 

1.5

%

 

1.4

%

 

1.5

%

Estimated Normalized Revenue Growth

15.6

%

 

17.3

%

 

16.7

%

 

18.2

%

Reconciliation of U.S. GAAP Current Deferred Revenue Growth to Non-GAAP Normalized Growth

 

Three Months Ended March 31, 2017

Current Deferred Revenue

$

120,044

 

Y/Y Current Deferred Revenue Change as Reported Under U.S. GAAP

18.2

%

  Plus: Foreign Exchange Impact

1.3

%

Normalized Current Deferred Revenue Growth

19.5

%

Investor and Media Contact:

Joo Mi Kim

Vice President, FP&A and Investor Relations

(650) 801-6100

ir@qualys.com

 

Source: Qualys

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