SOURCE: Qualys

Qualys

August 03, 2016 16:15 ET

Qualys Announces Second Quarter 2016 Financial Results

Revenue Growth of 21.5% Year-Over-Year; GAAP EPS: $0.09; Non-GAAP EPS: $0.20; Raises Bottom-End of Full Year Revenue, GAAP EPS and Non-GAAP EPS Guidance

REDWOOD CITY, CA--(Marketwired - Aug 3, 2016) - Qualys, Inc. (NASDAQ: QLYS), a pioneer and leading provider of cloud-based security and compliance solutions, today announced financial results for the second quarter ended June 30, 2016. For the quarter, the Company reported record revenues of $48.5 million, GAAP net income of $3.5 million, non-GAAP net income of $7.5 million, Adjusted EBITDA of $15.7 million, GAAP earnings per diluted share of $0.09 and non-GAAP earnings per diluted share of $0.20.

"We are pleased to report another solid quarter for Qualys. With another period of top line growth in excess of 20%, we are raising the bottom end of our guidance range for the year. We are also seeing tremendous adoption of our disruptive cloud agent platform," said Philippe Courtot, President and CEO of Qualys. "The Qualys Cloud Platform now consolidates ten enterprise-strength security solutions, giving customers unprecedented visibility and intelligence about all their IT assets at a lower total cost of ownership than legacy point solutions and we believe is driving significant market share gains for Qualys."

Second Quarter 2016 Financial Highlights

Revenues: Revenues for the second quarter of 2016 increased by 21.5% to $48.5 million compared to $39.9 million for the same quarter in 2015. Revenue growth was driven by a combination of sales of subscriptions to new customers, as well as subscription renewals and upsells of additional subscriptions to existing customers.

Gross Profit: GAAP gross profit for the second quarter of 2016 increased by 21% to $38.4 million compared to $31.7 million for the same quarter in 2015. GAAP gross margin percentage was 79% for the second quarter of 2016 compared to 80% in the prior year's second quarter. Non-GAAP gross profit increased by 21% to $38.8 million compared to $32.1 million in the same quarter in 2015. Non-GAAP gross margin percentage was 80% for both the second quarter of 2016 and 2015.

Operating Income: GAAP operating income for the second quarter of 2016 was $5.7 million compared to $5.3 million in the same quarter in 2015. Non-GAAP operating income for the second quarter of 2016 was $11.8 million compared to $9.7 million in the same quarter in 2015.

Net Income: GAAP net income for the second quarter of 2016 was $3.5 million, or $0.09 per diluted share, compared to $3.3 million, or $0.09 per diluted share, for the same quarter in 2015. Non-GAAP net income for the second quarter of 2016 was $7.5 million, or $0.20 per diluted share, compared to non-GAAP net income of $6.2 million, or $0.16 per diluted share, for the same quarter in 2015.

Adjusted EBITDA: Adjusted EBITDA (a non-GAAP financial measure) for the second quarter of 2016 increased by 20% to $15.7 million compared to $13.1 million for the same quarter in 2015. As a percentage of revenues, Adjusted EBITDA was 32% for the second quarter of 2016, compared to 33% for the second quarter of 2015.

Second Quarter 2016 Business Highlights

Customers:

  • New customers included: BDO, Delta Dental, Doosan Bobcat, First Data NJ, Fortinet, HCL Sweden, HP Inc, Informatica, Nordea Bank Norge, Norsk Hydro, ODEON & UCI Cinemas Group, Reinsurance Group of America, Reynolds America, WageWorks and Western & Southern Financial Group.

Recent Highlights:

  • Released Qualys ThreatPROTECT to General Availability (GA). As an extension to Qualys Vulnerability Management, ThreatPROTECT helps customers prioritize vulnerabilities based on level of threat as measured by multiple threat indicators.
  • Released Qualys Security Assessment Questionnaire (SAQ) 2.0 allowing organizations to better consolidate and orchestrate assessments of third-party business processes and vendor risk by centrally capturing all relevant information from technical and human sources, drastically reducing associated time and cost.
  • Unveiled midmarket Private Cloud Platform Appliance (PCPA). The new form-factor extends the Qualys Private Cloud Platform to medium-sized companies needing to retain data on-premise or within local geographies previously not served by Qualys.
  • Expanded Qualys Cloud-based Security and Compliance Platform to support Microsoft Azure with a new Azure-certified virtual scanner appliance allowing organizations to assess the security and compliance posture of their Azure virtual machines from the Qualys console.
  • Achieved FedRAMP Compliance for Qualys Cloud Platform, allowing federal agencies previously not served by Qualys a path to quickly adopt the Qualys Cloud Platform and integrated suite of offerings for continuous security and compliance.

Financial Performance Outlook

Third Quarter 2016 Guidance: Management expects revenues to be in the range of $50.3 million to $51.0 million. GAAP net income per diluted share is expected to be in the range of $0.08 to $0.10, which assumes an effective income tax rate of 38%. Non-GAAP net income per diluted share is expected to be in the range of $0.17 to $0.19, which assumes an effective non-GAAP income tax rate of 36%. Third quarter 2016 EPS estimates are based on approximately 38.8 million weighted average diluted shares outstanding for the quarter.

Full Year 2016 Guidance: Management now expects revenues to be in the range of $197.1 million to $198.6 million, up from the previous range of $195.6 million and $198.6 million. GAAP net income per diluted share is expected to be in the range of $0.37 to $0.41, which assumes an effective income tax rate of 38%. This is an increase from our previous GAAP net income guidance range of $0.36 to $0.41 per share, which assumed an effective income tax rate of 37%. Non-GAAP net income per diluted share is expected to be in the range of $0.75 to $0.79, which assumes an effective non-GAAP income tax rate of 36%. This is an increase from our previous non-GAAP net income guidance range of $0.74 to $0.79 per share, which assumed an effective non-GAAP income tax rate of 36%. Full year 2016 EPS estimates are based on approximately 38.9 million weighted average diluted shares outstanding.

Investor Conference Call

Qualys will host a conference call and live webcast to discuss its second quarter 2016 financial results today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). To access the conference call, dial (877) 881-2609 in the U.S. or +1 (970) 315-0463 for international participants with conference ID # 47445539. The live webcast of Qualys' earnings conference call can also be accessed at investor.qualys.com. 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 8,800 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, SecureWorks, Fujitsu, HCL Comnet, Infosys, NTT, Optiv, 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 renewals and market share gains, adoption of our existing solutions and our new offerings to both existing and new customers; the capabilities of our platform; the expansion of our certifications and partnerships and the related benefits of such certifications and partnerships; our strategy and our business model, the scalability of our strategy, and ability to execute such strategy; our guidance for revenues, GAAP EPS and non-GAAP EPS for the third quarter and full year 2016, and our expectations for the number of weighted average diluted shares outstanding and effective income tax rate for the third quarter and full year 2016. 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, filed with the Securities and Exchange Commission on May 5, 2016. 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). 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 our 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. Non-GAAP net income per diluted share for the quarter ended June 30, 2016 excludes approximately $0.7 million of non-recurring expenses related to the remittance of payroll taxes from year 2013 through May 2016. During this same period, the Company has not excluded amounts related to other non-recurring items from non-GAAP net income per diluted share because the Company has considered such amounts to be immaterial in any given quarter during such period.

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 third quarter and second half of 2016 is likely to have a significant impact on the Company's GAAP net income per diluted share in the third quarter and full year 2016, 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.

Beginning in 2015, due to the recognition of deferred tax assets in 2014 and 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 2016, 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.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)  
(in thousands, except per share data)  
   
  Three Months Ended     Six Months Ended  
  June 30,     June 30,  
  2016     2015     2016     2015  
Revenues $ 48,466     $ 39,877     $ 94,714     $ 77,370  
Cost of revenues (1)   10,092       8,157       19,508       16,121  
  Gross profit   38,374       31,720       75,206       61,249  
Operating expenses:                              
  Research and development (1)   9,143       7,205       16,977       14,355  
  Sales and marketing (1)   14,451       12,776       28,384       24,219  
  General and administrative (1)   9,068       6,427       16,536       12,443  
    Total operating expenses   32,662       26,408       61,897       51,017  
Income from operations   5,712       5,312       13,309       10,232  
Other income (expense), net:                              
  Interest expense   (1 )     (4 )     (14 )     (4 )
  Interest income   290       132       540       233  
  Other expense, net   (249 )     --       (318 )     (178 )
    Total other income (expense), net   40       128       208       51  
Income before income taxes   5,752       5,440       13,517       10,283  
Provision for income taxes   2,214       2,124       5,196       3,965  
Net income $ 3,538     $ 3,316     $ 8,321     $ 6,318  
Net income per share:                              
  Basic $ 0.10     $ 0.10     $ 0.24     $ 0.19  
  Diluted $ 0.09     $ 0.09     $ 0.22     $ 0.16  
Weighted average shares used in computing net income per share:                              
Basic   35,120       34,003       34,869       33,889  
Diluted   38,143       38,475       37,988       38,363  
                               
                               
(1) Includes stock-based compensation as follows:                              
                               
  Cost of revenues $ 423     $ 344     $ 802     $ 672  
  Research and development   1,493       1,138       2,788       2,290  
  Sales and marketing   1,389       980       2,638       1,791  
  General and administrative   2,017       1,920       3,791       3,504  
    Total stock-based compensation $ 5,322     $ 4,382     $ 10,019     $ 8,257  
                                   
                                   
 
Qualys, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)
 
  Three Months Ended     Six Months Ended
  June 30,     June 30,
  2016   2015     2016   2015
Net income $ 3,538   $ 3,316     $ 8,321   $ 6,318
  Available-for-sale investments:                        
    Change in net unrealized gain (loss) on investments, net of tax   80     (8 )     273     16
    Less: reclassification adjustment for net realized gain (loss) included in net income   2     --       50     1
    Net change, net of tax   82     (8 )     323     17
      Other comprehensive income, net   82     (8 )     323     17
Comprehensive income $ 3,620   $ 3,308     $ 8,644   $ 6,335
                         
                         
   
Qualys, Inc.  
CONDENSED CONSOLIDATED BALANCE SHEETS  
(Unaudited)  
(in thousands)  
   
  June 30, 2016     December 31, 2015  
Assets              
Current assets:              
  Cash and cash equivalents $ 118,194     $ 91,698  
  Short-term investments   96,186       87,268  
  Accounts receivable, net   40,387       42,325  
  Prepaid expenses and other current assets   7,635       7,945  
    Total current assets   262,402       229,236  
Long-term investments   46,534       43,277  
Property and equipment, net   40,025       31,329  
Deferred tax assets, net   16,123       16,079  
Intangible assets, net   1,174       1,360  
Goodwill   317       317  
Other noncurrent assets   2,276       1,916  
    Total assets $ 368,851     $ 323,514  
Liabilities and Stockholders' Equity              
Current liabilities:              
  Accounts payable $ 5,853     $ 2,368  
  Accrued liabilities   16,851       11,786  
  Deferred revenues, current   103,753       98,025  
    Total current liabilities   126,457       112,179  
Deferred revenues, noncurrent   13,073       14,564  
Other noncurrent liabilities   1,884       1,205  
    Total liabilities   141,414       127,948  
Stockholders' equity:              
  Common stock   35       34  
  Additional paid-in capital   246,454       223,228  
  Accumulated other comprehensive income (loss)   112       (211 )
  Accumulated deficit   (19,164 )     (27,485 )
    Total stockholders' equity   227,437       195,566  
    Total liabilities and stockholders' equity $ 368,851     $ 323,514  
                   
                   
   
Qualys, Inc.  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Unaudited)  
(in thousands)  
   
  Six Months Ended  
  June 30,  
  2016     2015  
Cash flows from operating activities:              
  Net income $ 8,321     $ 6,318  
  Adjustments to reconcile net income to net cash provided by operating activities:              
    Depreciation and amortization expense   7,828       6,586  
    Bad debt expense   106       333  
    Loss on disposal of property and equipment   39       4  
    Stock-based compensation   10,019       8,257  
    Amortization of premiums and accretion of discounts on investments   390       324  
    Excess tax benefits from stock-based compensation   (3,713 )     (191 )
    Deferred income taxes   (85 )     3,064  
    Changes in operating assets and liabilities:              
      Accounts receivable   1,833       (1,892 )
      Prepaid expenses and other assets   (83 )     (534 )
      Accounts payable   (2 )     (4,619 )
      Accrued liabilities   4,886       1,846  
      Deferred revenues   4,237       5,911  
      Other noncurrent liabilities   685       143  
        Net cash provided by operating activities   34,461       25,550  
Cash flows from investing activities:              
  Purchases of investments   (87,364 )     (61,442 )
  Sales and maturities of investments   75,156       48,214  
  Purchases of property and equipment   (8,966 )     (10,407 )
  Capitalized software development costs   --       (99 )
        Net cash used in investing activities   (21,174 )     (23,734 )
Cash flows from financing activities:              
  Proceeds from exercise of stock options   9,496       5,547  
  Excess tax benefits from stock-based compensation   3,713       191  
        Net cash provided by financing activities   13,209       5,738  
Net increase in cash and cash equivalents   26,496       7,554  
Cash and cash equivalents at beginning of period   91,698       76,504  
Cash and cash equivalents at end of period $ 118,194     $ 84,058  
Non-cash investing and financing activities:              
  Vesting of early exercised common stock options $ --     $ 11  
  Purchases of property and equipment included in accrued liabilities and accounts payable $ 7,389     $ --  
                 
                 
   
Qualys, Inc.  
RECONCILIATION OF NON-GAAP DISCLOSURES  
EBITDA AND ADJUSTED EBITDA  
(Unaudited)  
(in thousands)  
   
  Three Months Ended     Six Months Ended  
  June 30,     June 30,  
  2016     2015     2016     2015  
Net income $ 3,538     $ 3,316     $ 8,321     $ 6,318  
  Depreciation and amortization of property and equipment   3,885       3,306       7,609       6,390  
  Amortization of intangible assets   109       98       219       196  
  Interest expense   1       4       14       4  
  Provision for income taxes   2,214       2,124       5,196       3,965  
EBITDA   9,747       8,848       21,359       16,873  
  Stock-based compensation   5,322       4,382       10,019       8,257  
  Other (income) expense, net   (41 )     (132 )     (222 )     (55 )
  One-time tax related expense   716       --       716       --  
Adjusted EBITDA $ 15,744     $ 13,098     $ 31,872     $ 25,075  
                               
                               
   
Qualys, Inc.  
RECONCILIATION OF NON-GAAP DISCLOSURES  
(Unaudited)  
(in thousands, except per share data)  
   
  Three Months Ended     Six Months Ended  
  June 30,     June 30,  
  2016     2015     2016     2015  
GAAP Cost of revenues $ 10,092     $ 8,157     $ 19,508     $ 16,121  
  Less: Stock-based compensation   (423 )     (344 )     (802 )     (672 )
Non-GAAP Cost of revenues $ 9,669     $ 7,813     $ 18,706     $ 15,449  
                               
GAAP Gross profit $ 38,374     $ 31,720     $ 75,206     $ 61,249  
  Plus: Stock-based compensation   423       344       802       672  
Non-GAAP Gross profit $ 38,797     $ 32,064     $ 76,008     $ 61,921  
                               
GAAP Research and development $ 9,143     $ 7,205     $ 16,977     $ 14,355  
  Less: Stock-based compensation   (1,493 )     (1,138 )     (2,788 )     (2,290 )
Non-GAAP Research and development $ 7,650     $ 6,067     $ 14,189     $ 12,065  
                               
GAAP Sales and marketing $ 14,451     $ 12,776     $ 28,384     $ 24,219  
  Less: Stock-based compensation   (1,389 )     (980 )     (2,638 )     (1,791 )
Non-GAAP Sales and marketing $ 13,062     $ 11,796     $ 25,746     $ 22,428  
                               
GAAP General and administrative $ 9,068     $ 6,427     $ 16,536     $ 12,443  
  Less: Stock-based compensation   (2,017 )     (1,920 )     (3,791 )     (3,504 )
  Less: One-time tax related expense   (716 )     --       (716 )     --  
Non-GAAP General and administrative $ 6,335     $ 4,507     $ 12,029     $ 8,939  
                               
GAAP Operating expenses $ 32,662     $ 26,408     $ 61,897     $ 51,017  
  Less: Stock-based compensation   (4,899 )     (4,038 )     (9,217 )     (7,585 )
  Less: One-time tax related expense   (716 )     --       (716 )     --  
Non-GAAP Operating expenses $ 27,047     $ 22,370     $ 51,964     $ 43,432  
                               
GAAP Income from operations $ 5,712     $ 5,312     $ 13,309     $ 10,232  
  Plus: Stock-based compensation   5,322       4,382       10,019       8,257  
  Plus: One-time tax related expense   716       --       716       --  
Non-GAAP Income from operations $ 11,750     $ 9,694     $ 24,044     $ 18,489  
                               
GAAP Net income $ 3,538     $ 3,316     $ 8,321     $ 6,318  
  Plus: Stock-based compensation   5,322       4,382       10,019       8,257  
  Plus: One-time tax related expense   716       --       716       --  
  Less: Tax adjustment   (2,030 )     (1,452 )     (3,535 )     (2,784 )
Non-GAAP Net income $ 7,546     $ 6,246     $ 15,521     $ 11,791  
Non-GAAP Net income per share:                              
  Basic $ 0.21     $ 0.18     $ 0.45     $ 0.35  
  Diluted $ 0.20     $ 0.16     $ 0.41     $ 0.31  
Weighted average shares used in computing non-GAAP net income per share:                              
  Basic   35,120       34,003       34,869       33,889  
  Diluted   38,143       38,475       37,988       38,363  
                                 
                                 
   
Qualys, Inc.  
RECONCILIATON OF NON-GAAP DISCLOSURES  
FREE CASH FLOWS  
(Unaudited)  
(in thousands)  
   
  Six Months Ended  
  June 30,  
  2016     2015  
GAAP Cash flows provided by operating activities $ 34,461     $ 25,550  
  Less:              
  Purchases of property and equipment   (8,966 )     (10,407 )
  Capitalized software development costs   --       (99 )
Non-GAAP Free cash flows $ 25,495     $ 15,044  
               

Contact Information

  • Investor Contact:
    Joo Mi Kim
    Vice President, FP&A and Investor Relations
    (650) 801-6100
    ir@qualys.com

    Media Contact:
    David Conner
    Qualys, Inc.
    dconner@qualys.com
    (650) 801-6196