QUALYS, INC. This Quarterly Report on Form 10-Q, including this Management's Discussion and
Analysis of Financial Condition and Results of Operations, should be read in
conjunction with (1) our unaudited condensed consolidated financial statements
and the related notes included elsewhere in this report, and (2) the audited
consolidated financial statements and the related notes and section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report on Form 10-K for the fiscal year ended
In addition to historical information, this Quarterly Report on Form 10-Q contains "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, it is possible to identify forward-looking statements because they contain words such as "anticipates," "believes," "contemplates," "continue," "could," "estimates," "expects," "future," "intends," "likely," "may," "plans," "potential," "predicts," "projects," "seek," "should," "target," or "will," or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
• our financial performance, including our revenues, costs, expenditures,
growth rates, operating expenses and ability to generate positive cash flow
to fund our operations and sustain profitability;
• anticipated technology trends, such as the use of cloud solutions;
• our ability to adapt to changing market conditions;
• the impact of the ongoing COVID-19 pandemic and related public health
measures on our business;
• economic and financial conditions, including volatility in foreign exchange
rates;
• our ability to diversify our sources of revenues, including selling
additional solutions to our existing customers and our ability to pursue new
customers;
• the effects of increased competition in our market;
• our ability to innovate and enhance our cloud solutions and platform and
introduce new solutions;
• our ability to effectively manage our growth;
• our anticipated investments in sales and marketing, our infrastructure, new
solutions, research and development, and acquisitions;
• maintaining and expanding our relationships with channel partners;
• our ability to maintain, protect and enhance our brand and intellectual property;
• costs associated with defending intellectual property infringement and other
claims;
• our ability to attract and retain qualified employees and key personnel,
including sales and marketing personnel;
• our ability to successfully enter new markets and manage our international
expansion;
• our expectations, assumptions and conclusions related to our income tax
provision, our deferred tax assets and our effective tax rate; and
• other factors discussed in this Quarterly Report on Form 10-Q in the
sections titled "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We have based the forward-looking statements contained in this Quarterly Report
on Form 10-Q primarily on our current expectations and projections about future
events and trends that we believe may affect our business, financial condition,
results of operations and prospects. The results, events and circumstances
reflected in these forward-looking statements are subject to risks,
uncertainties, assumptions, and other factors including those described in Part
II, Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q and those
discussed in other documents we file with the
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Table of Contents Overview
We are a pioneer and leading provider of a cloud-based platform delivering information technology (IT), security and compliance solutions that enable organizations to identify security risks to their IT infrastructures, help protect their IT systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations. Our cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external IT infrastructures and web environments, the rapid adoption of cloud computing, containers and serverless IT models, and the proliferation of geographically dispersed IT assets. Our integrated suite of IT, security and compliance solutions delivered on our Qualys Cloud Platform enables our customers to identify and manage their IT assets, collect and analyze large amounts of IT security data, discover and prioritize vulnerabilities, recommend and implement remediation actions and verify the implementation of such actions. Organizations use our integrated suite of solutions to cost-effectively obtain a unified view of their IT asset inventory as well as security and compliance posture across globally-distributed IT infrastructures as our solution offers a single platform for information technology, information security, application security, endpoint, developer security and cloud teams.
We were founded and incorporated in
• IT Security: Vulnerability Management (VM), Vulnerability Management,
Detection and Response (VMDR), Threat Protection (TP), Continuous Monitoring
(CM), Patch Management (PM), Multi-Vector Endpoint Detection and Response
(EDR), Certificate Assessment (CRA), SaaS Detection and Response (SaaSDR),
Secure Enterprise Mobility (SEM);
• Compliance: Policy Compliance (PC), Security Configuration Assessment (SCA),
PCI Compliance (PCI), File Integrity Monitoring (FIM), Security Assessment
Questionnaire (SAQ), Out-of-Band Configuration Assessment (OCA);
• Web Application Security: Web Application Scanning (WAS), Web Application
Firewall (WAF);
• Asset Management: Global Asset View (GAV), Cybersecurity Asset
Management (CSAM), Certificate Inventory (CRI); and
• Cloud/Container Security: Cloud Inventory (CI), Cloud Security Assessment
(CSA), Container Security (CS).
We provide our solutions through a software-as-a-service model, primarily with renewable annual subscriptions. These subscriptions require customers to pay a fee in order to access each of our cloud solutions. We generally invoice our customers for the entire subscription amount at the start of the subscription term, and the invoiced amounts are treated as deferred revenues and are recognized ratably over the term of each subscription. We continue to experience revenue growth from our existing customers as they renew and purchase additional subscriptions, as well as from the addition of new customers to our cloud platform.
We market and sell our solutions to enterprises, government entities and small
and medium-sized businesses across a broad range of industries, including
education, financial services, government, healthcare, insurance, manufacturing,
media, retail, technology and utilities. For the three months ended
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Table of Contents Impacts of COVID-19
In
Key Components of Results of Operations
Revenues
We derive revenues from the sale of subscriptions to our IT, security and compliance solutions, which are delivered on our cloud platform. Subscriptions to our solutions allow customers to access our cloud-based IT, security and compliance solutions through a unified, web-based interface. Customers generally enter into one-year renewable subscriptions. The subscription fee entitles the customer to an unlimited number of scans for a specified number of devices or web applications and, if requested by a customer as part of their subscription, a specified number of physical or virtual scanner appliances. Our physical and virtual scanner appliances are requested by certain customers as part of their subscriptions in order to scan IT infrastructures within their firewalls and do not function without, and are not sold separately from, subscriptions for our solutions. In some cases, we also provide certain computer equipment used to extend our Qualys Cloud Platform into our customers' private cloud environment. Customers are required to return physical scanner appliances and computer equipment if they do not renew their subscriptions.
We typically invoice our customers for the entire subscription amount at the start of the subscription term. Invoiced amounts are reflected on our condensed consolidated balance sheets as accounts receivable or as cash when collected, and as deferred revenues until earned and recognized ratably over the subscription period. Accordingly, deferred revenues represent the amount billed to customers that has not yet been earned or recognized as revenues, pursuant to subscriptions entered into in current and prior periods.
Cost of Revenues
Cost of revenues consists primarily of personnel expenses, comprised of
salaries, benefits, performance-based compensation and stock-based compensation,
for employees
Operating Expenses Research and Development
Research and development expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation, for our research and development teams. Other expenses include third-party contractor fees, software and license fees, amortization of intangibles related to acquisitions and overhead allocations.
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Table of Contents Sales and Marketing
Sales and marketing expenses consist primarily of personnel expenses, comprised of salaries, benefits, sales commissions, performance-based compensation and stock-based compensation for our worldwide sales and marketing teams. Other expenses include marketing and promotional events, lead-generation marketing programs, public relations, travel, software licenses and overhead allocations. Sales commissions related to new business and upsells are capitalized as an asset. We amortize the capitalized commission cost as a selling expense on a straight-line basis over a period of five years. We expense sales commissions related to contract renewals as incurred. Our new sales personnel are typically not immediately productive, and the resulting increase in sales and marketing expenses we incur when we add new personnel may not result in increased revenues if these new sales personnel fail to become productive. The timing of our hiring of sales personnel, or the participation in new marketing events or programs, and the rate at which these generate incremental revenues, may affect our future operating results. We expect to continue to significantly invest in additional sales personnel worldwide and also in more marketing programs to support new solutions on our platform, which will increase sales and marketing expenses in absolute dollars.
General and Administrative
General and administrative expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation for our executive, finance and accounting, IT, legal and human resources teams, as well as professional services, fees, software licenses and overhead allocations. We expect that general and administrative expenses will increase in absolute dollars, as we continue to add personnel and incur professional services to support our growth and compliance with legal requirements.
Other Income (Expense), Net
Our other income (expense), net consists primarily of interest and investment
income from our short-term and long-term marketable securities and foreign
exchange gains and losses, the majority of which result from fluctuations
between the
Income Tax Provision
We are subject to federal, state and foreign income taxes for jurisdictions in
which we operate, and we use estimates in determining our income tax
provision and deferred tax assets. Earnings from our non-
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Table of Contents Results of Operations
The following table sets forth selected condensed consolidated statements of operations data for each of the periods presented as a percentage of revenues.
Three Months Ended
March 31,
2022 2021
Revenues 100 % 100 %
Cost of revenues 21 22
Gross profit 79 78
Operating expenses:
Research and development 21 18
Sales and marketing 18 19
General and administrative 11 44
Total operating expenses 50 81
Income (loss) from operations 29 (3 )
Total other income (expense), net - 1
Income (loss) before income taxes 29 (2 )
Income tax provision (benefit) 7 (2 )
Net income 22 % 0 %
Comparison of Three Months Ended
Revenues
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands, except percentages)Revenues$ 113,420 $ 96,756 $ 16,664 17.2 %
Revenues increased by
Cost of Revenues
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands, except percentages)
Cost of revenues $ 24,002 $ 21,680 $ 2,322 10.7 %
Cost of revenues increased by
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Table of Contents
Research and Development Expenses
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands, except percentages)
Research and development $ 23,107 $ 17,749 $ 5,358 30.2 %
Research and development expenses increased by
Sales and Marketing Expenses
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands, except percentages)
Sales and marketing $ 20,142 $ 17,989 $ 2,153 12.0 %
Sales and marketing expenses increased by
General and Administrative Expenses
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands, except percentages)
General and administrative $ 12,634 $ 42,043 $ (29,409 ) (69.9 )%
General and administrative expenses decreased by
Total other income (expense), net
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands, except percentages)
Total other income (expense), net
Total other income (expense), net decreased by
Income tax provision (benefit)
Three Months Ended
March 31, Change
2022 2021 $ %
(in thousands, except percentages)
Income tax provision (benefit)
23.8 % 110.3 %
Income tax provision increased by
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Table of Contents Key Non-GAAP Metric
In addition to measures of financial performance presented in our condensed consolidated financial statements, we monitor the non-GAAP key metric set forth below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies.
Adjusted EBITDA
We monitor Adjusted EBITDA, a non-GAAP financial measure, to analyze our
financial results and believe that it is useful to investors, as a supplement to
Adjusted EBITDA should not be considered in isolation from, or as a substitute
for, financial information prepared in accordance with
Adjusted EBITDA has limitations as an analytical tool and should not be
considered in isolation from or as a substitute for the measures presented in
accordance with
• Adjusted EBITDA does not reflect certain cash and non-cash charges that are
recurring;
• Adjusted EBITDA does not reflect income tax payments that reduce cash
available to us;
• Adjusted EBITDA excludes depreciation and amortization of property and
equipment and amortization of intangible assets, although these are non-cash
charges, the assets being depreciated and amortized may have to be replaced in
the future; and
• Other companies, including companies in our industry, may calculate Adjusted
EBITDA differently or not at all, which reduces its usefulness as a
comparative measure.
Because of these limitations, Adjusted EBITDA should be considered alongside
other financial performance measures, including revenues, net income, cash flows
from operating activities and our financial results presented in accordance with
Three Months Ended
March 31,
2022 2021
(in thousands)
Net income $ 25,410 $ 228 Depreciation and amortization of property and equipment 7,276 7,433 Amortization of intangible assets
1,706 1,645
Income tax provision (benefit) 7,933 (2,435 )
Stock-based compensation 11,745 38,202
Total other income (expense), net 192 (498 )
Adjusted EBITDA $ 54,262 $ 44,575
Percentage of revenues 48 % 46 %
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Table of Contents
Liquidity and Capital Resources
As of
Three Months Ended
March 31,
2022 2021
(in thousands)
Cash provided by operating activities $ 79,040 $ 57,854
Cash provided by (used in) investing activities (4,524 ) 23,175
Cash used in financing activities (45,557 ) (46,408 )
Net increase in cash, cash equivalents and restricted cash
Operating Activities
During the three months ended
Investing Activities
During the three months ended
Financing Activities
During the three months ended
We believe our existing cash and cash equivalents, marketable securities and our expected cash flow generated from operations will be sufficient to fund our operations for the next twelve months and beyond. We do not anticipate that we will need funds generated from foreign operations to fund our domestic operations. However, if we repatriate these funds, we could be subject to foreign withholding taxes.
Share Repurchases
We expect to continue to use cash to repurchase shares under our share
repurchase program authorized by our board of directors on
Purchase Commitments
Our cash requirements from purchase commitments were included in the purchase obligations disclosed in Note 8 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
As of
Recent Accounting Pronouncements
See Note 1 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
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Table of Contents Critical Accounting Estimates
There have been no material changes to our critical accounting
estimates as described in our Annual Report on Form 10-K for the fiscal year
ended
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Table of Contents
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