Cloud security and compliance software provider Qualys (NASDAQ:QLYS) reported results in line with analyst expectations in Q1 FY2022 quarter, with revenue up 17.2% year on year to $113.4 million. The company expects that next quarter's revenue would be around $117.4 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Qualys made a GAAP profit of $25.4 million, improving on its profit of $228 thousand, in the same quarter last year.
Is now the time to buy Qualys? Access our full analysis of the earnings results here, it's free.
Qualys (QLYS) Q1 FY2022 Highlights:
- Revenue: $113.4 million vs analyst estimates of $112.9 million (small beat)
- EPS (non-GAAP): $0.89 vs analyst estimates of $0.80 (11.7% beat)
- Revenue guidance for Q2 2022 is $117.4 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed revenue guidance for the full year, at $485.2 million at the midpoint
- Free cash flow of $71.4 million, up 100% from previous quarter
- Gross Margin (GAAP): 78.8%, up from 77.5% same quarter last year
"We had a great start to the year with continued revenue growth acceleration and strong cash flow generation," said Sumedh Thakar, president and CEO.
Founded in 1999 as one of the first subscription security companies, Qualys (NASDAQ:QLYS) provides organizations with software to assess their exposure to cyber-attacks.
The demand for cybersecurity is growing as more and more businesses are moving their data and processes into the cloud, which along with a major increase in employees working remotely, has increased their exposure to attacks and malware. Additionally, the growing array of corporate IT systems, applications and internet connected devices has increased the complexity of network security, all of which has substantially increased the demand for software meant to protect data breaches.
Sales Growth
As you can see below, Qualys's revenue growth has been mediocre over the last year, growing from quarterly revenue of $96.7 million, to $113.4 million.
This quarter, Qualys's quarterly revenue was once again up 17.2% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $3.64 million in Q1, compared to $4.84 million in Q4 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates Qualys is expecting revenue to grow 17.7% year on year to $117.4 million, improving on the 12.2% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 17.6% over the next twelve months.
There are others doing even better than Qualys. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Qualys's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 78.8% in Q1.
That means that for every $1 in revenue the company had $0.78 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a good gross margin that allows companies like Qualys to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that Qualys is doing a good job controlling costs and is not under pressure from competition to lower prices.
Key Takeaways from Qualys's Q1 Results
With a market capitalization of $5.23 billion Qualys is among smaller companies, but its more than $457.1 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
We struggled to find many strong positives in these results. On the other hand, revenue growth is overall a bit slower these days. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But the market was likely expecting more and the company is down 2.61% on the results and currently trades at $135 per share.
Should you invest in Qualys right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned.