Qualys's (NASDAQ:QLYS) Posts Q3 Sales In Line With Estimates But Stock Drops

Radek Strnad /
2022/11/02 4:42 pm EDT

Cloud security and compliance software provider Qualys (NASDAQ:QLYS) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 19.6% year on year to $125.5 million. The company expects that next quarter's revenue would be around $130.2 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Qualys made a GAAP profit of $27.6 million, flat year on year.

Is now the time to buy Qualys? Access our full analysis of the earnings results here, it's free.

Qualys (QLYS) Q3 FY2022 Highlights:

  • Revenue: $125.5 million vs analyst estimates of $124.5 million (0.8% beat)
  • EPS (non-GAAP): $0.94 vs analyst estimates of $0.85 (11% beat)
  • Revenue guidance for Q4 2022 is $130.2 million at the midpoint, below analyst estimates of $130.6 million
  • Free cash flow of $40.9 million, up 35% from previous quarter
  • Gross Margin (GAAP): 79.2%, in line with same quarter last year

"In Q3, we delivered another quarter of strong revenue growth and 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 two years, growing from quarterly revenue of $93 million in Q3 FY2020, to $125.5 million.

Qualys Total Revenue

This quarter, Qualys's quarterly revenue was once again up 19.6% year on year. But the growth did slow down a little compared to last quarter, as Qualys increased revenue by $5.66 million in Q3, compared to $6.47 million revenue add in Q2 2022. 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 18.6% year on year to $130.2 million, improving on the 15.8% 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 17.4% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.


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 79.2% in Q3.

Qualys Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.79 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 Q3 Results

With a market capitalization of $5.35 billion Qualys is among smaller companies, but its more than $385.2 million in cash and positive free cash flow over the last twelve months give us confidence that Qualys has the resources it needs to pursue a high growth business strategy.

This was a mostly in-line quarter for Qualys, showing the company is staying on its trajectory. But the market is volatile following another interest rate hike and the stock is down 6.59% on the results and currently trades at $125 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.