Cloud security and compliance software provider Qualys (NASDAQ:QLYS) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 19.2% year on year to $130.8 million. However, guidance for the next quarter was less impressive, coming in at $130.6 million at the midpoint, being 1.81% below analyst estimates. Qualys made a GAAP profit of $28.3 million, improving on its profit of $21.8 million, in the same quarter last year.
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Qualys (QLYS) Q4 FY2022 Highlights:
- Revenue: $130.8 million vs analyst estimates of $130.1 million (small beat)
- EPS (non-GAAP): $1.01 vs analyst estimates of $0.90 (12% beat)
- Revenue guidance for Q1 2023 is $130.6 million at the midpoint, below analyst estimates of $133 million
- Management's revenue guidance for upcoming financial year 2023 is $555 million at the midpoint, missing analyst estimates by 1.86% and predicting 13.3% growth (vs 19.1% in FY2022)
- Free cash flow of $3.01 million, down 92.6% from previous quarter
- Gross Margin (GAAP): 78.8%, in line with same quarter last year
"We are pleased to report another quarter of strong revenue growth, profitability, 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 $94.8 million in Q4 FY2020, to $130.8 million.
This quarter, Qualys's quarterly revenue was once again up 19.2% year on year. Looking at the last couple of quarters, we can see that revenue increased by $5.29 million in Q4, which was a bit less than the $5.67 million revenue add in Q3 2022. This steady quarter-on-quarter growth shows the company is able to more or less maintain its paced growth trajectory.
Guidance for the next quarter indicates Qualys is expecting revenue to grow 15.1% year on year to $130.6 million, slowing down from the 17.2% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $555 million at the midpoint, growing 13.3% compared to 19.1% increase in FY2022.
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.
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 Q4.
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 Q4 Results
With a market capitalization of $4.67 billion Qualys is among smaller companies, but its more than $321.3 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.
We struggled to find many strong positives in these results. It was unfortunate to see that Qualys's revenue guidance for the full year missed analysts' expectations and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is down 0.63% on the results and currently trades at $121.5 per share.
Qualys may have had a tough quarter, but does that actually create an opportunity to invest 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.