Cloud security and compliance software provider Qualys (NASDAQ:QLYS) reported Q2 FY2023 results topping analysts' expectations, with revenue up 14.4% year on year to $137.2 million. The company also expects next quarter's revenue to be around $141 million, roughly in line with analysts' estimates. Qualys made a GAAP profit of $35.4 million, improving from its profit of $26.6 million in the same quarter last year.
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Qualys (QLYS) Q2 FY2023 Highlights:
- Revenue: $137.2 million vs analyst estimates of $135.8 million (1.05% beat)
- EPS (non-GAAP): $1.27 vs analyst estimates of $1.02 (25% beat)
- Revenue Guidance for Q3 2023 is $141 million at the midpoint, roughly in line with what analysts were expecting
- The company reconfirmed revenue guidance for the full year of $554 million at the midpoint
- Free Cash Flow of $50.1 million, down 20.2% from the previous quarter
- Gross Margin (GAAP): 80.6%, up from 79.1% in the same quarter last year
"We're pleased to report another quarter of healthy revenue growth, strong profitability and cash-flow generation," said Sumedh Thakar, Qualys' 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.
As you can see below, Qualys's revenue growth has been mediocre over the last two years, growing from $99.7 million in Q2 FY2021 to $137.2 million this quarter.
This quarter, Qualys's quarterly revenue was once again up 14.4% year on year. On top of that, its revenue increased $6.53 million quarter on quarter, a strong improvement from the $166 thousand decrease in Q1 2023. This is a sign of acceleration of growth and very nice to see indeed.
Next quarter's guidance suggests that Qualys is expecting revenue to grow 12.3% year on year to $141 million, slowing down from the 19.7% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 12% over the next 12 months.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. 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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 80.6% in Q2.
That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, sales and marketing, and general administrative overhead. Significantly up from the last quarter, Qualys's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.
Key Takeaways from Qualys's Q2 Results
Sporting a market capitalization of $4.99 billion, Qualys is among smaller companies, but its more than $349.3 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
It was good to see Qualys improve its gross margin this quarter, even if just slightly. We were also happy that its revenue growth outperformed Wall Street's expectations, even if just narrowly. Zooming out, we think this was a decent quarter, showing that the company is staying on target. The stock is up 8% on the results and currently trades at $149 per share.
So should you invest in Qualys right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research 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 50% 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 in this report.