Cloud security and compliance software provider Qualys (NASDAQ:QLYS) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 13.1% year on year to $142 million. The company expects next quarter's revenue to be around $144.6 million, slightly below analysts' estimates. Turning to EPS, Qualys made a non-GAAP profit of $1.51 per share, improving from its profit of $0.94 per share in the same quarter last year.
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Qualys (QLYS) Q3 FY2023 Highlights:
- Revenue: $142 million vs analyst estimates of $141 million (small beat)
- EPS (non-GAAP): $1.51 vs analyst estimates of $1.13 (33.4% beat)
- Revenue Guidance for Q4 2023 is $144.6 million at the midpoint, below analyst estimates of $145.3 million
- Free Cash Flow of $90.6 million, up 80.9% from the previous quarter
- Gross Margin (GAAP): 81.2%, up from 79.3% in the same quarter last year
"In Q3, we delivered 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 $104.9 million in Q3 FY2021 to $142 million this quarter.
This quarter, Qualys's quarterly revenue was once again up 13.1% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $4.79 million in Q3 compared to $6.53 million in Q2 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Qualys is expecting revenue to grow 10.5% year on year to $144.6 million, slowing down from the 19.2% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 11.6% over the next 12 months before the earnings results announcement.
Our recent pick has been a big winner, and the stock is up more than 2,000% since the IPO a decade ago. If you didn’t buy then, you have another chance today. The business is much less risky now than it was in the years after going public. The company is a clear market leader in a huge, growing $200 billion market. Its $7 billion of revenue only scratches the surface. Its products are mission critical. Virtually no customers ever left the company. 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 81.2% in Q3.
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. 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. It's also comforting to see its gross margin remain stable, indicating that Qualys is controlling its costs and not under pressure from its competitors to lower prices.
Key Takeaways from Qualys's Q3 Results
Sporting a market capitalization of $5.58 billion, Qualys is among smaller companies, but its more than $208.7 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.
Qualys reported revenue in line with guidance and beat on EPS. On the other hand its revenue guidance for next quarter slightly missed analysts' expectations. Overall, this was a mediocre quarter for Qualys. The stock is flat after reporting and currently trades at $151.6 per share.
Qualys may have had a tough quarter, but does that actually create an opportunity to invest 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.
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The author has no position in any of the stocks mentioned in this report.