Qualys(QLYS) - 2024 Q2 - Quarterly Report

markdown [Risk Factor Summary](index=3&type=section&id=Risk%20Factor%20Summary) - This section summarizes the principal risks and uncertainties facing the company, including variability in operating results, market changes, platform scalability, subscription renewals, and potential security incidents[5](index=5&type=chunk)[6](index=6&type=chunk) [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents Qualys, Inc.'s unaudited condensed consolidated financial statements as of June 30, 2024, including balance sheets, operations, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to $876.6 million, driven by cash and marketable securities; equity rose to $427.8 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $281,205 | $203,665 | | Accounts receivable, net | $109,584 | $146,226 | | Total current assets | $534,059 | $599,998 | | Total assets | $876,600 | $812,618 | | **Liabilities & Equity** | | | | Deferred revenues, current | $324,334 | $333,267 | | Total liabilities | $448,805 | $444,444 | | Total stockholders' equity | $427,795 | $368,174 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue, net income, and diluted EPS increased year-over-year for both three and six-month periods ended June 30, 2024 Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $148,708 | $137,209 | $294,513 | $267,892 | | Gross Profit | $122,293 | $110,547 | $240,900 | $214,276 | | Income from Operations | $48,068 | $42,827 | $92,829 | $78,005 | | Net Income | $43,772 | $35,382 | $83,503 | $64,487 | | Diluted EPS | $1.17 | $0.95 | $2.22 | $1.72 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations increased to $135.3 million, with $53.0 million used for share repurchases, significantly boosting cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $135,329 | $118,328 | | Net cash provided by investing activities | $3,361 | $2,273 | | Net cash used in financing activities | ($62,650) | ($108,175) | | **Net increase in cash, cash equivalents and restricted cash** | **$76,040** | **$12,426** | - Key uses of cash in financing activities for the first six months of 2024 included **$53.0 million** for the repurchase of common stock and **$17.7 million** for taxes related to net share settlement of equity awards[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes cover accounting policies, revenue recognition, fair value, stock-based compensation, income taxes, and segment information Revenue by Sales Channel (in thousands) | Channel | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Direct | $80,303 | $160,429 | | Partner | $68,405 | $134,084 | | **Total** | **$148,708** | **$294,513** | Revenue by Geographic Area (in thousands) | Geography | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | United States | $86,940 | $173,376 | | Foreign | $61,768 | $121,137 | | **Total** | **$148,708** | **$294,513** | - As of June 30, 2024, the company had approximately **$230.7 million** remaining available for share repurchases under its authorized program. During the first six months of 2024, **337 thousand shares** were repurchased for approximately **$53.0 million**[79](index=79&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 and H1 2024 financial results, highlighting revenue growth, cost analysis, key metrics, and liquidity [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q2 2024 revenue grew 8% to $148.7 million, and H1 2024 grew 10% to $294.5 million, primarily from existing customers Revenue Growth Analysis (Q2 2024 vs Q2 2023) | Metric | Amount (in millions) | Change (%) | | :--- | :--- | :--- | | Q2 2024 Revenue | $148.7 | 8% | | Q2 2023 Revenue | $137.2 | - | - For the three months ended June 30, 2024, **94%** of the **$11.5 million** revenue increase came from customers existing prior to the quarter. Sales through partners accounted for **87%** of this increase[110](index=110&type=chunk) - Sales and marketing expenses increased by **$5.9 million (23%)** in Q2 2024 compared to Q2 2023, primarily due to a **$3.7 million** increase in personnel costs from higher headcount and a **$1.3 million** increase in marketing expenses for trade shows[117](index=117&type=chunk) [Key Operating and Non-GAAP Financial Performance Metrics](index=36&type=section&id=Key%20Operating%20and%20Non-GAAP%20Financial%20Performance%20Metrics) Key metrics include Net Dollar Expansion Rate at 102% and Adjusted EBITDA, which increased with a strong 47% margin - The Net Dollar Expansion Rate, a measure of growth from existing customers, was **102%** as of June 30, 2024, compared to **108%** as of June 30, 2023[127](index=127&type=chunk) Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $43,772 | $35,382 | $83,503 | $64,487 | | Adjusted EBITDA | $69,934 | $65,834 | $138,965 | $124,489 | | Adjusted EBITDA Margin | 47% | 48% | 47% | 46% | [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity totaled $555.3 million in cash and marketable securities, with $135.3 million from operations, sufficient for future funding - Principal sources of liquidity as of June 30, 2024, totaled **$555.3 million**, consisting of cash, cash equivalents, and marketable securities[132](index=132&type=chunk) - During the first six months of 2024, the company used **$53.0 million** for share repurchases and had **$230.7 million** remaining available under the share repurchase program as of June 30, 2024[134](index=134&type=chunk)[140](index=140&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from foreign currency fluctuations (EUR, GBP, INR, CAD) and interest rate changes, mitigated by forward contracts - The company uses foreign currency forward contracts to hedge against fluctuations in the EUR, GBP, INR, and CAD. As of June 30, 2024, it held designated cash flow hedge contracts with notional amounts of **€45.3 million**, **£16.9 million**, and **Rs.4,138.0 million**[145](index=145&type=chunk) - Interest rate risk is related to the company's **$555.3 million** in cash, cash equivalents, and marketable securities. A hypothetical **100 basis point** increase in interest rates would not materially decrease the fair value of its marketable securities[146](index=146&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective[147](index=147&type=chunk) - No material changes to the internal control over financial reporting occurred during the quarter ended June 30, 2024[148](index=148&type=chunk) [PART II – OTHER INFORMATION](index=38&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any legal proceedings expected to materially impact its financial position, results, or cash flows - As of June 30, 2024, the company has determined there is not a reasonable possibility of incurring a material loss from any ongoing legal proceedings[149](index=149&type=chunk) [Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) Details significant risks to the company's business, operations, and financial condition, categorized into business, IP, regulatory, and common stock risks [Risks Related to Business and Industry](index=38&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Key business risks include variable operating results, intense competition, market innovation needs, cloud platform reliance, sales cycles, security incidents, and channel partner dependence - The IT, security, and compliance market is highly competitive, with rivals including Broadcom, CrowdStrike, Palo Alto Networks, Rapid7, and Tenable Holdings, who may have greater resources and brand recognition[177](index=177&type=chunk)[178](index=178&type=chunk) - The company's solutions are delivered from **14 shared cloud platforms**, and any service disruption at these third-party facilities could interrupt service delivery and harm operating results[174](index=174&type=chunk) - Approximately **46%** of revenues for the six months ended June 30, 2024, were derived from channel partners, highlighting a significant dependency on these third-party relationships[193](index=193&type=chunk) [Risks Related to Intellectual Property, Legal, Tax and Regulatory Matters](index=51&type=section&id=Risks%20Related%20to%20Intellectual%20Property%2C%20Legal%2C%20Tax%20and%20Regulatory%20Matters) Outlines risks related to intellectual property, data privacy, and legal compliance, including software errors, evolving regulations, open-source software, and infringement claims - Evolving and complex data privacy regulations, such as the EU's GDPR and California's CCPA/CPRA, create significant compliance challenges and could result in substantial fines or operational changes[228](index=228&type=chunk) - The company's solutions incorporate open-source software, which could expose it to infringement claims or require the release of proprietary source code if license terms are not met[234](index=234&type=chunk)[235](index=235&type=chunk) - The company faces the risk of assertions by third parties of intellectual property infringement, which could result in significant defense costs, substantial damages, or the need to redesign solutions[245](index=245&type=chunk) [Risks Related to Ownership of Our Common Stock](index=58&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Stockholder risks include stock price volatility, divergence from guidance, dilution from future sales, non-guaranteed share repurchases, and anti-takeover provisions - The company's stock price is subject to significant fluctuations due to market conditions, operating results, and analyst estimates[256](index=256&type=chunk) - The share repurchase program, with **$230.7 million** remaining as of June 30, 2024, is not guaranteed to be fully consummated and can be suspended at any time[264](index=264&type=chunk) - Anti-takeover provisions, including a classified board and "blank check" preferred stock, may delay or prevent an acquisition or a change in management[266](index=266&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details the company's common stock repurchases during Q2 2024, totaling 232,529 shares under the publicly announced plan Share Repurchases (Q2 2024) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 66,000 | $166.56 | | May 2024 | 87,000 | $149.71 | | June 2024 | 79,529 | $137.96 | | **Total** | **232,529** | **-** | [Other Information](index=61&type=section&id=Item%205.%20Other%20Information) No director or executive officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2024 - No directors or officers adopted or terminated Rule 10b5-1 trading plans during the second quarter of 2024[281](index=281&type=chunk) [Exhibits](index=62&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including equity incentive plans, stock agreements, certifications, and XBRL data files