Qualys Announces Second Quarter 2014 Financial Results

Qualys Announces Second Quarter 2014 Financial Results  Revenue Growth of 23% Year-Over-Year; GAAP EPS of $0.05, Non-GAAP EPS of $0.11; Full-Year 2014 Guidance Raised for Revenues, GAAP EPS, Non-GAAP EPS  REDWOOD CITY, CA -- (Marketwired) -- 08/04/14 --  Qualys, Inc. (NASDAQ: QLYS), a pioneer and leading provider of cloud security and compliance solutions, today announced financial results for the second quarter ended June 30, 2014. For the quarter, the Company reported revenues of $32.3 million, GAAP net income of $1.7 million, non-GAAP net income of $4.2 million, adjusted EBITDA of $7.2 million, GAAP earnings per diluted share of $0.05, and non-GAAP earnings per diluted share of $0.11.  Philippe Courtot, Chairman, President and Chief Executive Officer of Qualys, said, "Our second quarter 2014 results represent the strongest quarterly performance Qualys has ever delivered, driven by high demand for our cloud security and compliance solutions which resulted in record revenue growth and profit. We particularly benefited from increased upsell opportunities from our existing customers as they looked either to expand their vulnerability management scope or to acquire new services to address their global security needs in an effort to prevent increasingly sophisticated and complex cyber-attacks from compromising their critical assets. We continue to accelerate our investments in core technologies and new cloud offerings to help us grow our revenues and increase value to our customers, partners and shareholders. As a result of this continued growth in our business, we are raising our median revenue growth guidance to 22% for 2014 compared to the prior year."  Second Quarter 2014 Financial Highlights  Revenues: Revenues for the second quarter of 2014 increased by 23% to $32.3 million compared to $26.3 million for the same quarter last year. Revenue growth was driven by a combination of sales of subscriptions to new customers, as well as subscription renewals and upsells of additional subscriptions to existing customers.   Deferred Revenues: Current deferred revenues increased by 22% to $71.9 million at June 30, 2014 compared to $58.8 million at June 30, 2013. Total deferred revenues increased by 19% to $80.6 million at June 30, 2014 compared to $67.7 million at June 30, 2013.  Gross Profit: GAAP gross profit for the second quarter of 2014 increased by 23% to $25.1 million compared to $20.4 million for the same quarter last year. GAAP gross margin was 78% for the second quarter of 2014, compared to 77% in the prior year's second quarter. Non-GAAP gross profit for the second quarter of 2014 increased by 23% to $25.3 million compared to $20.5 million for the same quarter last year. Non-GAAP gross margin was 78% for the second quarter of 2014, the same percentage as in the prior year.   Operating Income: GAAP operating income for the second quarter of 2014 was $1.8 million compared to $0.9 million in the same quarter last year. Non-GAAP operating income for the second quarter of 2014 was $4.3 million compared to $2.1 million for the same quarter last year.   Net Income: GAAP net income for the second quarter of 2014 was $1.7 million, or $0.05 per diluted share, compared to net income of $0.9 million, or a $0.02 per diluted share, for the same quarter last year. Non-GAAP net income for the second quarter of 2014 was $4.2 million, or $0.11 per diluted share, compared to non-GAAP net income of $2.1 million, or a $0.06 per diluted share, for the same quarter last year.  Adjusted EBITDA: Adjusted EBITDA (a non-GAAP financial measure) for the second quarter of 2014 increased by 62% to $7.2 million compared to $4.5 million for the same quarter last year. As a percentage of revenues, adjusted EBITDA increased to 22% for the second quarter of 2014 compared to 17% for the same quarter last year.  Second Quarter 2014 Business Highlights  Customers:      --  New customers included: Albemarle Corporation, BARCO, Blue Cross Blue     Shield of Nebraska and Tennessee, CMS Energy Corporation, FireEye,     LeasePlan Corporation N.V., Lloyds Register, Markel Corporation,     NASDAQ, Office Depot, Philips Electronics UK Ltd, Reed Smith,     Travelport, LP and Ziff Davis.     New Products and Functionalities:  During the second quarter of 2014, Qualys released several new products and enhancements, including:      --  Expanded Qualys Continuous Monitoring solution with the ability to     seamlessly integrate vulnerability alerts into incident response     systems such as HP Arcsight and Splunk, empowering organizations to     proactively address critical vulnerabilities in their perimeter by     providing information to first responders. This allows customers to     immediately mitigate risk within their global perimeter. Qualys is     showcasing these new capabilities for Continuous Monitoring at Black     Hat USA 2014 August 6-7, 2014 in Las Vegas. --  Released the "Multi-Scan" feature enhancement to Qualys Web     Application Scanning which enables customers to perform high volume     and fully automated web application scanning across their complete web     applications portfolio. --  Released a new map, or network discovery, function in Qualys     Vulnerability Management with the ability to search the network for     active assets, discover the relationships between interconnected     networks, and help ensure that newly discovered assets are authorized     and regularly assessed. --  Released the new Qualys Enterprise Scanner Appliance with higher     performance and parallelization capabilities allowing customers to     increase scanning speed for enterprise networks. The new scanner also     allows customers to scan air-gap networks, a key requirement for     government and defense customers. --  Introduced Qualys Policy Compliance support for new regulations to     address a wide spectrum of recommendations helping financial     institutions adhere to recent Internet Banking Technology Risk     Management guidelines all over the world.     Industry Recognition:      --  Honored by SC Magazine as Best Risk/Policy Management Solution for     Qualys Policy Management Solution. --  Recognized by Gartner as a formidable challenger in the 2014 Magic     Quadrant for Application Security Testing for Qualys Web Application     Solution.     Strategic Alliances and Partnerships:      --  Joined the Open Web Application Security Project (OWASP) as the first     Premier Corporate Member. OWASP is an open community of over 42,000     participants dedicated to enabling organizations to conceive, develop,     acquire, operate and maintain applications that can be trusted. --  Joined forces with the Council on CyberSecurity to help promote the     adoption of cyber-security best practices.     Financial Performance Outlook  Third Quarter 2014 Guidance: Management expects revenues to be in the range of $33.5 million to $34.0 million. At the midpoint, this represents 22% growth over third quarter 2013 revenues. GAAP net income per diluted share is expected to be in the range of $0.02 to $0.04 and non-GAAP net income per diluted share is expected to be in the range of $0.08 to $0.10 based on approximately 37.3 million weighted average diluted shares outstanding for the quarter.  Full Year 2014 Guidance:   Management expects revenues to be in the range of $131.0 million to $132.0 million, an increase from the previous revenue guidance range of $128.5 million to $130.5 million. At the midpoint, this represents 22% growth over 2013 revenues, an increase from the 20% midpoint of the previous revenue guidance range. GAAP net income per diluted share is expected to be in the range of $0.04 to $0.08, an increase from the previous GAAP EPS guidance range of ($0.06) to ($0.02.) Non-GAAP net income per diluted share is expected to be in the range of $0.30 to $0.34, an increase from the previous Non-GAAP EPS guidance range of $0.22 to $0.26. Full year EPS estimates are based on approximately 37.4 million weighted average diluted shares outstanding for the full year.   Investor Conference Call  Qualys will host a conference call and live webcast to discuss its second quarter 2014 financial results today at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time). To access the conference call, dial (877) 881-2609 in the U.S. or +1 (970) 315-0463 for international participants with conference ID #67211124. The live webcast of Qualys' earnings conference call can also be accessed at investor.qualys.com. A replay of the conference call will be available through the same webcast link following the end of the call.  About Qualys, Inc.  Qualys, Inc. (NASDAQ: QLYS) is a pioneer and leading provider of cloud security and compliance solutions with over 6,700 customers in more than 100 countries, including a majority of each of the Forbes Global 100 and Fortune 100. The Qualys Cloud Platform and integrated suite of solutions help organizations simplify security operations and lower the cost of compliance by delivering critical security intelligence on demand and automating the full spectrum of auditing, compliance and protection for IT systems and web applications. Founded in 1999, Qualys has established strategic partnerships with leading managed service providers and consulting organizations including Accenture, Accuvant, BT, Cognizant Technology Solutions, Dell SecureWorks, Fujitsu, HCL Comnet, InfoSys, NTT, Tata Communications, Verizon and Wipro. The company is also a founding member of the Cloud Security Alliance (CSA) and the Council on CyberSecurity. For more information, please visit www.qualys.com.   Qualys and the Qualys logo are proprietary trademarks of Qualys, Inc. All other products or names may be trademarks of their respective companies.  Legal Notice Regarding Forward-Looking Statements  This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements in this press release include, but are not limited to, statements related to: our plans for continued investments in core technologies and new cloud offerings and the intended benefits of these investments; the expected functionality and benefits of our solutions; our belief that we will continue to gain new customer adoption of our core Vulnerability Management solution, our Web Application Scanning solution and our Policy Compliance solution and expand our platform among existing customers; our expectations regarding bringing new capabilities and solutions to market in 2014; our belief that we will continue to leverage our cloud platform to grow revenues and increase value to our customers and shareholders; our belief that customers will increasingly adopt our Web Application Scanning and Policy Compliance solutions; our expectation that our Continuous Monitoring and Web Application Firewall solutions will be adopted by our customers on an accelerated basis; our guidance for revenues, GAAP EPS and non-GAAP EPS for the third quarter and full year 2014; and our expectations for the number of weighted average diluted shares outstanding for the third quarter and full year 2014. Our expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include our ability to continue to develop platform capabilities and solutions; the ability of our platform and solutions to perform as intended; customer acceptance and purchase of our existing solutions and new solutions; our ability to retain existing customers and generate new customers; the market for cloud solutions for IT security and compliance not increasing at the rate we expect; competition from other products and services; and general market, political, economic and business conditions. The forward-looking statements contained in this press release are also subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed with the Securities and Exchange Commission on May 8, 2014. The forward-looking statements in this press release are based on information available to Qualys as of the date hereof, and Qualys disclaims any obligation to update any forward-looking statements, except as required by law.  Non-GAAP Financial Measures  In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, Qualys monitors non-GAAP measures of non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA.   Qualys also monitors non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA to evaluate its ongoing operational performance and enhance an overall understanding of its past financial performance. Qualys believes that these non-GAAP metrics help illustrate underlying trends in its business that could otherwise be masked by the effect of the income or expenses, as well as the related tax effects, that are excluded in non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA. Furthermore, Qualys uses these measures to establish budgets and operational goals for managing its business and evaluating its performance. Qualys also believes that non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income, non-GAAP net income, non-GAAP net income per diluted share and adjusted EBITDA provide additional tools for investors to use in comparing its recurring core business operating results over multiple periods with other companies in its industry.   The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of the non-GAAP financial measures discussed in this press release to the most directly comparable GAAP financial measures is included with the financial statements contained in this press release. Management uses both GAAP and non-GAAP information in evaluating and operating its business internally and as such has determined that it is important to provide this information to investors.                                                                                                                                                                                                Qualys, Inc.                                               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                                (Unaudited)                                                     (in thousands, except per share data)                                                                                                                                    Three Months Ended     Six Months Ended                                           June 30,              June 30,                                         --------------------  --------------------                                      2014       2013       2014       2013                                     ---------  ---------  ---------  ---------  Revenues                         $  32,302  $  26,291  $  62,658  $  51,174  Cost of revenues (1)                 7,175      5,924     14,021     11,719                                   ---------  ---------  ---------  ---------    Gross profit                      25,127     20,367     48,637     39,455  Operating expenses:                                                            Research and development (1)       6,411      5,291     12,815     10,588    Sales and marketing (1)           11,845     10,160     24,337     20,328    General and administrative (1)     5,081      4,053      9,956      7,949                                   ---------  ---------  ---------  ---------      Total operating expenses        23,337     19,504     47,108     38,865                                   ---------  ---------  ---------  ---------  Income from operations               1,790        863      1,529        590  Other income (expense), net:                                                   Interest expense                      (3)       (12)        (7)       (30)   Interest income                      130         81        238        158    Other income (expense), net          (37)        33       (138)      (286)                                  ---------  ---------  ---------  ---------      Total other income                                                            (expense), net                     90        102         93       (158)                                  ---------  ---------  ---------  ---------  Income before provision for                                                   income taxes                        1,880        965      1,622        432  Provision for income taxes             174         92        356        162                                   ---------  ---------  ---------  ---------  Net income                       $   1,706  $     873  $   1,266  $     270                                   =========  =========  =========  =========  Net income per share:                                                          Basic                          $    0.05  $    0.03  $    0.04  $    0.01                                   =========  =========  =========  =========    Diluted                        $    0.05  $    0.02  $    0.03  $    0.01                                   =========  =========  =========  =========  Weighted average shares used in                                               computing net income per share:                                               Basic                             32,818     31,777     32,668     31,636                                   =========  =========  =========  =========    Diluted                           36,839     35,393     36,966     35,353                                   =========  =========  =========  =========                                                                                                                                                            (1) Includes stock-based                                                      compensation as follows:                                                                                                                                   Cost of revenues               $     158  $     111  $     307  $     204    Research and development             517        236        952        444    Sales and marketing                  718        158      1,291        441    General and administrative         1,087        733      2,056      1,098                                   ---------  ---------  ---------  ---------      Total stock-based                                                             compensation                $   2,480  $   1,238  $   4,606  $   2,187                                   =========  =========  =========  =========                                                                                                                                                                                                                                                                            Qualys, Inc.                                          CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                                           (Unaudited)                                                                 (in thousands)                                                                                                                                               Three Months Ended     Six Months Ended                                           June 30,              June 30,                                         --------------------  --------------------                                      2014       2013       2014       2013                                     ---------  ---------  ---------  ---------  Net income                       $   1,706  $     873  $   1,266  $     270    Change in foreign currency                                                    translation loss, net of zero                                                tax                                 (50)       (51)       (41)       (61)   Available-for-sale                                                            investments:                                                                  Change in net unrealized                                                      gain on investments, net of                                                  zero tax                           27        (15)        39        (15)     Less: reclassification                                                        adjustment for net realized                                                  gain included in net income        (7)        (2)        (7)        (8)                                  ---------  ---------  ---------  ---------      Net change, net of zero tax         20        (17)        32        (23)                                  ---------  ---------  ---------  ---------        Other comprehensive loss,                                                     net                             (30)       (68)        (9)       (84)                                  ---------  ---------  ---------  ---------  Comprehensive income             $   1,676  $     805  $   1,257  $     186                                   =========  =========  =========  =========                                                                                                                                                                                                                                                                         Qualys, Inc.                                                    CONDENSED CONSOLIDATED BALANCE SHEETS                                                     (Unaudited)                                                                 (in thousands)                                                                                                                                                               June 30,     December 31,                                                      2014           2013                                                     -------------  -------------  Assets                                                                       Current assets:                                                                Cash and cash equivalents                    $      41,672  $      42,369    Short-term investments                              67,673         54,827    Accounts receivable, net                            28,062         28,581    Prepaid expenses and other current assets            5,502          4,679                                                 -------------  -------------      Total current assets                             142,909        130,456  Long-term investments                                 34,415         35,608  Property and equipment, net                           24,012         23,075  Intangible assets, net                                 2,198          2,394  Goodwill                                                 317            317  Other noncurrent assets                                  721            753                                                 -------------  -------------      Total assets                               $     204,572  $     192,603                                                 =============  =============  Liabilities and Stockholders' Equity                                         Current liabilities:                                                           Accounts payable                             $       1,735  $       1,930    Accrued liabilities                                  8,389          9,037    Deferred revenues, current                          71,853         67,505    Capital lease obligations, current                     270            805                                                 -------------  -------------      Total current liabilities                         82,247         79,277  Deferred revenues, noncurrent                          8,781          8,889  Other noncurrent liabilities                           1,423          1,320                                                 -------------  -------------      Total liabilities                                 92,451         89,486  Stockholders' equity:                                                          Common stock                                            33             32    Additional paid-in capital                         184,387        176,641    Accumulated other comprehensive loss                (1,097)        (1,088)   Accumulated deficit                                (71,202)       (72,468)                                                -------------  -------------      Total stockholders' equity                       112,121        103,117                                                 -------------  -------------      Total liabilities and stockholders' equity $     204,572  $     192,603                                                 =============  =============                                                                                                                                                                                                                                                                         Qualys, Inc.                                               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                (Unaudited)                                                                 (in thousands)                                                                                                                                                                      Six Months Ended                                                                 June 30,                                                               --------------------                                                            2014       2013                                                           ---------  ---------  Cash flows from operating activities:                                          Net income                                           $   1,266  $     270    Adjustments to reconcile net income to net cash                               provided by operating activities:                                             Depreciation and amortization expense                  5,782      4,493      Bad debt expense                                         153         68      Loss on disposal of property and equipment                 1          9      Stock-based compensation                               4,606      2,187      Amortization of premiums on investments                  325        115      Excess tax benefits from stock-based compensation        (54)         -      Changes in operating assets and liabilities:                                   Accounts receivable                                    367      1,549        Prepaid expenses and other assets                     (787)       429        Accounts payable                                      (207)       477        Accrued liabilities                                   (618)     1,170        Deferred revenues                                    4,240      2,545        Other noncurrent liabilities                           101       (442)                                                        ---------  ---------          Net cash provided by operating activities         15,175     12,870                                                         ---------  ---------  Cash flows from investing activities:                                          Purchases of investments                               (76,907)   (75,048)   Sales and maturities of investments                     64,960    100,624    Purchases of property and equipment                     (6,495)    (6,238)   Release of restricted cash                                   -        114                                                         ---------  ---------          Net cash (used in) provided by investing                                      activities                                      (18,442)    19,452                                                         ---------  ---------  Cash flows from financing activities:                                          Proceeds from exercise of stock options                  3,082      2,163    Excess tax benefits from stock-based compensation           54          -    Principal payments under capital lease obligations        (536)      (655)                                                        ---------  ---------          Net cash provided by financing activities          2,600      1,508                                                         ---------  ---------  Effect of exchange rate changes on cash and cash                              equivalents                                                 (30)       (96)                                                        ---------  ---------  Net (decrease) increase in cash and cash equivalents        (697)    33,734  Cash and cash equivalents at beginning of period          42,369     34,885                                                         ---------  ---------  Cash and cash equivalents at end of period             $  41,672  $  68,619                                                         =========  =========                                                                               Non-cash investing and financing activities:                                   Purchases of property and equipment included in                               accrued liabilities                                 $       -  $   2,450    Vesting of early exercised common stock options      $      35  $     144                                                                                                                                                                                                                                                                         Qualys, Inc.                                                    RECONCILIATION OF NON-GAAP DISCLOSURES                                             EBITDA AND ADJUSTED EBITDA                                                           (Unaudited)                                                                (in thousands)                                                                                                                                                Three Months Ended     Six Months Ended                                           June 30,              June 30,                                         --------------------  --------------------                                      2014       2013       2014       2013                                     ---------  ---------  ---------  --------- Net income                        $   1,706  $     873  $   1,266  $     270   Depreciation and amortization                                                 of property and equipment          2,879      2,267      5,586      4,279   Amortization of intangible                                                    assets                                98        107        196        214   Interest expense                        3         12          7         30   Provision for income taxes            174         92        356        162                                   ---------  ---------  ---------  --------- EBITDA                                4,860      3,351      7,411      4,955   Stock-based compensation            2,480      1,238      4,606      2,187   Other (income) expense, net           (93)      (114)      (100)       128                                   ---------  ---------  ---------  --------- Adjusted EBITDA                   $   7,247  $   4,475  $  11,917  $   7,270                                   =========  =========  =========  =========                                                                                                                                                                                                                                                                        Qualys, Inc.                                                    RECONCILIATION OF NON-GAAP DISCLOSURES                                                     (Unaudited)                                                     (in thousands, except per share data)                                                                                                                                       Three Months Ended   Six Months Ended                                             June 30,            June 30,                                           ------------------- -------------------                                         2014      2013      2014      2013                                        --------- --------- --------- --------- GAAP gross profit                    $  25,127 $  20,367 $  48,637 $  39,455 Plus:                                                                          Stock-based compensation                 158       111       307       204                                      --------- --------- --------- --------- Non-GAAP gross profit                $  25,285 $  20,478 $  48,944 $  39,659                                      --------- --------- --------- ---------                                                                              GAAP income from operations          $   1,790 $     863 $   1,529 $     590 Plus:                                                                          Stock-based compensation               2,480     1,238     4,606     2,187                                      --------- --------- --------- --------- Non-GAAP income from operations      $   4,270 $   2,101 $   6,135 $   2,777                                      --------- --------- --------- ---------                                                                              GAAP net income                      $   1,706 $     873 $   1,266 $     270 Plus:                                                                          Stock-based compensation               2,480     1,238     4,606     2,187                                      --------- --------- --------- --------- Non-GAAP net income                  $   4,186 $   2,111 $   5,872 $   2,457                                      ========= ========= ========= ========= Non-GAAP net income per share:                                                 Basic                              $    0.13 $    0.07 $    0.18 $    0.08                                      ========= ========= ========= =========   Diluted                            $    0.11 $    0.06 $    0.16 $    0.07                                      ========= ========= ========= =========                                                                              Weighted average shares used in                                               computing non-GAAP net income per                                            share:                                                                        Basic                                 32,818    31,777    32,668    31,636                                      ========= ========= ========= =========   Diluted                               36,839    35,393    36,966    35,353                                      ========= ========= ========= =========     Investors: Don McCauley Chief Financial Officer Qualys, Inc. +1 (650) 801-6181 dmccauley@qualys.com  Media: John Christiansen/Stacy Roughan Sard Verbinnen & Co +1 (415) 618-8750/+1 (310) 201-2040 jchristiansen@sardverb.com / sroughan@sardverb.com     
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