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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