Cloud security and compliance software provider Qualys (NASDAQ:QLYS) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 8.4% year on year to $153.9 million. Guidance for next quarter’s revenue was better than expected at $156 million at the midpoint, 1.2% above analysts’ estimates. Its non-GAAP profit of $1.56 per share was also 16.8% above analysts’ consensus estimates.
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Qualys (QLYS) Q3 CY2024 Highlights:
- Revenue: $153.9 million vs analyst estimates of $150.7 million (2.1% beat)
- Adjusted EPS: $1.56 vs analyst estimates of $1.34 (16.8% beat)
- EBITDA: $69.68 million vs analyst estimates of $63.27 million (10.1% beat)
- Revenue Guidance for Q4 CY2024 is $156 million at the midpoint, above analyst estimates of $154.2 million
- Management raised its full-year Adjusted EPS guidance to $5.86 at the midpoint, a 5.8% increase
- Gross Margin (GAAP): 81.3%, in line with the same quarter last year
- Operating Margin: 29.2%, down from 30.7% in the same quarter last year
- EBITDA Margin: 45.3%, down from 48.5% in the same quarter last year
- Free Cash Flow Margin: 37.4%, up from 32.8% in the previous quarter
- Billings: $167.4 million at quarter end, up 16% year on year
- Market Capitalization: $4.59 billion
"Q3 was another strong quarter of rapid innovation for Qualys, reflecting our ongoing commitment to technology leadership, cybersecurity transformation, and successful outcomes for customers," said Sumedh Thakar, Qualys' president and CEO.
Company Overview
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.
Vulnerability Management
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.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, Qualys’s 14.4% annualized revenue growth over the last three years was tepid. This shows it failed to expand in any major way, a rough starting point for our analysis.
This quarter, Qualys reported year-on-year revenue growth of 8.4%, and its $153.9 million of revenue exceeded Wall Street’s estimates by 2.1%. Management is currently guiding for a 7.9% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and indicates the market believes its products and services will face some demand challenges.
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Billings
In addition to revenue, billings is a non-GAAP metric that sheds additional light on Qualys’s business quality. Billings is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Over the last year, Qualys’s billings growth has poor, averaging 7.9% year-on-year increases and coming in at $167.4 million in the latest quarter. This performance mirrored its revenue and suggests there may be increasing competition that is causing challenges in acquiring or retaining customers. If Qualys wants to accelerate billings growth, it must enhance its offerings and marketing strategies. 
Customer Acquisition Efficiency
Customer acquisition cost (CAC) payback represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for marketing and sales investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Qualys does a decent job acquiring new customers, and its CAC payback period checked in at 48.8 months this quarter. The company’s performance indicates relatively solid competitive positioning, giving it the freedom to invest its resources into new growth initiatives.
Key Takeaways from Qualys’s Q3 Results
We were impressed by how strongly Qualys blew past analysts’ billings expectations this quarter. We were also excited its revenue, EBITDA, and adjusted EPS all outperformed Wall Street’s estimates. Adding to the good news is that revenue guidance for next quarter is above expectations, and the company also raised full-year EPS guidance. Overall, we think this was a great quarter. The stock traded up 17.1% to $150.50 immediately following the results.
Qualys put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. 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.
