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QUALYS, INC. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Qualys, Inc.

Filing date:

02/21/2025

TLDR:

Qualys demonstrates continued revenue growth and strong cash flow generation. However, increasing operating expenses, particularly in sales and marketing, warrant close attention.

ELI5:

Qualys is making more money, but they’re also spending more to get that money. They need to make sure they’re spending wisely.

Accession #:

0001107843-25-000009

Published on

Analyst Summary

  • Revenue increased by 9.6% from $554.5 million in 2023 to $607.6 million in 2024.
  • Operating expenses increased by 8.8% from $283.9 million in 2023 to $308.9 million in 2024.
  • Net Income increased from $151.6 million in 2023 to $173.7 million in 2024.
  • Gross Margin: 81.6% in 2024, compared to 80.6% in 2023.
  • Operating Margin: 30.8% in 2024, compared to 29.4% in 2023.
  • Net Dollar Expansion Rate: 103% in 2024, compared to 105% in 2023.
  • Cash from Operations: $244.1 million in 2024, compared to $244.6 million in 2023.
  • Free Cash Flow: $231.8 million in 2024, compared to $235.8 million in 2023.
  • Gross Profit Margin = 81.65%
  • Operating Profit Margin = 30.81%
  • Net Profit Margin = 28.59%
  • Return on Assets (ROA) = 17.84%
  • Return on Equity (ROE) = 36.40%
  • Basic EPS: $4.72
  • Diluted EPS: $4.65
  • Current Ratio = 1.37
  • Quick Ratio (Acid-Test Ratio) = 1.37
  • Cash Ratio = 0.54
  • Debt-to-Equity Ratio = 1.04
  • Debt-to-Assets Ratio = 0.51
  • Interest Coverage Ratio (Times Interest Earned) = 67.44
  • Days Sales Outstanding (DSO) = 98.68 days
  • Days Payable Outstanding (DPO) = 4.15 days
  • Asset Turnover = 0.62
  • Price-to-Earnings Ratio (P/E) = 28.85
  • Price-to-Book Ratio (P/B) = 10.42
  • Price-to-Sales Ratio (P/S) = 8.18
  • Enterprise Value to EBITDA (EV/EBITDA) = 22.61
  • Revenue Growth = 9.58%
  • Net Income Growth = 14.57%
  • EPS Growth = 14.84%
  • Adjusted EBITDA for 2024 is $282,842 (in thousands) and for 2023 is $259,139 (in thousands).

Opportunities and Risks

  • Competition: The cybersecurity market is highly competitive, with established and emerging players.
  • Economic Conditions: Adverse economic conditions or reduced IT spending could negatively impact the business.
  • Security Incidents: The company’s platform and systems are subject to security threats, which could result in liability and reputational damage.
  • Reliance on Channel Partners: A significant portion of revenue is generated through channel partners, and failure to manage these relationships effectively could harm the business.
  • International Operations: Conducting international operations exposes the company to various risks, including currency fluctuations and regulatory challenges.
  • Customer Expansion: Significant opportunity to sell additional solutions to existing customers.
  • Innovation: Continued investment in research and development to enhance the cloud platform and suite of solutions.
  • Strategic Acquisitions: Selective acquisitions to bolster capabilities and expand the functionality of the cloud platform.
  • Cloud Adoption: Growing demand for cloud-based IT, security, and compliance solutions.

Qualys, Inc. (QLYS) 2024 10-K Filing Analysis

Executive Summary

This report analyzes Qualys, Inc.’s 2024 10-K filing. Qualys continues to demonstrate revenue growth, driven by both new and existing customers. While profitability remains strong, increased operating expenses, particularly in sales and marketing, warrant attention. The company’s reliance on channel partners and international operations introduces both opportunities and risks. Overall, Qualys appears to be maintaining a solid position in the cybersecurity market, but careful monitoring of expense management and macroeconomic factors is crucial. A hold rating is suggested, pending further observation of expense trends and market conditions.

Company Overview

Qualys, Inc. is a leading provider of cloud-based IT, security, and compliance solutions. Their integrated platform enables organizations to identify vulnerabilities, manage assets, and ensure compliance across diverse IT environments. The company operates on a software-as-a-service (SaaS) model with primarily annual subscriptions. Qualys serves a broad range of industries and boasts a significant customer base, including a majority of the Forbes Global 100.

Detailed Analysis

Financial Statement Analysis

Revenue

Revenue increased by 9.6% from $554.5 million in 2023 to $607.6 million in 2024. This growth is attributed to increased demand for subscription services. 69% of the revenue increase came from existing customers, and 31% from new customers.

Cost of Revenue

Cost of revenue increased by 3.7% from $107.5 million in 2023 to $111.5 million in 2024. This increase is primarily due to higher shared cloud platform costs and personnel expenses, partially offset by lower depreciation and amortization.

Operating Expenses

Operating expenses increased by 8.8% from $283.9 million in 2023 to $308.9 million in 2024. Key drivers include:

  • Research and Development: Increased slightly by 1.3% due to personnel costs.
  • Sales and Marketing: Increased significantly by 14.8% due to higher personnel costs, travel, and marketing expenses.
  • General and Administrative: Increased by 11.4% due to personnel costs.

Profitability

Despite revenue growth, the increase in operating expenses impacted profitability:

  • Income from Operations: Increased from $163.1 million in 2023 to $187.2 million in 2024.
  • Net Income: Increased from $151.6 million in 2023 to $173.7 million in 2024.
  • Net Income Margin: Increased from 27.3% in 2023 to 28.6% in 2024.

Key Ratios

Key ratios provide further insight into Qualys’ financial health:

  • Gross Margin: 81.6% in 2024, compared to 80.6% in 2023.
  • Operating Margin: 30.8% in 2024, compared to 29.4% in 2023.
  • Net Dollar Expansion Rate: 103% in 2024, compared to 105% in 2023.
  • Adjusted EBITDA Margin: 46.6% in both 2024 and 2023.

Cash Flow

Qualys maintains strong cash flow generation:

  • Cash from Operations: $244.1 million in 2024, compared to $244.6 million in 2023.
  • Free Cash Flow: (Calculated as Cash from Operations less Capital Expenditures) $231.8 million in 2024, compared to $235.8 million in 2023.

Management’s Discussion and Analysis (MD&A) Insights

  • Management highlights the company’s focus on innovation, customer expansion, and strategic acquisitions.
  • The MD&A acknowledges the impact of macroeconomic factors, including inflation and geopolitical instability, on IT spending.
  • The company emphasizes its commitment to research and development to enhance its cloud platform and suite of solutions.

Risks and Opportunities

Risks

  • Competition: The cybersecurity market is highly competitive, with established and emerging players.
  • Economic Conditions: Adverse economic conditions or reduced IT spending could negatively impact the business.
  • Security Incidents: The company’s platform and systems are subject to security threats, which could result in liability and reputational damage.
  • Reliance on Channel Partners: A significant portion of revenue is generated through channel partners, and failure to manage these relationships effectively could harm the business.
  • International Operations: Conducting international operations exposes the company to various risks, including currency fluctuations and regulatory challenges.

Opportunities

  • Customer Expansion: Significant opportunity to sell additional solutions to existing customers.
  • Innovation: Continued investment in research and development to enhance the cloud platform and suite of solutions.
  • Strategic Acquisitions: Selective acquisitions to bolster capabilities and expand the functionality of the cloud platform.
  • Cloud Adoption: Growing demand for cloud-based IT, security, and compliance solutions.

Red Flags and Uncommon Metrics

  • Increased Sales and Marketing Expenses: The significant increase in sales and marketing expenses, while intended to drive growth, needs to be carefully monitored to ensure a positive return on investment.
  • Net Dollar Expansion Rate Decline: The slight decrease in the net dollar expansion rate from 105% to 103% suggests a need to focus on customer retention and upselling efforts.

Conclusion and Actionable Insights

Qualys demonstrates continued revenue growth and strong cash flow generation, indicating a solid position in the cybersecurity market. However, the increasing operating expenses, particularly in sales and marketing, warrant close attention. The company’s reliance on channel partners and international operations introduces both opportunities and risks that need to be managed effectively.

Overall Assessment: Hold

Recommendations:

  • Monitor Expense Management: Closely track the return on investment for sales and marketing initiatives to ensure efficient resource allocation.
  • Focus on Customer Retention: Implement strategies to improve customer retention and increase the net dollar expansion rate.
  • Manage International Risks: Develop and implement strategies to mitigate risks associated with international operations, including currency fluctuations and regulatory compliance.
  • Continue Innovation: Maintain a strong focus on research and development to enhance the cloud platform and stay ahead of the competition.

Qualys, Inc. Financial Analysis – 2024

1. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Ratio/Metric: Gross Profit / Revenue = $496,089 / $607,571 = 81.65%
    • Trend: 2023 Gross Profit Margin = $446,973 / $554,458 = 80.61%. Percentage Change = (81.65% – 80.61%) / 80.61% = 1.29%
    • Industry: The software industry generally has high gross profit margins, often ranging from 60% to 80%. Qualys’ gross profit margin of 81.65% is strong and above average for the industry, indicating efficient cost management in relation to revenue.
  • Operating Profit Margin

    • Ratio/Metric: Income from Operations / Revenue = $187,196 / $607,571 = 30.81%
    • Trend: 2023 Operating Profit Margin = $163,069 / $554,458 = 29.41%. Percentage Change = (30.81% – 29.41%) / 29.41% = 4.76%
    • Industry: A good operating profit margin for a software company typically falls between 15% and 30%. Qualys’ operating profit margin of 30.81% is at the higher end, suggesting effective operational management.
  • Net Profit Margin

    • Ratio/Metric: Net Income / Revenue = $173,680 / $607,571 = 28.59%
    • Trend: 2023 Net Profit Margin = $151,595 / $554,458 = 27.34%. Percentage Change = (28.59% – 27.34%) / 27.34% = 4.57%
    • Industry: A net profit margin between 10% and 20% is generally considered healthy in the software industry. Qualys’ net profit margin of 28.59% is excellent, reflecting strong profitability after all expenses and taxes.
  • Return on Assets (ROA)

    • Ratio/Metric: Net Income / Total Assets = $173,680 / $973,537 = 17.84%
    • Trend: 2023 ROA = $151,595 / $812,618 = 18.66%. Percentage Change = (17.84% – 18.66%) / 18.66% = -4.40%
    • Industry: An ROA of 5% or higher is generally considered good. Qualys’ ROA of 17.84% indicates efficient use of assets to generate earnings.
  • Return on Equity (ROE)

    • Ratio/Metric: Net Income / Total Stockholders’ Equity = $173,680 / $477,116 = 36.40%
    • Industry: An ROE of 15% to 25% is often considered a good benchmark. Qualys’ ROE of 36.40% suggests the company is effectively using equity financing to grow.
  • Earnings Per Share (EPS)

    • Ratio/Metric:
      • Basic EPS: $4.72
      • Diluted EPS: $4.65
    • Trend:
      • Basic EPS: 2023 Basic EPS = $4.11. Percentage Change = ($4.72 – $4.11) / $4.11 = 14.84%
      • Diluted EPS: 2023 Diluted EPS = $4.03. Percentage Change = ($4.65 – $4.03) / $4.03 = 15.38%
    • Industry: EPS varies widely. The trend is positive, indicating increased profitability per share.

Liquidity

  • Current Ratio

    • Ratio/Metric: Current Assets / Current Liabilities = $585,691 / $428,390 = 1.37
    • Trend: 2023 Current Ratio = $599,998 / $389,208 = 1.54. Percentage Change = (1.37 – 1.54) / 1.54 = -11.04%
    • Industry: A current ratio between 1.5 and 2 is generally considered healthy. Qualys’ current ratio of 1.37 indicates sufficient liquidity to cover short-term obligations, although it has decreased slightly.
  • Quick Ratio (Acid-Test Ratio)

    • Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Since inventory is not explicitly listed, we will assume it is negligible. Therefore, Quick Ratio ≈ Current Ratio = 1.37
    • Trend: 2023 Quick Ratio ≈ 1.54. Percentage Change = (1.37 – 1.54) / 1.54 = -11.04%
    • Industry: A quick ratio of 1 or greater is generally preferred. Qualys’ quick ratio of 1.37 suggests good short-term liquidity.
  • Cash Ratio

    • Ratio/Metric: (Cash and Cash Equivalents) / Current Liabilities = $232,182 / $428,390 = 0.54
    • Trend: 2023 Cash Ratio = $203,665 / $389,208 = 0.52. Percentage Change = (0.54 – 0.52) / 0.52 = 3.85%
    • Industry: A cash ratio above 0.5 is considered good. Qualys’ cash ratio of 0.54 indicates a reasonable ability to cover immediate liabilities with cash.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Ratio/Metric: Total Liabilities / Total Stockholders’ Equity = $496,421 / $477,116 = 1.04
    • Trend: 2023 Debt-to-Equity Ratio = $444,444 / $368,174 = 1.21. Percentage Change = (1.04 – 1.21) / 1.21 = -14.05%
    • Industry: A debt-to-equity ratio of 1 to 1.5 is often considered acceptable. Qualys’ ratio of 1.04 suggests a balanced capital structure.
  • Debt-to-Assets Ratio

    • Ratio/Metric: Total Liabilities / Total Assets = $496,421 / $973,537 = 0.51
    • Trend: 2023 Debt-to-Assets Ratio = $444,444 / $812,618 = 0.55. Percentage Change = (0.51 – 0.55) / 0.55 = -7.27%
    • Industry: A debt-to-assets ratio below 0.6 is generally considered good. Qualys’ ratio of 0.51 indicates a healthy level of asset financing through debt.
  • Interest Coverage Ratio (Times Interest Earned)

    • Ratio/Metric: EBIT / Interest Expense = (Income Before Income Taxes + Interest Expense) / Interest Expense = ($209,822 + $3,158)/ $3,158 = 67.44. Interest expense is derived from “Other expense, net”
    • Trend: 2023 Interest Coverage Ratio = ($178,651 + $1,323) / $1,323 = 136.04. Percentage Change = (67.44 – 136.04) / 136.04 = -50.43%
    • Industry: A ratio above 5 is generally considered strong. Qualys’ ratio of 67.44 indicates a very strong ability to cover interest expenses, although it has decreased significantly from the previous year.

Activity/Efficiency

  • Inventory Turnover

    • Ratio/Metric: Not applicable as inventory is not a significant component for Qualys.
  • Days Sales Outstanding (DSO)

    • Ratio/Metric: (Accounts Receivable / Revenue) * 365 = ($164,551 / $607,571) * 365 = 98.68 days
    • Trend: 2023 DSO = ($146,226 / $554,458) * 365 = 96.13 days. Percentage Change = (98.68 – 96.13) / 96.13 = 2.65%
    • Industry: A lower DSO is generally better. Qualys’ DSO of 98.68 days is relatively high, suggesting it takes longer to collect revenue.
  • Days Payable Outstanding (DPO)

    • Ratio/Metric: (Accounts Payable / Cost of Revenues) * 365 = ($1,270 / $111,482) * 365 = 4.15 days
    • Trend: 2023 DPO = ($988 / $107,485) * 365 = 3.36 days. Percentage Change = (4.15 – 3.36) / 3.36 = 23.51%
    • Industry: A higher DPO can be favorable as it indicates the company takes longer to pay its suppliers. Qualys’ DPO of 4.15 days is very low.
  • Asset Turnover

    • Ratio/Metric: Revenue / Total Assets = $607,571 / $973,537 = 0.62
    • Trend: 2023 Asset Turnover = $554,458 / $812,618 = 0.68. Percentage Change = (0.62 – 0.68) / 0.68 = -8.82%
    • Industry: An asset turnover ratio of 1 or higher is generally considered efficient. Qualys’ ratio of 0.62 suggests there is room to improve asset utilization.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Ratio/Metric: Stock Price / EPS = $136.20 / $4.72 = 28.85
    • Industry: The P/E ratio varies widely across the software industry. A P/E ratio of 28.85 suggests the stock is reasonably valued compared to its earnings.
  • Price-to-Book Ratio (P/B)

    • Ratio/Metric: Market Cap / Book Value of Equity. Market Cap = Shares Outstanding * Stock Price = 36,503 * $136.20 = $4,971,608.60 (in thousands)
      P/B = $4,971,608.60 / $477,116 = 10.42
    • Industry: A P/B ratio between 3 and 5 is often considered reasonable. Qualys’ P/B ratio of 10.42 may indicate the stock is overvalued relative to its book value.
  • Price-to-Sales Ratio (P/S)

    • Ratio/Metric: Market Cap / Revenue = $4,971,608.60 / $607,571 = 8.18
    • Industry: A P/S ratio between 1 and 3 is often considered reasonable. Qualys’ P/S ratio of 8.18 suggests the stock is potentially overvalued relative to its sales.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Ratio/Metric: EV / EBITDA. EV = Market Cap + Total Debt – Cash and Cash Equivalents = $4,971,608.60 + $496,421 – $232,182 = $5,235,847.60 (in thousands)
      EBITDA = Net Income + Interest + Taxes + Depreciation and Amortization = $173,680 + $3,158 + $36,142 + $18,513 = $231,593 (in thousands)
      EV/EBITDA = $5,235,847.60 / $231,593 = 22.61
    • Industry: An EV/EBITDA ratio between 10 and 15 is often considered reasonable. Qualys’ EV/EBITDA ratio of 22.61 may indicate the stock is overvalued.

Growth Rates

  • Revenue Growth

    • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($607,571 – $554,458) / $554,458 = 9.58%
    • Industry: The software industry is expected to grow at a rate of 10-15%. Qualys’ revenue growth of 9.58% is slightly below the industry average.
  • Net Income Growth

    • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($173,680 – $151,595) / $151,595 = 14.57%
    • Industry: Net income growth varies widely. Qualys’ net income growth of 14.57% is strong.
  • EPS Growth

    • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($4.72 – $4.11) / $4.11 = 14.84% (Basic EPS)
    • Industry: EPS growth varies widely. Qualys’ EPS growth of 14.84% is strong.

Other Relevant Metrics

  • Adjusted EBITDA
    • Ratio/Metric: Adjusted EBITDA for 2024 is $282,842 (in thousands) and for 2023 is $259,139 (in thousands).
    • Trend: Percentage Change = ($282,842 – $259,139) / $259,139 = 9.15%
    • Significance: Adjusted EBITDA is a non-GAAP metric that provides insight into the company’s operating profitability by excluding non-cash expenses and certain other adjustments. The increase indicates improved operational efficiency.
  • Stock Repurchase Program
    • Details: The company repurchased 311,722 shares for approximately $46 million during Q4 2024.
    • Significance: Stock repurchases can increase EPS and ROE, signaling management’s confidence in the company’s future prospects.

2. Commentary

Qualys demonstrates strong profitability with excellent gross, operating, and net profit margins, as well as a high ROE. While revenue growth is slightly below the industry average, net income and EPS growth are robust. Liquidity is adequate, though the current ratio has decreased. The company maintains a balanced capital structure, and the stock appears potentially overvalued based on P/B, P/S, and EV/EBITDA ratios.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️