Qualys, Inc 10-Q, filed May 7, 2020

Qualys, Inc. (QLYS)

10-Q 2020-05-07 For: 2020-03-31

Added on April 08, 2026

About this 10-Q

Qualys, Inc filed this 10-Q on May 7, 2020, covering the quarter ended March 31, 2020.

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $86.26M; up 14.5% from $75.34M a year earlier
Net income: $18.69M; up 40.9% from net income of $13.27M a year earlier
Diluted EPS: $0.46; up 43.8% from $0.32 a year earlier

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Delaware		77-0534145
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value per share	QLYS	The NASDAQ Stock Market LLC



Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o



		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019	4
	Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	6
	Condensed Consolidated Statements of Equity for the three months ended March 31, 2020 and 2019	7
	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61
	Signatures	62



	March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	147,565	$	87,559
Short-term marketable securities	184,387		211,331
Accounts receivable, net of allowance of $640 and $585 as of March 31, 2020 and December 31, 2019, respectively	72,696		78,034
Prepaid expenses and other current assets	20,490		18,692
Total current assets	425,138		395,616
Long-term marketable securities	102,777		119,508
Property and equipment, net	61,665		60,579
Operating leases - right of use asset	38,760		40,551
Deferred tax assets, net	16,930		18,830
Intangible assets, net	15,275		16,795
Goodwill	7,447		7,447
Restricted cash	1,200		1,200
Other noncurrent assets	15,300		15,082
Total assets	$	684,492	$	675,608
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	653	$	848
Accrued liabilities	23,753		22,784
Deferred revenues, current	201,861		192,172
Operating lease liabilities, current	7,968		7,663
Total current liabilities	234,235		223,467
Deferred revenues, noncurrent	21,823		20,935
Operating lease liabilities, noncurrent	41,486		44,015
Other noncurrent liabilities	218		388
Total liabilities	297,762		288,805
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value; 20,000,000 shares authorized, no shares issued and outstanding at March 31, 2020 and December 31, 2019	—		—
Common stock, $0.001 par value; 1,000,000,000 shares authorized; 39,024,673 and 39,146,272 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	39		39
Additional paid-in capital	368,016		362,408
Accumulated other comprehensive income (loss)	1,553		1,162
Retained earnings	17,122		23,194
Total stockholders’ equity	386,730		386,803
Total liabilities and stockholders’ equity	$	684,492	$	675,608



☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



	Three Months Ended
	March 31,
	2020			2019
Revenues	$	86,263		$	75,343
Cost of revenues	18,495			17,709
Gross profit	67,768			57,634
Operating expenses:
Research and development	17,983			15,837
Sales and marketing	18,230			17,315
General and administrative	11,124			10,431
Total operating expenses	47,337			43,583
Income from operations	20,431			14,051
Other income (expense), net:
Interest expense	(3		)	(42		)
Interest income	1,924			2,051
Other expense, net	(135		)	(223		)
Total other income, net	1,786			1,786
Income before income taxes	22,217			15,837
Provision for income taxes	3,523			2,571
Net income	$	18,694		$	13,266
Net income per share:
Basic	$	0.48		$	0.34
Diluted	$	0.46		$	0.32
Weighted average shares used in computing net income per share:
Basic	39,112			39,109
Diluted	40,846			41,546



	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)		Retained Earnings			Total Stockholders’ Equity
Balances at December 31, 2019	39,146,272		$	39	$	362,408		$	1,162	$	23,194		$	386,803
Net income	—		—		—			—		18,694			18,694
Other comprehensive income, net of tax	—		—		—			391		—			391
Issuance of common stock upon exercise of stock options	144,989		—		4,714			—		—			4,714
Repurchase of common stock	(346,250	)	—		(4,160		)	—		(24,766		)	(28,926		)
Issuance of common stock upon vesting of restricted stock units	138,260		—		—			—		—			—
Taxes related to net share settlement of equity awards	(58,598	)	—		(5,000		)	—		—			(5,000		)
Stock-based compensation	—		—		10,054			—		—			10,054
Balances at March 31, 2020	39,024,673		$	39	$	368,016		$	1,553	$	17,122		$	386,730



	Common Stock				Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Stockholders’ Equity
Balances at December 31, 2018	39,015,034		$	39	$	330,572		$	(586	)	$	27,964		$	357,989
Net income	—		—		—			—			13,266			13,266
Other comprehensive income, net of tax	—		—		—			896			—			896
Issuance of common stock upon exercise of stock options	152,164		—		4,047			—			—			4,047
Repurchase of common stock	(94,090	)	—		(1,129		)	—			(6,742		)	(7,871		)
Issuance of common stock upon vesting of restricted stock units	99,601		—		—			—			—			—
Taxes related to net share settlement of equity awards	(38,877	)	—		(3,367		)	—			—			(3,367		)
Stock-based compensation	—		—		8,443			—			—			8,443
Balances at March 31, 2019	39,133,832		$	39	$	338,566		$	310		$	34,488		$	373,403


NOTE 1.	The Company and Summary of Significant Accounting Policies



	March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized (Losses)			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	94,365	$	—	$	—		$	94,365
Money market funds	35,033		—		—			35,033
U.S. government agencies	15,439		10		—			15,449
Commercial paper	1,200		—		—			1,200
Corporate bonds	1,517		1		—			1,518
Total	147,554		11		—			147,565
Short-term marketable securities:
Commercial paper	1,000		—		—			1,000
Corporate bonds	23,975		17		(84		)	23,908
Asset-backed securities	3,017		9		—			3,026
U.S. government agencies	155,316		1,137		—			156,453
Total	183,308		1,163		(84		)	184,387
Long-term marketable securities:
Asset-backed securities	39,983		79		(72		)	39,990
U.S. government agencies	16,409		544		(10		)	16,943
Corporate bonds	46,065		169		(390		)	45,844
Total	102,457		792		(472		)	102,777
Total	$	433,319	$	1,966	$	(556	)	$	434,729



	March 31, 2020
	Level 1		Level 2		Fair Value
	(in thousands)
Money market funds	$	35,033	$	—	$	35,033
Commercial paper	—		2,200		2,200
U.S. government agencies	—		188,844		188,844
Corporate bonds	—		71,271		71,271
Asset-backed securities	—		43,016		43,016
Total	$	35,033	$	305,331	$	340,364



	March 31, 2020
	Mature within One Year		Mature after One Year through Two Years		Mature over Two Years		Fair Value
	(in thousands)
Commercial paper	$	2,200	$	—	$	—	$	2,200
U.S. government agencies	171,901		15,712		1,231		188,844
Corporate bonds	25,428		24,156		21,687		71,271
Asset-backed securities	27,041		15,975		—		43,016
Total	$	226,570	$	55,843	$	22,918	$	305,331



	Three Months Ended March 31,
Derivative instruments designated as cash flow hedges:	2020			2019
Net unrealized gains (before tax) recognized in AOCI:	(in thousands)
Foreign currency forward contracts (GBP, Euro and INR)	$	410		$	251

Net unrealized (gains) losses (before tax) reclassified from AOCI into income:
Foreign currency forward contracts (GBP and Euro)	(248		)	13
Net change in AOCI before tax	162			264
Net tax impact on the change in AOCI	(37		)	(51		)
Net change in AOCI after tax	$	125		$	213



	March 31,			December 31,
	2020			2019
	(in thousands)
Computer equipment	$	116,810		$	112,599
Computer software	26,154			26,137
Furniture, fixtures and equipment	8,133			6,973
Finance leases - right of use asset	3,503			3,503
Scanner appliances	16,207			15,864
Leasehold improvements	20,302			18,817
Total property and equipment	191,109			183,893
Less: accumulated depreciation and amortization	(129,444		)	(123,314		)
Property and equipment, net	$	61,665		$	60,579


NOTE 5.	Revenue from Contracts with Customers



	March 31, 2020		December 31, 2019
Commission asset, current	$	2,789	$	2,568
Commission asset, noncurrent	$	6,629	$	6,454



	Total Expected Revenue
2020 (remaining nine months)	$	61,692
2021	48,049
2022	22,146
2023	3,286
2024	456
2025 and thereafter	151
Total	$	135,780



	Unrealized gains (losses) on AFS debt securities			Unrealized gains (losses) on cash flow hedges			Total
Balances as of December 31, 2019	$	822		$	340		$	1,162
Other comprehensive income before reclassification	351			316			667
Reclassification of gains from Other comprehensive income (loss)	(85		)	(191		)	(276		)
Total change in unrealized gain, net of tax	266			125			391
Balances as of March 31, 2020	$	1,088		$	465		$	1,553



					March 31, 2020
	Weighted Average Life (Years)	Weighted Average Remaining Life (Years)	Cost		Accumulated Amortization			Net Book Value
Developed technology	4.6	2.5	$	26,356	$	(11,561	)	$	14,795
Patent licenses	14.0	4.4	1,387		(947		)	440
Total intangibles subject to amortization			$	27,743	$	(12,508	)	15,235
Intangible assets not subject to amortization								40
Total intangible assets, net								$	15,275

					December 31, 2019
	Weighted Average Life (Years)	Weighted Average Remaining Life (Years)	Cost		Accumulated Amortization			Net Book Value
Developed technology	4.6	2.7	$	26,356	$	(10,066	)	$	16,290
Patent Licenses	14.0	4.7	1,387		(922		)	465
Total intangibles subject to amortization			$	27,743	$	(10,988	)	16,755
Intangible assets not subject to amortization								40
Total intangible assets, net								$	16,795



	Amortization Expense
2020 (remaining nine months)	$	4,561
2021	6,081
2022	4,427
2023	100
2024	66
Total expected future amortization expense	$	15,235



	Three Months Ended
	March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	2,791
Lease liabilities arising from obtaining right-of-use assets:
Operating leases	$	562



	March 31, 2020
Weighted average remaining lease term (years)
Operating leases	6.3
Finance leases	0.8
Weighted average discount rates
Operating leases	5.0	%
Finance leases	5.0	%



	Outstanding Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
						(in thousands)
Balance as of December 31, 2019	2,866,675		$	40.54	6.0	$	125,647
Granted	82,300		$	88.57
Exercised	(144,989	)	$	32.51
Canceled	(19,235	)	$	80.57
Balance as of March 31, 2020	2,784,751		$	42.11	6.2	$	126,495
Vested and expected to vest - March 31, 2020	2,620,436		$	39.53	6.0	$	125,595
Exercisable - March 31, 2020	2,073,385		$	29.22	5.3	$	120,221



	Outstanding RSUs		Weighted Average Grant Date Fair Value Per Share

Balance as of December 31, 2019	1,214,818		$	67.99
Granted	64,397		$	87.34
Vested	(138,260	)	$	59.51
Canceled	(23,348	)	$	69.61
Balance as of March 31, 2020	1,117,607		$	70.12
Outstanding and expected to vest - March 31, 2020	826,637		$	68.49


NOTE 13.	Segment Information and Information about Geographic Area


•	our financial performance, including our revenues, costs, expenditures, growth rates, operating expenses and ability to generate positive cash flow to fund our operations and sustain profitability;


•	anticipated technology trends, such as the use of cloud solutions;


•	the impact of the recent COVID-19 coronavirus pandemic and related public health measures on our business;


•	economic and financial conditions, including volatility in foreign exchange rates;


•	our ability to diversify our sources of revenues, including selling additional solutions to our existing customers and our ability to pursue new customers;


•	our ability to innovate and enhance our cloud solutions and platform and introduce new solutions;


•	our anticipated investments in sales and marketing, our infrastructure, new solutions, and research and development, and acquisitions;


•	maintaining and expanding our relationships with channel partners;


•	our ability to maintain, protect and enhance our brand and intellectual property;


•	costs associated with defending intellectual property infringement and other claims;


•	our ability to attract and retain qualified employees and key personnel, including sales and marketing personnel;


•	our ability to successfully enter new markets and manage our international expansion;