QUALYS INC
For the period ended Sep 30, 2024. Filed Nov 5, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 5, 2024
QLYS$190.41-4.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0001107843-24-000028
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-05.
0001107843-24-000038
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 107 previous paragraphs and 108 current paragraphs.
80 unchanged; 25 reworded; 3 added; 2 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 10 previous and 10 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (3)
Current report
General and administrative expenses increased by $2.5 million for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $1.3 million, driven by increased headcount, annual merit increases and refresh grants to eligible employees and executives, and an increase in subscribed software costs and other expenses of $1.2 million.
Current report
General and administrative expenses increased by $5.2 million for thenine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $4.5 million, driven by increased headcount, annual merit increases and refresh grants to eligible employees and executives, and an increase in subscribed software costs and other expenses of $0.7 million.
Current report
For the three months and nine months ended September 30, 2024, our income tax provision was reduced by $4.0 million primarily due to higher foreign derived intangible income benefit and research and development tax credits than previously estimated. The above income tax benefit includes a discrete tax benefit of $2.5 million associated with our U.S. income tax return.
Removed paragraphs (2)
Previous report
Research and development expenses decreased by $0.3 million for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to a decrease in overhead allocation, a decrease in depreciation and amortization in property and equipment, partially offset by an increase in personnel costs, including stock-based compensation, and an increase in shared cloud platform cost.
Previous report
General and administrative expenses increased by $0.9 million for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, driven by increased headcount, an increase in professional service expense, and an increase in legal expense and other fees.
Reworded paragraphs (25)
Previous wording
•economic and financial conditions, including volatility in foreign exchange rates, inflation concerns, rising interest rates, recessionary fears, financial institution failures and associated uncertainty, significant volatility of global markets, reduced spending and extended sales cycles, and geopolitical conflicts;
Current wording
•economic and financial conditions, including volatility in foreign exchange rates, inflation concerns, high interest rates, recessionary fears, significant volatility of global markets, reduced spending and extended sales cycles, and geopolitical conflicts;
Previous wording
We market and sell our solutions to enterprises, government entities and small and medium-sized businesses across a broad range of industries, including education, financial services, government, healthcare, insurance, manufacturing, media, retail, technology and utilities. For the six months ended June 30, 2024 and 2023, approximately 59% and 60%, respectively, of our revenues were derived from customers in the United States based on our customers' billing addresses. We sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force. We generate a significant portion of sales through our channel partners, including managed security service providers, leading cloud providers, value-added resellers and consulting firms in the United States and internationally.
Current wording
We market and sell our solutions to enterprises, government entities and small and medium-sized businesses across a broad range of industries, including education, financial services, government, healthcare, insurance, manufacturing, media, retail, technology and utilities. For the nine months ended September 30, 2024 and 2023, approximately 59% and 60%, respectively, of our revenues were derived from customers in the United States based on our customers' billing addresses. We sell our solutions to enterprises and government entities primarily through our field sales force and to small and medium-sized businesses through our inside sales force. We generate a significant portion of sales through our channel partners, including managed security service providers, leading cloud providers, value-added resellers and consulting firms in the United States and internationally.
Previous wording
The uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the inflationary pressure, rising interest rates, financial institution failures and associated uncertainty, significant volatility of global markets, reduced spending and extended sales cycles, and geopolitical conflicts could have a material adverse effect on our long-term business and could lead to further economic disruption and expose us to greater risk as our current and potential customers may reduce or eliminate their overall spending on IT security. We will continue to evaluate the nature and extent of the impact to our business, financial position, results of operations and cash flows.
Current wording
The uncertainty surrounding macroeconomic factors in the U.S. and globally characterized by the inflationary pressure, high interest rates, significant volatility of global markets, reduced spending and extended sales cycles, and geopolitical conflicts could have a material adverse effect on our long-term business and could lead to further economic disruption and expose us to greater risk as our current and potential customers may reduce or eliminate their overall spending on IT security. We will continue to evaluate the nature and extent of the impact to our business, financial position, results of operations and cash flows.
Previous wording
We are subject to federal, state and foreign income taxes for jurisdictions in which we operate, and we use estimates in determining our income tax provision and deferred tax assets. Earnings from our non-U.S. activities are subject to income taxes in the local countries at rates which are generally similar to the U.S. statutory tax rate. We regularly assess the realizability of our net deferred tax assets. As of June 30, 2024, valuation allowances remain in certain jurisdictions where we believe it is necessary to see further positive evidence, such as sustained achievement of sufficient profits, to meet a more likely than not stance that the valuation allowance should be reversed. If additional positive evidence becomes available in the foreseeable future, we may release all or a portion of the valuation allowance. The exact timing and amount of the valuation allowance release is subject to change based on the level of profitability achieved in future periods. Release of the valuation allowance would result in the recognition of deferred tax assets and a corresponding decrease to income tax expense in the period the release is recorded.
Current wording
We are subject to federal, state and foreign income taxes for jurisdictions in which we operate, and we use estimates in determining our income tax provision and deferred tax assets. Earnings from our non-U.S. activities are subject to income taxes in the local countries at rates which are generally similar to the U.S. statutory tax rate. We regularly assess the realizability of our net deferred tax assets. As of September 30, 2024, valuation allowances remain in certain jurisdictions where we believe it is necessary to see positive evidence, such as sustained achievement of sufficient profits, to meet a more likely than not stance that the valuation allowance should be reversed. The exact timing and amount of the valuation allowance release is subject to change based on the level of profitability achieved in future periods. Release of the valuation allowance would result in the recognition of deferred tax assets and a corresponding decrease to income tax expense in the period the release is recorded.
Previous wording
Comparison of Three and Six Months Ended June 30, 2024 and 2023
Current wording
Comparison of Three and Nine Months Ended September 30, 2024 and 2023
Previous wording
Revenues increased by $11.5 million for the three months ended June 30, 2024 compared to the same period in 2023, driven by increased demand for our subscription services by our end customers. Of the total increase of$11.5 million in revenues, 94% was from revenues from customers existing prior to April 1, 2024, and the remaining 6% was from new customers added in the three months ended June 30, 2024. Of the total increase of$11.5 million, 35% was from customers in the United States and the remaining 65% was from customers in foreign countries. Of the total increase of$11.5 million, 13% was from direct customers and the remaining 87% was from partners. In the three months ended June 30, 2024, 54% of total revenue was direct and the remaining 46% was from partners.
Current wording
Revenues increased by $11.9 million for the three months ended September 30, 2024 compared to the same period in 2023, driven by increased demand for our subscription services by our end customers. Of the total increase of$11.9 million in revenues, 93% was from revenues from customers existing prior to July 1, 2024, and the remaining 7% was from new customers added in the three months ended September 30, 2024. Of the total increase of$11.9 million, 33% was from customers in the United States and the remaining 67% was from customers in foreign countries. Of the total increase of$11.9 million, 10% was from direct customers and the remaining 90% was from partners. In the three months ended September 30, 2024, 53% of total revenue was direct and the remaining 47% was from partners.
Previous wording
Revenues increased by $26.6 million for thesix months ended June 30, 2024 compared to the same period in 2023, driven by increased demand for our subscription services by our end customers. Of the total increase of$26.6 million in revenues, 88% was from revenues from customers existing prior to January 1, 2024, and the remaining 12% was from new customers added in the six months ended June 30, 2024. Of the total increase of$26.6 million, 47% was from customers in the United States and the remaining 53% was from customers in foreign countries. Of the total increase of$26.6 million, 24% was from direct customers and the remaining 76% was from partners. In the six months ended June 30, 2024, 54% of total revenue was direct and the remaining 46% was from partners.
Current wording
Revenues increased by $38.5 million for thenine months ended September 30, 2024 compared to the same period in 2023, driven by increased demand for our subscription services by our end customers. Of the total increase of$38.5 million in revenues, 78% was from revenues from customers existing prior to January 1, 2024, and the remaining 22% was from new customers added in the nine months ended September 30, 2024. Of the total increase of$38.5 million, 42% was from customers in the United States and the remaining 58% was from customers in foreign countries. Of the total increase of$38.5 million, 20% was from direct customers and the remaining 80% was from partners. In the nine months ended September 30, 2024, 54% of total revenue was direct and the remaining 46% was from partners.
Previous wording
Cost of revenues decreased by $0.2 million for the three months ended June 30, 2024 compared to the same period in 2023, due to a decrease in depreciation and amortization expense of $2.0 million resulting from certain of our assets becoming fully depreciated or amortized, partially offset by an increase in personnel costs, including stock-based compensation, of $1.0 million, driven by additional employees hired to support the growth of our business, and an increase in shared cloud platform cost of $0.8 million.
Current wording
Cost of revenues increased by $2.1 million for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in shared cloud platform cost of $2.1 million, an increase in personnel costs, including stock-based compensation, of $1.2 million, driven by additional employees hired to support the growth of our business, an increase in professional service expenses and license expenses of $0.9 million, partially offset by a decrease in depreciation and amortization expense of $2.1 million resulting from certain of our assets becoming fully depreciated or amortized.
Previous wording
Cost of revenues was flat for thesix months ended June 30, 2024 compared to the same period in 2023, due to a decrease in depreciation and amortization expense of $4.0 million resulting from certain of our assets becoming fully depreciated or amortized, partially offset by an increase in personnel costs, including stock-based compensation, of $2.1 million, driven by additional employees hired to support the growth of our business, and an increase in shared cloud platform cost of $1.9 million.
Current wording
Cost of revenues increased by $2.1 million for thenine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in shared cloud platform cost of $3.9 million, an increase in personnel costs, including stock-based compensation, of $3.2 million, driven by additional employees hired to support the growth of our business, an increase in license expenses and professional service expenses of $1.1 million, partially offset by a decrease in depreciation and amortization expense of $6.1 million resulting from certain of our assets becoming fully depreciated or amortized.
Previous wording
General and administrative expenses increased by $2.7 million for thesix months ended June 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, driven by increased headcount and refresh grants to eligible employees and executives.
Current wording
Research and development expenses increased by $1.1 million for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, driven by increased headcount.
Previous wording
Research and development expenses decreased by $0.6 million for thesix months ended June 30, 2024 compared to the same period in 2023, primarily due to a decrease in overhead allocation, a decrease in depreciation and amortization expense in property and equipment, partially offset by an increase in personnel costs, including stock-based compensation, and an increase in shared cloud platform cost.
Current wording
Research and development expenses increased by $0.5 million for thenine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $2.2 million, driven by increased headcount, partially offset by a decrease in overhead allocation of $1.0 million, and a decrease in depreciation and amortization expense in property and equipment of $0.7 million.
Previous wording
Sales and marketing expenses increased by $5.9 million for the three months ended June 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $3.7 million, driven by increased headcount, an increase in marketing expenses related to trade shows of $1.3 million, an increase in travel and entertainment cost of $0.6 million, and an increase in advertising expenses of $0.3 million.
Current wording
Sales and marketing expenses increased by $4.8 million for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $3.7 million, driven by increased headcount, and an increase in travel and entertainment cost and other expenses of $1.1 million.
Previous wording
Sales and marketing expenses increased by $9.7 million for thesix months ended June 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $7.2 million, driven by increased headcount, an increase in marketing expenses related to trade shows of $1.3 million, an increase in travel and entertainment cost of $0.6 million, an increase in advertising expenses of $0.3 million, and an increase in subscribed license and software costs of $0.3 million.
Current wording
Sales and marketing expenses increased by $14.5 million for thenine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $10.8 million, driven by increased headcount, an increase in marketing expenses related to trade shows of $1.7 million, an increase in travel and entertainment cost of $1.6 million, and an increase in subscribed license and software costs of $0.4 million.
Previous wording
Total other income, net increased by $5.8 million for the six months ended June 30, 2024, compared to the same periods in 2023, primarily due to an increase in interest income of $6.6 million driven by an increase in market interest rates, and a non-recurring unrealized loss of $0.5 million on a non-marketable equity security recognized during the six months ended June 30, 2023, partially offset by a $1.3 million increase in foreign currency loss.
Current wording
Total other income, net increased by $2.9 million for the three months ended September 30, 2024, compared to the same periods in 2023, primarily due to an increase in interest income of $1.6 million driven by an increase in market interest rates and our investment balance, and an increase in foreign currency gain of $1.3 million.
Previous wording
Total other income, net increased by $3.3 million for the three months ended June 30, 2024, compared to the same periods in 2023, primarily due to an increase in interest income of $2.9 million driven by an increase in market interest rates, and a non-recurring unrealized loss of $0.5 million on a non-marketable equity security recognized during the three months ended June 30, 2023, partially offset by a $0.1 million increase in foreign currency loss.
Current wording
Total other income, net increased by $8.8 million for the nine months ended September 30, 2024, compared to the same periods in 2023, primarily due to an increase in interest income of $8.3 million driven by an increase in market interest rates and our investment balance, and a non-recurring unrealized loss of $0.5 million on a non-marketable equity security recognized during the nine months ended September 30, 2023.
Previous wording
Income tax provision increased by $1.6 million for the six months ended June 30, 2024 compared to the same period in 2023 due to the tax effect of an increase in pretax income, partially offset by an increase in excess tax benefits arising from stock-based compensation and lower net capitalization of research and development expenses for tax purposes.
Current wording
Income tax provision increased by $4.6 million for the three months ended September 30, 2024 compared to the same period in 2023 due to the tax effect of an increase in pretax incomeand a decrease in excess tax benefits arising from stock-based compensation. The increase was partially offset by higher foreign derived intangible income benefit, higher research and development tax credits, and discrete tax adjustments.
Previous wording
Income tax provision increased by $0.1 million for the three months ended June 30, 2024 compared to the same period in 2023 due to the tax effect of an increase in pretax income, partially offset by lower net capitalization of research and development expenses for tax purposes.
Current wording
Income tax provision increased by $6.2 million for the nine months ended September 30, 2024 compared to the same period in 2023 due to the tax effect of an increase in pretax income. The increase was partially offset by higher foreign derived intangible income benefit, higher research and development tax credits, and discrete tax adjustments.
Previous wording
Our net dollar expansion rates were 102% and 108% as of June 30, 2024 and June 30, 2023, respectively.
Current wording
Our net dollar expansion rates were 103% and 106% as of September 30, 2024 and September 30, 2023, respectively.
Previous wording
Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including revenues, net income, cash flows from operating activities and our financial results presented in accordance with U.S. GAAP. The following unaudited table presents the reconciliation of net income to Adjusted EBITDA for the three and six months ended June 30, 2024 and 2023:
Current wording
Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including revenues, net income, cash flows from operating activities and our financial results presented in accordance with U.S. GAAP. The following unaudited table presents the reconciliation of net income to Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:
Previous wording
As of June 30, 2024, our principal source of liquidity was cash, cash equivalents and marketable securities of $555.3 million, including $97.9 million of cash held outside of the United States. The following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this report:
Current wording
As of September 30, 2024, our principal source of liquidity was cash, cash equivalents and marketable securities of $573.0 million, including $122.4 million of cash held outside of the United States. The following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this report:
Previous wording
During the six months ended June 30, 2024, we generated$118.2 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense and deferred taxes, as compared to$101.1 million during the six months ended June 30, 2023. In addition, we also generated$17.1 million of cash from changes in working capital during the six months ended June 30, 2024, of which$24.6 million was primarily attributed to a combined result of decreases in accounts receivable and deferred revenue due to the timing of collections and billings, partially offset by a$4.5 million increase in prepaid expenses and a$3.0 million decrease in payables and accrued liabilities primarily driven by the timing of payments. During the six months ended June 30, 2023, we generated$17.2 million of cash from changes in working capital, of which$16.7 million was attributed to the combined result of increases in deferred revenue and accounts receivable due to the growth in billing and timing of collections, and an $8.0 million increase in payables and accrued liabilities, partially offset by a$7.5 million increase in prepaid expenses primarily driven by the timing of payments.
Current wording
During the nine months ended September 30, 2024, we generated$180.4 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense and deferred taxes, as compared to$168.4 million during the nine months ended September 30, 2023. In addition, we also generated$16.0 million of cash from changes in working capital during the nine months ended September 30, 2024, of which$26.8 million was related to decreases in accounts receivable and deferred revenue due to the timing of collections and billings, partially offset by a$9.9 million increase in prepaid expenses and a$1.0 million decrease in payables and accrued liabilities primarily driven by the timing of payments. During the nine months ended September 30, 2023, we generated$42.4 million of cash from changes in working capital, of which$40.4 million was attributed to the combination of an increase in deferred revenue and a decrease accounts receivable due to the growth in billing and timing of collections, and a $6.8 million increase in payables and accrued liabilities, partially offset by a$4.8 million increase in prepaid expenses primarily driven by the timing of payments.
Previous wording
During the six months ended June 30, 2024, we generated$6.4 million of cash from sales and maturities of marketable securities net of purchases, partially offset by$3.1 million of cash used in capital expenditures mainly related to purchases of computer equipment to support our growth and development, as compared to$7.7 million of cash provided by sales and maturity of marketable securities net of purchases, partially offset by$5.5 million of cash used in capital expenditures during the six months ended June 30, 2023.
Current wording
During the nine months ended September 30, 2024, we used$53.0 million of cash for purchases of marketable securities net of sales and maturities, and used$6.5 million of cash in capital expenditures mainly related to purchases of computer equipment to support our growth and development, as compared to$40.2 million of cash for purchases of marketable securities net of sales and maturities, and used$7.3 million of cash in capital expenditures during the nine months ended September 30, 2023.
Previous wording
During the six months ended June 30, 2024, we used$53.0 million of cash for share repurchases,$17.7 million of cash in payment of employee withholding taxes upon vesting of restricted stock units and$1.5 million payment of cash held in escrow as part of the Blue Hexagon acquisition on October 4, 2022, partially offset by$6.0 million of proceeds from employee exercise of stock options and$3.6 million of proceeds from issuance of common stock through our ESPP, as compared to$108.8 million of cash used for share repurchases, and$9.5 million of cash used in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by$7.1 million of proceeds from employee exercise of stock options and$3.0 million of proceeds from issuance of common stock through our ESPP during the six months ended June 30, 2023.
Current wording
During the nine months ended September 30, 2024, we used$97.2 million of cash for share repurchases,$23.1 million of cash in payment of employee withholding taxes upon vesting of restricted stock units and$1.5 million payment of cash held in escrow as part of the Blue Hexagon acquisition on October 4, 2022, partially offset by$8.3 million of proceeds from employee exercise of stock options and$6.9 million of proceeds from issuance of common stock through our ESPP, as compared to$147.7 million of cash used for share repurchases, and$15.0 million of cash used in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by$28.4 million of proceeds from employee exercise of stock options and$6.1 million of proceeds from issuance of common stock through our ESPP during the nine months ended September 30, 2023.
Previous wording
Our material cash requirements include our operating lease obligations to make payments under our non-cancelable lease agreements for our facilities and shared cloud platforms. We had fixed operating lease payment obligations of $60.6 million as of June 30, 2024, with $14.0 million expected to be paid within the next 12 months.
Current wording
Our material cash requirements include our operating lease obligations to make payments under our non-cancelable lease agreements for our facilities and shared cloud platforms. We had fixed operating lease payment obligations of $56.8 million as of September 30, 2024, with $13.6 million expected to be paid within the next 12 months.
Previous wording
We expect to continue to use cash to repurchase shares in 2024 under our share repurchase program authorized by our board of directors on February 5, 2018. On February 7, 2024, we announced that our board of directors authorized an additional $200.0 million to the share repurchase program authorization, increasing the total amount of authorized repurchase to $1.2 billion. As of June 30, 2024, approximately $230.7 million remained available under our share repurchase program. Shares will be repurchased from time to time in privately negotiated transactions or on the open market in accordance with Rule 10b-18 of the Exchange Act of 1934, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5-1 under the Exchange Act.
Current wording
We expect to continue to use cash to repurchase shares in 2024 under our share repurchase program authorized by our board of directors on February 5, 2018. On February 7, 2024, we announced that our board of directors authorized an additional $200.0 million to the share repurchase program authorization, increasing the total amount of authorized repurchase to $1.2 billion. As of September 30, 2024, approximately $185.7 million remained available under our share repurchase program. Shares will be repurchased from time to time in privately negotiated transactions or on the open market in accordance with Rule 10b-18 of the Exchange Act of 1934, including pursuant to a pre-set trading plan adopted in accordance with Rule 10b5-1 under the Exchange Act.