• Revenue Growth: Increased by 12% to $145.8 million.

• Channel Revenue Contribution: Represented 45% of total revenues, up from 43% a year ago.

• Net Dollar Expansion Rate: 104%, down from 105% last quarter.

• Adjusted EBITDA: $59 million, with a margin of 47%.

• Operating Expenses: Rose by 5% to $56.8 million.

• Free Cash Flow: $83.5 million, with a margin of 57%.

• Full Year Revenue Guidance for 2024: Expected to be between $601.5 million to $603.5 million.

• Full Year EPS Guidance for 2024: Projected to be between $5.06 to $5.30.

• Warning! GuruFocus has detected 1 Warning Sign with PFMT.

Release Date: May 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Qualys Inc (NASDAQ:QLYS) reported healthy revenue growth, strong profitability, and cash flow generation in Q1 2024.

• The company's VMDR solution with TruRisk is driving new logo wins and increasing platform adoption, particularly in asset management, patch management, and cloud security.

• Qualys Inc (NASDAQ:QLYS) is expanding its partner program, which is enhancing its capacity for transformative solution sales and bringing new business.

• The company introduced new capabilities such as enterprise choice management application, enhancing its platform to manage broader cyber risks.

• Qualys Inc (NASDAQ:QLYS) is investing in its federal business, expecting to leverage opportunities with the FedRAMP high certification and expand its public sector presence.

Negative Points

• The net dollar expansion rate decreased slightly to 104% from 105% last quarter, indicating a challenging upsell environment.

• Despite new customer growth, the overall impact on revenue is limited due to the smaller size of new business compared to existing business.

• Qualys Inc (NASDAQ:QLYS) faces longer review times and decision-making processes from customers on large projects.

• The company narrowed its full-year 2024 revenue guidance, reflecting ongoing challenges in improving the net dollar expansion rate.

• Investments in sales and marketing are increasing, which may impact short-term profitability as the company aims to drive long-term growth.

Q & A Highlights

Q: It seems like that dollar retention came down a little bit to [104%]. Can you provide some color on what's impacting your Total business and some of the changes you're making to improve here? A: Sumedh S. Thakar, President, CEO & Director of Qualys, explained that existing customers are optimizing their spend with Qualys by adjusting VMDR licenses and integrating patch management and cybersecurity asset management. This strategy aims to introduce additional products in smaller quantities to enhance future upsells. However, decision-making on large projects is taking longer, affecting upsells with existing customers. Qualys is countering this by enhancing its marketing efforts and focusing on risk management education through its Cisco Connect programs.

Q: Could you walk us through some of the assumptions within your decision to narrow the full year revenue guidance? A: Joo Mi Kim, CFO & Principal Accounting Officer, noted that the decision was based on Q1 results aligning with expectations and a slight decrease in net dollar expansion. The guidance assumes no significant improvement in net dollar expansion and acknowledges ongoing challenges which might persist into Q2. The focus remains on maintaining current levels or possibly seeing a slight decline in net dollar expansion.

Q: Can you elaborate on the traction of the GovCloud platform so far and the opportunity in expanding it within the public sector? A: Sumedh S. Thakar highlighted the significant growth potential in the federal sector, noting investments in leadership and marketing specifically for federal markets. The upcoming federal conference and recent hires indicate a strong focus on this area. Qualys is working towards FedRAMP high certification to enhance its offerings, aiming to provide a combined solution for vulnerability and patch management that is currently lacking in federal agencies.

Q: How are you planning to support new customer growth and what investments are being made in sales and marketing? A: Joo Mi Kim discussed plans to hire more sales reps and increase sales and marketing headcount by double digits. Investments are also being made in the partner channel, including the MSSP portal and deal registration, to drive new logo growth through both direct and indirect sales forces.

Q: Are you typically selling the CNAPP solution as a bundle, or are customers buying each solution separately? A: Sumedh S. Thakar explained that customers often start with a combined purchase of TotalCloud and VMDR solutions, even in new logo lands. This approach benefits customers by providing higher volume pricing and combined risk assessments across cloud and on-prem platforms. The flexibility in licensing allows customers to use the same licenses for various cloud security needs, enhancing the appeal of Qualys' integrated solutions.

Q: How should we think about capital allocation priorities over the next year, especially regarding share buybacks? A: Joo Mi Kim stated that Qualys is focusing on offsetting equity dilution from grants and is exploring M&A opportunities with a sensible valuation. The strategy includes leveraging the balance sheet to take action on potential acquisition targets, indicating a strategic approach to capital allocation that balances shareholder returns with growth opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.