QLYS Soars to 6-Month Highs on Upbeat AI Guidance

Qualys, Inc. reported third-quarter 2024 earnings that met key financial targets but fell short of some growth expectations. The company posted adjusted earnings per share (EPS) of $1.56, above the expected $1.51, and GAAP EPS of $1.24. Revenues reached $153.9 million, a year-over-year increase of 8%, though just below some analyst projections. Despite these gains, Qualys saw some margin pressure as it maintained a GAAP gross margin of 81%, in line with the same period last year. CEO Sumedh Thakar highlighted the company’s strides in cybersecurity innovation, particularly through its TruRisk Management solution and Qualys TotalAI, as strategic drivers that reinforce its position in a competitive security market.

The company issued an optimistic outlook for the upcoming fourth quarter and full-year 2024, expecting Q4 revenues between $154.5 million and $157.5 million, representing up to 9% growth year-over-year. Non-GAAP EPS for the fourth quarter is anticipated to range from $1.28 to $1.38, showing solid projected earnings strength. Full-year guidance was revised upward, with revenue now expected to be in the range of $602.9 million to $605.9 million and non-GAAP EPS between $5.81 and $5.91, up from previous forecasts. This outlook underscores Qualys' confidence in its ongoing product innovation and demand for its solutions.

Qualys’ revenue growth was driven by increased adoption of its security and compliance platforms, especially among enterprises looking to streamline security operations. New solutions launched this quarter, such as TruRisk Eliminate for risk management and Qualys TotalAI for securing AI and machine learning applications, are likely to contribute to sustained client interest. The company also saw strong performance in its Web Application Security solutions, which received updates to address the increasing complexity of securing digital environments.

Gross profit for Q3 rose to $125 million, maintaining an 81% GAAP gross margin, while the non-GAAP gross margin was slightly higher at 83%. Despite a rise in gross profit, Qualys experienced a slight decrease in operating margin to 29% from 31% year-over-year, likely impacted by investment in new product capabilities and platform enhancements. Non-GAAP operating income increased 5% year-over-year to $66 million, reflecting a focus on efficient operations even as the company expands its product offerings.

Qualys’ operating cash flow dropped notably to $61 million, a 34% decrease year-over-year, attributed to a one-time adjustment in working capital. This reduction in cash flow raised some concerns among investors about Qualys’ liquidity for future investments. However, the company’s Adjusted EBITDA of $69.7 million, or 45% of revenue, suggests robust operational efficiency, supporting continued profitability and reinvestment in product development.

The company continued to make strategic strides in product expansion, which has helped it secure a competitive edge in the cybersecurity space. Notably, its vulnerability management solution, VMDR, was recognized by the GigaOm Radar Report for its comprehensive risk-based approach. Qualys was also highlighted by Gartner in its Marketguide for Cloud Native Application Protection Platforms and received praise in the Forrester Wave for its CyberSecurity Asset Management, demonstrating strong performance across various industry evaluations.

While Qualys has solidified its reputation with a reliable product portfolio, it faces a competitive market and evolving cybersecurity threats that demand constant innovation. The new offerings like Qualys TotalAI and TruRisk Eliminate reflect the company’s proactive approach to these challenges. The management’s strong guidance for Q4 and beyond indicates confidence in demand resilience, although investor scrutiny over growth rates and cash flow sustainability remains high.

Shares of QLYS are ripping higher in reaction to the solid outlook as QLYS becomes the latest AI play (ALAB, PLTR) to find a strong bid following upbeat outlooks. The stock is at its best level since early May.