Qualys Earnings: Firm Homes In on Profitability Amid Tough Period, Posting High-Quality Results

We are raising our fair value estimate for narrow-moat Qualys QLYS to $135 from $115 after the firm closed out the second quarter of fiscal 2023 with results ahead of our estimates. We were particularly impressed by Qualys’ laser focus on profitability, with the firm’s adjusted margin for the quarter and guidance for fiscal 2023 well ahead of our prior estimates. We believe that during a period of macroeconomic uncertainty, the emphasis on profitability is a sound strategy. From a longer-term perspective, we believe Qualys is well positioned to serve a variety of cybersecurity needs for its small and medium business-leaning customer base. The firm’s cybersecurity capabilities range from vulnerability management to compliance-related security solutions. We believe this breadth of offerings can provide Qualys with further revenue expansion opportunities within its installed base and help entrench its solutions within a client’s IT stack. With shares trading up afterhours, we view Qualys as fairly valued following our fair value increase.

Qualys’ second-quarter sales came in at $137 million, up 14% year over year and marginally ahead of our estimate of $136 million. Encouragingly, Qualys’ Vulnerability Management, Detection, and Response solution continues to gain traction among its clients with 52% of Qualys’ existing customers using its VMDR offering, up from 43% a year ago. We believe that as more customers adopt Qualys’ VMDR offering, it can help the firm entrench itself into these customers’ ecosystems opening further cross-/up-selling opportunities.

Qualys’ margin profile remained strong this quarter with GAAP operating margins clocking in at 31%, up 300 basis points year over year. We attribute this margin expansion to Qualys’ increased focus on driving operating leverage and imposing strong financial discipline throughout the firm.