Summary
Qualys posted first quarter fiscal 2023 revenue of $130.7 million, up 15.2% from $113.4 million in the prior year quarter. Gross profit rose 16.0% to $103.7 million from $89.4 million, and gross margin reached 79.4%, up from 78.8%. Operating income grew 4.9% to $35.2 million from $33.5 million, though operating margin slipped to 26.9% from 29.6%. Net income came in at $29.1 million, up 14.5% from $25.4 million, and diluted EPS was $0.77, up from $0.64.
The expense lines explain the margin pressure. Research and development climbed 20% to $27.8 million, sales and marketing jumped 27% to $25.6 million, and general and administrative rose 20% to $15.1 million. Cost of revenues increased 12% to $27.0 million. Stock-based compensation totaled $16.0 million for the quarter versus $11.7 million a year earlier. The hiring push is deliberate and broad, but it is compressing profitability while revenue grows.
Cash generation was a weak spot. Operating cash flow fell 15.5% to $66.8 million from $79.0 million. Capital expenditures dropped 47.2% to $4.0 million from $7.6 million. On a non-GAAP basis, free cash flow was $62.8 million compared with $71.4 million. Qualys returned a large slice of that cash to shareholders, repurchasing $66.6 million of common stock during the quarter, and had $187.9 million remaining under its repurchase authorization at March 31, 2023 after the board added $100.0 million in February 2023. Deferred revenue stood at $317.2 million, and remaining performance obligations were $292.0 million, up 3.9% from $281.2 million. Calculated current billings rose 9% to $133.5 million.
New products kept coming. Qualys launched its first 2023 TruRisk Research Report, expanded VMDR with packages aimed at small enterprises and small and medium-sized businesses, introduced Enterprise TruRisk Management to fold third-party risk findings into the platform, and rolled out GovCloud, a FedRAMP Ready offering for federal agencies. The net dollar expansion rate was 109%, down slightly from 110% a year earlier. Management noted that 97% of the $17.3 million revenue increase came from customers that existed at or prior to March 31, 2023, and that 60% of revenue was billed to U.S. customers. Direct sales made up 57% of total revenue, with partners contributing the rest.
Guidance for the second quarter of 2023 points to revenue growth of 13% to 14% over the same quarter in 2022. Second quarter GAAP net income per diluted share is expected to be $0.61 to $0.66, with non-GAAP net income per diluted share of $0.98 to $1.03. For the full year 2023, management continued to expect revenue growth of 13% to 14% over 2022, and it raised GAAP EPS guidance to $2.58 to $2.73 from $2.54 to $2.62 while lifting non-GAAP EPS guidance to $4.13 to $4.28 from $4.10 to $4.18. The plan assumes an effective income tax rate of 25% on a GAAP basis and 24% on a non-GAAP basis, on roughly 37.5 million weighted average diluted shares.
Risks stay material. The 10-Q lists inflation, rising interest rates, financial institution failures, supply chain disruption, labor shortages, currency swings and geopolitical conflict as factors that could push customers to cut IT security spending. Competition in cloud security remains intense, and customer acceptance of newer solutions is uncertain. Operating margin compressed as headcount and marketing costs outran revenue, so continued investment in sales and development could keep profitability under pressure if demand slows. Deferred revenue of $317.2 million is the cushion the subscription model leans on.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $130.7M | $130.8M | -0.1% | $113.4M | +15.2% |
| Gross profit | $103.7M | $103.1M | +0.6% | $89.4M | +16.0% |
| Gross margin | 79.4% | 78.8% | +0.6 pp | 78.8% | +0.5 pp |
| Research & development | $27.8M | $27.8M | -0.1% | $23.1M | +20.3% |
| Sales & marketing | $25.6M | $28.3M | -9.4% | $20.1M | +27.2% |
| General & administrative | $15.1M | $16.3M | -7.3% | $12.6M | +19.7% |
| Total operating expenses | $68.6M | $72.4M | -5.4% | $55.9M | +22.7% |
| Operating income (loss) | $35.2M | $30.7M | +14.7% | $33.5M | +4.9% |
| Operating margin | 26.9% | 23.4% | +3.5 pp | 29.6% | -2.6 pp |
| Net income (loss) | $29.1M | $28.3M | +2.8% | $25.4M | +14.5% |
| Net margin | 22.3% | 21.6% | +0.6 pp | 22.4% | -0.1 pp |
| Diluted EPS | $0.77 | $0.72 | +$0.05 | $0.64 | +$0.13 |
Risks
Uncertain macroeconomic conditions, including inflationary pressure, rising interest rates, financial institution failures, recessionary fears, supply chain disruption, and geopolitical conflict, could lead current and potential customers to reduce or eliminate IT security spending. MD&A states these factors could have a material adverse effect, and the risk factors note they have resulted and may result in decreased revenue and earnings.
The IT, security and compliance market is highly fragmented and competitive, with larger competitors such as Broadcom, CrowdStrike, Palo Alto Networks, Rapid7, and Tenable Holdings having greater resources, broader product suites, and the ability to bundle competing products. This could increase pricing pressure, reduce average sales prices, and pressure gross margins.
The sales cycle for the company's solutions typically ranges from six to twelve months but can be more than eighteen months, particularly for large transactions. This length and unpredictability make revenues difficult to forecast and can cause period-to-period fluctuations.
The company announced that its Chief Revenue Officer mutually agreed to end his employment and transition services on March 31, 2023. Competition for highly skilled sales, engineering, and other personnel is intense, and failure to hire or retain sufficient productive personnel could harm sales and growth.
For the three months ended March 31, 2023, approximately 43% of revenues were derived from sales through channel partners, and partner agreements are generally non-exclusive. The loss of one or more larger channel partners, or their failure to effectively market and sell the company's solutions, could adversely affect sales.
As of March 31, 2023, approximately 75% of employees were located outside the United States, with 66% located in Pune, India, exposing operations to foreign labor laws, wage regulations, and geopolitical instability. For the three months ended March 31, 2023, approximately 27% of expenses and 23% of revenues were generated in foreign currencies.
Evolving privacy and data protection laws, including GDPR, CCPA, and CPRA, with CPRA enforcement expected to commence on July 1, 2023, may require changes to data processing practices and impose substantial compliance costs or enforcement actions. Uncertainty around cross-border data transfers, including the Schrems II decision, may also limit European customer adoption.
As an IT security provider, the company is a target for cyberattacks and previously experienced a December 2020 Accellion FTA zero-day vulnerability in which attackers illegally obtained certain information. Russia's invasion of Ukraine has heightened risks of nation-state cybersecurity incidents and privacy breaches.
Operating margin decreased 2.6 percentage points in the quarter ended March 31, 2023 compared with the prior-year quarter, while sales and marketing expenses rose 27% and research and development expenses rose 20%, outpacing revenue growth of 15.2%. A significant percentage of operating expenses are fixed, limiting the ability to mitigate margin pressure if revenues fall short.
Remaining performance obligations increased 3.9% in the current quarter compared with the prior-year quarter, while revenue rose 15.2%. Because subscription revenue is recognized ratably over the service period, a shortfall in bookings may not immediately reduce current revenue but could negatively affect future periods.
SaaS KPIs
All quarters →Calculated Current Billings
Adjusted EBITDA
Non-GAAP Gross Margin
Subscription Customers
Non-GAAP Operating Income
Calculated Current Billings Growth
Adjusted EBITDA Margin
Net Dollar Expansion Rate
Non-GAAP Free Cash Flow
Summary, forecast, risks and KPIs are extracted from QUALYS, INC.'s SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.