QUALYS INC

Previous wording

We are a pioneer and leading provider of a cloud-based platform delivering information technology (IT), security and compliance solutions that enable organizations to identify security risks to their IT infrastructures, help protect their IT systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations. Our cloud platform address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between IT infrastructures and web environments, the rapid adoption of cloud computing, containers and serverless IT models, and the proliferation of geographically dispersed IT assets. Our integrated suite of IT, security and compliance solutions delivered on Qualys' Enterprise TruRisk Platform enables our customers to identify and manage their IT and operational technology (OT) assets, collect and analyze large amounts of IT security data, discover and prioritize vulnerabilities, quantify cyber risk exposure, recommend and implement remediation actions and verify the implementation of such actions. Organizations use our integrated suite of solutions to cost-effectively obtain a unified view of their internal and external IT and OT asset inventory as well as security and compliance posture across globally-distributed IT infrastructures as our solution offers a single platform for information technology, information security, application security, endpoint, developer security and cloud teams.

Current wording

We are a leading provider of a cloud-based platform delivering information technology (IT), security and compliance solutions that enable organizations to identify security risks to their IT infrastructures, help protect their IT systems and applications from ever-evolving cyber-attacks and achieve compliance with internal policies and external regulations. Our cloud platform addresses the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between IT infrastructures and web environments, the rapid adoption of cloud computing, containers and serverless IT models, and the proliferation of geographically dispersed IT assets. Our integrated suite of IT, security and compliance solutions delivered on Qualys' Enterprise TruRisk Platform enables our customers to identify and manage their IT and operational technology (OT) assets, collect and analyze large amounts of IT security data, discover and prioritize vulnerabilities, quantify cyber risk exposure, recommend and implement remediation actions and verify the implementation of such actions. Organizations use our integrated suite of solutions to cost-effectively obtain a unified view of their internal and external IT and OT asset inventory as well as security and compliance posture across globally-distributed IT infrastructures as our solution offers a single platform for information technology, information security, application security, endpoint, developer security and cloud teams.

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. In 2023, 2022 and 2021, 60%, 60% and 61%, 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. In 2024, 2023 and 2022, 58%, 60% 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 supply chain environment, inflationary pressure, rising interest rates, financial institution failures and associated uncertainty, labor shortages, 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 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

Cost of revenues consists primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation, for employees who operate our shared cloud platforms and provide support services to our customers. Other expenses include depreciation of shared cloud platform equipment, physical scanner appliances and computer hardware provided to certain customers as part of their subscriptions, expenses related to the use of shared cloud platforms, amortization of software and license fees, amortization of intangibles related to acquisitions, maintenance support, fees paid to contractors who supplement or support our operations center personnel and overhead allocations. We expect to continue to expand our shared cloud platform infrastructures and hire additional employees to support our operations, which will increase the cost of revenues in absolute dollars.

Current wording

Cost of revenues consists primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation, for employees who operate our shared cloud platforms and provide support services to our customers. Other expenses include depreciation of shared cloud platform equipment, physical scanner appliances and computer hardware provided to certain customers as part of their subscriptions, expenses related to the use of shared cloud platforms, amortization of software and license fees, amortization of intangibles related to acquisitions, maintenance support, fees paid to contractors who supplement or support our operations center personnel and overhead allocations. We expect to continue to expand our shared cloud platform infrastructures and invest in our customer support and operations teams to support our customers and operations, which in turn, is expected to increase the cost of revenues in absolute dollars.

Previous wording

Research and development expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation, for our research and development teams. Other expenses include third-party contractor fees, software and license fees, amortization of intangibles related to acquisitions and overhead allocations. We expect to continue to devote resources to research and development in an effort to continuously improve our existing solutions as well as develop new solutions and capabilities and expect that research and development expenses will increase in absolute dollars.

Current wording

Research and development expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation, for our research and development teams. Other expenses include third-party contractor fees, software and license fees, amortization of intangibles related to acquisitions and overhead allocations. We expect to continue to devote resources to research and development in an effort to continuously improve our existing solutions as well as develop new solutions and capabilities, which in turn, is expected to increase the research and development expenses in absolute dollars.

Previous wording

Sales and marketing expenses consist primarily of personnel expenses, comprised of salaries, benefits, sales commissions, performance-based compensation and stock-based compensation for our worldwide sales and marketing teams. Other expenses include marketing and promotional events, lead-generation marketing programs, public relations, travel, software licenses and overhead allocations. Sales commissions related to new business and upsells are capitalized as an asset. We amortize the capitalized commission cost as a selling expense on a straight-line basis over a period of five years. We expense sales commissions related to contract renewals as incurred. Our new sales personnel are typically not immediately productive, and the resulting increase in sales and marketing expenses we incur when we add new personnel may not result in increased revenues if these new sales personnel fail to become productive. The timing of our hiring of sales personnel, or the participation in new marketing events or programs, and the rate at which these generate incremental revenues, may affect our future operating results. We expect to continue to invest in additional sales personnel worldwide and also in more marketing programs to support new solutions on our platform, which will increase sales and marketing expenses in absolute dollars.

Current wording

Sales and marketing expenses consist primarily of personnel expenses, comprised of salaries, benefits, sales commissions, performance-based compensation and stock-based compensation for our worldwide sales and marketing teams. Other expenses include marketing and promotional events, lead-generation marketing programs, public relations, travel, software licenses and overhead allocations. Sales commissions related to new business and upsells are capitalized as an asset. We amortize the capitalized commission cost as a selling expense on a straight-line basis over a period of five years. We expense sales commissions related to contract renewals as incurred. Our new sales personnel are typically not immediately productive, and the resulting increase in sales and marketing expenses we incur when we add new personnel may not result in increased revenues if these new sales personnel fail to become productive. The timing of our hiring of sales personnel, or the participation in new marketing events or programs, and the rate at which these generate incremental revenues, may affect our future operating results. We expect to continue to invest in sales and marketing teams and also in more marketing programs to support new solutions on our platform, which in turn, is expected to increase sales and marketing expenses in absolute dollars.

Previous wording

General and administrative expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation for our executive, finance and accounting, IT, legal and human resources teams, as well as professional services, fees, software licenses and overhead allocations. We expect that general and administrative expenses will increase in absolute dollars, as we continue to add personnel and incur professional services to support our growth and compliance with legal requirements.

Current wording

General and administrative expenses consist primarily of personnel expenses, comprised of salaries, benefits, performance-based compensation and stock-based compensation for our executive, finance and accounting, IT, legal and human resources teams, as well as professional services, fees, software licenses and overhead allocations. We expect to continue to invest in our people and incur professional services to support our growth and compliance with legal and regulatory requirements, which in turn, is expected to increase general and administrative expenses in absolute dollars.

Previous wording

Our other income (expense), net consists primarily of interest and returns from our short-term and long-term marketable securities, non-marketable securities gains and losses, and foreign exchange gains and losses.

Current wording

Our other income (expense), net consists primarily of interest and returns from our cash equivalent, short-term and long-term marketable securities, non-marketable securities gains and losses, and foreign exchange gains and losses.

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 December 31, 2023, 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 December 31, 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

Revenues increased by$64.7 million in 2023 compared to 2022, driven by increased demand for our subscription services by our end customers. Of the total increase of$64.7 million in revenues, 80% was from customers existing at or prior to December 31, 2022, and the remaining 20% was from new customers added in 2023. Of the total increase of$64.7 million, 62% was from customers in the United States and the remaining 38% was from customers in foreign countries. In 2023, 57% of total revenues were direct and 43% of total revenues were through partners. Of the total increase of$64.7 million, 46% was direct and the remaining 54% was from partners. With our strong market position driving further demand for our solutions, we expect revenue growth from new and existing customers to continue.

Current wording

Revenues increased by$53.1 million in 2024 compared to 2023, driven by increased demand for our subscription services by our end customers. Of the total increase of$53.1 million in revenues, 69% was from customers existing at or prior to December 31, 2023, and the remaining 31% was from new customers added in 2024. Of the total increase of$53.1 million, 42% was from customers in the United States and the remaining 58% was from customers in foreign countries. In 2024, 54% of total revenues were direct and 46% of total revenues were through partners. Of the total increase of$53.1 million, 20% was direct and the remaining 80% was from partners.

Previous wording

Cost of revenues increased by$4.7 million in 2023 compared to 2022, due to an increase in personnel costs, including stock-based compensation, of $5.1 million, driven by additional employees hired to support the growth of our business, an increase in shared cloud platform cost of $4.8 million, and an increase in subscribed license and software costs of $1.5 million, partially offset by a decrease in depreciation and amortization expense of $6.7 million resulting from our assets becoming fully depreciated or amortized.

Current wording

Cost of revenues increased by$4.0 million in 2024 compared to 2023, primarily due to an increase in shared cloud platform cost of $6.0 million, an increase in personnel costs, including stock-based compensation, of $4.6 million, driven by additional employees hired to support the growth of our business, an increase in license expenses and professional service expenses of $1.2 million, partially offset by a decrease in depreciation and amortization expense of $7.8 million resulting from certain of our assets becoming fully depreciated or amortized.

Previous wording

Research and development expenses increased by $9.3 million in 2023 compared to 2022, due to an increase in personnel costs, including stock-based compensation, of $11.4 million, driven by increased headcount, annual merit increases for eligible employees and refresh grants to eligible employees, partially offset by a decrease in professional service expense of $1.2 million, and a decrease in depreciation and amortization expense in property and equipment of $0.9 million.

Current wording

Research and development expenses increased by $1.4 million in 2024 compared to 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $2.8 million, driven by increased headcount, partially offset by a decrease in depreciation and amortization expense in property and equipment of $0.8 million, and a decrease in overhead allocation of $0.6 million.

Previous wording

Sales and marketing expenses increased by $14.5 million in 2023 compared to 2022, due to an increase in personnel costs, including stock-based compensation, of $13.6 million, driven by increased headcount, an increase in travel and entertainment cost of $1.5 million associated with increased in-person sales meetings and marketing events, and an increase in subscribed license and software costs of $0.7 million, partially offset bya decrease in professional service expense of $1.3 million.

Current wording

Sales and marketing expenses increased by $16.6 million in 2024 compared to 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $12.9 million, driven by increased headcount, an increase in travel and entertainment cost of $1.8 million, an increase in marketing expenses related to trade shows of $0.7 million, an increase in overhead allocation of $0.7 million, and an increase in subscribed license and software costs of $0.5 million.

Previous wording

General and administrative expenses increased by $3.8 million in 2023 compared to 2022, due to an increase in personnel costs, including stock-based compensation of $5.7 million, driven by increased headcount, annual merit increases for eligible employees and refresh grants to eligible employees and executives, and an increase in subscribed license and software cost of $0.8 million, partially offset by a decrease in professional service expense of $1.4 million, and a decrease in legal expense of $1.3 million.

Current wording

General and administrative expenses increased by $7.0 million in 2024 compared to 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $6.3 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 $0.7 million.

Previous wording

Total other income, net increased by $12.4 million in 2023 compared to 2022, due to an increase ininterest income of $11.7 million driven by an increase of market interest rates, in addition to a $1.2 million decrease in foreign currency loss, partially offset by an unrealized loss of $0.5 million on a non-marketable equity security.

Current wording

Total other income, net increased by $7.0 million in 2024 compared to 2023, primarily due to an increase in interest income of $8.9 million driven by an increase in our average daily cash and investment balance, a non-recurring unrealized loss of $0.5 million on a non-marketable equity security recognized during 2023, partially offset byan increase in foreign currency loss of $2.4 million.

Previous wording

Our net dollar expansion rates were 105% and 109% for the years ended December 31, 2023 and 2022, respectively.

Current wording

Our net dollar expansion rates were 103% and 105% for the years ended December 31, 2024 and 2023, respectively.

Previous wording

As of December 31, 2023, our principal source of liquidity was cash, cash equivalents and marketable securities of $482.2 million, including $94.8 million of cash held outside of the United States. The following summary of cash flows for the periods indicated have been derived from our consolidated financial statements included elsewhere in this report:

Current wording

As of December 31, 2024, our principal source of liquidity was cash, cash equivalents and marketable securities of $575.3 million, including $119.9 million of cash held outside of the United States. The following summary of cash flows for the periods indicated have been derived from our consolidated financial statements included elsewhere in this report:

Previous wording

In 2023, we generated$226.4 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$177.2 million in 2022. In addition, we also generated$18.2 million of cash from working capital change in 2023, of which$22.7 million was related to a net increase in deferred revenue and accounts receivable due to the growth in billing and the timing of collections, partially offset by a$1.1 million decrease in payables and accrued liabilities and a $3.4 million increase in prepaid expenses primarily driven by the timing of payments. In 2022, we generated $177.2 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 $169.6 million in 2021. In addition, we also generated $21.7 million of cash from working capital change in 2022, of which $11.8 million was related to a net increase in deferred revenue and accounts receivable as a result of our continued growth in billing and the timing of collections, and $9.9 million was due to lower prepaid expenses and an increase in payables and accrued liabilities primarily due to timing of payments.

Current wording

In 2024, we generated$243.9 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$226.4 million in 2023. In addition, we also generated$0.2 million of cash from working capital change in 2024, of which$11.7 million was related to the increases in accounts receivable and deferred revenue due to the timing of collections and growth in billings, a$3.2 million increase in payables and accrued liabilities driven by the timing of payment, partially offset by a$14.7 million increase in prepaid expenses. In 2023, we generated $226.4 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. In addition, we also generated $18.2 million of cash from working capital change in 2023, of which $22.7 million was related to the net increase in deferred revenue and accounts receivable due to the growth in billing and the timing of collections, partially offset by a $1.1 million decrease in payables and accrued liabilities and a $3.4 million increase in prepaid expenses primarily driven by the timing of payments.

Previous wording

In 2023, we used$64.4 million of cash for purchases of marketable securities net of sales and maturities, and used$8.8 million of cash in capital expenditures mainly related to computer equipment to support our growth and development, as compared to $169.0 million of cash generated from net sales and maturities of our marketable securities, $15.4 million of cash used in capital expenditures mainly related to computer equipment to support our growth and development and $8.6 million of cash used to acquire certain technology assets in 2022.

Current wording

In 2024, we used$59.1 million of cash for purchases of marketable securities net of sales and maturities, and used$12.3 million of cash in capital expenditures mainly related to computer equipment to support our growth and development and leasehold improvement for expansion of our office spaces and shared cloud platform facilities, as compared to the use of $64.4 million of cash for purchases of marketable securities net of sales and maturities, and the use of $8.8 million of cash in capital expenditures mainly related to computer equipment to support our growth and development in 2023.

Previous wording

In 2023, we used$170.8 million of cash for share repurchase and$22.3 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by$45.6 million of proceeds from employee exercise of stock options and$6.1 millionof proceeds from issuance of common stock through our employee stock purchase plan ("ESPP"), as compared to $317.3 million of cash used for share repurchase and $17.6 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by $24.5 million of proceeds from employee exercise of stock options and $4.4 million of proceeds from issuance of common stock through our ESPP in 2022.

Current wording

In 2024, we used$139.9 million of cash for share repurchases and$28.4 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$17.3 million of proceeds from employee exercise of stock options and$6.9 millionof proceeds from issuance of common stock through our employee stock purchase plan ("ESPP"), as compared to $170.8 million of cash for share repurchase and $22.3 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by $45.6 million of proceeds from employee exercise of stock options and $6.1 million of proceeds from issuance of common stock through our ESPP in 2023.

Previous wording

•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 $31.1 million as of December 31, 2023, with $13.1 million expected to be paid within the next 12 months.

Current wording

•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 $59.9 million as of December 31, 2024, with $13.5 million expected to be paid within the next 12 months.

Previous wording

•Cash outflow for capital expenditures in 2024 is expected to be in a range of $15.0 million to $20.0 million. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing, type and extent of our spending on research and development efforts, international expansion and investment in shared cloud platforms and cloud infrastructures. We may also seek to invest in or acquire complementary businesses or technologies.

Current wording

•Cash outflow for capital expenditures in 2025 is expected to be in a range of $8.0 million to $13.0 million. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, the timing, type and extent of our spending on research and development efforts, international expansion and investment in shared cloud platforms and cloud infrastructures. We may also seek to invest in or acquire complementary businesses or technologies.

Previous wording

•Other non-cancelable purchase obligations related to cloud infrastructures and other service providers totaled $70.6 million, of which $29.7 million is expected to be paid within the next 12 months.

Current wording

•Other non-cancelable purchase obligations related to cloud infrastructures and other service providers totaled $70.5 million, of which $39.2 million is 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. As of December 31, 2023, our board of directors had authorized an aggregate amount of $1.0 billion for repurchases under our share repurchase program, of which approximately $83.7 million remained available. Shares will be repurchased from time to time in 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 2025 under our share repurchase program authorized by our board of directors on February 5, 2018. As of December 31, 2024, approximately $143.4 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. On February 6, 2025, we announced that our board of directors authorized an additional $200.0 million under the share repurchase program, increasing the total amount of authorized repurchase to $1.4 billion.