QUALYS INC

Previous wording

In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, it is possible to identify forward-looking statements because they contain words such as “anticipates,” “believes,” “contemplates,” “continue,” “could,” “estimates,” “expects,” “future,” “intends,” “likely,” “may,” “plans,” “potential,” “predicts,” “projects,” “seek,” “should,” “target,” or “will,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

Current wording

In addition to historical information, this Quarterly Report on Form 10-Q contains "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, it is possible to identify forward-looking statements because they contain words such as "anticipates," "believes," "contemplates," "continue," "could," "would," "estimates," "expects," "future," "intends," "likely," "may," "plans," "potential," "predicts," "projects," "forecasts," "seek," "should," "target," or "will," or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

Previous wording

•anticipated technology trends, such as the use of cloud solutions;

Current wording

•anticipated technology trends, such as the use of cloud solutions, and use of artificial intelligence ("AI");

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•maintaining and expanding our relationships with channel partners;

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•maintaining and enhancing our relationships with channel partners;

Previous 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.

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 IT, 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. For the nine months ended September 30, 2024 and 2023, approximately 59% 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.

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. For the three months ended March 31, 2025 and 2024, approximately 57% and 59%, 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 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.

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, tariff and non-tariff trade barriers, economic and regulatory uncertainty, 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 in turn, is expected to 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

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 in turn, is expected to 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 to continue to add personnel 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.

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

Comparison of Three and Nine Months Ended September 30, 2024 and 2023

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Comparison of Three and Three Months Ended March 31, 2025 and 2024

Previous wording

Revenues increased by $11.9 million for the three months ended September 30, 2024 compared to the same period in 2023, driven by increased demand for our subscription services by our end customers. Of the total increase of$11.9 million in revenues, 93% was from revenues from customers existing prior to July 1, 2024, and the remaining 7% was from new customers added in the three months ended September 30, 2024. Of the total increase of$11.9 million, 33% was from customers in the United States and the remaining 67% was from customers in foreign countries. Of the total increase of$11.9 million, 10% was from direct customers and the remaining 90% was from partners. In the three months ended September 30, 2024, 53% of total revenue was direct and the remaining 47% was from partners.

Current wording

Revenues increased by $14.1 million for the three months ended March 31, 2025 compared to the same period in 2024, driven by increased demand for our subscription services by our end customers. Of the total increase of$14.1 million in revenues, 96% was from revenues from customers existing prior to January 1, 2025, and the remaining 4% was from new customers added in the three months ended March 31, 2025. Of the total increase of$14.1 million, 34% was from customers in the United States and the remaining 66% was from customers in foreign countries. Of the total increase of$14.1 million, 11% was from direct customers and the remaining 89% was from partners. In the three months ended March 31, 2025, 51% of total revenue was direct and the remaining 49% was from partners.

Previous wording

Cost of revenues increased by $2.1 million for the three months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in shared cloud platform cost of $2.1 million, an increase in personnel costs, including stock-based compensation, of $1.2 million, driven by additional employees hired to support the growth of our business, an increase in professional service expenses and license expenses of $0.9 million, partially offset by a decrease in depreciation and amortization expense of $2.1 million resulting from certain of our assets becoming fully depreciated or amortized.

Current wording

Cost of revenues increased by $1.7 million for the three months ended March 31, 2025 compared to the same period in 2024, primarily due to an increase in personnel costs, including stock-based compensation, of $1.2 million, driven by additional employees hired to support the growth of our business, an increase in license expenses and professional service expenses of $1.0 million, and an increase in shared cloud platform cost of $0.6 million, partially offset by a decrease in depreciation and amortization expense of $1.1 million resulting from certain of our assets becoming fully depreciated or amortized.

Previous wording

Cost of revenues increased by $2.1 million for thenine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in shared cloud platform cost of $3.9 million, an increase in personnel costs, including stock-based compensation, of $3.2 million, driven by additional employees hired to support the growth of our business, an increase in license expenses and professional service expenses of $1.1 million, partially offset by a decrease in depreciation and amortization expense of $6.1 million resulting from certain of our assets becoming fully depreciated or amortized.

Current wording

Research and development expenses increased by $1.6 million for the three months ended March 31, 2025 compared to the same period in 2024, primarily due to an increase in personnel costs, including stock-based compensation, of $1.1 million, driven by additional employees hired to support the growth of our business, and an increase in shared cloud platform cost of $0.5 million.

Previous wording

Sales and marketing expenses increased by $14.5 million for thenine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $10.8 million, driven by increased headcount, an increase in marketing expenses related to trade shows of $1.7 million, an increase in travel and entertainment cost of $1.6 million, and an increase in subscribed license and software costs of $0.4 million.

Current wording

Sales and marketing expenses increased by $3.3 million for the three months ended March 31, 2025 compared to the same period in 2024, primarily due to an increase in marketing expenses related to advertising of $1.3 million and trade shows of $1.0 million. The remaining increase is attributable to an increase in personnel costs, driven by increased headcount and an increase in sales commissions.

Previous wording

Research and development expenses increased by $0.5 million for thenine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $2.2 million, driven by increased headcount, partially offset by a decrease in overhead allocation of $1.0 million, and a decrease in depreciation and amortization expense in property and equipment of $0.7 million.

Current wording

General and administrative expenses increased by $0.5 million for the three months ended March 31, 2025 compared to the same period in 2024, primarily due to an increase in personnel costs, including stock-based compensation, of $0.7 million, driven by increased headcount, partially offset by a decrease in legal fees of $0.2 million.

Previous wording

Total other income, net increased by $2.9 million for the three months ended September 30, 2024, compared to the same periods in 2023, primarily due to an increase in interest income of $1.6 million driven by an increase in market interest rates and our investment balance, and an increase in foreign currency gain of $1.3 million.

Current wording

Total other income, net increased by $1.8 million for the three months ended March 31, 2025, compared to the same periods in 2024, primarily due to favorable changes in foreign currency of $1.7 million, and an increase in interest income of $0.1 million.

Previous wording

Income tax provision increased by $4.6 million for the three months ended September 30, 2024 compared to the same period in 2023 due to the tax effect of an increase in pretax incomeand a decrease in excess tax benefits arising from stock-based compensation. The increase was partially offset by higher foreign derived intangible income benefit, higher research and development tax credits, and discrete tax adjustments.

Current wording

Income tax provision increased by $1.0 million for the three months ended March 31, 2025 compared to the same period in 2024, primarily due to the tax effect of an increase in pretax income and a decrease in excess tax benefits arising from stock-based compensation compared to the prior year. The increase in tax expense was partially offset by an increase in foreign derived intangible income benefit and an increase in research and development tax credit.

Previous wording

Our net dollar expansion rates were 103% and 106% as of September 30, 2024 and September 30, 2023, respectively.

Current wording

Our net dollar expansion rates were 103% and 104% as of March 31, 2025 and March 31, 2024, respectively.

Previous wording

Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including revenues, net income, cash flows from operating activities and our financial results presented in accordance with U.S. GAAP. The following unaudited table presents the reconciliation of net income to Adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:

Current wording

Because of these limitations, Adjusted EBITDA should be considered alongside other financial performance measures, including revenues, net income, cash flows from operating activities and our financial results presented in accordance with U.S. GAAP. The following unaudited table presents the reconciliation of net income to Adjusted EBITDA for the three months ended March 31, 2025 and 2024:

Previous wording

As of September 30, 2024, our principal source of liquidity was cash, cash equivalents and marketable securities of $573.0 million, including $122.4 million of cash held outside of the United States. The following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this report:

Current wording

As of March 31, 2025, our principal source of liquidity was cash, cash equivalents and marketable securities of $639.9 million, including $152.5 million of cash held outside of the United States. The following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this report:

Previous wording

During the nine months ended September 30, 2024, we generated$180.4 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$168.4 million during the nine months ended September 30, 2023. In addition, we also generated$16.0 million of cash from changes in working capital during the nine months ended September 30, 2024, of which$26.8 million was related to decreases in accounts receivable and deferred revenue due to the timing of collections and billings, partially offset by a$9.9 million increase in prepaid expenses and a$1.0 million decrease in payables and accrued liabilities primarily driven by the timing of payments. During the nine months ended September 30, 2023, we generated$42.4 million of cash from changes in working capital, of which$40.4 million was attributed to the combination of an increase in deferred revenue and a decrease accounts receivable due to the growth in billing and timing of collections, and a $6.8 million increase in payables and accrued liabilities, partially offset by a$4.8 million increase in prepaid expenses primarily driven by the timing of payments.

Current wording

During the three months ended March 31, 2025, we generated$65.3 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$58.2 million during the three months ended March 31, 2024. In addition, we also generated$44.3 million of cash from changes in working capital during the three months ended March 31, 2025, of which$36.0 million was related to the net decrease in accounts receivable and deferred revenue due to the timing of collections and billings, and a$8.3 million increase in payables and accrued liabilities primarily driven by the timing of payments. During the three months ended March 31, 2024, we generated$27.3 million of cash from changes in working capital, of which$28.9 million was attributed to a decrease in accounts receivable due to the timing of collections and $8.6 million increase in payables and accrued liabilities, partially offset by a$10.1 million increase in prepaid expenses primarily driven by the timing of payments.

Previous wording

During the nine months ended September 30, 2024, we used$53.0 million of cash for purchases of marketable securities net of sales and maturities, and used$6.5 million of cash in capital expenditures mainly related to purchases of computer equipment to support our growth and development, as compared to$40.2 million of cash for purchases of marketable securities net of sales and maturities, and used$7.3 million of cash in capital expenditures during the nine months ended September 30, 2023.

Current wording

During the three months ended March 31, 2025, we used$5.0 million of cash for purchases of marketable securities net of sales and maturities, and used$2.0 million of cash in capital expenditures mainly related to purchases of computer equipment to support our growth and development and leasehold improvements for expansion of our office spaces, as compared to$10.1 million of cash generated from sales and maturities of marketable securities net of purchases, partially offset by$2.1 million of cash used in capital expenditures mainly related to purchases of computer equipment to support our growth and development during the three months ended March 31, 2024.

Previous wording

During the nine months ended September 30, 2024, we used$97.2 million of cash for share repurchases,$23.1 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$8.3 million of proceeds from employee exercise of stock options and$6.9 million of proceeds from issuance of common stock through our ESPP, as compared to$147.7 million of cash used for share repurchases, and$15.0 million of cash used in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by$28.4 million of proceeds from employee exercise of stock options and$6.1 million of proceeds from issuance of common stock through our ESPP during the nine months ended September 30, 2023.

Current wording

During the three months ended March 31, 2025, we used$39.7 million of cash for share repurchases,$10.8 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by$3.8 million of proceeds from issuance of common stock through our ESPP, and$2.6 million of proceeds from employee exercise of stock options, as compared to$18.0 million of cash used for share repurchases, and$11.8 million of cash used 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$3.6 million of proceeds from issuance of common stock through our ESPP and$2.8 million of proceeds from employee exercise of stock options and during the three months ended March 31, 2024.

Previous wording

Our material cash requirements include 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 $56.8 million as of September 30, 2024, with $13.6 million expected to be paid within the next 12 months.

Current wording

Our material cash requirements include 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 $57.1 million as of March 31, 2025, with $14.0 million expected to be paid within the next 12 months. As discussed in Note 13, "Subsequent Event" to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, on May 1, 2025, we entered into a second amendment (the "Amendment") to early renew the lease of our headquarters in Foster City, California, which was scheduled to expire in April 2028. The Amendment, effective May 1, 2025, modifies our existing lease payments and extends the lease terms through April 30, 2034 with an aggregate base rent of $30.4 million, payable in monthly installments with escalating rent payments over the term of the lease.

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. On February 7, 2024, we announced that our board of directors authorized an additional $200.0 million to the share repurchase program authorization, increasing the total amount of authorized repurchase to $1.2 billion. As of September 30, 2024, approximately $185.7 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.

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. On February 6, 2025, we announced that our board of directors authorized an additional $200.0 million to the share repurchase program authorization, increasing the total amount of authorized repurchase to $1.4 billion. As of March 31, 2025, approximately $303.8 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.

Previous wording

See Note 1 to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

Current wording

See Note 1 "Description of Business and Summary of Significant Accounting Policies" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.