QUALYS, INC.

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 three months ended March 31, 2026 and 2025, approximately 55% and 57%, 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 six months ended June 30, 2026 and 2025, approximately 55% and 57%, 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

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.

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, 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

On July 4, 2025, OBBBA was signed into law. Beginning in 2026, the OBBBA changes to FDDEI Deduction and NCTI become effective. We have recognized the effects of these OBBBA provisions in our financial results for the three months ended March 31, 2026. These changes generally resulted in a decrease to our income tax provision for the period. We will continue to monitor the impact of the OBBBA and the range of potential outcomes, which will depend on facts in each year and anticipated guidance from the U.S. Department of the Treasury.

Current wording

On July 4, 2025, OBBBA was signed into law. Beginning in 2026, the OBBBA changes to FDDEI Deduction and NCTI become effective. We have recognized the effects of these OBBBA provisions in our financial results for the six months ended June 30, 2026. These changes generally resulted in a decrease to our income tax provision for the period. We will continue to monitor the impact of the OBBBA and the range of potential outcomes, which will depend on facts in each year and anticipated guidance from the U.S. Department of the Treasury.

Previous wording

Comparison of Three Months Ended March 31, 2026 and 2025

Current wording

Comparison of Three and Six Months Ended June 30, 2026 and 2025

Previous wording

Revenues increased by $15.7 million for the three months ended March 31, 2026 compared to the same period in 2025, driven by increased demand for our subscription services by our end customers. Of the total increase of$15.7 million in revenues, 96% was from revenues from customers existing prior to January 1, 2026, and the remaining 4% was from new customers added in the three months ended March 31, 2026. Of the total increase of$15.7 million, 35% was from customers in the United States and the remaining 65% was from customers in foreign countries. Of the total increase of $15.7 million, 14% was from direct customers and the remaining 86% was from partners. In the three months ended March 31, 2026, 48% of total revenue was direct and the remaining 52% was from partners.

Current wording

Revenues increased by $18.1 million for the three months ended June 30, 2026 compared to the same period in 2025, driven by increased demand for our subscription services by our end customers. Of the total increase of$18.1 million in revenues, 97% was from revenues from customers existing prior to April 1, 2026, and the remaining 3% was from new customers added in the three months ended June 30, 2026. Of the total increase of$18.1 million, 41% was from customers in the United States and the remaining 59% was from customers in foreign countries. Of the total increase of $18.1 million, 2% was from direct customers and the remaining 98% was from partners. In the three months ended June 30, 2026, 46% of total revenue was direct and the remaining 54% was from partners.

Previous wording

Cost of revenues increased by $1.1 million for the three months ended March 31, 2026 compared to the same period in 2025, primarily due to an increase in personnel costs of $0.9 million, driven by additional employees hired to support the growth of our business, an impairment of our property and equipment of $0.6 million, an increase in shared cloud platform cost of $0.2 million, partially offset by a decrease in depreciation and amortization expense of $0.6 million resulting from certain of our assets that became fully depreciated or amortized.

Current wording

Cost of revenues increased by $2.4 million for the six months ended June 30, 2026 compared to the same period in 2025, primarily due to an increase in personnel costs of $1.8 million, driven by additional employees hired to support the growth of our business, an impairment of our property and equipment of $0.6 million, an increase in shared cloud platform cost of $0.6 million, and an increase of $0.5 million primarily attributable to overhead allocations and other costs. The increase was partially offset by a decrease in depreciation and amortization expense of $1.1 million resulting from certain of our assets that became fully depreciated or amortized.

Previous wording

Research and development expenses remained relatively flat for the three months ended March 31, 2026 compared to the same period in 2025, primarily due to lower average personnel costs, including stock-based compensation, driven by lower average grant-date fair value and geographic mix of the increased headcount to support product development, resulting in cost savings of $0.6 million, partially offset by an increase in overhead allocations of $0.5 million.

Current wording

Research and development expenses increased by $0.4 million for the three months ended June 30, 2026 compared to the same period in 2025, primarily due to an increase in overhead allocations of $1.0 million, partially offset by a decrease in shared cloud platform cost of $0.3 million, and lower average personnel costs, including stock-based compensation, driven by lower average grant-date fair value and geographic mix of the increased headcount to support product development, resulting in cost savings of $0.3 million.

Previous wording

Sales and marketing expenses increased by $6.1 million for the three months ended March 31, 2026 compared to the same period in 2025, primarily due to an increase in personnel costs, including stock-based compensation, of $5.8 million, driven by an increase in headcount and higher sales commissions and incentive compensation, an increase in sales event and sponsorship of $0.5 million, an increase in travel expenses of $0.5 million, and an increase in overhead allocations of $0.6 million, partially offset by a decrease in marketing expenses of $1.3 million, primarily related to digital advertising.

Current wording

Sales and marketing expenses increased by $11.3 million for the six months ended June 30, 2026 compared to the same period in 2025, primarily due to an increase in personnel costs, including stock-based compensation, of $10.4 million, driven by an increase in headcount and higher sales commissions and incentive compensation, an increase in overhead allocations of $0.9 million, an increase in travel expenses of $0.8 million, and an increase in sales events and sponsorships of $0.7 million. The increase was partially offset by a decrease in marketing expenses of $1.5 million.

Previous wording

General and administrative expenses decreased by $0.4 million for the three months ended March 31, 2026 compared to the same period in 2025, primarily due to a decrease in overhead allocations to other expense categories of $1.0 million, partially offset by an increase in license expenses and professional service expenses of $0.4 million, and an increase in personnel costs, including stock-based compensation, of $0.2 million, driven by an increase in headcount.

Current wording

General and administrative expenses increased by $0.2 million for the six months ended June 30, 2026 compared to the same period in 2025, primarily due to an increase in personnel costs, including stock-based compensation of $1.1 million, driven by an increase in headcount, and an increase in incentive compensation compared to the same period in 2025, and the remaining increase of $1.0 million was primarily attributable to leases expenses, professional service expenses, license expenses, and travel expenses. The increase was partially offset by a decrease in overhead allocations to other expense categories of $1.4 million, and a decrease in allowance for credit losses of $0.5 million.

Previous wording

Total other income, net decreased by $2.4 million for the three months ended March 31, 2026, compared to the same periods in 2025, primarily due to an impairment to our non-marketable security of $2.0 million, and unfavorable changes in foreign currency of $0.4 million.

Current wording

Total other income, net decreased by $4.7 million for thesix months ended June 30, 2026, compared to the same periods in 2025, primarily due to unfavorable changes in foreign currency of $2.5 million, an impairment to our non-marketable security of $2.0 million, and a decrease in interest income of $0.2 million.

Previous wording

Income tax provision increased by $3.6 million for the three months ended March 31, 2026 compared to the same period in 2025, primarily due to an increase in non-deductible stock-based compensation, a decrease in benefit from the R&D credit, and an increase in tax expense arising from discrete adjustments in the period, partially offset by an increase in the tax benefit from FDDEI rules that became effective in 2026 under OBBBA.

Current wording

Income tax provision increased by $3.1 million for the three months ended June 30, 2026 compared to the same period in 2025, primarily attributable to higher pretax income, a decrease in the federal R&D credit, and a higher tax expense from discrete adjustments in the period, primarily related to share-based compensation. These increases were partially offset by a higher tax benefit from FDDEI provisions that became effective in 2026 under OBBBA.

Previous wording

Our net dollar expansion rates were 104% and 103% as of March 31, 2026 and March 31, 2025, respectively.

Current wording

Our net dollar expansion rates were 105% and 104% as of June 30, 2026 and June 30, 2025, 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 months ended March 31, 2026 and 2025:

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 and six months ended June 30, 2026 and 2025:

Previous wording

As of March 31, 2026, our principal source of liquidity was cash, cash equivalents and marketable securities of $729.3 million, including $190.8 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 June 30, 2026, our principal source of liquidity was cash, cash equivalents and marketable securities of $703.5 million, including $182.6 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 three months ended March 31, 2026, we generated$77.1 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense, impairment of non-marketable securities, and deferred taxes, as compared to$65.3 million during the three months ended March 31, 2025. In addition, we also generated$18.2 million of cash from changes in working capital during the three months ended March 31, 2026, of which$27.8 million was related to a net favorable change in accounts receivable and deferred revenue due to the timing of billings and collections, partially offset by an$9.6 million net unfavorable change in prepaid expenses and payables and accrued liabilities primarily due to the timing of payments. During the three months ended March 31, 2025, we generated$44.3 million of cash from changes in working capital, of which$36.0 million was attributed to a net favorable change in accounts receivable and deferred revenue due to the timing of collections and billings, and a $8.3 million net favorable change in payables and accrued liabilities primarily driven by the timing of payments.

Current wording

During the six months ended June 30, 2026, we generated$153.6 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense, impairment of non-marketable securities, and deferred taxes, as compared to$130.1 million during the six months ended June 30, 2025. In addition, we also generated$1.3 million of cash from changes in working capital during the six months ended June 30, 2026, of which$15.8 million was related to a net favorable change in accounts receivable and deferred revenue due to the timing of billings and collections, partially offset by an$14.5 million net unfavorable change in prepaid expenses and payables and accrued liabilities primarily due to the timing of payments. During the six months ended June 30, 2025, we generated$13.3 million of cash from changes in working capital, of which$13.5 million was related to the net favorable change in accounts receivable and deferred revenue due to the timing of collections and billings, and a $4.4 million favorable change in payables and accrued liabilities primarily driven by the timing of payments, partially offset by a $4.6 million unfavorable change in prepaid expenses primarily driven by the timing of payments.

Previous wording

During the three months ended March 31, 2026, we used$4.7 million of cash for purchases of marketable securities net of sales and maturities, and used$1.7 million of cash in capital expenditures mainly related to purchases of computer equipment to support our growth and development, as compared to$5.0 million of cash for purchases of marketable securities net of sales and maturities, and$2.0 million of cash used 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 during the three months ended March 31, 2025.

Current wording

During the six months ended June 30, 2026, we used$9.0 million of cash for purchases of marketable securities net of sales and maturities, and used$5.4 million of cash in capital expenditures mainly related to purchases of computer equipment to support our growth and development, as compared to$82.8 million of cash for purchases of marketable securities net of sales and maturities, and$3.4 million of cash used 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 during the six months ended June 30, 2025.

Previous wording

During the three months ended March 31, 2026, we used$53.5 million of cash for share repurchases,$10.4 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by$3.9 million of proceeds from issuance of common stock through our ESPP, and$0.3 million of proceeds from employee exercise of stock options, as compared to$39.7 million of cash used for share repurchases, and$10.8 million of cash used 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 during the three months ended March 31, 2025.

Current wording

During the six months ended June 30, 2026, we used$131.4 million of cash for share repurchases,$13.9 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by$3.9 million of proceeds from issuance of common stock through our ESPP, and$0.9 million of proceeds from employee exercise of stock options, as compared to$89.5 million of cash used for share repurchases, and$15.3 million of cash used in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by$5.6 million of proceeds from employee exercise of stock options, and$3.8 million of proceeds from issuance of common stock through our ESPP, during the six months ended June 30, 2025.

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 $69.2 million as of March 31, 2026, with $13.8 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 $65.6 million as of June 30, 2026, with $12.4 million expected to be paid within the next 12 months.

Previous wording

We expect to continue to use cash to repurchase shares in 2026 under our share repurchase program authorized by our board of directors on February 5, 2018. On February 5, 2026, 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 $1.6 billion. As of March 31, 2026, approximately $306.6 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 2026 under our share repurchase program authorized by our board of directors on February 5, 2018. On February 5, 2026, 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 $1.6 billion. As of June 30, 2026, approximately $229.8 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.