Qualys(QLYS) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information This section provides key filing details for the Form 10-Q, including the reporting period, registrant information, registered securities, and outstanding common stock - Quarterly Report for the period ended June 30, 2025[2] - Registrant: QUALYS, INC. (Commission file number 001-35662), incorporated in Delaware[2] Securities Registered | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |---|---|---| | Common stock, $0.001 par value per share | QLYS | The NASDAQ Stock Market LLC | - As of July 24, 2025, 36,095,879 shares of common stock were outstanding[5] Risk Factor Summary This section summarizes the primary risks facing the company, encompassing operational, technological, and legal challenges that could impact financial performance - Key risks include variability in quarterly/annual operating results, failure to anticipate market needs and enhance solutions, inability to scale platform, challenges in renewing subscriptions and attracting new customers, and potential for research and development efforts to not yield significant benefits[9] - Operational risks involve security incidents, long and unpredictable sales cycles, adverse economic conditions, service disruptions from shared cloud platforms, and intense market competition[9] - Technology and legal risks include undetected software errors, privacy and data handling concerns (especially with AI/machine learning), reliance on open source and third-party software, and failure to protect intellectual property rights[9][10] PART I – FINANCIAL INFORMATION This part presents the company's comprehensive financial information, including detailed statements, notes, management's discussion, and market risk disclosures Item 1. Financial Statements This section presents Qualys, Inc.'s unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | |---|---|---| | Assets | | | | Total current assets | $542,972 | $585,691 | | Total assets | $999,505 | $973,537 | | Liabilities & Equity | | | | Total current liabilities | $416,815 | $428,390 | | Total liabilities | $491,338 | $496,421 | | Total stockholders' equity | $508,167 | $477,116 | - Total assets increased by $25.97 million from December 31, 2024, to June 30, 2025, while total liabilities slightly decreased[13] - Stockholders' equity increased by $31.05 million, indicating improved financial health[13] Condensed Consolidated Statements of Operations This section outlines the company's financial performance over specific periods, detailing revenues, gross profit, operating income, and net income Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |---|---|---|---|---| | Revenues | $164,062 | $148,708 | $323,961 | $294,513 | | Gross profit | $135,185 | $122,293 | $266,158 | $240,900 | | Income from operations | $51,407 | $48,068 | $103,162 | $92,829 | | Net income | $47,290 | $43,772 | $94,824 | $83,503 | | Basic EPS | $1.30 | $1.19 | $2.61 | $2.26 | | Diluted EPS | $1.29 | $1.17 | $2.59 | $2.22 | - Revenues increased by 10.3% for the three months ended June 30, 2025, and by 10.0% for the six months ended June 30, 2025, compared to the respective prior year periods[15] - Net income grew by 8.0% for the three months and 13.6% for the six months ended June 30, 2025, year-over-year[15] Condensed Consolidated Statements of Comprehensive Income This section presents the company's comprehensive income, including net income and other comprehensive income (loss) components Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |---|---|---|---|---| | Net income | $47,290 | $43,772 | $94,824 | $83,503 | | Other comprehensive income (loss), net of tax | $(4,222) | $473 | $(5,503) | $1,170 | | Comprehensive income | $43,068 | $44,245 | $89,321 | $84,673 | - Other comprehensive income (loss) significantly decreased in 2025, primarily due to net changes in unrealized gains/losses on cash flow hedges[17] Condensed Consolidated Statements of Cash Flows This section details the company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |---|---|---| | Net cash provided by operating activities | $143,359 | $135,329 | | Net cash provided by (used in) investing activities | $(86,140) | $3,361 | | Net cash used in financing activities | $(95,418) | $(62,650) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(38,199) | $76,040 | - Operating cash flow increased by $8.03 million year-over-year for the six months ended June 30, 2025[20] - Investing activities shifted from a net cash inflow of $3.36 million in 2024 to a net cash outflow of $86.14 million in 2025, primarily due to increased purchases of marketable securities[20] - Financing activities used more cash in 2025, mainly due to higher common stock repurchases[20] Condensed Consolidated Statements of Stockholders' Equity This section tracks changes in the company's stockholders' equity, reflecting net income, stock-based compensation, and share repurchases - Total stockholders' equity increased from $477.1 million at December 31, 2024, to $508.2 million at June 30, 2025[21] - Key changes include net income contributions, stock-based compensation, and share repurchases[21] - Repurchase of common stock for the six months ended June 30, 2025, amounted to $89.5 million, compared to $53.0 million in the same period of 2024[21][22] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements, covering accounting policies and specific financial items NOTE 1. Description of Business and Summary of Significant Accounting Policies This note describes Qualys's business and outlines the significant accounting policies used in preparing the financial statements - Qualys, Inc. is a leading provider of cloud-based IT, security, and compliance solutions, enabling organizations to identify security risks and achieve compliance[25] - The financial statements are unaudited and prepared in accordance with U.S. GAAP for interim financial information, with certain disclosures condensed or omitted[26] - New accounting pronouncements include ASU 2023-09 (Improvements to Income Tax Disclosures, effective FY2025) and ASU 2024-03 (Expense Disaggregation Disclosures, effective FY2027), with the company analyzing their impact[29][31] NOTE 2. Fair Value of Financial Instruments This note details the fair value measurements of financial instruments, categorizing them by input levels and discussing derivative instruments - Fair value measurements are categorized into Level 1 (quoted prices in active markets) and Level 2 (observable inputs other than active market quotes)[34][35] Fair Value of Financial Assets and Liabilities (in thousands) | Category | June 30, 2025 Fair Value | December 31, 2024 Fair Value | |---|---|---| | Total assets | $468,437 | $382,033 | | Total liabilities | $6,636 | $1,339 | - The company uses foreign currency forward contracts as designated cash flow hedges and non-designated instruments to manage foreign currency risk[46][49] Derivative Financial Instruments Fair Value (in thousands) | Derivative Type | June 30, 2025 | December 31, 2024 | |---|---|---| | Assets: Designated cash flow hedge | $184 | $2,495 | | Assets: Non-designated | $9 | $80 | | Liabilities: Designated cash flow hedge | $6,471 | $1,315 | | Liabilities: Non-designated | $165 | $24 | NOTE 3. Accumulated Other Comprehensive Income (Loss) This note provides a breakdown of accumulated other comprehensive income (loss), highlighting changes in available-for-sale securities and cash flow hedges Accumulated Other Comprehensive Income (Loss) (in thousands) | Metric | Balances at Dec 31, 2024 | Balances at June 30, 2025 | |---|---|---| | Available-for-sale debt securities | $391 | $658 | | Cash Flow Hedges | $1,026 | $(4,744) | | Total | $1,417 | $(4,086) | - AOCI shifted from a net gain of $1.417 million at December 31, 2024, to a net loss of $(4.086) million at June 30, 2025, primarily due to a significant change in unrealized losses on cash flow hedges[54] - Reclassification of AOCI from cash flow hedges resulted in a net gain of $2 thousand for the three months ended June 30, 2025, and a net loss of $(168) thousand for the six months ended June 30, 2025, impacting revenues and operating expenses[56] NOTE 4. Property and Equipment, Net This note details the company's property and equipment, net of accumulated depreciation and amortization Property and Equipment, Net (in thousands) | Category | June 30, 2025 | December 31, 2024 | |---|---|---| | Total property and equipment | $263,649 | $261,121 | | Less: accumulated depreciation and amortization | $(237,487) | $(230,772) | | Property and equipment, net | $26,162 | $30,349 | - Net property and equipment decreased by $4.19 million from December 31, 2024, to June 30, 2025, mainly due to depreciation[57] - Depreciation and amortization expenses were $3.4 million and $6.9 million for the three and six months ended June 30, 2025, respectively, primarily recorded in cost of revenues[58] NOTE 5. Revenue from Contracts with Customers This note provides details on revenue recognition from customer contracts, including deferred revenue and expected future revenue from performance obligations - Revenues recognized from deferred revenue balances were $111.4 million and $254.1 million for the three and six months ended June 30, 2025, respectively[59] Expected Revenue from Remaining Performance Obligations (in thousands) | Year | Amount | |---|---| | 2025 (remaining six months) | $141,886 | | 2026 | $187,212 | | 2027 | $90,501 | | 2028 | $11,715 | | 2029 | $1,648 | | 2030 and thereafter | $281 | | Total | $433,243 | Revenues by Sales Channel (in thousands) | Channel | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | |---|---|---| | Direct | $83,854 | $165,582 | | Partner | $80,208 | $158,379 | | Total | $164,062 | $323,961 | - Amortization expense for deferred costs to obtain contracts was $2.1 million and $4.1 million for the three and six months ended June 30, 2025, respectively, recorded in sales and marketing expense[64] NOTE 6. Intangible Assets, Net This note outlines the company's intangible assets, including developed technology and patent licenses, and their associated amortization - Intangible assets primarily consist of developed technology and patent licenses, amortized on a straight-line basis[66] Intangible Assets, Net (in thousands) | Category | June 30, 2025 Net Book Value | December 31, 2024 Net Book Value | |---|---|---| | Developed technology | $5,493 | $6,772 | | Intangible assets not subject to amortization | $40 | $40 | | Total intangible assets, net | $5,533 | $6,812 | - Amortization expense for intangible assets was $0.7 million and $1.3 million for the three and six months ended June 30, 2025, respectively, mainly in cost of revenues[67] Expected Future Amortization Expense (in thousands) | Year | Amount | |---|---| | 2025 (remaining six months) | $1,278 | | 2026 | $2,477 | | 2027 | $1,738 | | Total | $5,493 | NOTE 7. Leases This note details the company's lease arrangements for offices, equipment, and cloud facilities, including lease expenses and future payment maturities - The company leases offices, computer equipment, and cloud platform facilities under non-cancelable operating leases through 2034[69] - Lease expense was $4.5 million and $8.7 million for the three and six months ended June 30, 2025, respectively[69] - The company early renewed its headquarters lease in Foster City, California, extending it through April 30, 2034, with an aggregate base rent of $30.4 million[70] Maturities of Operating Lease Liabilities (in thousands) | Year | Amount | |---|---| | 2025 (remaining six months) | $4,912 | | 2026 | $12,711 | | 2027 | $12,456 | | 2028 | $12,255 | | 2029 | $10,320 | | 2030 and thereafter | $18,021 | | Total minimum lease payments | $70,675 | | Present value of net minimum lease payments | $55,347 | NOTE 8. Commitments and Contingencies This note discusses the company's contractual commitments and potential contingent liabilities, including indemnification obligations - The company enters into contracts requiring indemnification for directors, executive officers, and potentially customers/resellers against third-party claims, particularly for intellectual property infringement or product defects[73] - To date, no material liability has been incurred or recorded in connection with such indemnifications[73] NOTE 9. Stockholders' Equity and Stock-based Compensation This note details changes in stockholders' equity, stock-based compensation plans, and share repurchase programs - The Restated 2012 Equity Incentive Plan was amended on June 12, 2024, increasing shares reserved for issuance by 1,092 thousand, with 2,170 thousand shares available for future grants as of June 30, 2025[76][77] - Under the 2021 Employee Stock Purchase Plan (ESPP), 37 thousand shares were issued during the six months ended June 30, 2025, with 398 thousand shares remaining available[80] Stock Option Activity (in thousands, except price) | Metric | Balance as of Dec 31, 2024 | Balance as of June 30, 2025 | |---|---|---| | Outstanding Options | 1,314 | 1,252 | | Weighted Average Exercise Price | $113.07 | $119.34 | | Aggregate Intrinsic Value | $40,141 | $33,004 | Stock-based Compensation Expenses (in thousands) | Expense Category | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | |---|---|---| | Cost of revenues | $1,980 | $4,070 | | Research and development | $4,963 | $10,067 | | Sales and marketing | $3,083 | $6,283 | | General and administrative | $8,020 | $16,446 | | Total | $18,046 | $36,866 | - Unrecognized stock-based compensation expenses totaled $16.7 million for options, $75.8 million for RSUs, $7.5 million for PRSUs, and $0.3 million for ESPP purchase rights as of June 30, 2025, to be recognized over weighted-average periods of 0.1 to 2.6 years[90] - The board authorized an additional $200.0 million for the share repurchase program on February 6, 2025, increasing the total authorization to $1.4 billion. As of June 30, 2025, $254.6 million remained available[91][92][154] NOTE 10. Income Taxes This note provides information on the company's income tax provision, effective tax rate, and unrecognized tax benefits Income Tax Provision and Effective Tax Rate | Period | Income Tax Provision (in thousands) | Effective Tax Rate | |---|---|---| | Three Months Ended June 30, 2025 | $11,523 | 19.6% | | Three Months Ended June 30, 2024 | $10,412 | 19.2% | | Six Months Ended June 30, 2025 | $22,296 | 19.0% | | Six Months Ended June 30, 2024 | $20,166 | 19.5% | - The increase in income tax provision for both periods was primarily due to higher pretax income and a decrease in excess tax benefits from stock-based compensation, partially offset by increased foreign derived intangible income benefit and R&D tax credit[96][97] - Unrecognized tax benefits were $13.2 million as of June 30, 2025, with $6.0 million potentially impacting the effective tax rate if recognized[98] - The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, allows immediate expensing of domestic R&D and certain capital expenditures, but is not expected to materially impact the 2025 effective tax rate[99][121] NOTE 11. Segment and Geographic Area Information This note presents financial information by operating segment and geographic area, detailing revenue and long-lived assets distribution - The company operates in one operating segment, with the CEO acting as the CODM, assessing performance and allocating resources on a consolidated basis[100] Revenue by Geographic Area (in thousands) | Region | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | |---|---|---| | United States | $92,793 | $184,020 | | Foreign | $71,269 | $139,941 | | Total revenues | $164,062 | $323,961 | Long-Lived Assets by Geographic Area (in thousands) | Region | June 30, 2025 | December 31, 2024 | |---|---|---| | United States | $53,452 | $47,916 | | India | $18,883 | $21,076 | | Rest of world | $2,505 | $2,325 | | Total long-lived assets | $74,840 | $71,317 | NOTE 12. Net Income Per Share This note provides details on the calculation of basic and diluted net income per share, including weighted average shares outstanding Net Income Per Share (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |---|---|---|---|---| | Net income | $47,290 | $43,772 | $94,824 | $83,503 | | Basic EPS | $1.30 | $1.19 | $2.61 | $2.26 | | Diluted EPS | $1.29 | $1.17 | $2.59 | $2.22 | | Basic weighted average shares | 36,253 | 36,915 | 36,359 | 36,935 | | Diluted weighted average shares | 36,519 | 37,464 | 36,651 | 37,594 | - Basic EPS increased to $1.30 (QoQ) and $2.61 (YoY) for the three and six months ended June 30, 2025, respectively[103] - Potentially dilutive shares not included in diluted EPS calculation due to anti-dilutive effect totaled 1,048 thousand for the three months and 1,041 thousand for the six months ended June 30, 2025[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operational results, macroeconomic impacts, key metrics, and liquidity Overview This section provides an overview of Qualys's business, its cloud-based solutions, and primary revenue drivers - Qualys is a leading provider of cloud-based IT, security, and compliance solutions, delivered via its Enterprise TruRisk Platform[108] - Solutions help customers identify and manage IT/OT assets, prioritize vulnerabilities, quantify cyber risk, and implement remediation actions across various environments (on-premises, cloud, containers, mobile)[108][109] - Revenue is primarily derived from renewable annual subscriptions, with growth from existing customer renewals/additional purchases and new customer acquisition[110] - Approximately 57% of revenues for the six months ended June 30, 2025, came from U.S. customers, with sales through direct and channel partners[111] Impacts of Current Macroeconomic Environment This section discusses how macroeconomic factors like inflation, interest rates, and geopolitical conflicts may affect the company's business - Macroeconomic factors like inflation, high interest rates, market volatility, and geopolitical conflicts could adversely affect the business by reducing IT security spending and extending sales cycles[112] - The company continues to evaluate the nature and extent of these impacts on its business, financial position, results of operations, and cash flows[112] Key Components of Results of Operations This section describes the primary components of the company's financial results, including revenue, cost of revenues, operating expenses, and income tax provision - Revenues are primarily from renewable annual subscriptions to cloud-based IT, security, and compliance solutions, invoiced upfront and recognized ratably[113][114] - Cost of revenues includes personnel expenses, shared cloud platform costs, depreciation, amortization of software/licenses, and maintenance support, expected to increase with business growth[115] - Operating expenses (R&D, Sales & Marketing, G&A) are expected to increase in absolute dollars due to continued investment in personnel, new solutions, marketing programs, and compliance[116][117][118] - Other income (expense), net, includes interest income from investments and foreign exchange gains/losses[119] - Income tax provision is subject to federal, state, and foreign income taxes, with estimates affected by pretax income, jurisdictional mix, non-deductible expenses, and tax credits[120] Results of Operations This section provides a detailed analysis of the company's financial performance, including revenue growth, expense trends, and profitability metrics Selected Condensed Consolidated Statements of Operations Data as a Percentage of Revenues | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |---|---|---|---|---| | Revenues | 100% | 100% | 100% | 100% | | Gross profit | 82% | 82% | 82% | 82% | | Income from operations | 31% | 32% | 32% | 32% | | Net income | 29% | 29% | 29% | 28% | Revenue Growth (in thousands, except percentages) | Period | 2025 Revenue | 2024 Revenue | Change ($) | Change (%) | |---|---|---|---|---| | Three Months Ended June 30 | $164,062 | $148,708 | $15,354 | 10% | | Six Months Ended June 30 | $323,961 | $294,513 | $29,448 | 10% | - Revenue growth for both periods was driven by increased demand for subscription services, with 95% (QoQ) and 90% (YoY) from existing customers, and the majority of the increase from foreign customers (62% QoQ, 64% YoY) and partners (77% QoQ, 83% YoY)[123][124] - Cost of revenues increased by $2.5 million (9%) QoQ and $4.2 million (8%) YoY, primarily due to higher personnel costs and shared cloud platform expenses, partially offset by lower depreciation[126][127] - R&D expenses rose by $3.1 million (12%) QoQ and $4.8 million (9%) YoY, mainly due to increased personnel costs and shared cloud platform expenses[128][129] - Sales and marketing expenses increased by $3.7 million (11%) QoQ and $6.9 million (11%) YoY, driven by higher personnel costs (headcount, commissions) and marketing activities[130][131] - General and administrative expenses increased by $2.8 million (18%) QoQ and $3.3 million (10%) YoY, primarily due to higher personnel costs (incentive compensation, headcount) and license/professional service expenses[132][133] - Total other income, net, increased by $1.3 million (21%) QoQ and $3.1 million (29%) YoY, mainly due to favorable foreign currency changes, partially offset by decreased interest income[134][135] - Income tax provision increased by $1.1 million (11%) QoQ and $2.1 million (11%) YoY, driven by higher pretax income and reduced excess tax benefits from stock-based compensation[136][137] Key Operating and Non-GAAP Financial Performance Metrics This section presents key operating metrics and non-GAAP financial measures, such as net dollar expansion rate and Adjusted EBITDA, used to assess performance - Net dollar expansion rate was 104% as of June 30, 2025, up from 102% as of June 30, 2024, indicating strong customer retention and growth[141] - Adjusted EBITDA is a non-GAAP measure used to evaluate operational performance, excluding certain non-cash and non-recurring items[142][143] Adjusted EBITDA Reconciliation (in thousands, except percentages) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |---|---|---|---|---| | Net income | $47,290 | $43,772 | $94,824 | $83,503 | | Adjusted EBITDA | $73,431 | $69,934 | $148,183 | $138,965 | | Adjusted EBITDA as a percentage of revenues | 45% | 47% | 46% | 47% | Liquidity and Capital Resources This section discusses the company's liquidity position, cash flow activities, and capital resources, including share repurchase programs - As of June 30, 2025, total liquidity from cash, cash equivalents, and marketable securities was $621.2 million, with $105.1 million held outside the U.S.[146] Summary of Cash Flows (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | |---|---|---| | Net cash provided by operating activities | $143,359 | $135,329 | | Net cash provided by (used in) investing activities | $(86,140) | $3,361 | | Net cash used in financing activities | $(95,418) | $(62,650) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(38,199) | $76,040 | - Operating activities generated $143.4 million in cash for the six months ended June 30, 2025, an increase from $135.3 million in the prior year[146][147] - Investing activities used $86.1 million in cash, primarily for marketable securities purchases, a significant shift from a net inflow in the prior year[146][148][149] - Financing activities used $95.4 million, mainly due to increased share repurchases ($89.5 million) and tax payments related to equity awards[146][150] - The company expects existing liquidity and operating cash flow to be sufficient for operations for the next twelve months and beyond[151] - Operating lease obligations totaled $70.7 million as of June 30, 2025, with $12.7 million due within the next 12 months[152] - The share repurchase program has $254.6 million remaining available as of June 30, 2025, following an additional $200.0 million authorization on February 6, 2025[154] Recent Accounting Pronouncements This section refers to Note 1 for details on recently issued accounting pronouncements and their potential impact - Refer to Note 1 for a discussion of recently issued accounting pronouncements[155] Critical Accounting Estimates This section confirms no material changes to critical accounting estimates compared to the prior annual report - No material changes to critical accounting estimates were reported compared to the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[156] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details market risks, including foreign currency and interest rates, and mitigation strategies Foreign Currency Risk This section outlines the company's exposure to foreign currency fluctuations and its use of hedging strategies to mitigate this risk - The company is exposed to foreign currency fluctuations, particularly EUR, GBP, INR, and CAD, as 27% of expenses and 25% of revenues for the six months ended June 30, 2025, were in foreign currencies[211][158] - Foreign currency forward contracts are used to hedge forecasted revenue, operating expenses, and foreign currency denominated assets/liabilities[158] - An immediate 10% adverse change in foreign exchange rates is not expected to materially impact financial condition, operating results, or cash flows due to hedging[158] Interest Rate Sensitivity This section assesses the company's sensitivity to interest rate changes, particularly concerning its cash, cash equivalents, and marketable securities - As of June 30, 2025, the company held $621.2 million in cash, cash equivalents, and marketable securities, primarily in money market funds, U.S. Treasury/government agency securities, commercial paper, corporate bonds, and asset-backed securities[159] - A hypothetical 100 basis point increase in interest rates would not result in a material decrease in the fair value of marketable securities[159] Item 4. Controls and Procedures Management evaluates disclosure controls and procedures and reports on internal control changes Evaluation of Disclosure Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures as evaluated by management - As of June 30, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[160] - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required by the Exchange Act[160] Changes in Internal Control over Financial Reporting This section confirms that no material changes to internal control over financial reporting occurred during the period - No changes in internal control over financial reporting were identified during the period that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[161] PART II – OTHER INFORMATION This part includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and equity security details Item 1. Legal Proceedings This section reports on legal proceedings, confirming no material losses as of June 30, 2025 - As of June 30, 2025, the company has not incurred a material loss from any ongoing legal proceedings[163] - Litigation is unpredictable, and significant charges related to legal matters could materially impact financial results if estimates or assumptions change[163] Item 1A. Risk Factors This section details significant risks and uncertainties that could adversely affect the company's business and stock Risks Related to Our Business and Industry This section outlines risks associated with the company's business and industry, including operational variability, market needs, security, economic conditions, competition, and international operations - Operating results may vary due to demand fluctuations, customer renewals, sales cycle length, competition, economic conditions, and security incidents[165][167] - Failure to anticipate market needs, enhance solutions, or develop new ones timely could harm competitiveness and financial condition[168][169][172] - Platform, products, website, and internal systems are vulnerable to security incidents, cyber-attacks, and technical errors, potentially leading to liability, reputational damage, and lost sales[178][179][180][181] - Adverse economic conditions, reduced IT spending, and geopolitical conflicts could negatively impact demand for solutions and increase operating costs[184][185][186] - Intense competition from established and emerging vendors, including those with greater resources, could impact market position and pricing[191][192][193][194][195][196] - International operations (significant portion of customers, partners, and 78% of employees outside U.S.) expose the company to foreign currency fluctuations, regulatory changes, political instability, and other global risks[206][208][209][210][211][212] Risks Related to Intellectual Property, Legal, Tax and Regulatory Matters This section addresses risks concerning intellectual property, legal compliance, tax changes, and evolving regulatory environments, including data privacy and AI governance - Undetected software errors or flaws could harm reputation, decrease market acceptance, or result in liability[232] - Solutions collecting personal information raise privacy and data handling concerns, leading to increased costs, liability, or inhibited sales due to evolving global regulations (GDPR, CCPA, CPRA, UK GDPR)[234][235][236][237][238] - Use of AI/machine learning technologies in solutions could lead to harm, including technical errors, increased cybersecurity risks, legal liability, and reputational damage due to evolving regulatory and ethical concerns[239] - Reliance on third-party open source software components carries risks of non-compliance with licenses, potentially restricting sales or requiring proprietary code disclosure[240][241] - Failure to protect proprietary technology and intellectual property rights (trade secrets, patents) could substantially harm business and operating results[244][245][247][248] - Changes in income tax provision or adverse outcomes from tax examinations could harm operating results, with tax rates affected by earnings mix, non-deductible expenses, and new legislation (e.g., TCJA, Pillar Two)[256][257] Risks Related to Ownership of Our Common Stock This section covers risks associated with owning the company's common stock, including market volatility, guidance discrepancies, future share sales, and dividend policy - Stock price is subject to significant market volatility due to various factors, including company announcements, market conditions, and analyst estimates, potentially leading to litigation[258] - Actual operating results may differ significantly from guidance, which is inherently speculative and based on assumptions that may not materialize[259][261][263] - Future sales of shares by existing stockholders, including from option exercises and RSU releases, could cause the stock price to decline[264][265] - The share repurchase program may not be fully consummated or enhance stockholder value, and repurchases could affect stock price and diminish cash reserves[266] - The company does not intend to pay dividends, limiting stockholder returns to stock value[267] General Risk Factors This section addresses general risks such as anti-takeover provisions, disruptive technologies, future profitability, accounting estimates, and internal control effectiveness - Anti-takeover provisions in charter documents and Delaware law could make an acquisition more difficult and prevent management replacement[268][269] - Disruptive technologies could supplant cloud-based solutions, weakening sales and harming operating results[270] - The company may not maintain profitability in the future due to continued investments and unforeseen expenses[271] - Financial results rely on estimates and judgments related to critical accounting policies, which if incorrect, could harm operating results and stock price[273][275] - Failure to maintain an effective system of internal control over financial reporting could impair the ability to produce timely and accurate financial statements or comply with regulations[277][278] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during the three months ended June 30, 2025 Common Stock Repurchases (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Dollar Value of Shares that May Yet Be Purchased | |---|---|---|---| | April 1 - April 30, 2025 | 147,276 | $121.94 | $285,863,910 | | May 1 - May 31, 2025 | 125,985 | $134.28 | $268,946,181 | | June 1 - June 30, 2025 | 102,158 | $140.16 | $254,628,186 | | Total | 375,419 | | | - The share repurchase program had an aggregate authorization of $1.4 billion as of June 30, 2025, with $254.6 million remaining available[280] Item 3. Defaults upon Senior Securities This section confirms no defaults occurred on senior securities during the reporting period - No defaults upon senior securities were reported[281] Item 4. Mine Safety Disclosures This section confirms no mine safety disclosures are required or reported - No mine safety disclosures were reported[282] Item 5. Other Information This section reports on other information, specifically securities trading plans of directors and executive officers - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[283] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, agreements, and certifications - Exhibits include Certificate of Amendment to the Amended and Restated Certificate of Incorporation (3.1), Lease Agreement Second Amendment (10.2), and CEO/CFO Certifications (31.1, 31.2, 32.1, 32.2)[284] Signatures This section contains the official signatures attesting to the accuracy and completeness of the report - The report was signed on behalf of Qualys, Inc. by Joo Mi Kim, Chief Financial Officer, on August 5, 2025[287][288]