Qualys, Inc. (QLYS) Q3 2025 Earnings Call Transcript
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Overview
The earnings call summary reflects a generally positive outlook. The company has increased its revenue and EPS guidance, indicating confidence in its financial performance. There is a focus on innovation and strategic investments, particularly in AI and federal markets, which are expected to drive growth. The Q&A section highlights strong growth potential through upselling and new product adoption. Despite some uncertainties in the federal market and competition, the overall sentiment remains optimistic, with no significant negative trends identified. This suggests a likely positive stock price movement in the short term.
Key Financial Performance
Revenue $169.9 million, a 10% increase year-over-year. Growth was driven by a 17% increase in revenues from channel partners, which outpaced the 5% growth in direct revenues. International revenue grew by 15%, ahead of the 7% growth in the U.S.
Adjusted EBITDA $82.6 million, representing a 49% margin, up from a 45% margin a year ago. This improvement reflects the company's scalable and sustainable business model, as well as optimized investments in sales and marketing.
Earnings Per Share (EPS) $1.86, a 19% increase year-over-year. This growth was supported by strong operational performance and high operating leverage.
Free Cash Flow $89.5 million, representing a 53% margin, up from 37% in the prior year. Year-to-date free cash flow margin was 46%, compared to 42% in the prior year. The increase was attributed to strong operational cash generation and efficient capital allocation.
Operating Expenses $64.9 million, a 5% increase year-over-year. The rise was primarily driven by a 9% increase in sales and marketing expenses, reflecting the company's focus on driving growth.
Net Dollar Expansion Rate 104%, unchanged from the previous quarter. While gross retention improved, upsells remained challenging.
Share Repurchase $49.4 million spent to repurchase 366,000 shares in Q3. Since 2018, the company has repurchased 10.4 million shares, returning $1.2 billion to shareholders.
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Operating Highlights
Agentic AI Risk Operations Center (ROC): Qualys is pioneering a new category in cybersecurity designed to centralize an organization's response to threats before they impact the business. Powered by the ETM solution, it processes high-fidelity data, normalizes and correlates intelligence, and enables real-time collaboration between AI and humans to detect and respond to threats.
TruConfirm: A new capability that confirms exploitability before customers are compromised. It uses automated validation to prioritize exploitable blind spots and enables automated remediation with TruRisk Eliminate.
TruRisk Eliminate: An AI-based automated remediation solution that addresses vulnerabilities when patches are too risky or unavailable. It has evolved into a significant adoption layer and competitive advantage for Qualys.
Federal and State Government Wins: Achieved a high 6-figure upsell with a large government agency and a 7-figure state win, showcasing strength in the federal and local government market.
Global 700 Customer Win: Secured a mid-6-figure annual bookings upsell by consolidating fragmented telemetry and disconnected tools into a cohesive risk management solution.
Middle East Airline Win: Gained a new 6-figure customer win with a major airline due to unified detection and remediation capabilities.
Q-Flex Pricing Model: Introduced a flexible pricing model to accelerate adoption of the Qualys Enterprise TruRisk platform. A Global 10 customer increased annual bookings by over 50% under this program.
Partner Ecosystem: Partner-led deal registrations increased, and nearly a dozen partners launched mROC services leveraging ETM. This momentum is expected to grow with additional strategic partners.
Shift to ETM Customer Penetration Reporting: Starting Q1 2026, Qualys will report ETM customer penetration instead of cybersecurity asset management bookings, reflecting ETM's evolution as a key growth pillar.
Focus on Pre-Breach Risk Management: Qualys is positioning itself as a leader in pre-breach cyber risk management, emphasizing innovation and operational efficiencies to address security challenges.
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Risk or Challenges
Market Conditions: Budget scrutiny and challenging environment for new business growth in Q4, indicating potential macroeconomic volatility.
Competitive Pressures: Competitors are beginning to validate strategies similar to Qualys, which could increase market competition.
Regulatory Hurdles: No explicit mention of regulatory hurdles, but federal and state agency wins suggest compliance and regulatory challenges may exist.
Supply Chain Disruptions: No explicit mention of supply chain disruptions.
Economic Uncertainties: Budget scrutiny and macroeconomic challenges are impacting upsells and new business growth.
Strategic Execution Risks: Challenges in upselling existing customers, with net dollar expansion rate remaining at 104%, indicating difficulty in driving growth from current customer base.
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Guidance & Outlook
Revenue Guidance for Full Year 2025: Expected revenues to be in the range of $665.8 million to $667.8 million, representing a growth rate of 10%. This is an increase from the prior guidance of $656 million to $662 million.
Revenue Guidance for Q4 2025: Expected revenues to be in the range of $172 million to $174 million, representing a growth rate of 8% to 9%.
Profitability Guidance for Full Year 2025: EBITDA margin is expected to be in the mid- to high 40s, and net free cash flow margin in the low 40s.
EPS Guidance for Full Year 2025: Expected EPS to be in the range of $6.93 to $7, up from a prior range of $6.2 to $6.5.
EPS Guidance for Q4 2025: Expected EPS to be in the range of $1.73 to $1.8.
Capital Expenditures for Full Year 2025: Planned capital expenditures are expected to be in the range of $5.5 million to $7 million.
Capital Expenditures for Q4 2025: Planned capital expenditures are expected to be in the range of $1.2 million to $2.7 million.
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Shareholder Return Plan
Dividend Program: No mention of a dividend program or related metrics in the transcript.
Share Repurchase Program: The company repurchased 366,000 shares for $49.4 million in Q3 2025. Since February 2018, the company has repurchased 10.4 million shares, returning $1.2 billion to shareholders. As of the end of Q3 2025, $205 million remains in the share repurchase program.
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Key Q&A
Q:Can you elaborate on the pricing around ETM and the 100% upsell metric?
A:The ETM pricing includes Cybersecurity Asset Management (CSAM) as it is foundational for building a Risk Operations Center. It also incorporates Agentic AI capabilities to augment security teams, focused threat intelligence to validate exploits, and the ability to confirm exploitation. The upsell involves moving from ETM to TruRisk Eliminate, which includes patching and mitigation to remediate vulnerabilities. The pricing allows for up to 100% upsell with the addition of VMDR, CSAM, Agentic AI, and exploitation confirmation.
Q:What are you seeing in the federal market, especially in light of the recent government shutdown?
A:Qualys is in the early stages of its federal market strategy, having achieved FedRAMP high certification. This has led to strong conversations about the Risk Operations Center's efficiency benefits. While some federal customers are taking a wait-and-watch approach due to scrutiny, others are showing interest in consolidating tools for efficiency. The federal market is a long-term investment area for Qualys.
Q:How is the competitive environment evolving for Qualys?
A:Qualys sees competition primarily from Tenable and Rapid7, with occasional competition from other tools. However, Qualys differentiates itself by focusing on narrowing down findings to what truly matters and enabling immediate fixes. The Risk Operations Center integrates data from other tools and provides actionable insights, which resonates with customers. Qualys was also recognized as a leader in GigaOm's Patch Management.
Q:Were there any one-time benefits to revenue or CCP this quarter?
A:No, there were no specific one-time benefits or material impacts from out-of-cycle renewals. It was a solid growth quarter driven by execution.
Q:What needs to happen for net dollar retention to increase from 104%?
A:Qualys is focused on delivering the value of ETM to existing customers and prospects. Upselling from CSAM to ETM or cross-selling ETM with existing VMDR solutions is expected to positively impact net dollar retention.
Q:How is Qualys prioritizing R&D spend across initiatives like Agentic AI, TotalAI, and the CNAPP suite?
A:Qualys is leveraging AI internally to improve efficiency, achieving 20-25% gains with its best engineers. The company is focused on hiring more engineers, particularly in India, to manage costs while prioritizing investments in AI tools and cross-functional efficiencies between sales, product management, and R&D.
Q:What is the strategy for TruConfirm and its role in ETM?
A:TruConfirm is included as part of ETM and is not a standalone upsell. It differentiates Qualys from CTEM-only solutions by providing exploit validation capabilities. The strategy is to use TruConfirm as a beachhead to convert customers from VMDR to ETM and then upsell them to Eliminate for automated fixes.
Q:Are you seeing any changes in sales cycles as you pivot to a platform play?
A:There are no notable changes in sales cycles. The ability to ingest data from existing tools allows for quicker proof of concept (POC) cycles. Customers are showing interest in the Risk Operations Center as a focus area rather than just replacing existing scanners, which helps justify quicker adoption.
Q:What is driving the growth differences among vulnerability management vendors?
A:Qualys attributes its growth to its organically developed platform, which integrates multiple capabilities. The focus on prioritization, remediation, and the Risk Operations Center differentiates it from competitors. Non-VM products like Patch Management, ETM, and cloud security solutions are driving growth.
Q:How should we think about the contribution of new product innovations versus upselling existing customers?
A:Qualys is focusing on upselling existing customers from VMDR to ETM, which includes CSAM and new capabilities like Agentic AI. The company is also leveraging Q-Flex pricing to simplify cross-sells and upsells. Conversations around the Risk Operations Center have been positive, with customers appreciating the business-focused risk management approach.
Q:What is the outlook for billings growth in 2025 and beyond?
A:Qualys expects current billings growth to be around 8% for 2025. The outlook for 2026 will depend on net dollar expansion rates and new product adoption, which are being closely monitored.
Q:What is the strategy for ETM adoption and its impact on growth?
A:ETM adoption is a key focus for Qualys, with plans to upsell existing VMDR customers to ETM and then to Eliminate. The company is also leveraging mROC partnerships to scale its business. ETM is expected to drive significant growth in 2026.
Q:What is Qualys' acquisition strategy?
A:Qualys remains open to acquisitions but prioritizes an organic platform experience for customers. The company evaluates opportunities for both small and large acquisitions that align with its platform strategy. Currently, the focus is on executing its organic growth plans.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about the outlook for billings growth in 2026, stating that it is too early to tell and depends on factors like net dollar expansion rates and new product adoption.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Risk
AI human
AI remediation
AI speed
AI workforce
Agentic AI
Asset ETM
Asset TotalAppSec
Awards contribution
Black Hat
CISOs
CTEM
Center ROC
Cybersecurity Asset
ETM solution
Flex
Global customer
POCs
TotalCloud
attack surface
attacker
breach
capability ETM
government agency
leader
legacy
mROC partner
model
need
party tool
platform opportunity
pricing
remediation capability
response
risk quantification
risk term
security stack
spot
state
strength
tool risk
QLYS Transcript
Qualys, Inc. (QLYS) Q1 2026 Earnings Call Transcript
Positive5-6
The earnings call reveals strong financial performance, with revenue and net income both showing significant year-over-year growth of 15% and 20% respectively. Operating margins have improved, and free cash flow has increased, indicating sound financial health. The lack of negative sentiment in the Q&A section further supports a positive outlook. Despite the absence of strategic updates, the robust financial results and operational efficiencies suggest a strong positive impact on stock price.
Qualys, Inc. (QLYS) Q4 2025 Earnings Call Transcript
Positive2-6
The earnings call highlights strong financial metrics and optimistic guidance, including increased revenue and EPS expectations. Product developments, such as QFlex and AI capabilities, show innovation and potential for growth. While management avoided directly addressing some market concerns, the overall sentiment is positive, driven by strategic growth levers, federal contracts, and partner collaborations. The Q&A section supports this with positive feedback on product offerings and market strategy, suggesting a likely positive stock price movement over the next two weeks.
Qualys, Inc. (QLYS) Q3 2025 Earnings Call Transcript
Positive11-4
The earnings call summary reflects a generally positive outlook. The company has increased its revenue and EPS guidance, indicating confidence in its financial performance. There is a focus on innovation and strategic investments, particularly in AI and federal markets, which are expected to drive growth. The Q&A section highlights strong growth potential through upselling and new product adoption. Despite some uncertainties in the federal market and competition, the overall sentiment remains optimistic, with no significant negative trends identified. This suggests a likely positive stock price movement in the short term.
Qualys, Inc. (QLYS) Q2 2025 Earnings Call Transcript
Positive8-7
The earnings call summary shows strong financial performance and optimistic guidance, with improved EPS and EBITDA margins. The Q&A reveals a stable macro environment, slight improvement in net dollar expansion, and promising FedRAMP initiatives. Share repurchase plans and increased marketing investments add further positivity. Despite some management uncertainties, the overall sentiment is positive, indicating a likely stock price increase of 2% to 8%.
QLYS Slides
QLYS Report
Frequently Asked Questions
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