0001107843-25-000038
SEC filingRevenue grew 10% YoY driven by existing customers, gross margin improved to 84%, and operating margin expanded to 35%.
For the three months ended September 30, 2025, Qualys reported revenue of $169.9 million, a 10% increase from $153.9 million in the same period last year. The growth was predominantly driven by existing customers, which contributed 95% of the incremental revenue, while new customers accounted for the remaining 5%. Geographically, 40% of the increase came from U.S. customers and 60% from international markets. Revenue from direct customers made up 26% of the growth, while partner-sourced revenue contributed 74%. For the nine-month period, revenue reached $493.8 million, also up 10% year-over-year.
Gross profit rose to $142.1 million (84% margin) from $125.0 million (81% margin) in Q3 2024, an expansion of 300 basis points. The improvement was primarily due to a $1.0 million decrease in cost of revenues in the quarter, driven by a $1.4 million reduction in shared cloud platform costs from migrating to lower-cost regions and a $0.9 million decline in depreciation and amortization, partially offset by higher personnel costs.
Income from operations increased to $59.5 million (35% margin) from $44.6 million (29% margin) in the prior-year quarter, a 600 basis point improvement. Operating expenses grew at a slower pace than revenue. Research and development expenses were flat year-over-year at $28.9 million, despite increased headcount, due to lower average stock-based compensation. Sales and marketing expenses rose 8% to $35.3 million, driven by higher headcount and marketing spend. General and administrative expenses decreased 3% to $17.9 million, reflecting lower stock-based compensation. Net income was $50.3 million (30% margin), compared to $46.2 million (30% margin) in the prior year, with the tax provision increasing significantly due to the enactment of the OBBBA, which reduced the benefit from the FDII deduction.
While Qualys does not report formal operating segments, the MD&A provides a granular view of revenue composition. For the three months ended September 30, 2025, approximately 50% of total revenue came from direct customers and 50% from partners (versus 51%/49% for the nine months). The growth contribution from partners was notably higher, accounting for 74% of the revenue increase in the quarter. International customers represented 60% of the incremental revenue, consistent with the company's global expansion efforts.
Net dollar expansion rate improved to 104% from 103% as of September 30, 2024, demonstrating strong retention and upsell of existing customer subscriptions. The company's subscription-based model continues to generate predictable recurring revenue, with the majority of growth stemming from the existing customer base.
Management expects revenue growth to continue from both new and existing customers, supported by the company's strong market position and demand for its cloud security solutions. Operating expenses are anticipated to increase in absolute dollars as Qualys invests in research and development, sales and marketing, and general and administrative functions to support growth. The company expects to maintain healthy gross margins, leveraging cloud infrastructure optimizations.
The enactment of the OBBBA in July 2025 will reduce cash taxes in the near term due to the reinstatement of the R&D deduction, but it also lowered the benefit from the FDII deduction, increasing the income tax provision in the reported periods. No numerical guidance was provided for future quarters; however, the company highlighted its share repurchase program, with $205.2 million remaining under authorization, and expects to continue using cash for buybacks in 2025. Overall, Qualys remains focused on driving profitable growth while investing in its platform and expanding its partner ecosystem.
As of September 30, 2025, Qualys has a strong balance sheet with no debt. Cash, cash equivalents, and marketable securities total $663.6 million ($225.3M cash + $438.3M securities). Shareholders' equity is $529.4 million, up from $477.1 million at year-end 2024. The company also holds a $2.5 million non-marketable investment in a private company. Deferred revenue, both current and noncurrent, stands at $387.8 million, reflecting significant upfront customer payments.
Notes disclose no material purchase commitments or contractual obligations beyond operating leases. Operating lease liabilities total $54.6 million (present value) with maturities through 2034. The company has no debt or finance leases. Indemnification provisions exist but no liabilities have been recorded.
Qualys does not pay dividends. Capital allocation is focused on share repurchases and internal investment. In the first nine months of 2025, the company repurchased 1.033 million shares for $138.2 million. As of September 30, $205.2 million remained under the board-authorized repurchase program, with a new $200 million authorization on February 6, 2025. Capital expenditures were $4.3 million (0.9% of sales), primarily for computer equipment and leasehold improvements. The company has no debt issuance or repayment activity.
Qualys operates as a single reportable segment. The chief operating decision maker, the CEO, evaluates performance using consolidated net income. For the three months ended September 30, 2025, revenues were $169.9 million, with 56% from the United States ($95.6M) and 44% from international markets ($74.3M). Direct sales accounted for $85.7M and partner sales $84.2M. Long-lived assets (PP&E and operating lease ROU) are primarily in the U.S. ($52.4M) and India ($18.1M).
For the nine months ended September 30, 2025, Qualys generated $233.7M in operating cash flow, up 19% from $196.4M in the prior year period. Net income was $145.2M, resulting in a robust CFO-to-net income ratio of 1.6x, indicating high cash conversion. The primary non-cash adjustments were stock-based compensation of $56.3M and depreciation/amortization of $11.4M. Working capital provided $15.9M of cash, driven by a $35.0M decrease in accounts receivable, partially offset by a $7.9M decrease in deferred revenues.
Capital expenditures were modest at $4.3M, representing only 1.8% of CFO, leading to free cash flow of $229.5M. The company returned significant capital to shareholders through $138.8M in share repurchases, while dividends were not paid. Financing activities also included $15.6M from stock option exercises and employee stock purchases, net of taxes.
Investing activities showed net outflows of $97.3M, primarily from net purchases of marketable securities, indicating a cautious investment strategy. Overall, cash and restricted cash decreased by $6.9M to $226.5M at period end, despite strong operational cash generation, due to the large share repurchase program.