QUALYS, INC. 10-Q

Item 1. Financial Statements Qualys, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except per share data) March 31, 2025 December 31, 2024 Assets Current assets: Cash and cash equivalents $ 290,671 $ 232,182 Short-term marketable securities 150,206 149,241 Accounts receivable, net of allowance of $ 1,184 and $ 1,064 as of March 31, 2025 and December 31, 2024, respectively 121,563 164,551 Prepaid expenses and other current assets 39,506 39,717 Total current assets 601,946 585,691 Long-term marketable securities 198,990 193,887 Property and equipment, net 28,250 30,349 Operating leases - right of use asset 41,329 40,968 Deferred tax assets, net 86,059 81,307 Intangible assets, net 6,172 6,812 Goodwill 7,447 7,447 Noncurrent restricted cash 1,200 1,200 Other noncurrent assets 25,078 25,876 Total assets $ 996,471 $ 973,537 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 1,292 $ 1,270 Accrued liabilities 52,921 45,942 Deferred revenues, current 366,824 371,457 Operating lease liabilities, current 10,991 9,721 Total current liabilities 432,028 428,390 Deferred revenues, noncurrent 22,073 24,265 Operating lease liabilities, noncurrent 37,652 37,500 Other noncurrent liabilities 6,683 6,266 Total liabilities 498,436 496,421 Commitments and contingencies (Note 8) Stockholders’ equity: Preferred stock: $ 0.001 par value; 20,000 shares authorized, no shares issued and outstanding as of March 31, 2025 and December 31, 2024 — — Common stock: $ 0.001 par value; 1,000,000 shares authorized, 36,398 and 36,503 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively 36 37 Additional paid-in capital 677,531 664,879 Accumulated other comprehensive income 136 1,417 Accumulated deficit ( 179,668 ) ( 189,217 ) Total stockholders’ equity 498,035 477,116 Total liabilities and stockholders’ equity $ 996,471 $ 973,537 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 Table of Contents Qualys, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share data) Three Months Ended March 31, 2025 2024 Revenues $ 159,899 $ 145,805 Cost of revenues 28,926 27,198 Gross profit 130,973 118,607 Operating expenses: Research and development 29,154 27,530 Sales and marketing 32,660 29,408 General and administrative 17,404 16,908 Total operating expenses 79,218 73,846 Income from operations 51,755 44,761 Other income (expense), net: Interest income 6,235 6,123 Other income (expense), net 317 ( 1,399 ) Total other income, net 6,552 4,724 Income before income taxes 58,307 49,485 Income tax provision 10,773 9,754 Net income $ 47,534 $ 39,731 Net income per share: Basic $ 1.30 $ 1.08 Diluted $ 1.29 $ 1.05 Weighted average shares used in computing net income per share: Basic 36,466 36,955 Diluted 36,784 37,723 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 5 Table of Contents Qualys, Inc. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) (in thousands) Three Months Ended March 31, 2025 2024 Net income $ 47,534 $ 39,731 Other comprehensive income (loss), net of tax Net change in unrealized gains (losses) on available-for-sale debt securities, net of tax 296 ( 407 ) Net change in unrealized gains (losses) on cash flow hedges, net of tax ( 1,577 ) 1,104 Other comprehensive income (loss), net of tax ( 1,281 ) 697 Comprehensive income $ 46,253 $ 40,428 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 6 Table of Contents Qualys, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Three Months Ended March 31, 2025 2024 Cash flow from operating activities: Net income $ 47,534 $ 39,731 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 4,177 5,239 Provision for credit losses 206 193 Stock-based compensation, net of amounts capitalized 18,820 19,031 Accretion of discount on marketable securities, net ( 1,107 ) ( 1,915 ) Deferred income taxes ( 4,360 ) ( 4,111 ) Changes in operating assets and liabilities: Accounts receivable 42,782 30,404 Prepaid expenses and other assets 162 ( 10,126 ) Accounts payable ( 66 ) ( 335 ) Accrued liabilities and other noncurrent liabilities 8,265 8,892 Deferred revenues ( 6,825 ) ( 1,498 ) Net cash provided by operating activities 109,588 85,505 Cash flow from investing activities: Purchases of marketable securities ( 55,525 ) ( 61,340 ) Sales and maturities of marketable securities 50,532 71,463 Purchases of property and equipment ( 2,038 ) ( 2,051 ) Net cash provided by (used in) investing activities ( 7,031 ) 8,072 Cash flow from financing activities: Repurchase of common stock ( 39,653 ) ( 18,029 ) Proceeds from exercise of stock options 2,599 2,770 Payments for taxes related to net share settlement of equity awards ( 10,831 ) ( 11,808 ) Proceeds from issuance of common stock through employee stock purchase plan 3,817 3,608 Payment of acquisition-related holdback — ( 1,500 ) Net cash used in financing activities ( 44,068 ) ( 24,959 ) Net increase in cash, cash equivalents and restricted cash 58,489 68,618 Cash, cash equivalents and restricted cash at beginning of period 233,382 206,365 Cash, cash equivalents and restricted cash at end of period $ 291,871 $ 274,983 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 7 Table of Contents Qualys, Inc. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited) (in thousands) Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balances at December 31, 2024 36,503 $ 37 $ 664,879 $ 1,417 $ ( 189,217 ) $ 477,116 Net income — — — — 47,534 47,534 Other comprehensive loss, net of tax — — — ( 1,281 ) — ( 1,281 ) Issuance of common stock upon exercise of stock options 56 — 2,599 — — 2,599 Repurchase of common stock ( 292 ) ( 1 ) ( 1,753 ) — ( 37,985 ) ( 39,739 ) Issuance of common stock upon vesting of restricted stock units 172 — — — — — Taxes related to net share settlement of equity awards ( 78 ) — ( 10,831 ) — — ( 10,831 ) Issuance of common stock through employee stock purchase plan 37 — 3,817 — — 3,817 Stock-based compensation — — 18,820 — — 18,820 Balances at March 31, 2025 36,398 $ 36 $ 677,531 $ 136 $ ( 179,668 ) $ 498,035 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balances at December 31, 2023 36,909 $ 37 $ 597,921 $ ( 1,704 ) $ ( 228,080 ) $ 368,174 Net income — — — — 39,731 39,731 Other comprehensive income, net of tax — — — 697 — 697 Issuance of common stock upon exercise of stock options 46 — 2,770 — — 2,770 Repurchase of common stock ( 105 ) — ( 627 ) — ( 17,402 ) ( 18,029 ) Issuance of common stock upon vesting of restricted stock units 149 — — — — — Taxes related to net share settlement of equity awards ( 66 ) — ( 11,808 ) — — ( 11,808 ) Issuance of common stock through employee stock purchase plan 29 — 3,608 — — 3,608 Stock-based compensation — — 19,059 — — 19,059 Balances at March 31, 2024 36,962 $ 37 $ 610,923 $ ( 1,007 ) $ ( 205,751 ) $ 404,202 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 8 Table of Contents Qualys, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) NOTE 1. Description of Business and Summary of Significant Accounting Policies Description of Business Qualys, Inc. (the "Company", "we", "us", "our") was incorporated in the state of Delaware on December 30, 1999. The Company is headquartered in Foster City, California and has wholly-owned subsidiaries throughout the world. The Company is a leading provider of cloud-based 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. The Company’s cloud solutions address the growing security and compliance complexities and risks that are amplified by the dissolving boundaries between internal and external IT infrastructures and web environments, the rapid adoption of cloud computing and the proliferation of geographically dispersed IT assets. Organizations can use the Company’s integrated suite of solutions delivered on Qualys' Enterprise TruRisk Platform to cost-effectively obtain a unified view of their security and compliance posture across globally-distributed IT infrastructures. Basis of Presentation The accompanying unaudited condensed consolidated financial statements and condensed footnotes have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") for interim financial information as well as the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Certain information and disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2024, included herein, was derived from the audited financial statements as of that date but does not include all disclosures, including notes required by U.S. GAAP. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the financial position, results of operations and cash flows for the interim periods. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results of operations expected for the entire year ending December 31, 2025 or for any other future annual or interim periods. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 21, 2025. Use of Estimates The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the condensed consolidated financial statements and the reported results of operations during the reporting period. The Company’s management regularly assesses these estimates, which primarily affect revenue recognition, allowance for credit loss, the valuation of goodwill and intangible assets, leases, stock-based compensation and income tax provision. Actual results could differ from those estimates and such differences may be material to the accompanying unaudited condensed consolidated financial statements. Recently Adopted Accounting Pronouncements None. Recently Issued Accounting Pronouncements Not Yet Adopted In December 2023, the FASB issued ASU 2023-09 - Improvements to Income Tax Disclosures , requiring improvements to income tax disclosures. The new ASU requires disclosure of disaggregated information about the effective tax rate and income taxes paid. The requirements of the ASU are effective for annual periods beginning after December 15, 2024 and are to be applied on a prospective basis. The Company's annual reporting requirements will be 9 Table of Contents effective for fiscal year 2025. Companies can choose to early adopt and apply the guidance retrospectively. The Company is in the process of analyzing the impact of the ASU on related disclosures. In November 2024, the FASB issued ASU 2024-03 - Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses , requiring more detailed information about the types of expenses included in certain expense captions presented on the consolidated statements of operations. Additionally, this amendment requires the disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively and the disclosure of the total amount of selling expenses. The requirements of the ASU are effective for annual periods beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027 and are to be applied on a retrospective or prospective basis, with early adoption permitted. The Company's annual reporting requirements will be effective for fiscal year 2027. The Company is in the process of analyzing the impact of the ASU on related disclosures. There have been no material changes to the Company’s significant accounting policies set forth in "Note 1" of Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. NOTE 2. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For certain of the Company’s financial instruments, including certain cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate their fair values due to the relatively short maturity of these balances. The Company measures and reports certain cash equivalents, marketable securities, derivative foreign currency forward contracts at fair value in accordance with the provisions of the authoritative accounting guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities. Level 2 - Valuations based on other than quoted prices in active markets for identical assets and liabilities, including quoted prices for identical assets or liabilities in less active or inactive markets, quoted prices for similar assets or liabilities in active markets, or inputs other than quoted prices that are observable for substantially the full term of the assets or liabilities. Level 3 - Valuations based on inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The Company's financial instruments consist of assets and liabilities measured using Level 1 and 2 inputs. Level 1 assets include a highly liquid money market fund, which is valued using unadjusted quoted prices that are available in an active market for an identical asset. Level 2 assets include fixed-income U.S. Treasury and government agency securities, commercial paper, corporate bonds, asset-backed securities and derivative financial instruments consisting of foreign currency forward contracts. The securities, bonds and commercial paper are valued using prices from independent pricing services based on quoted prices of identical instruments in less active or inactive markets, quoted prices of similar instruments in active markets, or industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets. The foreign currency forward contracts are valued using observable inputs, such as quotations on forward foreign exchange points and foreign interest rates. 10 Table of Contents The following table sets forth by level within the fair value hierarchy the fair value of the Company's financial assets and liabilities measured at fair value on a recurring basis: March 31, 2025 Level 1 Level 2 Fair Value (in thousands) Money market funds $ 508 $ — $ 508 Commercial paper — 1,992 1,992 U.S. Treasury and government agencies — 254,985 254,985 Corporate bonds — 140,742 140,742 Asset-backed securities — 5,640 5,640 Foreign currency forward contracts — 555 555 Total assets $ 508 $ 403,914 $ 404,422 Foreign currency forward contracts $ — $ 2,173 $ 2,173 Total liabilities $ — $ 2,173 $ 2,173 December 31, 2024 Level 1 Level 2 Fair Value (in thousands) Money market funds $ 404 $ — $ 404 Commercial paper — 6,443 6,443 U.S. Treasury and government agencies — 233,279 233,279 Corporate bonds — 131,812 131,812 Asset-backed securities — 7,520 7,520 Foreign currency forward contracts — 2,575 2,575 Total assets $ 404 $ 381,629 $ 382,033 Foreign currency forward contracts $ — $ 1,339 $ 1,339 Total liabilities $ — $ 1,339 $ 1,339 There were no transfers between Level 1, Level 2 and Level 3 categories during the three months ended March 31, 2025 and 2024. 11 Table of Contents Cash equivalent and investments The Company's cash equivalents and marketable securities consist of the following: March 31, 2025 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Cash equivalents: (1) Money market funds $ 508 $ — $ — $ 508 U.S. Treasury and government agencies 54,166 — ( 3 ) 54,163 Total 54,674 — ( 3 ) 54,671 Short-term marketable securities: Commercial paper 1,993 — ( 1 ) 1,992 Corporate bonds 53,383 94 ( 10 ) 53,467 U.S. Treasury and government agencies 94,584 186 ( 23 ) 94,747 Total 149,960 280 ( 34 ) 150,206 Long-term marketable securities: Corporate bonds 86,860 461 ( 46 ) 87,275 Asset-backed securities 5,575 65 — 5,640 U.S. Treasury and government agencies 105,906 235 ( 66 ) 106,075 Total 198,341 761 ( 112 ) 198,990 Total $ 402,975 $ 1,041 $ ( 149 ) $ 403,867 (1) Excludes cash of $ 236.0 million. December 31, 2024 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Cash equivalents: (2) Money market funds $ 404 $ — $ — $ 404 Commercial paper 1,983 — — 1,983 U.S. Treasury and government agencies 33,939 4 — 33,943 Total 36,326 4 — 36,330 Short-term marketable securities: Commercial paper 4,459 3 ( 2 ) 4,460 Corporate bonds 47,155 107 ( 3 ) 47,259 U.S. Treasury and government agencies 97,338 207 ( 23 ) 97,522 Total 148,952 317 ( 28 ) 149,241 Long-term marketable securities: Corporate bonds 84,414 310 ( 171 ) 84,553 Asset-backed securities 7,426 94 — 7,520 U.S. Treasury and government agencies 101,834 178 ( 198 ) 101,814 Total 193,674 582 ( 369 ) 193,887 Total $ 378,952 $ 903 $ ( 397 ) $ 379,458 (2) Excludes cash of $ 195.9 million. 12 Table of Contents The following table summarizes the gross unrealized losses and fair value of the Company's marketable securities that were in an unrealized loss position aggregated by length of time: March 31, 2025 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (in thousands) Commercial paper $ 1,992 $ ( 1 ) $ — $ — $ 1,992 $ ( 1 ) Corporate bonds 26,613 ( 56 ) — — 26,613 ( 56 ) U.S. Treasury and government agencies 112,453 ( 92 ) — — 112,453 ( 92 ) Total $ 141,058 $ ( 149 ) $ — $ — $ 141,058 $ ( 149 ) December 31, 2024 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (in thousands) Commercial paper $ 4,464 $ ( 2 ) $ — $ — $ 4,464 $ ( 2 ) Corporate bonds 27,154 ( 171 ) 672 ( 3 ) 27,826 ( 174 ) U.S. Treasury and government agencies 64,517 ( 221 ) — — 64,517 ( 221 ) Total $ 96,135 $ ( 394 ) $ 672 $ ( 3 ) $ 96,807 $ ( 397 ) The Company considered the extent to which any unrealized losses on its marketable securities were driven by credit risk and other factors, including market risk, and if it is more-likely-than-not that the Company would have to sell the security before the recovery of the amortized cost basis. At March 31, 2025 and December 31, 2024, the unrealized losses related to its marketable securities were due to market factors other than credit. The Company does not believe the unrealized losses represent credit risk, and the Company does not intend to sell any of the securities in an unrealized loss position and it is not likely that the Company would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity. Thus, no credit loss was recognized for the Company's marketable securities for the three months ended March 31, 2025 and 2024. The following summarizes the fair value of marketable securities by contractual maturity: March 31, 2025 Amortized Cost Fair Value (in thousands) Due within One Year $ 204,634 $ 204,877 Due after One Year through Five Years 192,766 193,350 Asset-backed securities 5,575 5,640 Total $ 402,975 $ 403,867 Non-Marketable Securities During the fiscal year ended December 31, 2018, the Company invested $ 2.5 million in preferred stock of a privately-held company. The fair value of the investment is not readily available, and there are no quoted market prices for the investment. The Company accounts for the investment at cost less impairment and will measure the investment at fair value when the Company identifies observable price changes. The investment is assessed for impairment whenever events or changes in circumstances indicate that the fair value of the investment is less than carrying value. During the second 13 Table of Contents quarter of 2023, the Company identified an observable price change in the investment and recognized an immaterial unrealized loss in other income (expense), net of the condensed consolidated statement of operations. The investment is included in other noncurrent assets on the condensed consolidated balance sheets. The Company has not received any dividends from the investment. Derivative Financial Instruments Designated cash flow hedges The Company enters into foreign currency forward contracts to reduce the risk of variability in future cash flow due to foreign currency exchange rate fluctuation from certain forecasted subscription revenue orders billed in British Pound ("GBP") and Euro ("EUR") and operating expenses incurred in Indian Rupee ("INR"), which are designated as cash flow hedges. Hedge effectiveness is assessed at inception and at each reporting period utilizing regression analysis. Unrealized foreign exchange gains or losses related to those designated cash flow hedge contracts are recorded in accumulated other comprehensive income ("AOCI") and will be reclassified into revenues or operating expenses, respectively, in the same periods when the hedged transactions are recognized in earnings. As of March 31, 2025, the Company had designated cash flow hedge forward contracts with notional amounts of € 49.1 million, £ 21.6 million and Rs. 4,579.0 million. As of December 31, 2024, the Company had designated cash flow hedge forward contracts with notional amounts of € 51.4 million, £ 20.3 million and Rs. 4,381.0 million. As of March 31, 2025 , an immaterial amount of net unrealized gain before tax on the foreign currency forward contracts for GBP and EUR reported in AOCI is expected to be reclassified into revenue within the next 12 months. As of March 31, 2025 , an immaterial amount of net unrealized loss before tax on the foreign currency forward contracts for INR reported in AOCI is expected to be reclassified into operating expenses within the next 12 months. Non-designated forward contracts The Company also uses foreign currency forward contracts to hedge certain foreign currency denominated assets or liabilities, which are not designated as cash flow hedges. Unrealized foreign exchange gain or losses related to the non-designated forward contracts are recorded in other income (expenses), net and offset the foreign exchange gain or loss on the underlying net monetary assets or liabilities. As of March 31, 2025, the Company had non-designated forward contracts with notional amounts of € 18.7 million, £ 7.3 million, and Rs. 1,650.0 million. As of December 31, 2024, the Company had non-designated forward contracts with notional amounts of € 27.0 million, £ 8.0 million, Rs. 1,252.0 million, and Canadian Dollar ("C$" or "CAD") C$ 1.0 million. The following summarizes the fair value of derivative financial instruments as of March 31, 2025 and December 31, 2024 : March 31, 2025 December 31, 2024 (in thousands) Assets Foreign currency forward contracts designated as cash flow hedge $ 549 $ 2,495 Foreign currency forward contracts not designated as hedging instruments 6 80 Total $ 555 $ 2,575 Liabilities Foreign currency forward contracts designated as cash flow hedge $ 2,034 $ 1,315 Foreign currency forward contracts not designated as hedging instruments 139 24 Total $ 2,173 $ 1,339 The Company presents its derivative assets and derivative liabilities at gross fair values in the condensed consolidated balance sheets. However, under the master netting agreements with the respective counterparties of the foreign exchange contracts, subject to applicable requirements, the Company is allowed to net settle transactions of the same currency with a 14 Table of Contents single net amount payable by one party to the other. The potential offset to both assets and liabilities under the right of set-off associated with the Company's foreign currency exchange contracts are immaterial as of March 31, 2025 and December 31, 2024. The derivatives held by the Company are not subject to any credit contingent features negotiated with its counterparties. The Company is not required to pledge nor is entitled to receive cash collateral related to the above contracts. The counterparties to these derivatives are large, global financial institutions that the Company believes are creditworthy, and therefore, it does not consider the risk of counterparty nonperformance to be material. The following summarizes the gains (losses) recognized from forward contracts and other foreign currency transactions in other income (expense), net in the condensed consolidated statements of operations: Three Months Ended March 31, 2025 2024 (in thousands) Net gains (losses) from non-designated forward contracts $ ( 1,617 ) $ 512 Other foreign currency transactions gains (losses) 1,877 ( 1,941 ) Total foreign exchange gains (losses), net $ 260 $ ( 1,429 ) NOTE 3. Accumulated Other Comprehensive Income (Loss) The components and changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2025 and 2024 were as follows: Available-for-Sale Debt Securities Cash Flow Hedges Total (in thousands) Balances at December 31, 2024 $ 391 $ 1,026 $ 1,417 Change in unrealized gains (losses) during the period 366 ( 2,230 ) ( 1,864 ) Amount reclassified into income during the period 20 170 190 Tax effect ( 90 ) 483 393 Net change during the period 296 ( 1,577 ) ( 1,281 ) Balances at March 31, 2025 $ 687 $ ( 551 ) $ 136 Balances at December 31, 2023 $ 108 $ ( 1,812 ) $ ( 1,704 ) Change in unrealized gains (losses) during the period ( 436 ) 1,222 786 Amount reclassified into income during the period — 218 218 Tax effect 29 ( 336 ) ( 307 ) Net change during the period ( 407 ) 1,104 697 Balances at March 31, 2024 $ ( 299 ) $ ( 708 ) $ ( 1,007 ) 15 Table of Contents The effects on income before income taxes of amounts reclassified from AOCI to the condensed consolidated statements of operations were as follows: Three Months Ended March 31, 2025 2024 (in thousands) Reclassification of AOCI - Cash flow hedges Revenues $ 179 $ ( 279 ) Cost of revenues ( 82 ) 15 Research and development ( 217 ) 37 Sales and marketing ( 20 ) 3 General and administrative ( 30 ) 6 Total $ ( 170 ) $ ( 218 ) The Company reclassified an immaterial amount from AOCI to other income (expense), net related to available-for-sale debt securities during the three months ended March 31, 2025 and none during the same period in 2024. NOTE 4. Property and Equipment, Net Property and equipment, net, consists of the following: March 31, 2025 December 31, 2024 (in thousands) Computer equipment $ 188,413 $ 187,281 Computer software 26,237 26,229 Leasehold improvements 23,689 23,429 Scanner appliances 18,976 18,978 Furniture, fixtures and equipment 5,202 5,204 Total property and equipment 262,517 261,121 Less: accumulated depreciation and amortization ( 234,267 ) ( 230,772 ) Property and equipment, net $ 28,250 $ 30,349 As of March 31, 2025 and December 31, 2024 , physical scanner appliances and other computer equipment that are or will be subject to leases by customers had a net carrying value of $ 10.4 million and $ 11.2 million, respectively, including assets that had not been placed in service of $ 4.6 million and $ 7.4 million, respectively. Depreciation and amortization expenses relating to property and equipment were $ 3.5 million and $ 4.5 million for the three months ended March 31, 2025 and 2024 , respectively , which were mainly recorded in cost of revenues in the condensed consolidated statements of operations. NOTE 5. Revenue from Contracts with Customers The Company records deferred revenue when cash payments are received or due in advance of its performance obligations offset by revenue recognized in the period. Revenues o f $ 142.7 million and $ 131.0 million were recognized during the three months ended March 31, 2025 and 2024 , respectively, which amounts were included in the deferred revenue balances of $ 395.7 million and $ 364.9 million as of December 31, 2024 and 2023 , respectively. The Company's payment terms vary by the type and location of its customers. The term between invoicing and when payment is due is not significant. In certain circumstances, based on the credit quality of the customer, the Company requires payment before the products or services are delivered to the customer. 16 Table of Contents The following table sets forth the expected revenue from all remaining performance obligations as of March 31, 2025: (in thousands) 2025 (remaining nine months) $ 194,363 2026 157,673 2027 69,651 2028 4,528 2029 1,249 2030 and thereafter 142 Total $ 427,606 Revenues allocated to remaining performance obligations represents the transaction price of noncancelable orders for which service has not been performed, which include deferred revenue and the amounts that will be invoiced and recognized as revenues in future periods from open contracts and excludes unexercised renewals. The Company applied the short-term contract exemption to exclude the remaining performance obligations that are part of a contract that has an original expected duration of one year or less. From time to time, the Company enters into contracts with customers that extend beyond one year, with certain of its customers electing to pay for more than one year of services upon contract execution. The Company concluded that these contracts did not contain a financing component. Revenues by sales channel are as follows: Three Months Ended March 31, 2025 2024 (in thousands) Direct $ 81,728 $ 80,126 Partner 78,171 65,679 Total $ 159,899 $ 145,805 The Company utilizes partners to enable and accelerate the adoption of its cloud platform by increasing its distribution capabilities and market awareness of its cloud platform as well as by targeting geographic regions outside the reach of its direct sales force. The Company's channel partners maintain relationships with their customers throughout the territories in which they operate and provide their customers with services and third-party solutions to help meet those customers’ evolving security and compliance requirements. As such, these partners may offer the Company's IT security and compliance solutions in conjunction with one or more of their own products or services and act as a conduit through which the Company can connect with these prospective customers to offer its solutions. For sales involving a channel partner, the channel partner engages with the prospective customer directly and involves the Company's sales team as needed to assist in developing and closing an order. When a channel partner secures a sale, the Company sells the associated subscription to the channel partner who in turn resells the subscription to the customer. Sales to channel partners are made at a discount and revenues are recorded at this discounted price over the subscription terms. The Company does not have any influence or specific knowledge of its partners' selling terms with their customers. See Note 11 , "Segment and Geographic Area Information" for disaggregation of revenue by geographic area. 17 Table of Contents Deferred costs to obtain contracts are as follows: March 31, 2025 December 31, 2024 (in thousands) Current $ 7,407 $ 7,289 Noncurrent $ 14,951 $ 15,301 For the three months ended March 31, 2025 and 2024 , the Company recognized $ 2.0 million and $ 1.6 million, respectively, of amortization expense relating to deferred costs to obtain contracts in sales and marketing expense in the condensed consolidated statements of operations. During the same periods, there was no impairment loss related to the deferred costs to obtain contracts. As of December 31, 2023, the net carrying value of the Company’s accounts receivable, current deferred revenues, and noncurrent deferred revenues were $ 146.2 million, $ 333.3 million and $ 31.7 million, respectively. NOTE 6. Intangible Assets, Net Intangible assets consist primarily of developed technology and patent licenses acquired from business or asset acquisitions. Acquired intangibles are amortized on a straight-line basis over the respective estimated useful lives of the assets. The carrying values of intangible assets are as follows: March 31, 2025 (in thousands) Weighted Average Life (Years) Cost Accumulated Amortization Net Book Value Developed technology 4.6 $ 40,141 $ ( 34,009 ) $ 6,132 Total intangibles subject to amortization $ 40,141 $ ( 34,009 ) $ 6,132 Intangible assets not subject to amortization 40 Total intangible assets, net $ 6,172 December 31, 2024 (in thousands) Weighted Average Life (Years) Cost Accumulated Amortization Net Book Value Developed technology 4.6 $ 40,141 $ ( 33,369 ) $ 6,772 Total intangibles subject to amortization $ 40,141 $ ( 33,369 ) $ 6,772 Intangible assets not subject to amortization 40 Total intangible assets, net $ 6,812 Intangible asset amortization expense was $ 0.6 million and $ 0.8 million for the three months ended March 31, 2025 and 2024, respectively. Intangible asset amortization expenses were primarily recorded in cost of revenues in the condensed consolidated statements of operations. 18 Table of Contents As of March 31, 2025 , the Company expects amortization expense in future periods to be as follows: (in thousands) 2025 (remaining nine months) $ 1,917 2026 2,477 2027 1,738 Total expected future amortization expense $ 6,132 NOTE 7. Leases The Company leases certain offices, computer equipment and its shared cloud platform facilities under non-cancelable operating leases for varying periods through 2030 . While under the Company's lease agreements the Company has options to extend its certain leases, the Company has not included renewal options in determining the lease terms for calculating its lease liabilities, as these options are not reasonably certain of being exercised. Lease expense was $ 4.2 million and $ 3.8 million for the three months ended March 31, 2025 and 2024, respectively. Supplemental cash flow information related to operating leases was as follows: Three Months Ended March 31, 2025 2024 (in thousands) Cash payments included in the measurement of lease liabilities $ 3,616 $ 3,621 Lease liabilities arising from obtaining right-of-use assets $ 3,226 $ 12,347 The weighted average remaining lease term and the weighted average discount rate of the Company's operating leases were as follows: March 31, 2025 December 31, 2024 Weighted average remaining lease term (years) 4.2 4.2 Weighted average discount rate 7.5 % 7.4 % Maturities of the Company's operating lease liabilities as of March 31, 2025 are as follows: (in thousands) 2025 (remaining nine months) $ 10,856 2026 13,554 2027 13,560 2028 10,339 2029 6,649 2030 and thereafter 2,102 Total minimum lease payments 57,060 Less: interest ( 8,417 ) Present value of net minimum lease payments $ 48,643 19 Table of Contents NOTE 8. Commitments and Contingencies Indemnifications The Company from time to time enters into certain types of contracts that contingently require it to indemnify various parties against claims from third parties. These contracts primarily relate to (i) the Company's bylaws, under which it must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship, (ii) contracts under which the Company must indemnify directors and certain officers for liabilities arising out of their relationship, and (iii) contracts under which the Company may be required to indemnify customers or resellers from certain liabilities arising from potential infringement of intellectual property rights, as well as potential damages caused by limited product defects. To date, the Company has not incurred and has not recorded any liability in connection with such indemnifications. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors. NOTE 9. Stockholders' Equity and Stock-based Compensation Equity Incentive Plans Restated 2012 Equity Incentive Plan On June 8, 2022 ("Effective Date"), the Company's stockholders approved the Amended and Restated 2012 Equity Incentive Plan (the "Restated 2012 Plan"). Under the Restated 2012 Plan, the Company is authorized to grant to eligible participants incentive stock options, nonstatutory stock options, restricted stock, restricted stock units ("RSUs"), stock appreciation rights, performance units and performance shares. Pursuant to the relevant plan provisions, 3,072 thousand shares were available for grant under the Restated 2012 Plan on the Effective Date. In addition, any outstanding awards or options granted under the previous version of the 2012 Equity Incentive Plan ("Previous 2012 Plan") will be added back to the shares available for grant under the Restated 2012 Plan if they expire unexercised or are otherwise forfeited after the Effective Date. Any remaining shares available for grant under the Previous 2012 Plan as of the Effective Date were no longer available for future grants under the Restated 2012 Plan. On June 12, 2024, the Company's stockholders approved an amendment and restatement to the Restated 2012 Plan to increase the number of shares of the Company's common stock reserved for issuance by 1,092 thousand shares. As of March 31, 2025 , 2,251 thousand shares are available for future grants under the Restated 2012 Plan. 2021 Employee Stock Purchase Plan On June 9, 2021, the Company’s stockholders approved the 2021 Employee Stock Purchase Plan (the "ESPP"). A total of 600 thousand shares were authorized for issuance to eligible participating employees upon adoption of the ESPP. The ESPP provides for consecutive 6 -month offering periods beginning on or about August 16 and February 16 of each year. Eligible employees who elect to participate can contribute from 1 % to 15 % of their eligible compensation through payroll withholding. During any offering period, contribution rates cannot be changed. However, eligible employees may withdraw from the current offering period. Any contributions made prior to each purchase date in the case of withdrawal or termination of employment will be refunded. On each purchase date, eligible participating employees will purchase the shares at a price per share equal to 85 % of the lesser of (i) the fair market value of the Company's stock on the first trading day of the offering period or (ii) the fair market value of the Company's stock on the purchase date (i.e., the last trading day of the offering period). During the three months ended March 31, 2025 , 37 thousand shares were issued in connection with the purchase of common stock by participating employees. As of March 31, 2025 , 398 thousand shares were available for future purchase. 20 Table of Contents Stock Options Stock options granted under the Restated 2012 Plan and Previous 2012 Plan (collectively, the "Plans") generally vest based on continued service over four years and expire ten years from the date of grant. A summary of the Company’s stock option activity during the three months ended March 31, 2025 is as follows: Outstanding Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value (in thousands) (Years) (in thousands) Balance as of December 31, 2024 1,314 $ 113.07 6.6 $ 40,141 Granted 40 $ 139.73 Exercised ( 56 ) $ 46.41 Canceled ( 21 ) $ 141.25 Balance as of March 31, 2025 1,277 $ 116.35 6.6 $ 23,831 Vested and expected to vest as of March 31, 2025 1,165 $ 113.95 6.3 $ 23,632 Exercisable as of March 31, 2025 781 $ 101.74 5.4 $ 22,800 Restricted Stock Units RSUs granted under the Plans generally only contain a service-based vesting condition that is typically satisfied over four years . The Company, at times, grants performance-based restricted stock units ("PRSU") under the Plans, to its executive officers and certain other members of its senior leadership team. These PRSUs include both service-based and performance-based vesting conditions. During the fourth quarter each year, the Company’s board of directors (the "Board") or the Compensation and Talent Committee ("CTC") approves the target value for the PRSUs. The target PRSUs are scheduled to vest in three equal annual installments over a three-year period, beginning the year after approval. The performance-based vesting condition is satisfied upon the achievement of certain Company annual performance metrics, including revenue growth and adjusted EBITDA margin, which are approved annually by the Board or the CTC. Each annual installments at 200 % of the annual target will be considered granted when the performance metrics for the corresponding performance year is determined and approved. The actual number of the PRSUs earned and eligible to vest ranges from 0 % to 200 % of the annual target, based on the weighted-average achievement of such Company annual performance metrics set for the corresponding annual performance period. Up to 100 % of the first and second installment will vest and be released upon completion of the respective performance period following the certification by the Audit and Risk Committee ("ARC"), with cumulative achievement over 100 %, if any, to be vested and released at the end of the third year performance period, along with the third installment, following the certification by the ARC. Under the Plan, any 21 Table of Contents unvested PRSU award may be accelerated in part or in full upon the occurrence of certain events, such as death or disability, or a change in control, as defined in the grant agreement. A summary of the Company’s RSU activity, inclusive of PRSU activity, during the three months ended March 31, 2025 is as follows: Outstanding RSUs Weighted Average Grant Date Fair Value Per Share (in thousands) Balance as of December 31, 2024 1,086 (1) $ 140.72 Granted 192 (2) $ 139.73 Vested ( 172 ) (3) $ 147.54 Forfeited ( 135 ) (4) $ 152.02 Balance as of March 31, 2025 971 (5) $ 137.73 Outstanding and expected to vest as of March 31, 2025 760 $ 137.06 (1) Included 161 thousand PRSUs granted to certain executive officers in 2024, 2023, 2022 and 2021. (2) Included 164 thousand PRSUs granted to certain executive officers in the three months ended March 31, 2025. (3) Included 90 thousand PRSUs granted to certain executive officers in 2024, 2023, 2022 and 2021. (4) Included 70 thousand PRSUs granted to certain executive officers in 2024, 2023, 2022 and 2021. (5) Included 165 thousand PRSUs granted to certain executive officers in 2025, 2024, 2023, 2022 and 2021. Stock-based Compensation The following table shows a summary of the stock-based compensation expenses included in the condensed consolidated statements of operations: Three Months Ended March 31, 2025 2024 (in thousands) Cost of revenues $ 2,090 $ 2,020 Research and development 5,104 5,303 Sales and marketing 3,200 3,739 General and administrative 8,426 7,969 Total stock-based compensation, net of amounts capitalized (1) $ 18,820 $ 19,031 (1) Total stock-based compensation expense capitalized was de minimis during the three months ended March 31, 2025 and 2024. Of the total stock-based compensation expense in the table above, the Company recognized stock-based compensation expenses related to all PRSUs of $ 3.3 million and $ 2.8 million during the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025 , the Company had unrecognized stock-based compensation expenses of $ 18.1 million, $ 80.5 million, $ 10.7 million, and $ 0.8 million related to options, RSUs, PRSUs, and ESPP purchase rights, respectively, which are expected to be recognized over weighted-average periods of 2.3 years, 2.7 years, 1.0 year, and 0.4 years, respectively. 22 Table of Contents Share Repurchase Program The Company's share repurchase program was authorized by the board of directors as follows: Announcement Date Authorized Dollar Value (in millions) February 12, 2018 $ 100.0 October 30, 2018 100.0 October 30, 2019 100.0 May 7, 2020 100.0 February 10, 2021 100.0 November 3, 2021 200.0 May 4, 2022 200.0 February 9, 2023 100.0 February 7, 2024 200.0 February 6, 2025 200.0 Total as of March 31, 2025 $ 1,400.0 Shares may be repurchased from time to time 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. All share repurchases have been made using cash resources. Repurchased shares are retired and reclassified as authorized and unissued shares of common stock. On retirement of the repurchased shares, common stock is reduced by an amount equal to the number of shares being retired multiplied by the par value. The excess amount that is retired over its par value is first allocated as a reduction to additional paid-in capital based on the original cost of additional paid-in capital per share of identified issuances. The remaining amount is allocated to accumulated deficit. During the three months ended March 31, 2025 and 2024, the Company repurchased 292 thousand shares and 105 thousand shares of its common stock for approximately $ 39.6 million and $ 18.0 million, respectively. As of March 31, 2025, approximately $ 303.8 million remained available for share repurchases pursuant to the Company's share repurchase program. Excise tax on stock repurchases net of issue was immaterial to the Company's financial results and cash flows for the three months ended March 31, 2025 and 2024 and the Company's financial position as of March 31, 2025 and December 31, 2024. NOTE 10. Income Taxes The Company's income tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The Company's quarterly tax provision, and estimate of its annual effective tax rate, is subject to variation due to several factors, including variability in pretax income (or loss), the mix of jurisdictions to which such income relates, changes in how the Company does business, tax law developments and possible outcomes of audits. The Company's estimated effective tax rate for the year differs from the U.S. statutory rate of 21% primarily due to non-deductible stock-based compensation expense, state taxes, the benefit of U.S. federal income tax credits, the impact of mandatory capitalization of research expenses for U.S. tax purposes, and the benefits related to foreign-derived intangible income deduction. 23 Table of Contents The Company recorded an income tax provision of $ 10.8 million and $ 9.8 million for the three months ended March 31, 2025 and 2024, respectively, resulting in an effective tax rate of 18.5 % and 19.7 %, respectively. The increase in income tax provision for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, was primarily due to the tax effect of an increase in pretax income and a decrease in excess tax benefits arising from stock-based compensation. The increase in income tax expense was partially offset by an increase in foreign derived intangible income benefit and an increase in research and development tax credit. As of March 31, 2025, the Company had unrecognized tax benefits of $ 12.7 million, of which $ 5.7 million, if recognized, would favorably impact the Company's effective tax rate. As of December 31, 2024, the Company had unrecognized tax benefits of $ 12.1 million, of which $ 5.3 million, if recognized, would favorably impact the Company's effective tax rate. Due to various factors, including uncertainties of administrative and regulatory processes in certain jurisdictions, the timing of the resolution of these unrecognized tax benefits is uncertain. It is reasonably possible that the Company may recognize approximately $ 1.9 million of its unrecognized tax benefits within the next twelve months if the statutes lapse in certain jurisdictions without an examination. The Company does not believe that its estimates, as otherwise provided for, on such tax positions, will materially increase within the next twelve months. NOTE 11. Segment and Geographic Area Information Under ASC 280 Segment Reporting, operating segments are defined as components of an entity about which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company operates in one operating segment and has only one reportable segment. The Company’s chief operating decision maker is the Chief Executive Officer, who makes operating decisions, assesses performance and allocates resources on a consolidated basis. All of the Company’s principal operations and decision-making functions are located in the United States. The key measure of segment profit or loss that the CODM uses to allocate resources and in assessing performance is the Company’s consolidated net income, as reported on the Condensed Consolidated Statements of Operations. The CODM uses net income to monitor actual results against budgeted and prior period operating results for the purpose of evaluating operational efficiency, and to evaluate income generated from the assets in making strategic decisions on organizational resource allocation, as well as to benchmark segment performance against industry competitors. The CODM manages the business using consolidated expense information. The following table sets forth the Company's reported segment revenue, segment profit or loss, and significant segment expenses: 24 Table of Contents Three Months Ended March 31, 2025 2024 (in thousands) Revenues $ 159,899 $ 145,805 Less: Significant segment expenses Cost of revenues (exclusive of stock-based compensation and amortization of intangible assets) 26,196 24,431 Research and development (exclusive of stock-based compensation and amortization of intangible assets) 24,050 22,202 Sales and marketing (exclusive of stock-based compensation) 29,460 25,669 General and administrative (exclusive of stock-based compensation) 8,978 8,939 Add: Other segment items (1) 317 ( 1,399 ) Less: Stock-based compensation 18,820 19,031 Less: Amortization of intangible assets 640 772 Add: Interest income 6,235 6,123 Less: Income tax provision 10,773 9,754 Condensed consolidated net income $ 47,534 $ 39,731 (1) Other segment items included in segment net income includes interest expense, realized and unrealized gain/loss on foreign exchange transactions. Revenue by geographic area, based on the customer's billing address, is as follows: Three Months Ended March 31, 2025 2024 (in thousands) United States $ 91,227 $ 86,436 Foreign 68,672 59,369 Total revenues $ 159,899 $ 145,805 The measure of segment assets is reported on the balance sheet as total consolidated assets. Long-lived assets, which consist of Property and equipment, net and Operating leases - right of use asset, by geographic area, are as follows: March 31, 2025 December 31, 2024 (in thousands) United States $ 46,947 $ 47,916 India 20,458 21,076 Rest of world 2,174 2,325 Total long-lived assets $ 69,579 $ 71,317 25 Table of Contents NOTE 12. Net Income Per Share The computations for basic and diluted net income per share are as follows: Three Months Ended March 31, 2025 2024 (in thousands, except per share data) Numerator: Net income $ 47,534 $ 39,731 Denominator: Basic weighted average shares 36,466 36,955 Effect of potentially dilutive shares: Stock options 210 471 Restricted stock units 103 292 Employee stock purchase plan 5 5 Diluted weighted average shares 36,784 37,723 Net income per share: Basic $ 1.30 $ 1.08 Diluted $ 1.29 $ 1.05 Potentially dilutive shares not included in the calculation of diluted net income per share because doing so would be anti-dilutive are as follows: Three Months Ended March 31, 2025 2024 (in thousands) Stock options 813 325 Restricted stock units 220 — Employee stock purchase plan 1 — Total anti-dilutive shares 1,034 325 NOTE 13. Subsequent Event On May 1, 2025, the Company entered into a second amendment (the "Amendment") to early renew the lease of its headquarters in Foster City, California, which was scheduled to expire in April 2028. The Amendment, effective May 1, 2025, modifies the Company's 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. 26 Table of Contents