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Item 7. Management’s Discussion and Analysis

2026-02-20 compared with 2025-02-21 · 26 added, 22 removed, 207 unchanged (19% of the section changed)

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Our integrated suite of IT, security and compliance solutions delivered on Qualys' Enterprise TruRisk Platform enables our customers to identify and manage their IT and operational technology (OT) assets, collect and analyze large amounts of IT security data, discover and prioritize vulnerabilities, quantify cyber risk exposure, recommend and implement remediation actions and verify the implementation of such actions.

Organizations use our integrated suite of solutions to cost-effectively obtain a unified view of their internal and external IT and OT asset inventory as well as security and compliance posture across globally-distributed IT infrastructures as our solution offers a single platform for information technology, information security, application security, endpoint, developer security and cloud teams.

Organizations use our integrated suite of solutions to cost-effectively obtain a unified view of their internal and external IT and OT asset inventory as well as security and compliance posture across globally-distributed IT infrastructures as our solution offers a single platform for IT, information security, application security, endpoint, developer security and cloud teams.

We were founded and incorporated in December 1999 with a vision of transforming the way organizations secure and protect their IT infrastructure and applications and initially launched our first cloud solution, Vulnerability Management (VM), in 2000.

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The uncertainty surrounding macroeconomic factors in the U.S.

and globally characterized by inflationary pressure, high interest rates, significant volatility of global markets, reduced spending and extended sales cycles, and geopolitical conflicts could have a material adverse effect on our long-term business and could lead to further economic disruption and expose us to greater risk as our current and potential customers may reduce or eliminate their overall spending on IT security.

and globally characterized by inflationary pressure, high interest rates, significant volatility of global markets, reduced spending and extended sales cycles, tariff and non-tariff trade barriers, economic and regulatory uncertainty, and geopolitical conflicts could have a material adverse effect on our long-term business and could lead to further economic disruption and expose us to greater risk as our current and potential customers may reduce or eliminate their overall spending on IT security.

We will continue to evaluate the nature and extent of the impact to our business, financial position, results of operations and cash flows.

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Release of the valuation allowance would result in the recognition of deferred tax assets and a corresponding decrease to income tax expense in the period the release is recorded.

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law.

The OBBBA permanently extends and modifies certain domestic and international provisions from the 2017 TCJA and phases out certain provisions from the 2022 Inflation Reduction Act.

Beginning in 2025, the OBBBA provides an elective deduction for domestic research and development expenses and a reinstatement of elective 100% first-year bonus depreciation.

Some international provisions of the OBBBA will not be effective until 2026 and forward.

We have recognized the effects of the OBBBA provisions in our financial results to the extent they are applicable to the year ended December 31, 2025.

We will continue to monitor the impact of the OBBBA and the range of potential outcomes, which will depend on facts in each year and anticipated guidance from the U.S.

Department of the Treasury.

Results of Operations

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Cost of revenues $ 114,768 $ 111,482 $ 3,286 3 %

Cost of revenues increased by $4.0 million in 2024 compared to 2023, primarily due to an increase in shared cloud platform cost of $6.0 million, an increase in personnel costs, including stock-based compensation, of $4.6 million, driven by additional employees hired to support the growth of our business, an increase in license expenses and professional service expenses of $1.2 million, partially offset by a decrease in depreciation and amortization expense of $7.8 million resulting from certain of our assets becoming fully depreciated or amortized.

Cost of revenues increased by $3.3 million in 2025 compared to 2024, primarily due to an increase in personnel costs of $4.7 million, driven by additional employees hired to support the growth of our business and an increase in incentive compensation, an increase in license expenses of $1.9 million, partially offset by a decrease in depreciation and amortization expense of $3.3 million resulting from certain of our assets becoming fully depreciated or amortized.

Research and Development Expenses

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Research and development $ 117,284 $ 111,852 $ 5,432 5 %

Research and development expenses increased by $1.4 million in 2024 compared to 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $2.8 million, driven by increased headcount, partially offset by a decrease in depreciation and amortization expense in property and equipment of $0.8 million, and a decrease in overhead allocation of $0.6 million.

Research and development expenses increased by $5.4 million in 2025 compared to 2024, primarily due to an increase in personnel costs of $4.4 million, driven by additional employees hired to support the growth of our business and an increase in incentive compensation, an increase in overhead allocations of $1.8 million, and an increase in shared cloud platform costs of $1.0 million, partially offset by a decrease in stock-based compensation of $1.1 million driven by lower average grant-date fair value and geographic mix, and a decrease in professional service expense of $0.7 million.

Sales and Marketing Expenses

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Sales and marketing $ 143,505 $ 128,303 $ 15,202 12 %

Sales and marketing expenses increased by $16.6 million in 2024 compared to 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $12.9 million, driven by increased headcount, an increase in travel and entertainment cost of $1.8 million, an increase in marketing expenses related to trade shows of $0.7 million, an increase in overhead allocation of $0.7 million, and an increase in subscribed license and software costs of $0.5 million.

Sales and marketing expenses increased by $15.2 million in 2025 compared to 2024, primarily due to an increase in personnel costs of $8.8 million, driven by an increase in headcount and higher sales commissions and incentive compensation, an increase in marketing expenses of $4.2 million, primarily related to digital advertising, sales event and sponsorship, an increase in travel expenses of $1.5 million, and an increase in overhead allocations of $0.7 million.

General and Administrative Expenses

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General and administrative $ 71,616 $ 68,738 $ 2,878 4 %

General and administrative expenses increased by $7.0 million in 2024 compared to 2023, primarily due to an increase in personnel costs, including stock-based compensation, of $6.3 million, driven by increased headcount, annual merit increases and refresh grants to eligible employees and executives, and an increase in subscribed software costs and other expenses of $0.7 million.

General and administrative expenses increased by $2.9 million in 2025 compared to 2024, primarily due to an increase in personnel costs, including stock-based compensation, of $4.1 million, driven by an increase in headcount and higher incentive compensation due to higher achievement rates compared to 2024, and an increase in license expenses of $0.9 million, partially offset by an increase in overhead allocations to other expense categories of $2.1 million.

Total other income, net

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Total other income, net $ 24,876 $ 22,626 $ 2,250 10 %

Total other income, net increased by $7.0 million in 2024 compared to 2023, primarily due to an increase in interest income of $8.9 million driven by an increase in our average daily cash and investment balance, a non-recurring unrealized loss of $0.5 million on a non-marketable equity security recognized during 2023, partially offset by an increase in foreign currency loss of $2.4 million.

Total other income, net increased by $2.3 million in 2025 compared to 2024, primarily due to favorable changes in foreign currency of $2.8 million, partially offset by a decrease in interest income of $0.5 million.

Income tax provision

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Income tax provision $ 48,508 $ 36,142 $ 12,366 34 %

Income tax provision increased by $9.1 million in 2024 compared to 2023, primarily due to the tax effect of an increase in pretax income, increase in foreign withholding taxes, decrease in excess tax benefit from stock-based compensation compared to prior year, and decrease in other discrete tax adjustments.

The increase in tax expense was partially offset by an increase in foreign derived intangible income benefit, an increase in research and development tax credits, and the recognition of an income tax benefit related to uncertain tax positions due to statute lapse.

For the year ended December 31, 2024 , our income tax provision included a benefit of $2.5 million related to an increase in foreign derived intangible income benefit and research and development tax credits associated with our U.S.

income tax return filed during the year.

Income tax provision increased by $12.4 million in 2025 compared to 2024, primarily due to the tax effect of a decrease in the benefit from FDII deduction as a result of the enactment of the OBBBA, along with a decrease in excess tax benefits from stock-based compensation and a decrease in tax benefits from other discrete adjustments compared to the prior year.

Key Operating and Non-GAAP Financial Performance Metrics

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We measure the ARR for that same cohort of customers representing all active subscriptions as of the end of the reporting period, using the same foreign exchange rate from the prior year.

Our net dollar expansion rates were 103% and 105% for the years ended December 31, 2024 and 2023, respectively.

Our net dollar expansion rate was 103% for both the years ended December 31, 2025 and 2024.

Adjusted EBITDA

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As of December 31, 2025 , our principal source of liquidity was cash, cash equivalents and marketable securities of $696.8 million, including $155.3 million of cash held outside of the United States.

The following summary of cash flows for the periods indicated have been derived from our consolidated financial statements included elsewhere in this report:

The following summary of cash flows for the periods indicated has been derived from our consolidated financial statements included elsewhere in this report:

Year Ended December 31,

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In 2025, we generated $296.0 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense and deferred taxes, as compared to $243.9 million in 2024.

In addition, we also generated $0.2 million of cash from working capital change in 2024, of which $11.7 million was related to the

increases in accounts receivable and deferred revenue due to the timing of collections and growth in billings, a $3.2 million increase in payables and accrued liabilities driven by the timing of payment, partially offset by a $14.7 million increase in prepaid expenses.

In addition, we also generated $13.4 million of cash from working capital change in 2025, of which $14.0 million was related to the net favorable change in accounts receivable and deferred revenue due to the growth in billings and collections, partially offset by an $0.6 million net unfavorable change in prepaid expenses and payables and accrued liabilities due to the timing of payments.

In 2024, we generated $243.9 million of cash from our net income, as adjusted for non-cash items mainly related to stock-based compensation expense, depreciation and amortization expense and deferred taxes.

In addition, we also generated $18.2 million of cash from working capital change in 2023, of which $22.7 million was related to the net increase in deferred revenue and accounts receivable due to the growth in billing and the timing of collections, partially offset by a $1.1 million decrease in payables and accrued liabilities and a $3.4 million increase in prepaid expenses primarily driven by the timing of payments.

In addition, we also generated $0.2 million of cash from working capital change in 2024, of which $11.7 million was related to the increases in accounts receivable and deferred revenue due to the timing of collections and growth in billings, a $3.2 million increase in payables and accrued liabilities driven by the timing of payment, partially offset by a $14.7 million increase in prepaid expenses.

Investing Activities

In 2024, we used $59.1 million of cash for purchases of marketable securities net of sales and maturities, and used $12.3 million of cash in capital expenditures mainly related to computer equipment to support our growth and development and leasehold improvement for expansion of our office spaces and shared cloud platform facilities, as compared to the use of $64.4 million of cash for purchases of marketable securities net of sales and maturities, and the use of $8.8 million of cash in capital expenditures mainly related to computer equipment to support our growth and development in 2023.

In 2025, we used $100.9 million of cash for purchases of marketable securities net of sales and maturities, and used $5.0 million of cash in capital expenditures mainly related to computer equipment to support our growth and development and leasehold improvement for expansion of our office spaces, as compared to the use of $59.1 million of cash for purchases of marketable securities net of sales and maturities, and the use of $12.3 million of cash in capital expenditures mainly related to computer

equipment to support our growth and development and leasehold improvement for expansion of our office spaces and shared cloud platform facilities in 2024.

Financing Activities

In 2024, we used $139.9 million of cash for share repurchases and $28.4 million of cash in payment of employee withholding taxes upon vesting of restricted stock units and $1.5 million payment of cash held in escrow as part of the Blue Hexagon acquisition on October 4, 2022, partially offset by $17.3 million of proceeds from employee exercise of stock options and $6.9 million of proceeds from issuance of common stock through our employee stock purchase plan ("ESPP"), as compared to $170.8 million of cash for share repurchase and $22.3 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by $45.6 million of proceeds from employee exercise of stock options and $6.1 million of proceeds from issuance of common stock through our ESPP in 2023.

In 2025, we used $183.4 million of cash for share repurchases and $25.0 million of cash in payment of employee withholding taxes upon vesting of restricted stock units, partially offset by $16.3 million of proceeds from employee exercise of stock options and $6.8 million of proceeds from issuance of common stock through our employee stock purchase plan (ESPP), as compared to $139.9 million of cash for share repurchase and $28.4 million of cash in payment of employee withholding taxes upon vesting of restricted stock units and $1.5 million payment of cash held in escrow as part of the Blue Hexagon acquisition on October 4, 2022, partially offset by $17.3 million of proceeds from employee exercise of stock options and $6.9 million of proceeds from issuance of common stock through our ESPP in 2024.

Material Cash Requirements

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GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

Our significant

accounting policies are described in Note 1 - The Company and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

Our significant accounting policies are described in Note 1 - The Company and Summary of Significant Accounting Policies in the accompanying notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

On an ongoing basis, we evaluate our estimates and assumptions based on historical and anticipated results and trends that we believe represent our best estimate under the circumstances.

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Our judgments, assumptions and estimates relating to the current provision for income taxes include the geographic mix and amount of income (loss), expectations of future income, our interpretation of current tax laws, our business, and possible outcomes of current and future audits conducted by foreign and domestic tax authorities.

Our judgments also include anticipating the tax positions we will record in the financial statements before preparing and filing the tax returns.

Our judgments also include anticipating the tax positions we

will record in the financial statements before preparing and filing the tax returns.

Our estimates and assumptions may differ from the actual results as reflected in our income tax returns and we record the required adjustments when they are identified or resolved.

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Stock-Based Compensation

We recognize the fair value of our employee stock options and restricted stock units, including performance-based restricted stock units, over the requisite service period.

We recognize the fair value of our employee stock options and restricted stock units (RSU), including performance-based restricted stock units (PRSU), over the requisite service period.

The fair value of each stock option is estimated on date of grant using the Black-Scholes-Merton option pricing model.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis