“For the full year 2025, we expect an EBITDA margin in the range of low to mid-40s, applying a 15% to 17% increase in operating expenses and a free cash flow margin in the mid-30s.”

In context

“Joo Mi Kim (CFO): Thanks, Sumedh, and good afternoon. Before I start, I'd like to note that, except for revenue, all financial figures are non-GAAP and growth rates are based on comparisons to the prior year period unless stated otherwise. Turning to the second quarter results. Revenues grew 10% to $164.1 million. The channel continued to increase its contribution, making up 49% of total revenues compared to 46% a year ago. Revenues from channel partners grew 17%, outpacing direct, which grew 4%. As a result of our strategic emphasis on leveraging our partner ecosystem to drive growth, we expect this trend to continue. By geo, 15% growth outside the U.S. was ahead of our domestic business, which grew by 7%. U.S. and international revenue mix was 57% and 43%, respectively. In Q2, despite ongoing macroeconomic uncertainty, our gross retention rate and upsell execution improved with our net dollar expansion rate of 104%, up from 103% last quarter. In terms of product contribution to bookings, Patch Management and CyberSecurity Asset Management combined made up 16% of total bookings and 26% of new bookings on an LTM basis. Our cloud security solutions, TotalCloud CNAPP, made up 5% of LTM bookings. Turning to profitability. Adjusted EBITDA for the second quarter of 2025 was $73.4 million, representing a 45% margin compared to a 47% margin a year ago. Operating expenses in Q2 increased by 15% to $67.7 million, driven by investments in sales and marketing and R&D. Demonstrating our ability to innovate and invest in our long-term growth initiatives while remaining capital efficient, EPS for the second quarter of 2025 grew 11% to $1.68. Our free cash flow was $32.4 million, representing a 20% margin compared to 33% in the prior year due to fluctuations in working capital. Normalizing for this, the first half 2025 margin was 43% compared to 45% in the prior year. In Q2, we continue to invest the cash we generated from operations back into Qualys, including $1.3 million in capital expenditures and $49.2 million to repurchase 375,000 of our outstanding shares. Since commencing our share repurchase program in February 2018, we've repurchased 10 million shares and returned over $1.1 billion in cash to shareholders. As of the end of the quarter, we had $254.6 million remaining in our share repurchase program. With that, let us turn to guidance, starting with revenue. For the full year 2025, we expect revenues to be in the range of $656 million to $662 million, which represents a growth rate of 8% to 9%. This compares to prior guidance of $648 million to $657 million. For the third quarter of 2025, we expect revenues to be in the range of $164.5 million to $167.5 million, representing a growth rate of 7% to 9%. While we believe our platform approach to cyber risk management provides some insulation amidst macro volatility, this guidance assumes continued budget scrutiny and a challenging environment for new business growth in 2025. Shifting to profitability guidance. For the full year 2025, we expect an EBITDA margin in the range of low to mid-40s, applying a 15% to 17% increase in operating expenses and a free cash flow margin in the mid-30s. We expect full-year EPS to be in the range of $6.2 to $6.5, up from the prior range of $6 to $6.3. For the third quarter of 2025, we expect EPS to be in the range of $1.5 to $1.6. Our planned capital expenditures in 2025 are expected to be in the range of $7 million to $9 million and for the third quarter of 2025 in the range of $1 million to $3 million. We continue to believe organizations will increasingly adopt cloud-native full-stack security and compliance coverage to meet the demands of today's threat landscape and reduce costs. As the impact of the macro economy unfolds, we are closely monitoring the business environment and we'll continue to adjust our priorities accordingly. That said, considering the long-term growth opportunities ahead of us and our industry-leading margins implying further room for investment, we intend to continue to responsibly align our product and marketing investments to focus on high-impact initiatives aimed at driving more pipeline, accelerating our partner program, and expanding our federal vertical. As a percentage of revenues, we expect to prioritize increased investments in sales and marketing and engineering with a more modest increase in G&A, consistent with our commitment to balance long-term growth and profitability. With that, Sumedh and I would be happy to answer any of your questions.”