QLYS Q1 Earnings Call: Channel Partnerships and AI Security Drive Outperformance

Cloud security and compliance software provider Qualys (NASDAQ:QLYS) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 9.7% year on year to $159.9 million. The company expects next quarter’s revenue to be around $161.2 million, close to analysts’ estimates. Its non-GAAP profit of $1.67 per share was 13.8% above analysts’ consensus estimates.

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StockStory’s Take

Qualys delivered better-than-expected results in Q1, with revenue and non-GAAP profit both exceeding Wall Street’s expectations. Management attributed the performance to ongoing customer demand for cloud-native cybersecurity risk management and a strategic focus on channel partnerships. CEO Sumedh Thakar highlighted the company’s integrated Enterprise TruRisk Management (ETM) platform and continued product expansion as key differentiators, stating that Qualys is “increasingly well armed with fresh new capabilities to further strengthen our strategic position.”

Looking ahead, Qualys’ leadership pointed to a more cautious operating environment, with CFO Joo Mi Kim noting increased budget scrutiny among customers and a challenging upsell environment. Despite this, the company modestly raised its full-year revenue and non-GAAP EPS guidance, reflecting confidence in its partner-first sales approach and product innovation. Kim emphasized, “We intend to continue to responsibly align our product and marketing investments to focus on high impact initiatives.”

Key Insights from Management’s Remarks

Q1 results were driven by continued investment in product development and deeper engagement with channel partners. Management discussed how enterprise customers are consolidating security tools and seeking solutions that unify risk data across multiple platforms.

• Channel Partnerships Expand Reach: Revenue from channel partners grew significantly faster than direct sales, with the channel now representing nearly half of total revenue. Management credited this to the partner-first sales strategy and indicated that partner-led deal registration increased again in Q1.
• Integrated Risk Operations Center (ROC): The new ROC offering helps organizations consolidate risk signals across various security tools, including those from other vendors. This solution is designed to provide actionable insights and prioritize remediation, which management says leads to operational efficiency and cost savings for customers.
• Cloud Security and TotalCloud CNAPP: Adoption of Qualys’ cloud-native security tools, especially the TotalCloud Cloud-Native Application Protection Platform (CNAPP), continued to gain traction. Management mentioned several seven-figure annual bookings, particularly among large enterprises needing unified multi-cloud and container security.
• AI Security Posture Management Growth: The company expanded its TotalAI and AI Security Posture Management (AI-SPM) solutions to address risks associated with machine learning and large language models. Management described this as an early but important area, with pilot projects underway at select customers.
• Audit Readiness Automation: New solutions for policy audit and automated evidence collection were introduced, targeting regulatory compliance needs and helping customers reduce manual audit workloads. Management views this as a growing area of IT security spending.

Drivers of Future Performance

Management expects the rest of the year to be shaped by continued partner channel expansion, growing adoption of its cloud and AI security solutions, and persistent macroeconomic caution.

• Partner-First Sales Strategy: The transition toward working more closely with channel partners is expected to drive incremental pipeline and revenue, as more customers seek managed risk operations and integrated security solutions.
• Cloud and AI Security Adoption: Expanded offerings in cloud workload protection and AI risk management are anticipated to support future growth, particularly as enterprise customers increase investment in these areas.
• Budget Scrutiny and Upsell Challenges: Management highlighted ongoing customer cost controls and budget reviews as potential headwinds, which may temper new business growth and upsell rates, especially in North America.

Top Analyst Questions

• Jonathan Ho (William Blair): Asked about the impact of macroeconomic uncertainty on customer spending. Management noted longer decision cycles and increased ROI scrutiny, but said no major deals were pushed or lost.
• Patrick Colville (Scotiabank): Inquired about competition from endpoint security players expanding into network-based vulnerability management. CEO Sumedh Thakar responded that Qualys can integrate competitor data, and prioritizes actionable risk remediation over simply finding more vulnerabilities.
• Kingsley Crane (Canaccord): Questioned the demand environment for AI security solutions. Management described the market as still in the exploratory phase, with most customers evaluating risks and formulating future budgets for AI security.
• Rudy Kessinger (D.A. Davidson): Queried a decline in large customer counts above $500K in annual contract value. Management stated there were no unusual losses, attributing fluctuations to normal business dynamics and improved gross retention.
• Trevor Walsh (Citizens): Asked about the rollout and ramp of managed risk operations partners. Management explained that initial focus is on a few strategic partners, with plans to expand based on partner investment and customer demand.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will monitor (1) the pace at which channel partner contributions continue to grow as a share of overall revenue, (2) adoption rates for Qualys’ new AI and cloud security solutions, and (3) any changes in customer renewal and upsell trends amid ongoing macroeconomic uncertainty. Progress toward federal market certifications and additional strategic partner certifications will also be key markers of execution.

Qualys currently trades at a forward price-to-sales ratio of 7.6×. Is the company at an inflection point that warrants a buy or sell? Find out in our free research report.

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