Q2 2025 Qualys Inc Earnings Call
Ladies and gentlemen, thank you for standing by. Welcome to quality's second quarter 2025 investors call at this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session to ask a question during the session. You would need to press star 1, 1 on your telephone, you would then hear an automated message advising. Your hand is raised and to withdraw your question. Please press star 1 1 again, please be advised. That today's conference is being recorded. I would now like to turn the conference over to Blair King investor relations. Please go ahead sir.
Thank you, Michelle. Good afternoon and welcome to close the second quarter 2025 earnings call.
Joining me today to discuss our results are Smith. The car president and CEO and Jimmy Kim our CFO.
Before we get started, I would like to remind you that our remarks today will include forward-looking statements that generally relate to future events or our future financial or operating performance.
Actual results May differ material from these statements. The factors that could cause results to differ materially are set forth in today's press release and our filings with the SEC, including our latest form, 10 q, and 10K,
Any forward looking statements that we make on this, call are based on assumptions as of today and we undertake no obligation to update. These statements as a result of new information or future events. During this call, we will present both gaap and non-gaap financial measures. A Reconciliation of gaap to non-gaap measures is included in today's earnings press release.
And as a reminder, the press release prepared remarks and investor presentation, we're all available on the investor relations section of our website.
So that like now to turn the call over to cemet.
Thank you Blair and Welcome to our second quarter earnings. Call in Q2 we continue to execute. Well, resulting in another quarter of solid Revenue, growth and profitability.
In this new era of cyber security driven by Advanced data analytics Automation. And AI quality is pioneering a, new risk Operation Center category in cyber security and redefining how organizations manage cyber risk.
While traditional Security operation Center sock focused on detecting breaches. After they have been, the rock is built for prevention.
While this is cloud, native etm, Enterprise tourist, management solution Powers this transformation with over 18 trillion data points processing in real time we have only the power of our platform to integrate in normalized signals from both qualities and non-quality tools, including Cloud strike, security, scorecard, tenable and ways.
Unlike other continuous threat, exposure Management Solutions that simply highlight exposure and lack effective remediation or business. Contexts policies, ATM solution is a powerful orchestration layer aggregating, both qualities and non-quality security findings applying threat intelligence and delivering a unified business. Contextual view of risk with holistic prioritization and automated remediation,
This business line approach to preach cyber risk management, continues to resonate strongly with customers and boards and positions, call us at the Forefront of a paradigm shift in cyber security. 1, Define, not just by the detection of the vulnerabilities, but by measurable proactive, automated risk reduction at scale.
With active PC already converting after announcing GA just a short while ago, we continue to see many parallels between this new market opportunity and the early days of our VMDR launch, including a significant greenfield opportunity and growing demand.
Without latest announcement yesterday. We are very excited to introduce cuales. Latest game-changing vision for the future of cyber risk management. With the launch of a fully reimagine agentic AI platform built on a unified fiber to seamlessly manage, cyber risk across multi vendor environment.
At its core, every cyber risk. AI agent represents a specialized autonomous AI fabric equipped to automate complex, business processes and autonomously adapt to customers environment, by by accessing, uh, diverse internal and external data sources, applications, and machines.
Increased accuracy and reduced costs users can use out of the box. Cyber risk agents available in the marketplace, interactively. Create their own specialist agents or leverage third-party agents for our from our partners that can be added to the marketplace in the future.
Further advancing our remediation focus beyond patching, we are also introducing new capabilities to our comprehensive umbrella of remediation solutions. Now, organizations can quickly determine trending risks to their environment, the estimated impact of a breach on a particular asset, and the probability of successfully applying a patch. If applying a patch is deemed a significant operational risk to the business, security and IT teams can alternatively choose to automate an array of compensating controls to prevent an incident from occurring. Embedding policies and AI assistance directly into remediation workflows is a significant adoption level, a strong competitive differentiator, and opens new market opportunities well beyond patch management.
Continuing this rapid pace of innovation. We are further. Broadening our etm solution and bringing natively integrated identity security posture management ispm, to Market at a time when identities have become part of the new parameter. Compromised credentials are Central to nearly every major Cyber attack today. And quality of solution is aimed at helping organizations. Stay in front of adversaries, by continuously analyzing identity systems for misconfigurations. Excessive privileges and toxic combinations with
Assets.
By unifying the identity risk surface. We eliminate silos and help security teams, visualize identity, exposure and remediate risk before, attackers escalate privileges or move laterally.
Spanning devices cloud, workloads and applications call us now provides holistic protection, using cuales and non-quality data sources across key identity touch points matched to asset criticality, and backed by real-time, remediation through a single native indicated platform.
These Innovative new approaches to cyber security risk management, along with several others. We are showcasing at blackhead. This week, allow our customers to reduce complexity, and cost achieve better outcome and create multi-dimensional path for durable. Long-term growth in our business,
Moving on to the business update, over the last several months, I have personally met with many customers prospects, and partners, and the message has remained resoundingly clear.
Organizations are increasingly anchoring preach cyber spend the solutions that articulate and demonstrate a measurable impact on Cyber risk. So, other than consolidating, around a single vendor, CEOs are seeking platforms that allow flexibility across their security stack. While you may find this through a common framework.
This requires a centralized risk fabric which brings together diverse tools and enables teams uniformly assess prioritize and remediate risk.
With a 25 year, track record of converting, operational challenges for customers into strong competitive advantages. We are well positioned to capitalize on these evolving Market opportunities. In Q2, this success was demonstrated by the number of customers spending $500,000 or more growing 7% from a year ago to 212.
It was also evident by notable industry endorsements. In the market, we helped Pioneer policies vmdr with true risk and total Cloud where voted the best vulnerability and Cloud security posture management solution respectively at the 2024.
SE Awards in Europe, IDC name, call us as a major player in cap and grouping your call recognized. Call us as a leader, in cap, and market leader in attack, surface management.
Let me share a couple of recent wins, which illustrate these accolades and reflect why companies ready to centralize their response to cyber risk are turning to qualities to help, unify their security tools.
Quantify and immediate risk in their environments and Achieve better security outcomes.
First a global fintech company determined that managing Silo tools added complexity to their operations lacked integration and Mis detections which hindered their ability to assess risk and centralized remediation.
This customer chose quality to transform siloed, risk signals, spanning new code repositories, endpoints identity Cloud, container it and network assets into a cohesive real-time risk management Solution by consolidating qualities and non-quality data.
This included purchasing 7 cuales modules, including etm to bring to begin operationalizing. The risk Operation Center with ingested data, from cite big site crowdstrike, bit side and waste, resulting in a 7 figure annual booking steal.
By consolidating these data sources into the quality platform. We're now delivering this customer a vendor agnostic, orchestration, layer with full visibility of their attack surface. Centralized risk. Assessment quantification prioritization and Remediation. While unleashing the operational efficiencies of security stack, consolidation aligned with acceptable risk parameters for the business.
Another Market win, was a large federal government agency previously using multiple Legacy and next gen solutions, to manage a variety of risk management, uh use cases across their, it security and devops team. In addition to the complexity of using multiple points products, this government agency was frustrated with increasing cost associated with outdated, on-prem deployments from last. Um, several years looking to migrate to a cloud native solution that meets The cisa Binding, operational directives. They are now in the process of replacing 2 of the existing vendors. In a high 6 Figure annual booking deployment, using 10 college modules, including cyber security Asset Management vmdr patch management and total cloud.
Through this highly strategic and competitive way in the customer is now able to leverage UniFi dashboards across. Nearly a dozen separate bureaus that provide them a greater insight and automation that can that any of the competitive products that they had evaluated while taking full advantage of the speed and scale of the integrated platform with out of the box support for CDM within the system framework, we are now working towards a phase 2 agency wide roll out of the cyber security Asset Management solution. Representing a significant upsell opportunity for us Beyond this win. We are pleased to announce callers with recently received agency authorization, for fedramp high with this authorization. Call, this is the only fedramp High platform offering inventory 1, Liberty management,
Patch management, cspm container security and EDR in a single unified workflow across hybrid environments.
As government agencies, increasingly transition workloads from hrim, environments to the cloud, the achievement marks, a significant Milestone and establishes quality. As the only modern alternative to Legacy scanners for federal state and local agencies.
Our authorization Consolidated platform and continued investment in public sector expansion. Underscores our commitment to this market and the position and positions call as well to drive long-term incremental growth.
That momentum was on full display at our second annual public sector risk conference, a cyber risk conference in May. We were especially encouraged by the strong turnout and positive feedback to the concept of a Risk Operation Center to bring efficiency to government agencies instead of playing risk like a mall with multiple siloed legacy solutions.
Investing in our partners', ecosystem remains key, pillar of our growth agenda.
Through our strategic technical alliances program. We are diving driving, deep, technology Integrations, wholesaling opportunities, and demand generation programs. We believe this expanding ecosystem bolsters. Our capacity harnesses transformative Solutions sales and brings new business to qualities. Additionally, we have advanced our Global Rock ecosystem by certifying 3 new, strategic Amber of Partners who wanted to partner with college, to bring the rock to their customer base with growing Channel momentum and
Growing pipeline of fresh new mro Services, being offered to customers. We look forward to sharing some exciting new events in the upcoming quarters.
With more and more customers and partners beginning to perceive quality as a leading risk mitigation management platform that consolidates and orchestrates multiple security solutions and workflows, I am pleased to announce Main Mutual as our newly appointed CMO.
Pipeline creation, growing module adoption winning, new business, and evangelizing. The AI native rock or keep priorities with me at the helm and her long experience in cyber security. We are intensifying our marketing activities, and increasing focus. On ramping top of the funnel initiatives and enhancing brand awareness to help Drive. Adoption of the qualys platform to new heights.
To further accelerate awareness and unleash new qualities capabilities for customers. I'm also pleased to announce the launch of our qualys platform pricing model where we enable customers to purchase quality units.
Ql use providing access to the entire platform and flexibly utilizing the Wallace modules of their choice over the course of their subscription terms of purchasing Wallace modules, individually organizations. Now, adopt, the black products they need today, and in the future through a frictionless process design to flexibly replace existing Technologies and seamlessly switch between callers modules, customers are expressing strong, enthusiasm for this new pricing model and we believe it will further. Enhance long-term customer loyalty and drive larger lands.
reduced cost and bolster cyber resilience over time with more customers, adopting more quality Solutions, faster,
In summary qualities as well armed with fresh new capabilities and new agency. Authorized fedramp High solution for governmentwide use.
Security challenges. We trust, We Trust our Innovation and early Rock adoption worth. Strengthening our position as the partner of choice for customers. Ready to centralize the response to cyber risk and believe we are poised to outpace our competitors. Extend our thought leadership and build upon an already strong Foundation to drive durable. Long-term growth in the business with that. I will turn the call over to Julie to further discuss our second quarter results. And how to look for the third quarter and full year 2025.
Thank you and good afternoon.
Before I start, I'd like to note that except for Revenue.
All Financial figures.
In close rates are based on comparison to the prior year period. Unless dated otherwise
Turning to second.
Revenue School.
To increase its contribution, making a 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 a strategic ethics and leveraging, our partner ecosystem to drive growth, we expect this trend to continue,
By to 15% growth outside. The US was ahead of our domestic business, which grew by 7%.
Us and International Revenue. Mix was 57% and 43% respectively.
In Q2, despite ongoing macroeconomic uncertainty, our growth 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 booking patch management and cyber security Asset Management combined made up 16% of total booking and 26% of new bookings on an LTM Visa.
Our Cloud Security Solutions, total Cloud Cena made up 5% of LTM booking.
Per need to profitability adjusted Eva for the second quarter of 2025 or 73.49% margin compared to a 47% margin, a year ago.
Operating expenses in Q2 increased by 15% to 67.7 million driven by investment 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 to 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 first half 2025, margin was 43% compared to 45% in the prior year.
In Q2, we continue to invest the cash regenerated from operations, back into quality, including 1.3 million and capital expenditures and 49.2 million to repurchase 375,000 of our outstanding shares.
Since commencing our share repurchase program in February 2018, we 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 programs.
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 to 662 million which represents a growth rate of 829%.
This compares to Prior guidance of 648 to 657 million.
For the third quarter of 2025, we expect revenues to be in the range of 164.5 to 167.5 million representing. Our growth rate of 729%.
While we believe our platform approach to cyber risk management provide some insulation, as Miss macro volatility. This guidance assumes continued by disputing and a challenging environment for new business growth in 2025.
15 to profitability guidance for the full year. 2025, we expect an Evita margin and the range of low to mid-40s applying our 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.
but from the prior range of 6 to 6.3,
Our plan Capital expenditures in 2025, are expected to be in the range of 729 million. And for the third quarter of 20125 and the range of 1 to 3 million,
we continue to believe organizations will increase Cloud native, full stack, security and compliance coverage to meet the demands of today's threat landscape and reduce costs.
As it impacted the macro economy on bolts, we are closely monitoring the business environment. 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 pipelines, accelerating our partner programs and expanding, our federal vertical.
As a percentage of revenue, we expect to prioritize increased investments in sales and marketing, and engineering, with a more modest increase in DNA consistent with our commitment to balance long-term growth and profitability.
With that sum and I would be happy to answer any of your questions.
Thank you as a reminder, to ask a question. Please press star, 1, 1 1 on your telephone, and wait for your name to be announced and to withdraw your question. Please press star. 1, 1 1 again and the first question comes from Jonathan. Ho with William, Blair sir, your line is open.
Hi, good afternoon and congratulations on the strong results. I wanted to maybe start out with the macro environment and, you know, get a sense from you of what some of the puts and takes are out there. And especially, you know, relative to your ability to raise guidance. You know, how we should think about, you know, sort of the conservatism that's baked in
I I think at a high level as, as jummy mentioned, right? The the environment is is kind of stable right now, but it continues to be challenging so deal scrutiny is there, I think customers are overall just a little bit more weight and watch to see how the impact of some of the um the the current conditions is going to be on their spend through the rest of the year. And so we're just being, you know, factoring that in right now in the way that we are thinking. We're not assuming anything, you know, getting better from an environment perspective. So it's more, you know, assuming that it's going to continue kind of as is
Yeah. And you know from our perspective in Q2 we did see slight slight Improvement in the net dollar expansion rate. Um, moving up to 104%, we've been at 103 for several quarters in a row and our low was at 102% a year ago. And so we are optimistic that we were able to make an improvement from both a growth retention as well as upsell perspective this quarter, which kind of indicate indicates that, you know, the, the market and the selling environment is actually not worsening. We see an opportunity to upsell more of our newer products have more conversations with their customers and
And although the new business continues to be challenging and we expect that to continue throughout 2025, we do see some upside when it comes to um, expands with our existing customers.
Excellent. And just in terms of a follow-up, um can you help us? Understand how, you know maybe the mrock messaging has been performing, you know, just given uh the challenges of selling sort of new Platforms in the environment. You know, what's maybe resonating the most with customers and and causing them to to choose um, to go in the mro direction. Thank you.
That's a great question. You know, I think a lot of partners are providing sort of, you know, socks, MDR Services is a bit of a saturated market and for them this thread detection after a breach has happened is what they are focused on. And so what partners are excited about is being able to go back to those Partners who have a sock to those customers who have a sock and being able to position, a new solution, and new Services, which is proactively managing your risk and helping prevent. A lot of them, sort of provide a, you know, some managed vulnerability service here or there, but there is no. And then there is cloud, and then there is identity. And so, when you look at risk management, there's sort of No Easy holistic, service, that a lot of them are offering. And so, what mrock does is part of the manage risk operations center concept, they can go to the customers that have sock and say hey, we now have a new capability that you can upsell to which allows you to implement a similarly operationalized risk operation. Thank you.
5 of service toward a lot of EDM that they could sell as a representative example, right? And so that is where we are seeing these partners are excited. Of course, they have to build out new services, and they have to build out new practices to be able to do that. But the excitement of being one of the few EMROCH partners that actually is able to offer this service is very interesting for them because that differentiates them from the other 200 players that are only offering MDR.
Thank you.
And our next question will come from Roger void with you BS. Your line is open.
Great. Thanks for taking the questions. J, I was wondering if you could just help us kind of bridge, the, the gap between revenue and and Billings growth. I know that's not a metric you guide to. But you've previously given some, uh, directional color about the, the growth of those 2 numbers being in the same ballpark. Just trying to get a sense of of the difference there. Um, what you're seeing from a Billings front anything to be mindful of around deal timing given RPO bookings. Look, I think pretty strong this quarter and anything else to be mindful. There, if FX or anything else. Would be great. Thanks.
Yes. Um, the revenue is lagging. Um, I would say that current billing is on an LTM basis could be indicative of the bookings performance, which is more of a leading indicator. So I understand the focus on the current Billings, um, at the beginning of the year, what I had kind of given an indication for for current Billings at around, like, 6 to 8% in line with the revenue growth, guidance 6 to 8% at the beginning of the year, um, for current billing.
I would say that Still Remains true. Probably the best indicator that we're a guidance I can give at this time. Now, on the revenue side, you can see that we've outperformed, booking a 10% growth rate for Q1 and Q2, guiding to 7 to 9% for Q3. And so what that implies is, you know, current billing is going up from 7 to 8%, percentage to kind of come down to land around 6 to 8% for the full year for current billing.
Got it. That's helpful. And then just as a follow-up to Med, nice to see Fed ramp High. Um, just any insight into kind of your expectations for the, the federal, vertical. Um, and 3Q. My, my, my, my gut assumption is that it's probably difficult to to think that can be super impactful, um, in the next quarter, but would love to get kind of your your view on on the opportunity there. Thanks.
Yeah, for sure. All right. I think, um, expecting any federal, uh, movement happening within a few weeks of us getting the 5 ramp high would be a little bit too much expectation. But, uh, I think, uh, so I see for us, this has been a long-term focus and investment that we have been making and and has anybody who goes for 5 grand by 5, grand high will tell you, this is significant investment to really get that. And so we're super excited to now have that fed ramp High platform uh that you know do does 1 of the management plan.
Match management and Cloud security. And so that really is going to open us up uh opportunities. Uh, obviously right now you can have a mixed bag with some folks kind of waiting to see how things progress with the the cost reduction. Others are seeing this as an opportunity to change out their income and vendors to to new Solutions and the FED Ram High coming at this time, uh, boards. Well in my mind for opportunities that will get created over the next few quarters, because now we could go. And, you know, we could basically showcase the, we are the modern solution that is fed Ram high. And so as, as they are looking for efficiency and moving out of Legacy on-prem Solutions, uh, you know, their options are non-fed Ram High Solutions in the cloud or a federal Ram High solution with callus. And so, I think that is an advantage in my opinion for us, and we look forward to, um, you know, we leveraging that I'm also, um, looking forward to a lot of other commercial companies, that actually are fed ramp high, or looking to get fed ramp High, need a Fed ramp High solution, and you have a lot of big companies who are looking for that. And so that puts
us in the uh, interesting uh opportunity again where it's not just the government agencies themselves, but we can also see potential pipeline build up from commercial entities that are currently in the process of trying to go for a drive high and want to switch to a solution that is also fed them high because they're, they're currently is no other solution that can do like Freedom have match management as an example, right? So, uh, I don't really expect any uh, thing immediately in this quarter. But I think with the momentum that we're seeing our
Investment in the federal side, the conference that we did, and now getting FedRAMP High, I think this is key for us. As I have mentioned in the last few quarters as well, that federal over the next couple of years can be an important area of growth for us.
Very good. Thank you both.
Hey, thank you and Echo. Congrats on a on a really strong quarter and nice to hear about quality Flex pricing. I think this has been something you've been considering for a while. Want to hear more about what kinds of impacts we could expect as a result like perhaps larger commitments and just want to clarify, if any of the large deals in the quarter were Flex pricing. Thanks.
Okay, so early days right now what the feedback that we have gotten has been very positive, right? So we want to get get this out and we want to get some of these deals closed. But overall, uh, you know, today for customer advice vmdr, then they are interested in trying patch management. Like, that's a whole process that they have to go through to, to buy their additional keywords. So, as we move into this, uh, Q pricing, it essentially, if they buy any number of qlu pricing, it gives them access to all qualities modules, right? They have access to it, of course, if they want to use it, they have to buy additional, uh, units to be able to leverage those. And so for somebody who is maybe focusing on volatility management, they want to try patch management, they can just do that now with the flex pricing, you know, without really having to go and, uh, get a whole new SKU purchase, Etc. So that is where it's exciting for them, is that they can look at the utilization. They can try new capabilities and then, as they like, those capabilities that they can actually buy more uh, units to be able to um, use those capabilities at scale. And that's
Really where we see the opportunity. And so, we are looking forward to seeing the kind of uplift that we can get, because that can get a customer interested in buying fewer additional units, so that they can leverage broader platform capabilities, right? Uh, as they as they do the purchase. So that's the, the hypothesis. And the way we are seeing the early conversations with customers. But do we still need to get a few of those deals closed and then we'll give updates as we see the progress happening. But it is definitely something that we see as a key aspect over the next year or 2 for us to push forward. So that we can, um, create upsells and also for net new customers. As we're seeing custom net, new customers also coming in
multiple modules of front, as you can see, you know, cyber security, and side management patch management already. 26% of bookings for net new, customers like that, will give them opportunity to leverage the newer, uh, capabilities and more capabilities, uh, which is then allows them to potentially buy more units as they roll that out.
Great. Yeah, I mean, the models—it's great for customers, and it's good for you, uh, and so for you, me. Um, but so you just brought on May Mitchell, and we're talking about, you know, investing in more key marketing initiatives. Of course, we've had some pretty significant earnings.
Upticks over the past 2 quarters, on the guys. So I mean should we expect that some of these are really going to be more of a focus in fiscal 26.
Um, I would say that it we're ready to get started because we have we've kind of built the momentum. Because if you take a look at our sales and marketing for the first half of this year, um, it's grown by 15% year-over-year nicely. And then, even in the R&D fund, we grew up at 8% in q1, we ran that up to 15% because R&D also included a product management. And so, entire GTM team is now working very closely together to make sure that we work on the value proposition. How we're positioning our product to not just our sales reps who are more importantly partner first approach. So we are really working, um, with the entire team, including the engineer to make sure that are we are we working on the right product enhancements, are we messaging it correctly and then, um, really focus on Partner marketing front. And so we, we do anticipate the increase in sales and marketing Investments up from the 15% level that we saw in Q2. And then same thing on the R&D side.
It's really helpful. Thank you.
And the next question will come from Rudy kessinger with da Davidson your Line's open.
Great, thanks for taking my questions. Um,
The revenue, Jimmy the revenue outperformance. You know, historically has been pretty minimal on your quarters. Last 4 quarters. Now you've beaten on the revenue by about 2%. Um, is there any more color? You can add to that. Just, what's, what's the driving that relative to your guidance? If you guys just adopted more conservative guidance framework in general? Um, it's because of the macro conservatism or any Professional Services Revenue, uh, potentially driving that upside
Yeah, it it's not profound.
Professional Services. But it definitely has to do with a
Significantly into etm a new platform play, introducing new products. And, and the difficulty that we've had with, um, you know, expanding the, the spend, with our existing customers, we were looking at a more conservative scenario and um, it could have gone that way. But thankfully, as you as, as you see by your performance, we've done really well in the first half. I think the team has worked really hard to make sure that we're making up for kind of all the underperformance. If we, if you will like that, we saw, um, at the end of last year, um, with our CMO in place, and uh, we're continuing to look for our new cro. We are hoping that we will continue to make good progress on this. Um, going forward to the end of 2025 and hopefully we'll be able to make some some meaningful improvements in 2026.
Okay, that's helpful. And then on current calculated Billings. Um,
TTM, current calculated Billings sounds like you guys are still expecting 6 to 8% this year. What would be the drivers of upside to that figure and irrespective of where it lands? Should we still look at TTM Billings? You know as the the go forward indicator of next 12, months Revenue growth as we exit this year and go into 26.
Um, yes, I think that would be the the best proxy at this point. If you're thinking of a 2026 Revenue, but on current billing, I would say that the higher probability of us outperforming with their existing customers. Given our newer products like for example our net dollar expansion rate did increase to 104% from 103. If you were to call out to 2 areas where it could the additional growth could come from new land um, versus existing customers. I would say the latter,
That's helpful. Congrats again, another good quarter.
Thank you. And the next question comes from Trevor Walsh with Citizens. Your lines are open.
Great. Hey team, thanks for taking my questions. Um Smith maybe to start with you. Uh great to see the uh
Product development that you're working on as far as AI agents and the marketplace and kind of all the ways in which that um, Can can I guess boost boost the platform? Uh, there's been a lot of activity in that space. Uh, I guess AI security just generally um kind of m&a wise this week given black hat and others uh, just curious kind of what your what Your overall take is on on.
Space. Um,
Um, given some of that, you know, those announcements and just as a product person yourself, how you feel about building versus buying there? And if, if this is somehow different in the space, the pace at which these, some of these tools are kind of moving and, and growing that, that that might get you off the fence to to, to do something around the same lines or if it's more thinking you can do it, uh, kind of organically internally.
Yeah, thank you for that question. I, I was like with 4 questions in and nobody's asking about AI. I'm so excited about it but it it's, it's super exciting, right? If you, if you get a chance to really go through that, I think the way we have positioned and and created this capabilities is really bridging that gap between, you know, like the agentic AI being some piece of code somewhere versus sort of having a marketplace where you feel like you're actually able to you know, hire a patch Tuesday expert, who knows absolutely end to end how to do coordinate um scans how to coordinate uh assessment how to coordinate prioritization, how to coordinate remediation and gets all of that thing done all in 1. And, you know, they have a name, they have a Persona, you can rate them. And so that's been super exciting for us. And we have been really able to um, get that uh, we've been working on it for a few months but uh, 1 of the things that happening in the AI in general, is the advancement of technology is happening at a rapid Pace, right? And not to get too much into the depth of it, but if you look at like rag, uh, came out a year or so ago.
So ago, and now what we are leveraging is in big ways. MCP protocol, right? Like the, um, uh, then the model context protocol and mCP, uh, allows customers to much more rapidly. Take their existing Solutions and use them with, um, overall AI agents because they add a layer, um, of context, uh, on top of the existing apis and existing, um, databases and existing data stores, right? And so that allows us to do this much more quicker than what we have. And so, I think AI security is following that same that as, as AI uh, Concepts and AI Protocols are evolving so fast. I people are also trying to figure out what does that mean. Right? If we were looking at the a security, uh, where you are bringing all of your data into 1 single Vector database, maybe uh a few months ago suddenly you have mCP which is which is sort of bringing a new layer. Now, bringing that new layer of NC MCB, doesn't mean that you are existing uh, data store and all of that does not have to have the traditional security.
AI and responding accordingly. And, um, that's where we came up with Total AI a few months ago when people were running LLMs in their own environment. And now we're seeing LLMs being run, at least the foundation LLMs being leveraged by Bedrock as a service. And so we're pivoting quickly to provide capabilities around MCB protocol, mCP, discovery, and mCP mapping, as well as mCP authentication and authorization capabilities. So,
I think there's always opportunities for us to look at some players that are upcoming, but it's just so Dynamic right now, um, that we also want to wait and watch as we develop our own solutions to see, uh, which direction is going to be the stable direction for some of these AI capabilities to go.
That makes total sense. Um, maybe a quick follow up for you Jimmy just more of a clarification. So now that you have the FED ramp high in place, I, I know that some of the investments in the past around sales, marketing were to build out the public sector team. So do you feel like those Investments now are just kind of waiting to deliver on the ROI of those or will there still be as part of that increase spend you, you noted going forward, kind of public sector uh pieces or elements to that. Thanks.
Uh, there are definitely pieces, um, just because we are making sure that, you know, all the Investments that we made to achieve Federal High have already been made. But but with that said, there's maintenance and there's also GTM efforts right marketing efforts to make sure that we just opened up the DC office to make sure they are our customers know that we have a presence in DC and so we'll be working very closely uh with our marketing team to make sure that you know we have all the opportunities out there. I think that from a meaningful booking perspective, it won't happen until next year. But um we've been ready. I think it's just about execution at this point.
Great, thanks. Both for the questions.
And the next question comes from, Patrick Koval with Scotia Bank, your line is open.
Hi, this is Joe vandrick on for Patrick Koval. Uh, sum that Global fintech when you highlighted is
a great example of consolidation on the platform. So how often are your conversations turning into into multi-product platform deals versus customers? Just buying a module to solve the specific pain point.
You know, the the way the spaces evolving is very interesting. Right. There are opportunities for consolidation with, uh, in certain areas with the vendor and you see that happening with cnap where in the past, it used to be multiple Cloud Security Solutions or kind of going under 1 umbrella. But we also see that customers are not necessarily looking that to have every single capability from the same vendor. So there are areas and vendors that they trust for certain use cases and they want to stick with those vendors. And so, what we see, when we are talking to customers is a combination of in areas where they are like, hey look, I want to consolidate vulnerability and patching and some of those Cloud things with you. But, you know, for identity, I still want to continue to use okta, and for EDR. I'm still using crowdstrike, and I want to use security score for, for third party management. And so that's kind of where, uh, in that deal that I highlighted was great, because we saw a bunch of modules they took from college, but then they also took the etm module which allows them to bring third-party data from their existing solutions, to consolidate into a single fabric to get a single view of their risk.
And so that's what we are excited about is like, well, it's early days. If the customer wants to consolidate certain capabilities, we have bunch of those modules. And in the cases where they don't necessarily want to consolidate right now, uh, we don't have to walk away. We still have a ATM solution that they can purchase to, uh, to take the data from the existing mod, um, modules and actually provide, uh, better value of that investment in some of these third parties. And, and, and 1 of the conferences in DC, I
Showcased, uh, this sort of a funnel view where we took 65 million findings across, uh, ways crowdstrike Wallace, security scorecard. And after we applied the risk Operation Center, paradigms threat detection, and business context. It went from 65 million, overall, findings to 2 million, that actually mattered. And then after we applied the business context, it went down to 300,000 that actually work, adding business risk to the customer and that kind of an outcome from a risk Corporation. Center really was exciting for them so they could get the value without having to do a vendor, uh, replacement. And going through that process, they could, you know, combined, cuales modules with third party data and get real meaningful outcome and value for their board.
Makes sense, that's helpful. And then maybe one for two, me. Um,
Or is that driven by improved execution, or maybe a little bit of both?
I would say it's it's hard to parse it but it's probably a a little bit of both because if you're talking about our our our net dollar expansion or increasing this quarter relative to last quarter, it's a quarter of customers that were up for renewal in this quarter. And from the discussions that we were having, it's not just that we start today. Um we typically start discussions like you know throughout the entire year like um, definitely at least a quarter before the the intended renewal day. And what we've seen is I think that there's less of a a macro headwind today than we saw definitely at the beginning of the year. So with our continued execution, continue having multiple discussions of our our new products and the value prop, and how we're evolving as a company and how our product um, Suites that it it makes sense for them especially with what's upcoming um with the new pricing model. It's it's really resonating with their existing customers.
Got it. Thanks so much.
And our next question will come from Joshua Tilton with Wolf, free search. Your line is open.
Hey guys, thanks for, uh, taking my questions. Um, 2 for me, the first 1 is sumat, unless I I misheard you. I think you spoke to some, uh, Channel initiatives that you expect to drive some large deals in the second half. Uh, is there anything you can elaborate, uh, on those large deals? Is it, is it new customers? Is it existing customers? Expanding? And more importantly. Uh, are these deals baked into your Revenue Outlook and your 6 to 8% Billings growth expectation for the full year. And then again, I have a follow-up.
Yeah, no specific deals. What I talked about strategically is, is the risk Operation Center. Um, concept is resonating well, with the co of the, the partner's customers. And, um, they are working with us to get the emroch certifications and then emroch Services, uh, deployed in our catalog and uh, for them to be able to sell those. And what we are seeing is the conversations are driving um uh
their customers to look at consolidation of certain areas, as well as purchasing Wallace licenses on top of their existing Solutions as well. And so we are um we are looking forward to working with them for new business deals and uh, taking some of our existing direct customers as we work with them, to see if they have the right contacts that we can upsell to additional capabilities, but nothing specific at this point that we are uh you know, talking about are baking in anything additional. As part of that this is a more
Initiative, and we are looking forward to our partners to start to help us build that pipeline, which obviously is going to take some time, and then closing their pipeline will take some more time.
This is super helpful and then and then maybe my second 1 is just more of a clarification. Uh, just to follow up to kingsley's question. Um, new CMO, lots of exciting product announcements. It sounds like you guys are going to invest behind this to drive. Uh, some additional growth are the Investments that you plan to, uh, execute. Are they fully baked into the second half? Or is this, uh, should we start to see these Investments ramping next year?
Right now. Um, we are starting the 2026 budget planning cycle, but what we're planning to execute too is what we had plans at the beginning of this year. So it's, it's fully baked into the guidance. And the way we're seeing, um, kind of the traction and the increase in Investments, quote over a quarter. It, we saw some nice improvements, um, with respect to investments in product management, as well as the sales and marketing. We do a see more room and for us to take advantage of the current opportunities ahead with the, with the newer employees and seed. And so we plan to continue to invest and hence, we were guiding to, um, the 15 to 17% increase in all that growth.
Okay. Super helpful. Thanks for clarifying. I appreciate it, guys.
Thank you. And the next question comes from shrenik.
Kotari with Bayer, your line is open.
Hey, yeah. Thanks for taking my question and congrats on on the great results. Uh, uh, sad. You you mentioned, of course, identity. Become the, the leading vector and the new periphery. And out of the formal introduction of, uh, ispm, uh, which, of course, potentially seems like can be an anchor for a product 0, trust side, rock and rock. And, and so just curious, uh, what advantages do you think Wallace? Uh, brings to Identity risk.
Uh, that allows you to compete here natively against other players. And what monetization potential do you see in identity risk management controls? Then I had a quick follow-up.
Our tax work and how vulnerabilities uh, and escalation of privileges are tied to identities. And so, uh, for a while we focused on hosts and assets and servers and containers, you know? Uh, uh, and in the second part of that is the the partial view of the identity and how that creates a a combination um uh that that can add additional risk, right? So particular asset with a particular vulnerability. If it also has a identity that has certain issues, now the risk is compounded as an example, right? And so the, the main differentiator that we bring is not necessarily that we are going to be the identity service provider or anything like that. But pulling in the identity posture view into the risk Operation Center, tying that identity we with um the the risk that we see coming from the infrastructure, the risk that we see coming from third party Integrations and who the risk that we see coming from um, any of the other sources, uh, like this. Config
Cloud, etc. How do you bring a more holistic view of that identity? And as it ties to the assets themselves and as it ties to the customers, vendors, and how does that create a compound risk? This is really our main focus. So it's not necessarily that we are looking to replace some of the providers that they might have for identity. It is more about how do we integrate with the providers that they have for identities and then provide them a better view of the risk, which is not siloed only.
For identity, but it's actually a combined view of the identity and the the asset together with the context of the threat actors were utilizing that. That's that's really the focus.
Super helpful. Uh, thanks for that call. Then quick follow for for jummy. So, uh, net dollar retention tiktok, uh, just looking out and and looking forward, I know, uh, Jimmy had talked about potential sort of floor, uh, around 103 just how how much Headroom do you see? Just just looking at. Uh, I know it's it's, uh, backward-looking, but the pipeline Trends, convergence for for the ndr and and just from the rocket option from the pricing model shift just just deeper sort of multi module attaches with the platform model. Here just curious uh how you're thinking about
Uh, going forward.
Um, I do see an upside there because if you take a look at our low, it was a 102% um, a year ago and what we were hoping that would be the trough and and since then we've been kind of holding on steady at 103. We did increase to 104%. Now if you were if you were looking at a historical net dollar expansion rate and the most recent years, the highest we've seen, it was at 111% a few years back and so given the rock given the flex pricing, give our newer products that we've just launched. I do anticipate that to continue to pick up not
Consistently though. I'm not calling that. I think that for this year I'm just assuming that you know, no new meaningful Improvement in net. Net dollar expansion rate in the current guy. Um but with that said we that is something that we will be taking a look at very closely for next year's guidance.
Got it, uh, very helpful. Thanks so much, appreciate it.
The next question will come from Mike Sikos. You have the line open.
Hey guys, thanks for taking the question here. I just wanted to cycle back to the improved commentary. We're hearing today on upsell activity.
Is there a way for you guys to parse out? I know if I go back to q1 towards the end of the quarter, we saw um customers look to delay or or weaker up selectivities than what was initially expected.
How many of those customers came back to the table? Did all of them come back in during this June quarter? And was there a catch-up, so to speak? When we think about the results we have here today.
Um, no, it doesn't quite uh, work like that for us. Typically, what happens is there's a cord of customers that are up for Renewal because majority of our deals are 1 year or renewal. So if you think about the customers that were up for renewal in q1, what we would talk, what would we be talking to them about is a renewal, um, set of products and a dollar amount. And then plus the, the upsell side like, let's say, you were spending hundred thousand dollars with us and, and you had 10% increase in budget. How would you like to
So what you're seeing for Q2 is really the score of customers that are offer renewal in Q2.
Okay. And then improve 2Q of selectivity. Was that in any way a reflection of the macro, or what did you guys do from an internal process standpoint to drive that behavior? Whether it was from partners or direct?
Other discussions.
Our focus on.
That, but it applies still more to new land with existing customers. It's working very closely with Partners, as well as, um, you know, our existing GTM team to make sure that we're having the right conversations with, with right set of customers. I think that it's not necessarily due to 1 versus another. I think, the macro from our perspective definitely hasn't worsened, um, I think there weren't any surprises in the corner. In the quarter. When when you're looking at external factors, we are getting better in terms of making sure that how we're communicating with our existing customers. How they should be thinking about public products, and adopting newer products as well as a utilizing their, their existing subscription. We've been getting better at it and so I think all of it kind of contributed to the site uptake and the net dollar expansion rate.
Terrific. Thank you.
Okay, and our next question will come from Brian essi with JP Morgan. Your line is open.
Hi, good afternoon. Thank you for taking the question. Um,
Yeah, $2 for me, I guess $1 same. I think you alluded to, um, maybe, uh, making some progress on the Chief Revenue Officer front. It's great to see the addition of May to the team. Just wondering what your timeline might be around that and how that might impact, um, some of the go-to-market initiatives you might have.
yeah, as soon as I find the perfect 1, I think my focus was the last
few months to really for, you know, make sure we get the marketing team in shape. Because I think for us, it's really the, the messaging around risk. Operation Center is key for us, uh, to, to grow in the future. Uh, like I said, we have a pretty good team under, uh, that, that from a sales perspective that's been working. Well, as you were seeing improving your performance and we look forward to, you know, as, as we continue to talk and interview people. Uh, I I think we I don't have a timeline right now. We're honestly just looking to find the right fit for us as we more of a, you know, partner-led approach. So, we need a cro that's going to be focusing, more on Partners rather than building a direct sales force, Etc. Um, and, and I think from from that perspective, uh, it's not that necessarily worth holding back too much on the like, you know, we are continuing to invest in the business. Uh, and of course, when
If you have a new cro, we will work through and figure out, uh, kind of what the strategy change. If anything is needed, where that falls, and then in investment changes will follow according to that. So,
Got it. Super helpful and maybe a quick housekeeping question for you. Um, FX is really moving around a lot this quarter. Just wondering what the impact was, I guess, both on the revenue side and then on the cost side of the business, as you see it. And what we should expect, you know, should we see the same, I guess?
Um, I guess devaluation of the dollar towards the back half of the year.
Yeah, for us on both fronts. Um, whether you're looking at the top line or the expense line, it was material for us just because we do hedge both.
And so, what we'll do is we are monitoring it. When it becomes meaningful, we will call it out.
Got it helpful. Thank you.
And the next question.
Rob.
Line is open.
This is Aiden on for Rob Owens. Thank you for taking my question. If you touched on this a bit earlier, can you speak to how channel and customer education efforts with the newer products and partners have tracked against all these expectations? What are some of the hurdles that may still exist there with newer solutions and AI advancements? Thank you.
A demo that goes into a PC and then that helps them sort of figure out. Okay. I had budgeted for this this year. How can I work on getting a budget that then I can get done? Uh you know, purchase the following year. So that's sort of where we're uh at in the journey. Um super uh excited about the engagement. We're seeing at at the top and uh, happy with the conversions, we're seeing right now as well, and we have uh, good things in the hopper. And so now it's about how do we get those clothes. So I think getting this out uh to the right people is something I think we're doing well. I think now it's about how do we scale that and how do we get more people to close those deals?
Thank you.
There are no further questions at this time. This will conclude today's conference call. Thank you for your participation, and you may now disconnect.
good.