Qualys, Inc. Q1 FY2026 Earnings Call

Ladies and gentlemen, thank you for standing by. Welcome to Qualys First Quarter 2026 Investor Call. Operator instructions were provided. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Blair King, Investor Relations. Please go ahead.

Thanks, Michelle. Good afternoon, and welcome to Qualys' First Quarter 2026 Earnings Call. Joining me today to discuss our results, Sumedh Thakar, our President and CEO; and Joo Mi 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 product capabilities, future events or future financial or operating performance. Actual results may materially differ from these statements and factors that could result and factors that could cause results to differ materially are set forth in today's press release and in our filings with the SEC, including our latest Form 10-Q and 10-K. 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 are all available on the Investor Relations section of our website. So with that, I'd like to now turn the call over to Sumedh.

Thanks, Blair, and welcome to our first quarter earnings call. I'm pleased to report we delivered another quarter of strong revenue growth and profitability. With the accelerated progress of new frontier models, discovering vulnerabilities and writing exploits autonomously, the number of detections is going to go up significantly while the exploit window is going to shrink dramatically. The need for organizations to know their true risk to effectively prioritize and auto-remediate riskiest vulnerabilities in less than a day has never been greater. This is why we innovated with the ETM enterprise threat management platform, which implements an AI risk operations center so customers can get the risks remediated instead of relying on dashboarding with siloed products that increase their exposure. Given our #1 rating in the GigaOM Patch Management radar with over 150 million patches deployed and over 40 million of these delivered autonomously in the last year with Six Sigma accuracy, organizations are turning to Qualys as the trusted solution to help them move from current broken manual remediation processes to high-impact, low-risk autonomous remediation workflows at scale that go beyond patch management. And that's exactly where we are focused. With exploitable vulnerability volumes surging 6.5x and average time to exploit collapsing to under a day as adversaries weaponize vulnerabilities before patches even exist, security teams focused on theoretical exposure are overwhelmed. Just finding more and more vulnerabilities doesn't equal risk. Real risk is determined by whether an adversary can successfully execute an exploit path in an organization's live environment. That's why I'm pleased to report that our most recent addition to our agent AI marketplace, Agent Vail, is now generally available. Powered by TruConfirm within our ETM solution, Agent Vail delivers closed-loop exploit validation and autonomous remediation directly to the agent. Using autonomous exploit validation at scale, we remove the guesswork for customers by running safe exploits over the network to confirm whether attackers would succeed in their breach attempts while enabling security and IT teams to focus on the less than 1% of threats actually exploitable in their production environment. In doing so, we have closed the gap between theoretical and actual exposure and believe we set a new adoption standard in the industry. While traditional ETM solutions take days to pull scan telemetry from scanning tools and rely on theoretical risk scores ignoring mitigating security controls, ETM and its agentic AI workforce takes a fundamentally different approach. Inside a continuously functioning loop, it detects vulnerabilities, validates exploitability, quantifies real risk, automates remediation and revalidates the exploit, optimizes and integrates with leading LLM and SLM solutions. This end-to-end approach empowers organizations to be laser-focused on prioritizing only exploitable threats for the next logical step, which is autonomous remediation. Leveraging the agent era and TruRisk Eliminate, our approach eliminates risk more effectively. Underpinning our risk-elimination solution is our new AI-powered patch reliability score, a model trained on our own proprietary dataset of hundreds of millions of deployed patches, which predicts patch-induced outages before they happen, giving customers the confidence to deploy with certainty and purpose while setting a new standard for predictive, operationally aware patch management. With an umbrella of remediation solutions, including matching and other compensating controls, with less than a 10% rollback rate, the AI-native stack accelerates, streamlines and democratizes security outcomes, transforming 'we think' into 'we know it's being fixed' at machine speed. In the context of the newest frontier AI models giving attackers the ability to discover diverse zero-day vulnerabilities, generate exploits in near real time and develop autonomous attack agents, unlike anything the industry has seen, the feedback to our 'get it fixed' approach from many of the CISOs I met at our recent Qualys EMEA event in London has been very positive. They shared their excitement about the rapid pace of new capabilities we are delivering, their deployment agenda and their ability to now autonomously monitor, measure and confidently remediate actual risk in multi-vendor environments in an era where just generating visibility dashboards is increasingly unacceptable. Our industry-leading capabilities are gaining broader recognition among our customers, partners and third-party analysts. Specifically, our total cloud solution was recognized as a leader in CNAPP in the Q1 2026 Forrester Wave report, and subsequently won the 2026 SC Award for the Best Cloud Security Management solution. Both underscore our capabilities in delivering unified visibility with real-time detection and response at runtime across hybrid environments. It was also positioned as a leader in the 2026 GigaOM report for cloud and entity and title management and following our dual pan awards late last year, our research unit has again demonstrated its impact with the discovery of TracerArmor, uncovering critical AppArmor vulnerabilities that can lead to root-level compromise and container escape across millions of Linux systems worldwide. This, alongside our recently released research on the broken physics of remediation, further demonstrate Qualys' commitment to fortifying security operations and raising the bar on adversaries. The net result is that we have distinctly unified CTM, exploit validation, cyber risk quantification and remediation into a single AI-driven risk fabric that continuously senses, reasons and acts across hybrid environments. With these capabilities and growing adoption momentum that will soon autonomously trigger ITSM workflows, we remain laser-focused on accelerating ETM adoption throughout our vulnerability management and detection and response customer base and positioning Qualys for larger upsell opportunities over time. Turning to our business update. We have established a long history of converting operational challenges into strong competitive advantages, demonstrated by customers spending $500,000 or more growing 9% year over year. That's why one of my favorite wins in Q1 was with an existing global 1,500-customer, despite strong foundational visibility, whose teams struggled to operationalize risk reduction across the growing mix of on-prem, multi-cloud environments, siloed tools, fragmented telemetry, a growing population of LLMs and millions of vulnerabilities with limited business context. This customer recognized the traditional severity-based prioritization methods were no longer sufficient and launched a strategic initiative to unify risk signals across their environment and operationalize the risk. Leveraging AI for security and security for AI, they expanded the Qualys footprint by adopting ETM and Total AI in a mid-six-figure annual upsell. By consolidating disparate signals into the Qualys platform, this customer now has a unified orchestration layer that delivers end-to-end visibility across the attack surface, including deep scans on their assets across binaries, open source libraries and dependencies with centralized risk quantification, prioritized remediation workflows and measurable outcomes aligned with business risk tolerance. This win reflects broader ETM momentum as more and more customers turn to Qualys for evidence-based exploit validation and remediation while benefiting from the efficiency and scale of AI-native automation. Partners remain a key pillar for our growth agenda. In addition to a growing list of nearly two dozen certified MDR partners beginning to actively launch new services, we are seeing momentum build across all geographic theaters with a strong focus on AI and native risk elimination. For example, one of our largest MDR partners is now in the process of bringing the case-ready AI-native risk solution to market powered by our ETM and automated remediation solutions. Additionally, in our strategic alliances initiatives, we continue to drive deep technology integrations, co-selling opportunities and demand generation programs to drive innovation in security research through the latest models. We have partnered with OpenAI in their access-for-cyber program and with Anthropic in their cyber verification program to advance our vulnerability and threat intelligence and allow customers to ingest these findings into ETM for further detection and remediation. On the cyber insurance side, we are also pleased to announce a new strategic partnership with Converge Insurance, leveraging the Qualys solution to help their customers demonstrate strong security hygiene and qualify for meaningful premium reductions, advancing our vision of tying cybersecurity to business outcomes. Further supporting our growth trajectory in Q1, we continue to expand data testing of Q-Flex, designed to help customers accelerate and broaden their adoption of the Qualys ETM platform. Based on strong early engagement and positive feedback, we're planning to build on this momentum by proactively identifying opportunities to extend Q-Flex to select customers and partners with a go-live date planned for later this year. And finally, as the federal government seeks to gain greater efficiency and replace outdated and costly on-prem deployments from years past with modern cloud-native risk management solutions, we are especially excited to host our third annual FedCon conference in Washington, D.C. toward the end of this month. We have made good progress growing our federal business and advancing our FedRAMP High status with large federal agencies, and we continue to believe this market will fuel a new leg of growth for the company over time. In summary, we are pioneering a new category in pre-breach risk management by bringing autonomous exploit validation, risk quantification and zero-day remediation together within a single AI-driven risk fabric that redefines how enterprises operationalize cyber risk. Complementing frontier model discovery of vulnerabilities, our platform leverages proprietary domain data, real-time telemetry and deep operational context using sensors and agents behind the firewall to continuously discover assets, validate exposures, quantify risks, remediate threats and enforce company-specific policies, which are unavailable in the public domain. This is driven by our two decades of processing petabytes of structured telemetry, combined with industry-leading threat intelligence in a closed-loop system that compounds across thousands of customer environments every day. Frontier models are powerful and accelerate back-path analysis and triage. However, they need to be paired with a highly reliable control plane to consistently enforce accurate policy and compliance outcomes across live hybrid environments. This is where the unique value proposition for Qualys customers lives, and it requires deterministic, auditable, repeatable and trusted execution with effectively zero tolerance for error as attacks move at machine speed and increasingly require defenses that learn and respond in real time. Closed-loop agent orchestration, driven policy and harnessed model choice act as a force multiplier further enabling precise risk quantification, safe remediation and even faster and more deterministic outcomes at scale. For Qualys, this means our massive data context, LLM and SLM integration and trusted execution serve as the system of record for pre-breach cyber risk management and translate AI into a packaged risk automation platform that delivers customers measurable risk reduction, zero-day remediation, governance outcomes and immediate ROI. With that, I will turn the call over to Joo Mi to further discuss our first quarter results and outlook for the second quarter and full year 2026.

Thanks, Blair, and good afternoon. Before I start, I'd like to note that except revenues all financial figures I will discuss are non-GAAP and growth rates are based on comparisons to the prior year period unless stated otherwise. Turning to first quarter results. Revenues grew 10% to $175.6 million. The channel continued to increase its contribution, making up 52% of total revenue compared to 49% a year ago. Revenues from channel partners grew 17%, outpacing direct, which grew 3%. As a result of our strategic emphasis on leveraging our partner ecosystem to drive growth, we expect this trend to continue. International grew 15% and was ahead of our domestic business, which grew 6%. U.S. and international revenue mix was 55% and 45%, respectively. In Q1, as expected, there was no meaningful movement in our net dollar expansion rate, closing the quarter at 104%, slightly up from 103% last quarter. More importantly, we'd like to turn to a new metric that we plan to disclose going forward on a quarterly basis: the net dollar expansion rate of customers with a prior-year purchase of ETM or CSAM subscriptions. We believe that this metric is currently the best indicator of success of our ETM strategic initiatives. With ETM innovation having stemmed from strong customer demand, we anticipate ETM adoption will drive higher net dollar expansion rate. However, given that ETM adoption is still in its early stages, we have decided to include CSAM customers in this cohort so that the metric has more weight to it. In addition, as a reminder, ETM is essentially an upgrade from CSAM. So we believe that this is an appropriate baseline to track and measure going forward. In Q1, the net dollar expansion rate of the ETM/CSAM cohort was 107%. As more customers move into this cohort, we hope to see consistent and meaningful improvement to our overall net dollar expansion rate and thereby drive accelerated revenue growth. Moving on to product mix. Our differentiated new products continue to drive growth. First, ETM and CSAM combined made up 11% of total bookings and 14% of new bookings on an LTM basis in Q1, up from last year's 8% and 9%, respectively. Next, patch management made up 8% of total bookings and 15% of new bookings on an LTM basis in Q1. This compares to 7% and 16%, respectively, in Q1 of last year. Lastly, total cloud made up 5% of total LTM bookings in Q1, unchanged from a year ago. We believe that these differentiated products, combined with increased contribution to bookings in 2026, give us the opportunity to increase market share and maximize share of wallet. Reflecting our scalable and sustainable business model, adjusted EBITDA for the first quarter of 2026 was $83.3 million, representing a 47% margin, the same as last year. Operating expenses in Q1 increased by 8% to $67.5 million, driven by investments in sales and marketing, which grew 17%. With this strong performance, EPS for the first quarter of 2026 was $1.95 per diluted share and our free cash flow was $93.6 million, representing a 53% margin compared to 67% in the prior year. In Q1, we continued to invest the cash we generated from operations back into Qualys, including $1.7 million on capital expenditures and $53.9 million to repurchase 505,000 of our outstanding shares. Since commencing our share repurchase program in February of 2018, we've repurchased 11.2 million shares and returned $1.3 billion in cash to shareholders. As of the end of the quarter, we had $306.6 million remaining in our share repurchase authorization. With that, let us turn to guidance, starting with revenues. For the full year 2026, we now expect revenues to be in the range of $721 million to $727 million, which represents a growth rate of 8% to 9%. This compares to prior guidance of $717 million to $725 million. For the second quarter of 2026, we expect revenues to be in the range of $177.5 million to $179.5 million, representing a growth rate of 8% to 9%. While we believe our approach to pre-breach cyber risk management provides some insulation in this ongoing macro volatility, this guidance assumes no material change in our net dollar expansion rate, with moderate growth contribution from new business in 2026. Shifting to profitability guidance. For the full year 2026 we expect adjusted EBITDA margin to be in the mid-40s, implying mid-teens increase in operating expenses and free cash flow margin in the low 40s. We expect full year EPS to be in the range of $7.44 to $7.65. For the second quarter of 2026, we expect EPS to be in the range of $1.73 to $1.80. Our planned capital expenditures in 2026 are expected to be in the range of $8 million to $12 million and for the second quarter of 2026 in the range of $1.2 million to $3.2 million. As the impact of the macro economy is still unfolding, we are closely monitoring the business environment and adjusting our priorities accordingly. That said, considering the long-term growth opportunities ahead of us and our industry-leading margins and planned room for investment, we intend to continue to responsibly align our product and marketing investments to focus on high-impact initiatives—driving more pipeline, accelerating our partner program and expanding our federal vertical. As a percentage of revenue, we expect to prioritize an increase in investments in sales and marketing with more modest increases in engineering and G&A. With that, I would be happy to answer any of your questions.

The first question will come from Patrick Colville with Scotiabank.

In your prepared remarks, I think you did a really good job of conveying why risk quantification, testing whether an asset is exploitable with runtime context, the ability to patch and revalidate all make Qualys at low risk of AI disruption in the enterprise. But what I want to ask is, there's a lot of hype around Anthropic Claude, Mistral, OpenAI, GPT 5.4, and other models. Are they leading to more inbound interest? And if so, how will those inbounds and that surge of interest translate into the financial model in 2026?

Yes, that's a great question. And I think our customers who are in this day in and day out understand pretty well that this is going to lead to more disclosure of patches and vulnerabilities from multiple vendors that they use. On the positive side, these models are helping organizations get better at finding vulnerabilities themselves versus waiting for third parties to find them, but it also means there will be more patches announced by multiple vendors that customers will have to deploy. The real challenge is once patches come out, attackers leveraging AI can reverse engineer those patches and find exploits. It becomes a game of how quickly you can apply the vendor patch in a matter of hours and not wait for days and weeks as happens today. That's where many of the conversations we have with customers are focused. We're seeing a lot of CISOs reaching out to understand how our patch management capability and the remediation and exploit validation capabilities will help because they need to provide updates to their boards on how they will fight AI-induced attacks. The response cannot be more manual remediation; they need an approach that anchors in fighting autonomous AI attacks with autonomous remediation. They see us as a trusted vendor having deployed 150 million patches already and 40 million autonomously deployed. A lot of these conversations are positive right now, but it's still early to quantify the impact on pipeline and outlook. As Joo Mi said, we're not considering any change to our guidance today, but we are happy to see the increased engagement from inbound customers trying to understand how to respond.

Very clear. And just to touch on that point, Joo Mi, you kindly last quarter provided a soft guidance for 7% to 8% current billings growth in 2026. Is that the point you were making in the prepared remarks that remains the case? No change to that level even with the strong Q1 performance and the positive vibes Sumedh mentioned?

Yes, that's correct. If you take a look at our Q1 performance, it was a solid start to the year. We're pleased with Q1 and what we anticipate for the rest of the year. However, we don't see any material or meaningful change for the full year today. So the baseline still remains at 7% to 8% for current billings for the full year.

The next question will come from Roger Boyd with UBS.

Sumedh, it was a strong quarter from a new customer-add perspective, particularly for Q1, which is typically seasonally a little bit lower. Can you talk about what's working right from a new logo perspective? And to what degree is the patch management and remediation messaging impacting the new customer conversation? Any metrics you can give around attach rate of patch management or TruRisk Eliminate would be great.

Great question. We talked about patch management being roughly 8% of LTM overall bookings and 15% of new bookings. Execution and focused messaging are key. Our focus on agents and agent-based remediation over the last year has positioned us well for customers looking to autonomously remediate. Our messaging around patching, exploit validation and remediation has resonated. Risk measurement and risk management are critical because companies cannot simply deploy every patch—they have to prioritize based on real risk. ETM's hyper-prioritization is important, and for ETM to be successful you need high-quality detection capabilities. Customers have raised concerns around false negatives with some models, but Qualys delivers signatures multiple times a day and adds detection capabilities to reduce false negatives. Those capabilities are fueling positive conversations for ETM, which is still early. ETM and Eliminate conversations often go hand-in-hand. We're encouraged by the discussions we're having and will continue executing. Our partners are working closely with us and will bring additional new logos and upsell opportunities through MDR services and channel expansion.

That's really helpful. And a quick one for Joo Mi on Q-Flex: you talked about building out the pipeline and identifying customers to extend that procurement model to. Can you talk about the customers that are a good fit for Q-Flex and any thoughts on when that push could start this year?

Q-Flex is targeted toward enterprise customers who need flexibility to cover forecast variability across the year. They often want the comfort of pre-purchasing or pre-committing to a higher credit with the ability to swap different products and try newer solutions as they become available. We've been talking with a select group of customers that have the budget and willingness to pre-commit, and we're pleased with current momentum. We plan to go GA with Q-Flex later this year.

To add, Q-Flex will be helpful because product and priority changes can happen quickly. For example, exploit validation wasn't available earlier last year; now that it is, Q-Flex customers can pivot credits toward patching or exploit validation without returning to procurement. We have exciting early conversations and expect to work through GA by year-end.

The next question will come from Kingsley Crane with Canaccord.

Sumedh, how important is access to previews of models like Mistral or similar previews for your business? And in general, with the growing marketplace of generative AI solutions, what is the future of that type of integration with agents for the platform? How relevant is inference as a line item for Qualys if you look three years out?

It's less about any single model and more about the direction these models are taking. We're leveraging open source models and are part of programs that give us access to frontier models geared for cyber. These models help us do better exploit research safely for customer environments and help identify mitigations that don't require a patch. We reverse engineer patches to find compensating controls that can be applied quickly—valuable when customers have only a few hours to decide on a mitigation. Whether we integrate findings from frontier models into ETM or use our own agentic AI solutions, different LLMs and SLMs are useful for chat, reasoning and autonomous actions. Because we uniquely do exploit validation and patching, we have an interesting and compelling use case for these models. Inference costs will be a consideration, but it's part of delivering high-value outcomes and we are focused on optimizing those costs while maximizing customer impact.

That's helpful. For Joo Mi, great to see continued efficiency in the business. You've talked about R&D growing more modestly than sales and marketing this year—about a 2% growth year-over-year—should we expect that for the rest of the year? And what would get you to invest more in R&D given this dynamic market?

We're forecasting OpEx growth in the mid-teens, with sales and marketing continuing to grow around the 15% mark. Last quarter sales and marketing grew 18% year-over-year; this quarter it grew 17%. We anticipate continued ramp in sales and marketing in the second half of the year, while R&D and G&A increases will be more modest. We would increase R&D investment meaningfully if there is a justified return, particularly around AI investments that continue to advance the business. Given our margin targets, we're guiding to mid-40s EBITDA margin, which implies mid-teens OpEx growth.

The next question will come from Jonathan Ho with William Blair.

I wanted to better understand the breach risk management opportunity—how does this change from prior approaches and what makes Qualys better positioned than competitors to offer this solution?

It's not a departure from our prior approach; we've been building ETM and the concept of a risk operations center for the last couple of years in preparation for this moment. The key is creating outcomes where things are fixed for the customer in hours. Many CSAM solutions collect data from scanners, create reasoning and then pass off remediation to others, which wastes time. With ETM we provide end-to-end detection, validation and remediation. Our RSA demo showed Agent Vail finding a vulnerability, validating the exploit, applying a mitigation and revalidating that it's fixed in under 15 minutes. I don't know of other CSAM solutions that do that end-to-end. We're also focused on cyber risk quantification so businesses can prioritize and make decisions aligned with budget and risk tolerance. We have integrations with cyber insurance to demonstrate the value of maintaining good hygiene for premium reductions. Given the changing threat landscape, customers are now more receptive to autonomous remediation. Instead of tools that only produce dashboards, customers want outcomes—detecting, validating, fixing and revalidating quickly and accurately. ETM was designed for this and we're encouraged by the early customer interest as more vulnerabilities are discovered by frontier models.

Quick follow-up: do these models expand the number and types of assets you cover and accelerate adoption of more products on the platform to deal with increased complexity?

Yes. These models can find vulnerabilities across codebases and asset types. That's why comprehensive sensors matter—covering network assets, endpoint agents, firewalls, VPNs, cameras, IoT, cloud and containers. Customers increasingly want native coverage for quick scan results without long waits. The ideal solution consolidates separate dashboards into a unified workflow where agent AI normalizes telemetry, prioritizes what matters, validates exploits and remediates. ETM is designed to pull data from these diverse sources and orchestrate a unified remediation workflow so customers don't need to consult multiple dashboards to manage pre-breach risk.

The next question will come from Rudy Kessinger with D.A. Davidson.

Curious on ETM sales so far—are you getting that full dollar uplift on those early sales? And regarding the 107% net expansion rate for the ETM/CSAM cohort, does that include upsell from purchasing ETM? Could you break down that number further?

It's a little too early to comment on the illustrative dollar uplift versus list price. The cohort of customers with ETM subscriptions is still small. The 107% figure includes customers who purchased CSAM or ETM. We calculated the metric by taking the cohort of customers who had ETM or CSAM subscriptions one year ago and comparing their total spend then to their total spend in Q1 2026. It is total spend by that cohort, not just the ETM or CSAM subscription. Our hypothesis is these customers—whether they start with CSAM and upgrade to ETM or purchase ETM—will be stickier and drive higher upsell over time. That's why we're tracking this metric: to ensure we're successfully upgrading CSAM customers and generating the upsell we expect.

Got it. And how has sales productivity been trending? With sales and marketing expense outpacing revenue growth, is the increase driven mainly by headcount or more marketing spend? Where is that investment going?

The majority of the increase in sales and marketing is driven by headcount. Headcount growth for sales and marketing was over 10% last year as we build teams focused on direct sales, ETM sales and channel management. We're still investing given the upside we see in the business and our shift toward indirect sales through partners. Productivity hasn't yet reached the level we expect in the future—there's room to improve efficiency. For now, we are investing to scale the organization and the partner programs, expecting to realize productivity gains over time.

The next question will come from Joseph Gallo with Jefferies.

You mentioned guidance reflects NRR staying flat, and ETM cohort NRR is 107% and expected to grow. How should we think about the timeline for acceleration of total NRR? Are there pressures or offsets that could keep that number flat over the next few quarters?

Our company NRR has been around 103% to 104% for the last couple of quarters. We're assuming that baseline because ETM is still early-stage and not yet large enough to materially move the company-level NRR this year. We don't anticipate ETM adoption to significantly ramp company NRR in 2026. Macro factors and geopolitics present potential headwinds, which could be offset by tailwinds from increased demand as customers seek to address AI-driven threats. Overall, our guidance assumes a baseline case with net dollar expansion rate in line with recent quarters.

Regarding the macro comments: is the monitoring mainly related to geopolitical events? Are customers reallocating budgets to AI versus cyber, and has anything changed in the last 90 days?

We monitor by tracking conversations with existing customers and new prospects. Announcements from major AI players or geopolitical events can disrupt procurement timing—sometimes generating demand, sometimes lengthening sales cycles. There are puts and takes. At this stage, we view the net effect as consistent with the baseline guidance we provided earlier in the year.

So far we've not seen meaningful budget reductions specifically for cyber. Conversations have remained broadly stable, though we are being prudent and monitoring for potential changes.

The next question will come from Shrenik Kothari.

In light of Frontier AI and the agent Vail rollout to broader remediation, you've emphasized pathway patching which you've specialized in. Can you provide anecdotal proof points that this has become a real budgeted operating priority for customers and not just a concept? Any examples would be helpful.

We have tangible examples. A large Canadian bank recently engaged us—its CEO and security leadership were focused on how to quickly remediate risk. After discussing our eliminate capability, they were excited and initiated an immediate proof of concept. Conversations like this, where customers ask if we have a patching capability because they need to move faster than their current processes allow, are happening more frequently. Customers value the ability to find, validate, patch or apply mitigations and revalidate in hours rather than days or weeks. That's a direct indicator that this is a budgeted priority in some organizations, and we expect more to follow as the threat landscape accelerates.

A quick follow-up on NRR: what moves the needle for the next leg of growth? Is it primarily proving monetization of ETM and Agent Vail, or are there legacy mix drags to consider? Why be cautious in accelerating company-level NRR guidance today?

Our guidance is grounded in historical product adoption patterns. New products like ETM historically take time to achieve meaningful penetration across the customer base. For example, CSAM launched in 2021 and took time to ramp. ETM and CSAM together made up 11% of bookings on an LTM basis in Q1, so we expect upgrades and broader adoption will take time to materially impact company-level NRR. We're tracking the ETM/CSAM cohort to monitor upgrades and upsell, and we will update guidance as the adoption trajectory becomes clearer.

The next question will come from Brian Essex with JPMorgan.

With foundation models improving vulnerability discovery, the spectrum of assets ranges from OS and infrastructure to custom apps and OT where patching may not be feasible. Where are these models best placed for vulnerability discovery and potential exploitation, and how does that change customer risk profiles and how they will use your platform to mitigate those risks?

Frontier models will help developers find vulnerabilities in code, and that could reduce some zero-day risk if developers fix issues before attackers exploit them. But models also enable attackers to chain lower-severity vulnerabilities into higher-impact exploits. That's where TruRisk scoring and our early detection play a role—we often flag vulnerabilities likely to become high risk earlier than industry feeds. ETM supports a range of mitigations beyond patching, including compensating controls, removing unused binaries or changing configuration, which are valuable when immediate patching isn't possible, such as in OT. Our goal is to provide a menu of remediation options tailored to the customer's environment so they can eliminate risk effectively without causing outages. That combination—deep detection, exploit validation, prioritization and multiple remediation paths—is why customers rely on Qualys to manage evolving risk profiles.

Follow-up for Joo Mi on Q-Flex: could Q-Flex help accelerate migration of existing customers to ETM?

Yes. We're working with customers today on Q-Flex and plan a broader GA by year-end. Q-Flex can provide flexibility that helps customers adopt new capabilities like ETM throughout the year, which can support migration and expansion.

We do have conversations where Q-Flex is paired with ETM sales and customers appreciate the flexibility to reallocate credits as priorities change. This is well received, especially given the pace of new capabilities and changing priorities.

This is all the time that we have for questions. We want to thank you for your participation. This will conclude today's conference call, and have a good evening.