QUALYS, INC.QLYS
QUALYS, INC. Income Taxes Disclosure
Income Taxes
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA permanently extends and modifies certain domestic and international provisions from the 2017 Tax Cuts and Jobs Act (“TCJA”) and phases out certain provisions from the 2022 Inflation Reduction Act. Beginning in 2025, the OBBBA provides an elective deduction for domestic research and development expenses and a reinstatement of elective 100% first-year bonus depreciation. Some international provisions of the OBBBA will not be effective until 2026 and forward. The Company has recognized the effects of the OBBBA provisions in its financial results to the extent they are applicable to the year ended December 31, 2025. The Company will continue to monitor the impact of the OBBBA and the range of potential outcomes, which will depend on facts in each year and anticipated guidance from the U.S. Department of the Treasury.
The Company’s geographical breakdown of income before income taxes is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Domestic | $ | 216,666 | $ | 192,394 | $ | 164,958 | |||||||||||
| Foreign | 30,162 | 17,428 | 13,693 | ||||||||||||||
| Income before income taxes | $ | 246,828 | $ | 209,822 | $ | 178,651 | |||||||||||
Income tax provision consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 23,906 | $ | 39,989 | $ | 32,405 | |||||||||||
| State | 5,535 | 5,885 | 6,061 | ||||||||||||||
| Foreign | 10,784 | 9,837 | 5,218 | ||||||||||||||
| Current income tax provision | 40,225 | 55,711 | 43,684 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 8,372 | (18,470) | (13,584) | ||||||||||||||
| State | 682 | (599) | (2,009) | ||||||||||||||
| Foreign | (771) | (500) | (1,035) | ||||||||||||||
| Deferred income tax benefit | 8,283 | (19,569) | (16,628) | ||||||||||||||
| Income tax provision | $ | 48,508 | $ | 36,142 | $ | 27,056 | |||||||||||
During the year ended December 31, 2025, the Company adopted ASU 2023-09 to enhance the income taxes disclosures regarding income taxes paid and the rate reconciliation disclosure. See Note 1, "The Company and Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements" for additional details on the adoption of ASU 2023-09.
The income taxes paid by the Company are as follows:
| Year Ended December 31, | |||||
| 2025 | |||||
| (in thousands) | |||||
| Cash paid during the period for income taxes, net of refunds | |||||
| U.S. federal | $ | 23,800 | |||
| U.S. state and local | 5,078 | ||||
| Foreign - India | 5,133 | ||||
| Foreign - Other | 6,875 | ||||
| Total cash paid during the period for income taxes | $ | 40,886 | |||
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09 the cash paid for income taxes was $60.6 million and $34.9 million, respectively.
The effective income tax rate for the year ended December 31, 2025 differs from the statutory federal income tax rate as follows:
| Year Ended December 31 2025 | |||||||||||
| (in thousands, except percentages) | |||||||||||
| U.S. federal statutory tax rate | $ | 51,834 | 21.0 | % | |||||||
| State income taxes, net of federal benefit (1) | 4,911 | 2.0 | % | ||||||||
| Foreign tax effects | 3,689 | 1.5 | % | ||||||||
| Effects of cross border tax effects | |||||||||||
| Foreign-derived intangible income | (7,865) | (3.2 | %) | ||||||||
| Other | 12 | — | % | ||||||||
| Tax credits | |||||||||||
| Research and development credits | (2,308) | (0.9 | %) | ||||||||
| Foreign tax credits | (2,511) | (1.0 | %) | ||||||||
| Change in valuation allowance | 125 | — | % | ||||||||
| Nontaxable or nondeductible items | |||||||||||
| Stock-based compensation | 5,852 | 2.4 | % | ||||||||
| Excess tax benefits related to stock-based compensation | (3,269) | (1.3 | %) | ||||||||
| Other | 498 | 0.2 | % | ||||||||
| Changes in unrecognized tax benefits | (1,957) | (0.8 | %) | ||||||||
| Other | (503) | (0.2 | %) | ||||||||
| Effective tax rate | $ | 48,508 | 19.7 | % | |||||||
(1)State taxes in New York City, New York, Illinois, New Jersey, and Pennsylvania made up the majority (greater than 50 percent) of the tax effect in this category.
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Federal statutory rate | 21.0 | % | 21.0 | % | |||||||
| State taxes | 2.3 | 2.6 | |||||||||
| Stock-based compensation | 2.8 | 2.7 | |||||||||
| Excess tax benefits related to stock-based compensation | (2.2) | (2.9) | |||||||||
| Foreign source income | 2.1 | 0.3 | |||||||||
| Change in valuation allowance | — | 0.1 | |||||||||
| Foreign-derived intangible income deduction | (4.8) | (4.4) | |||||||||
| Federal and state research and development credit | (2.0) | (1.4) | |||||||||
| Accrual to return adjustments and Other | (0.6) | (2.9) | |||||||||
| Uncertain tax positions | (1.4) | — | |||||||||
| Income tax provision | 17.2 | % | 15.1 | % | |||||||
Deferred Income Taxes
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of the Company’s deferred tax assets and liabilities are as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| Deferred tax assets | |||||||||||
| Research and development credit carryforwards | $ | 11,844 | $ | 11,636 | |||||||
| Fixed assets | 1,249 | 1,430 | |||||||||
| Accrued liabilities | 4,288 | 4,243 | |||||||||
| Deferred revenues | 3,174 | 4,787 | |||||||||
| Operating lease liabilities | 11,442 | 9,504 | |||||||||
| Intangible assets | 3,498 | 3,502 | |||||||||
| Stock-based compensation | 3,799 | 3,659 | |||||||||
| Capitalized research and development | 61,677 | 67,259 | |||||||||
| Other | 2,408 | 1,026 | |||||||||
| Gross deferred tax assets | 103,379 | 107,046 | |||||||||
| Valuation allowance | (12,889) | (12,454) | |||||||||
| Total deferred tax assets | 90,490 | 94,592 | |||||||||
| Deferred tax liabilities | |||||||||||
| Operating leases - right of use asset | (9,709) | (7,919) | |||||||||
| Deferred commissions | (6,263) | (5,366) | |||||||||
| Total deferred tax liabilities | (15,972) | (13,285) | |||||||||
| Net deferred tax assets | $ | 74,518 | $ | 81,307 | |||||||
The realization of deferred tax assets is dependent upon the generation of sufficient taxable income of the appropriate character in future periods. The Company regularly assesses the ability to realize its deferred tax assets and establishes a valuation allowance if it is more-likely than-not that some portion, or all, of the deferred tax assets will not be realized. The Company weighs all available positive and negative evidence, including its earnings history and results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. Due to the weight of objectively verifiable negative evidence, it is more-likely-than-not that its California deferred tax assets will not be realized as of December 31, 2025. Additionally, due to a lack of sufficient future income of the appropriate character, certain U.S. federal and state deferred tax assets are not more-likely-than-not to be realized. Accordingly, the Company has recorded a valuation allowance of $12.9 million and $12.5 million against such deferred tax assets as of December 31, 2025 and 2024, respectively. The increase in valuation allowance was mainly associated with the California research and development credits generated during the year ended December 31, 2025.
As of December 31, 2025 and 2024, the Company had $19.5 million and $18.4 million, respectively, of California research and development credit carryforwards. California research and development credits are carried forward indefinitely. As of December 31, 2025 and 2024, the Company had zero foreign tax credit carryforwards for both years.
The following table summarizes the activity related to the Company’s unrecognized tax benefits:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in thousands) | |||||||||||||||||
| Unrecognized tax benefits beginning balance | $ | 12,108 | $ | 11,898 | $ | 10,542 | |||||||||||
| Gross increase for tax positions of prior years | 154 | 1,283 | 262 | ||||||||||||||
| Gross decrease for tax positions of prior years | (39) | — | — | ||||||||||||||
| Gross increase for tax positions of current year | 1,884 | 2,048 | 1,127 | ||||||||||||||
| Lapse of statute of limitations | (1,864) | (3,121) | (33) | ||||||||||||||
| Total unrecognized tax benefits | $ | 12,243 | $ | 12,108 | $ | 11,898 | |||||||||||
The unrecognized tax benefits, if recognized, would impact the income tax provision by $4.6 million, $5.3 million and $6.1 million as of December 31, 2025, 2024 and 2023, respectively. The remaining amount would result in the recognition of a corresponding deferred tax asset that is then offset by a full valuation allowance. The Company has elected to include interest and penalties as a component of income tax expense. The amounts were not material for the years ended December 31, 2025, 2024 and 2023.
The Company files income tax returns in the United States, including various state jurisdictions. The Company’s subsidiaries file tax returns in India and various other foreign jurisdictions. The tax years 2001 through 2024 still remain open to examination by certain major taxing jurisdictions in which the Company is subject to tax. The Company is also currently subject to tax audits in various jurisdictions. The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company's tax audits are resolved in a manner inconsistent with its expectations, the Company could be required to adjust its income tax provision in the period such resolution occurs.
As of December 31, 2025, the Company has undistributed earnings in certain foreign subsidiaries that the Company has indefinitely reinvested outside the United States. Due to U.S. tax rules related to taxation of foreign earnings, the unrecorded deferred tax liability is immaterial. The Company may be required to pay additional foreign withholding taxes if the Company repatriates those earnings in the future.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 22, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 22, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 26, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.