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Qualys (QLYS) is soaring after issuing a strong beat-and-raise Q3 earnings report as the selling environment stabilized and as its customers continued to consolidate their cybersecurity tools onto its unified platform. Additionally, with the launch of Qualys TotalAI in Q4, QLYS is poised to capitalize on the emergence of AI and large language models and the significant security risks that these technologies present.

Although the company believes that budget scrutiny will linger into the foreseeable future, the launch of new products and capabilities, such as TotalAI and Enterprise TruRisk Management, and the bullish growth trends in new business wins, are expected to keep the positive momentum going. As such, QLYS issued upside Q4 EPS and revenue guidance of $1.28-$1.38 and $154.5-$157.50 mln, respectively.

• One of the brightest highlights was the disclosure that new business achieved a fifth consecutive quarter of double-digit growth. That's a testament to the effectiveness of its cybersecurity products and its marketing strategy, which relies heavily on leveraging its partner ecosystem. On that note, revenue from its channel partners grew by 17% in Q3, far outpacing the 1% growth on the direct side.
• QLYS also experienced stronger upsell activity this quarter, as reflected in its net dollar expansion rate climbing higher to 103% from 102% last quarter. As the company releases new products and capabilities, it's winning a larger percentage of customers' wallets.
• One minor blemish is that the company expects gross margin to be pressured a bit as it invests in its data centers in order to achieve greater operational efficiencies. More specifically, these investments amounted to a 1% headwind to Q3 gross margin, which was flat overall yr/yr at 83%, and QLYS is anticipating a similar 1% negative impact in Q4.
• Lastly, QLYS's solid earnings report is a bullish data point for competitors such as CrowdStrike (CRWD) and Zscaler (ZS), which are scheduled to issue their quarterly results on November 26 and November 27, respectively.

The IT spending climate has been constrained for many quarters, but investing in cybersecurity has generally been a priority and QLYS's beat-and-raise performance indicates that this trend remained in place in Q3. It's a highly competitive field, but QLYS's ongoing success in winning new business in a challenging environment shows that it's one of the premier names in the cybersecurity space.