Trevor Walsh

Trevor Walsh asked how the OSI acquisition further enhances Rocket Lab's attractiveness to customers, questioning whether the focus is primarily on vertical integration or the new capabilities and features OSI brings. He also sought a deeper explanation of the factors influencing Tranche III revenue recognition, particularly regarding subcontractor deliveries.

Answer

CEO Peter Beck explained that customers prioritize timely delivery, cost-effectiveness, and performance, which vertical integration, especially of critical optics through OSI, helps guarantee. He noted that owning optics, the most expensive and longest lead item, provides certainty in cost, schedule, and innovation. CFO Adam Spice elaborated that revenue recognition for programs like Tranche III is heavily gated by subcontractor deliveries, emphasizing that vertical integration reduces dependency on third parties and improves predictability. He mentioned that the current 37% backlog conversion estimate for the next 12 months is conservative, assuming current subcon delivery dates.

Trevor Walsh of Citizens JMP asked about potential payload limitations for the new Flatellite platform and the future deployment of R&D headcount after Neutron's first launch.

Answer

CEO Sir Peter Beck stated that while Flatellite is not ideal for large optical telescopes, it is highly flexible and scalable for most other remote sensing and connectivity payloads. CFO Adam Spice clarified that R&D spending will subside post-launch, with engineering talent being repurposed into production roles, shifting expenses from R&D to cost of sales.

Trevor Walsh questioned Rick Smith's commentary on drone legislation, asking what is still lacking despite recent robust language in the National Defense Act regarding state and local powers for drone tracking and mitigation.

Answer

CEO Rick Smith explained that drone legislation is a continuous evolution, noting that while special accommodations are being made for events like the World Cup, state and local entities currently cannot directly mitigate drones. He anticipates that in a few years, they will gain this capability, potentially extending to private security. Rick highlighted Axon's engagement with Congress to adapt laws and its focus on building a sensor network that can expand to include mitigation work as regulations loosen. President Josh Isner added that the administration has been open to modernizing drone policy, giving confidence that the government will adapt with technology.

Trevor Walsh asked CEO Rick Smith about the perceived shortcomings in current drone legislation, despite recent robust language in the National Defense Act, regarding state and local powers for drone tracking and mitigation, and what further legislative changes Axon believes are necessary.

Answer

CEO Rick Smith noted that current state and local entities generally cannot directly mitigate drones, but he anticipates this capability will expand in a few years, potentially to private security. He mentioned Axon's engagement with Congress on related bills and acknowledged the administration's openness to modernizing drone and counter-drone policy, which gives confidence that government regulations will adapt with technology.

Trevor Walsh asked about the potential technological risks of integrating Prepared and Carbine with existing legacy CAD systems, questioning if these older systems could hinder scalability or functionality, or if Axon anticipates customers needing to accelerate their replacement. He also inquired about the federal business, its influence on guidance, and the outlook for 2026, especially concerning potential government shutdowns.

Answer

CEO Rick Smith and SVP Jeff Kunins explained that Axon's strategy involves building parallel systems that respect existing infrastructure while enabling innovation, comparing it to the evolution from landlines to mobile phones. They detailed Prepared as an easy-to-deploy AI overlay and Carbine as a modern cloud-based call-handling system, allowing agencies to modernize at their own pace. CFO Brittany Bagley and President Josh Isner stated that federal business was not a significant factor in current guidance, with Q4 expected to be the best federal quarter of the year, indicating potential upside rather than risk.

Trevor Walsh from Citizens JMP asked if law enforcement staffing shortages are driving technology spending and requested clarification on the second-half tariff impact.

Answer

Founder, CEO & Director Rick Smith confirmed they are actively discussing how technology like Draft1 and DFR can offset staffing issues, with some agencies reallocating budgets from unfilled positions. COO & CFO Brittany Bagley stated that the current understanding of tariff impacts is fully incorporated into the H2 guidance.

Trevor Walsh asked for an update on the TASER 10 Apollo cartridge timeline and its market opportunity, and also sought clarification on whether the guided 50-basis-point tariff impact to EBITDA represents a worst-case scenario.

Answer

CEO Patrick Smith stated the Apollo cartridge is about a year from scaled production. He expects it to be most impactful for the mission in the U.S. by helping displace lethal force, while serving as a significant revenue driver internationally by opening new markets. CFO Brittany Bagley described the 50bps tariff impact as a 'realistic' best guess based on current information, not a worst-case scenario, and noted the company will continue to seek further offsets.

Trevor Walsh asked if Axon is hearing concerns from state-level customers about the impact of federal funding flows on their budgets. He also inquired about the new 'total future contracted bookings' metric and the reason for its introduction.

Answer

President Joshua Isner stated that federal funding dynamics are not expected to materially impact Axon's business. CFO Brittany Bagley explained the new bookings metric was introduced because the GAAP RPO metric is less indicative of business performance, as it excludes contracts with termination for convenience clauses, which are increasingly common but rarely exercised.

Trevor Walsh asked about the potential impact of federal funding flows on state and local agency budgets and their purchasing power. He also requested clarification on the new 'total future contracted bookings' metric and why it was introduced.

Answer

Joshua Isner, President, expressed confidence that federal funding dynamics would not negatively impact state and local business. Patrick Smith, CEO, added that Axon's products enjoy bipartisan support as critical public safety technology. Brittany Bagley, CFO, explained the new bookings metric better reflects the business, as the GAAP RPO metric increasingly excludes contracts with termination for convenience clauses, which are now common but rarely used.

Trevor Walsh asked for more details on the CapEx spend from 2025 that slipped into 2026, specifically if it was a single initiative or broad-based, and if any CapEx could similarly slip into 2027.

Answer

Deanna Lund, EVP and CFO, explained that the CapEx slip was primarily due to two programs: the Indiana Payload Integration Facility and the Birmingham Advanced Manufacturing Hypersonic Facility, both construction-related. She noted that while Kratos believes all forecasted 2026 CapEx will be incurred, some construction-related spend could potentially push into 2027.

Trevor Walsh asked for more details on the CapEx spend from 2025 that slipped into 2026, inquiring if it was a single initiative or broad-based, and if any 2026 CapEx is likely to slip into 2027.

Answer

Deanna Lund, EVP and CFO, Kratos Defense & Security Solutions, clarified that the CapEx slip was primarily due to two programs: the Indiana Payload Integration Facility and the Birmingham Advanced Manufacturing Hypersonic Facility, both construction-related. She stated that while some construction-related CapEx might push out, Kratos believes the current 2026 range is good and expects everything forecasted for 2026 to be incurred within the year.

Trevor Walsh of Citizens asked about the competitive landscape for the Prometheus JV's merchant supplier ambitions and the expected ramp-up timeline for the new $750 million Poseidon program.

Answer

CEO Eric DeMarco explained the Prometheus strategy involves a parallel approach: serving partner Rafael while simultaneously engaging with other primes to become a merchant supplier. He stated that the new facility for the Poseidon program is expected to be complete in 2027, with production ramping up in the 2028-2029 timeframe.

Trevor Walsh of Citizens JMP asked about Kratos's strategic approach to facility build-outs (contract-driven) compared to competitors building speculative 'mega factories' and sought clarification on the timing of the MACH-TB facility investment.

Answer

CEO Eric DeMarco explained that Kratos's model is to avoid speculative investments, typically requiring a committed customer or partner before committing significant capital, a strategy that de-risks projects like Prometheus. He emphasized that affordability and proven systems attract customers, justifying the investments. CFO Deanna Lund confirmed the bulk of the MACH-TB facility investment is in the 2025 plan, with a small amount carrying over to 2026.

Trevor Walsh asked for clarification on how the T-6 contract will impact V2X's backlog, specifically regarding the funded versus unfunded portions.

Answer

CFO Shawn Mural stated that the exact funded/unfunded breakdown for the T-6 contract is not yet available, but he anticipates it will be funded annually or slightly less, consistent with similar programs. He clarified that the Q1 booking will not reflect the entire awarded value due to contract options, and the team is finalizing booking practices.

Trevor Walsh asked for a deeper understanding of V2X's AI partnerships with Google and AWS, specifically whether they are more technology-centric or traditional IT system integrator work, and how this might affect the margin profile. He also sought clarification on the T-6 contract's impact on backlog, particularly the funded versus unfunded portions.

Answer

CEO Jeremy Wensinger explained that partnerships with AWS (for smart warehousing) and Google (for AI) leverage V2X's data with their technology to deliver better, faster, and more efficient outcomes for customers. CFO Shawn Mural added that these partnerships enable speed to market and broad deployment. Regarding the T-6 contract, Shawn Mural stated that the exact funded/unfunded breakdown is still being worked out with the customer, but it's expected to be funded annually or slightly less, and the Q1 booking will not represent the entire awarded value due to options.

Trevor Walsh questioned the year-over-year decline in Air Force revenue, the potential for margin expansion from the extended LOGCAP contract, and any potential tariff impacts on product-focused initiatives.

Answer

SVP and CFO Shawn Mural explained the Air Force revenue decline was driven by the predictable sunsetting of the KC-10 and T1A programs, partially offset by the WTRS and F5 program ramps. President and CEO Jeremy Wensinger noted the LOGCAP extension creates a 'recompete holiday,' allowing the team to focus on new business growth. Mural confirmed they see no material tariff impact on their product lines due to largely domestic sourcing.

Trevor Walsh asked how potential broad-based DoD budget cuts might impact V2X's programs and what the company's capital allocation priorities are now that its net leverage target has been achieved.

Answer

President and CEO Jeremy Wensinger and CFO Shawn Mural both characterized V2X's work as supporting enduring missions that are less susceptible to broad cuts, suggesting policy changes are a more likely driver of spending shifts. Regarding capital allocation, Wensinger stated that the focus is on options that generate the most shareholder value, while Mural confirmed that achieving the leverage target provides greater optionality which the company is actively evaluating.

Trevor Walsh of Citizens JMP questioned potential risks to the new $5 billion in awards ramping in 2025, sought details on the pending F-16 cockpit upgrade contract, and asked why adjusted EBITDA guidance was held flat while revenue and EPS were raised.

Answer

SVP & CFO Shawn Mural stated there are no currently foreseen issues with the new program ramps but acknowledged that dynamic funding priorities and international customer relations are always factors. President & CEO Jeremy Wensinger added that the F-16 program is similar to GMR, moving from development to a growth phase with significant potential. Mural explained that the unchanged EBITDA guidance reflects a higher mix of cost-type work, which carries lower margins, driving the top-line revenue increase without a proportional rise in EBITDA.

Trevor Walsh asked for the CEO's perspective on the geopolitical environment and V2X's positioning, details on the Gateway Mission Router (GMR) contract's expansion potential, and the outlook for the company's backlog for the remainder of the year.

Answer

President and CEO Jeremy Wensinger highlighted V2X's global footprint in the INDOPACOM and Middle East regions as a key differentiator aligned with DoD funding. Regarding the GMR, he stated the goal is to make it a program of record, which would unlock significant opportunities, and V2X is investing in enhancing the technology's form factor. SVP and CFO Shawn Mural projected a full-year book-to-bill around 1.0 and expects backlog to increase in Q3 and Q4, driven by new awards and on-contract growth.

Trevor Walsh asked for clarification on how Amentum is bridging the timing of nuclear contributions and overall new business for fiscal year 2026, including sources of upside and potential risks to meeting expectations.

Answer

CEO John Heller noted that 21% of Amentum's revenue is from non-U.S. government sources, where protests on new awards are rare, allowing for immediate translation of awards like the $1 billion in nuclear contracts into revenue and margin contribution. CFO Travis Johnson explained the mechanical bridge to the rest of the year's run rate, including the absence of government shutdown impact (approximately $150 million in Q1), additional working days in Q2-Q4 (63-64 days vs. 60 in Q1), and the ramp-up of new contract awards such as the Space Force Range contract. He identified variability in the timing of $23 billion in pending awards and potential protests as key factors influencing where results fall within the guidance range.

Trevor Walsh asked for clarification on the timing of nuclear contributions and overall new business for 2026, seeking insights into potential upside drivers and any 'gotchas' that could prevent meeting expectations.

Answer

CEO John Heller noted that 21% of Amentum's revenue is non-U.S. government, where protests are rare, allowing immediate revenue translation for awards like the $1 billion in nuclear contracts. He contrasted this with U.S. government awards, where $2 billion is currently under protest. CFO Travis Johnson outlined mechanical factors bridging Q1 to the rest of the year's run rate: no further government shutdown impact (a $150 million headwind in Q1), additional working days in subsequent quarters (adding approximately $150 million per quarter), and the ramp-up of new contract awards like the Space Force Range contract. He stated that variability within guidance would primarily stem from the timing of the $23 billion in pending awards and potential protests.

Trevor Walsh of Citizens JMP questioned the potential business impact of government headcount reductions and asked for clarification on the 1% revenue impact from the new administration that was factored into the annual guidance.

Answer

CEO John Heller framed government efficiency efforts as a business opportunity, asserting that the essential workload remains and creates demand for innovative private sector partners like Amentum. CFO Travis Johnson clarified that the 1% revenue impact is a minimal estimate, isolated to specific foreign aid work, and that potential upside from new administration priorities has not yet been factored into guidance, which could offset this impact as the year progresses.

Asked about the potential impact of government headcount reductions and sought clarification on the 1% revenue impact assumption in the guidance related to the new administration.

Answer

Government efficiency drives create opportunities for Amentum to provide more cost-effective solutions. The 1% revenue impact is a specific, minimal assumption related to foreign aid work; guidance could improve if new opportunities aligned with administration priorities, which are not currently factored in, come to fruition.

Trevor Walsh from Citizens JMP asked about the potential business impact from government headcount reduction efforts and requested more detail on the 1% revenue impact from the new administration that is factored into the annual guidance.

Answer

CEO John Heller positioned potential government efficiency drives as an opportunity, stating that the government's mission scope remains, creating demand for innovative companies to help execute that work more effectively. CFO Travis Johnson clarified that the 1% revenue impact is a minimal and isolated factor related to foreign aid work. He emphasized that guidance was reaffirmed because this is offset by strength elsewhere and does not include potential upside from new opportunities aligned with the administration's priorities.

Trevor Walsh asked about the Microsoft partnership, specifically regarding Purview and Copilot, and Netskope's broader strategy for balancing co-opetition and integrations with other large platforms.

Answer

CEO and Co-founder Sanjay Beri emphasized that customers seek a few core platforms, not just one, and Netskope integrates with various security and networking platforms, including Microsoft. He highlighted Microsoft's choice of Netskope as an SSE provider and the ability to secure Microsoft Copilot conversations.

Trevor Walsh inquired about Netskope's Microsoft partnership, its broader platform strategy, and how the company balances co-opetition with module uptake and higher-level integrations.

Answer

Sanjay Beri, CEO and Co-founder, Netskope, emphasized that customers seek a few core platforms, with Netskope being one that consolidates over 20 functions. He highlighted their open ecosystem philosophy, integrating with various security and networking platforms, including Microsoft (endpoint, identity, SecOps, Copilot, Purview), noting Microsoft chose Netskope as their first SSE provider.

Trevor Walsh asked for more detail on the LUNO B contract's immediate revenue recognition, questioning if it was due to prior POCs or if similar immediate impacts could be expected from other DIU customers. He also sought clarification on how JSAT and Pelican revenues flow, specifically if they create one-time non-recurring bumps not reflected in ACV metrics.

Answer

CEO, Chairperson, and Co-founder Will Marshall explained that Planet was ready with data and analytics for LUNO B, allowing immediate activation and revenue recognition, a common occurrence when government agencies move quickly, especially for sole-source awards like the Navy program. CFO and COO Ashley Johnson clarified that JSAT revenue is more gradual, with minimal lumpiness, and while excluded from traditional ACV metrics, it's predictable and aligns revenue to satellite lifetimes, accelerating the 30-Pelican fleet build-out.

Trevor Walsh from JMP Securities inquired about the commercial business, asking if recent tariff discussions caused any deal disruptions and whether the pipeline indicates any customer uncertainty.

Answer

President & CFO Ashley Fieglein Johnson responded that tariff-related news has not materially impacted customer conversations. She noted a potential long-term opportunity for Planet's monitoring solutions to address supply chain issues but confirmed no specific impact was observed in the quarter.

Trevor Walsh asked if the 10-satellite deal size with JSAT is a good proxy for future Space Services deals and inquired about the process for increasing the regulatory approval for more Pelican satellites if needed.

Answer

CEO William Marshall indicated that they are seeing interest from other countries at a similar scale to the JSAT deal, though he noted the transactions are complex. He affirmed that Planet is in a unique position to supply these deals due to its vertically integrated model and extensive experience.

Trevor Walsh from JMP Securities asked for management's perspective on the potential impact of the incoming U.S. administration on the space domain and customer sentiment. He also questioned the relevance of the new customer count metric given the shift in go-to-market strategy and inquired about the onboarding process for large new customers like Laconic.

Answer

CEO Will Marshall stated that key government priorities like national security are nonpartisan and believes the incoming administration's focus on efficiency and commercial capabilities positions Planet well. CFO Ashley Johnson defended the customer count metric as a key differentiator showing a broad customer base, while noting the direct sales team is focused on larger accounts. She added that the onboarding timeline for new customers varies based on the complexity of the sale and the products involved.

Trevor Walsh from JMP Securities requested deeper insight into the recent go-to-market changes and the new vertical leaders' focus. He also asked about the ongoing challenges in providing full-year guidance, even as large contracts are being won.

Answer

President Ashley Whitfield Johnson explained the changes involve a deeper alignment of both commercial and product teams around customer verticals, with a singular focus on growing the book of business in each market. She clarified that the difficulty in providing full-year guidance remains due to the unpredictable mix of business between direct data deals and partner-led contracts, which significantly impacts revenue recognition and gross margin. Therefore, the company is taking a quarter-at-a-time approach to guidance.

Trevor Walsh with Citizens asked for a deeper understanding of the AV Halo software suite, its deployment, interoperability with various platforms (including competitors), and the timeline for realizing its wider growth opportunity as hardware systems become more established in the field.

Answer

Chairman, President, and CEO Wahid Nawabi expressed excitement for the AV Halo suite, describing it as a robust, broad portfolio of software solutions with multiple modules, akin to Microsoft Office. He stated that thousands of modules are already deployed, emphasizing its open architecture and interoperability with competitor platforms and battle management systems. He cited the U.S. Army's Human Machine Integrated Formation (HMIF) program win as validation of AV Halo's strategic importance for future battlefield robotics.

Trevor Walsh asked for a rough framework on how the $240 million award for long-haul space laser communications terminals would flow over its three-year delivery period and inquired about the timing and potential upside opportunity beyond this initial deal.

Answer

Chairman, President, and CEO Wahid Nawabi described the award as a landmark event, highlighting AeroVironment's leading technology in laser communications. He explained that the funding covers finishing development, first article production, and transitioning to initial low-rate production, with full-rate production expected over a year later. Mr. Nawabi expressed bullishness on the huge market for laser communication, driven by the need for secure communication for numerous satellites in space, positioning this as a significant long-term growth driver beyond fiscal 2026.

Trevor Walsh asked for a framework on the revenue flow from the $240 million laser terminal award over its three-year delivery period and the potential for future upside opportunities.

Answer

Wahid Nawabi, Chairman, President, and CEO, described the award as a landmark event due to its size, future technology impact, and AeroVironment's leadership. He expects rapid customer progress, with funding for development, first article, and transition to initial low-rate production, leading to full-rate production later. He expressed bullishness on the vast laser communication market, driven by the need for secure communication for numerous satellites across all orbits, anticipating significant growth beyond FY2026.

Trevor Walsh inquired about the revenue flow framework for the recently announced $240 million laser terminal award over its three-year delivery period. He also asked about the timing and potential upside of future opportunities in the space laser communications market.

Answer

Chairman, President, and CEO Wahid Nawabi described the award as a landmark event, highlighting the technology's future impact and AeroVironment's leadership. He explained that funding covers development, initial low-rate production, and preparation for full-rate production, which will drive significant growth beyond fiscal year 2026 as more satellites come online and the need for secure communication increases.

Trevor Walsh of Citizens asked about the buyer personas for AI security related to the Prompt acquisition, inquiring whether these are existing relationships or new contacts the company will need to engage.

Answer

CEO Tomer Weingarten identified two primary buyer personas, both of whom SentinelOne already engages. The first, for employee GenAI use cases, is akin to DLP and targets the same endpoint security teams. The second, for securing AI model runtimes, involves cloud security teams, which the company talks to via its existing cloud security business.

Trevor Walsh of JMP Securities LLC asked about the free cash flow outlook and its seasonality for the rest of the year, and whether the new share repurchase program alters the company's strategic view on M&A.

Answer

CFO Barbara Larson reiterated that full-year free cash flow margin will exceed operating margin. She outlined the typical seasonality, with Q1 being strongest. She also stated that the company's strong liquidity position provides flexibility for both the buyback program and potential M&A.

Trevor Walsh asked if the new module adoption disclosures reflect a change in sales strategy and inquired about SentinelOne's view on the cloud security market, particularly the role of its agent-based approach.

Answer

Tomer Weingarten (CEO) emphasized that the company's core strategy is flexibility, not forcing customers into an 'all-or-nothing' platform bundle. He stated they can sell a full cloud suite or just best-of-breed components to coexist with other vendors. This customer-centric approach, where expansion follows initial success, is driving the move toward more flexible platform pricing models.

Trevor Walsh asked for the reasoning behind the gradual rollout of platform solutions like CNAPP to the MSSP channel, questioning if it was due to technical or partner enablement factors.

Answer

CEO Tomer Weingarten explained the gradual rollout is primarily an enablement effort. It involves adapting products for the multi-tenanted MSSP model and training partners to articulate the value proposition for that specific market segment. He noted the company recently expanded its MSSP team to accelerate the adoption of Data Lake and Purple AI, which are seen as a strong fit for MSSPs.

Trevor Walsh of Citizens questioned the infrastructure needs for the new sniper detection solution, potential headcount additions to support it, the specific revenue headwind from Chicago, and the revenue recognition timing for a large SafePoint deal.

Answer

CEO Ralph Clark clarified the new sniper solution is a standalone implementation for critical infrastructure, not traditional law enforcement. CFO Alan Stewart confirmed no new headcount is needed as the current team developed it and operating expenses are expected to remain flat. Stewart also quantified the Q2 2024 Chicago revenue at $2.8 million and explained the new SafePoint deal is a multi-year booking with revenue recognized over time, which is already factored into the full-year guidance.

Trevor Walsh asked about the expected timing for SafePointe deals related to the 2027 California legislative mandate and followed up on how the margin benefits from the delayed New York City contract materialized in Q1 results.

Answer

Executive Ralph Clark positioned the California mandate as primarily a 2026 opportunity but stressed current traction in other verticals. He noted the law is significant as it removes the 'do nothing' option for approximately 400 hospitals. Executive Alan Stewart explained that while the NYC deal's margin benefits were realized, they were offset by roughly $1 million in additional Q1 costs, including a >$700,000 all-hands meeting and increased cloud spending for AI modeling.

Trevor Walsh of JMP Securities inquired about Sound Thinking's position on submitting a bid for the new Chicago RFP and asked if potential multimillion-dollar contracts with hospital chains for the SafePoint system were factored into the 2025 financial guidance.

Answer

Executive Ralph Clark stated that while the company is encouraged by Chicago's RFP for gunshot detection, they are still evaluating a potential response but remain confident they offer the best solution. Executive Alan Stewart confirmed that growing bookings from the SafePoint system, which exceeded $3 million in Q4, are expected to contribute to the increased revenue guidance for 2025.

Trevor Walsh inquired about the revenue recognition timing for SafePointe and PlateRanger deals, the key drivers for the expected EBITDA margin leverage in the 2025 guidance, and the strategic rationale behind publicizing the Oakland efficacy study.

Answer

CFO Alan Stewart explained that SafePointe has a much shorter deployment cycle of 6-7 weeks compared to ShotSpotter, allowing for faster revenue recognition. He attributed the 2025 EBITDA leverage to revenue growth from newer solutions that are now scaling past their initial investment phase, along with some cost reductions. CEO Ralph Clark detailed that the Oakland study is part of a deliberate strategy to help agency partners proactively tell their story and demonstrate the tool's value, which proved successful in securing the renewal in a progressive city.

Trevor Walsh of Citizens JMP asked about Qualys's build-versus-buy strategy for AI security capabilities and sought clarification on whether public sector investments would continue to increase after achieving FedRAMP High certification.

Answer

CEO Sumedh Thakar detailed the company's focus on organic AI innovation, such as its agentic AI platform, given the dynamic nature of the space. CFO Joo Mi Kim confirmed that while major FedRAMP High investments are complete, ongoing GTM and marketing investments will continue to capitalize on the federal opportunity.

Trevor Walsh of Citizens JMP Securities inquired about the rollout strategy for the Managed Risk Operations Center (MROC) with partners, including how Qualys is gaining mindshare and why it started with a select group of six partners. He also asked about the gross margin impact from partner programs, given Q1's strong performance.

Answer

CEO Sumedh Thakar explained that the MROC offers partners a new, high-value service distinct from the commoditized MDR market, focusing on pre-breach risk quantification and remediation. He said Qualys is starting with a select group of committed partners who are co-investing in the new service. CFO Joo Mi Kim clarified that the primary driver for potential gross margin contraction is data center investments, not partner initiatives, and that the partner revenue mix increase to 49% is manageable without material margin impact.

Trevor Walsh inquired about the key factors that will drive customers to adopt Qualys as a risk consolidator and asked how the company tracks the ROI on its increased sales and marketing investments.

Answer

President and CEO Sumedh Thakar explained that customers are drawn to the Enterprise TruRisk Management (ETM) platform because it consolidates findings, provides a single risk score, and crucially, enables remediation—a key differentiator. CFO Joo Mi Kim stated that ROI is tracked via metrics like sales productivity (bookings per rep). She noted that while new business reps have performed well, post-sales (renewals/upsell) has been weaker, and the company is analyzing campaign effectiveness to optimize 2025 investments.

Trevor Walsh from Citizens JMP asked for an update on the company's federal business, inquiring if budget-related pressures have eased and what opportunities exist in that segment.

Answer

President & CEO Lynn Moore reiterated that the federal business is a small part of their overall revenue, at less than 5%. He stated that projects have not been taken away and that he does not see a material change in the outlook for that business, though he noted Q3 is the most significant quarter for federal activity.

Trevor Walsh of Citizens JMP asked for the key product differentiators of Cloudflare Workers for building AI agents and for examples of large customers using it for internal purposes.

Answer

CEO Matthew Prince contrasted the Workers pay-per-use model with the hyperscaler model of renting underutilized virtual machines. He explained that Cloudflare's ability to act as a 'giant scheduler' drives high GPU utilization (peaking at 70%), allowing it to offer better price-performance. This efficiency, derived from proprietary IP that makes GPUs multi-tenant, creates a competitive moat. He confirmed large companies are building agents, though startups are more public about it.

Trevor Walsh asked if Okta's new governance and privileged access products avoid legacy competitors because they aren't pursuing direct displacements, and if this strategy might change to drive growth.

Answer

CEO Todd McKinnon clarified that Okta's strategy is not to rip-and-replace entrenched on-premise systems, as it's impractical. Instead, the focus is on capturing the much larger market of new, cloud-native use cases where its modern, integrated suite excels. He argued this positions Okta better for long-term growth than legacy vendors trying to adapt to the cloud.