Q3 2019 Earnings Call

This call is being recorded.

This time, all participants are in listen only mode.

Later, we'll conduct a question answer session and instructions for asking a question will be given at that time.

Well, Vice President corporate development and Investor Relations. Please go ahead Sir.

Good afternoon, and welcome to call it took.

29, <unk> earnings call.

Joining me today to discuss.

Please go to our chairman and CEO .

Melissa Fisher.

Before we get started I like to remind you that dimmock. Today will include forward looking statements that generally relate to future events or future financial or operating performance.

Actual results may differ materially from these statements.

Factors that could cause results to differ materially set forth in todays press release, and you know filings with the TV, including a leader Form 10-Q and didn't keep.

Any forward looking statements that can make on this caused a based on assumptions as of today and be undertakes no obligation to update these statements and stood up new information or future events.

This call is in Britain Yep.

Happen until mission.

Completion of GAAP to non-GAAP measures is included in todays earnings press release.

As a reminder, the press release prepaid remarks Mr. presentation.

Supplemental historical financial spreadsheets are available on events like that I like to than the conduit to sleep. Thank you very much of India and welcome everyone to our Q3.

In school.

But do you sense <unk> power.

Really pleased to report another solid quarter in terms of revenue growth and profitability.

We also are very pleased to report strong growth you know paid cloud agent prescriptions with almost 28 million no 93% growth from prior year quarter.

As discussed before or cloud agent technology platform for seven security compliance Tonight, you solution available now named leveraged management policy compliance and integrity monitoring and it gives you a compromise batch management sits inventory and the coming sort of vacate management.

And with more to call.

In terms of our newer solution.

So strong growth again this quarter from Steve and we continue to be the healthy pipeline in patch management and container security.

I'd blackout this quarter, we launch all blue birds eye.

I T I said discovery and inventory.

The free service.

We received very positive feedback I sat the most of you know already from our customers an industry luminaries because globally I T. I sit inventory is one of the biggest challenges.

With all free service company of all sizes can automatically bid they'll globalize, yes, its inventory across on premise and point cloud containers and no mobile environment as what does it ducky fight in real time.

Everything that connects do their networks.

We have approximately three we had approximately 3650 companies signed up with other 500, new customers using the service.

Well I've also been running out the first sort of used to existing customers since last month and now have almost 300 existing customers using it.

As a result are going to make all cloud agent ubiquitous is not went on its way and allows us to make the subscription to all paid apt frictionless, because nobody should infrastructure is required.

Distributing such a free solution from all platform to generate meaningful demand a fault bid apps is one of the key element for profitable growth.

Driving value for both our customers.

Sure orders.

Furthermore, these multi product adoption naturally increases the stickiness a fall platform and then.

And that make us impenetrable to our competitor would do not offer the same breadth of solutions.

This is underscored by the fact that gross dollar retention rates of customers, who have adopted for solution or more stands at 99%.

We continue to invest in expanding the capabilities all four o'clock platform and developing additional solutions and what would showcase significant new offerings.

At our upcoming.

Let's see or the or user conference in Las Vegas, and November Twentyth and 24.

The conference.

Attendees would have the opportunity to listen to industry experts that said, Richard garlic, author of the steep domain.

For many years zone, and the White House, Scott Crawford from the 440.

451, four or five one a research.

As well as Ramesh Shinto from my close up as you will discuss our Microsoft is building security into as your and of course, if the role that quite displays and its and Charles Anderson from I'd be it makes all shred when you talk about their efforts to automate and testing and more quickly respond to eliminating.

<unk> cheese and there are very big user of quality says what.

We'd also hear fascinating presentation for more customers, which other experiences and best practices or so their views on how the security needs are evolving and our mission critical qualys is becoming for that.

Our president and she broke up is the submitted.

Which we promoted recently I would discuss that later within via our next generation over an empty management offering that brings it to its next level and shook his are forthcoming video and data like seemed initiatives. In addition.

Hi, My brother innovative solutions, where we'll discuss the forthcoming updates to our container security.

And.

The capabilities, we have now of threat to hunting with quite.

And you can click you could go to our waste website and look at the agenda.

I would like to personally invite you to both our user conference and the dedicated institutional investors. Another decision that will occur during the conference.

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These events with brokers, so now quite is driving sustainable growth.

And profitable growth and will include the demonstration of our newest application as well.

And with the queuing decision from select.

Quite as customers.

Finally, the expenses <unk> platform, which now deliver an impressive suite of security and compliance solution as well as helped build up as well as I'll build up of corporation in putting the web now more than 750 employees was led.

But our chief product officer submit the car and I'm delighted to announce his promotion to president and Chief product Officer.

She met started at qualities in 2003.

And through outstanding performances, now runs R&D Q, it ops product marketing.

And customer support and with these promotion you'd also.

Ryan worldwide fever assays operation.

And as we continue to lay the foundation for future growth. We also promoted Lloyd Mccauthy to E V. P worldwide feed operation Lloyd you aren't quite as in 2012 and was most recently VP field operations for the Americas.

And Lori came from one of our customers, where she was running why did the.

Absolutely if it's extremely good program the Vernon.

Program, a variety of management program at CBS , which was really second to none.

In addition, we brought a deep back one D to SBB cloud platform ops and Devops did it joint qualities in 2016 and was our VP of depth of they've Devops and finally, we welcome. The addition of Mustafa.

I'm not so sure if I'd like to pronouncing correctly mahood that went up as our VP of global customer service and we stuff is coming from Red hat.

Our product and platform achievement and expansions of our management team lays the foundation for continued progress to enable customers to consolidate the security I cant Copeland stuck why drastically reducing the spent I just as importantly, it is core to the highly profitable recurring and growing revenue mall.

Yep.

And with that I will turn the call over 2 million is set to discuss I'm not sure reasons.

Thanks sleep and good afternoon.

Before I start I'd like to note that except for revenue all financial figures are non gap.

Growth rates are based on comes to the prior year period unless stated otherwise.

We're delighted with our increasing college and subscriptions and multi product adoption, which lays the foundation for future revenue growth and industry leading profitability.

Our choose to refinance on operational highlights include.

Revenues for the third quarter of 2019 grew 15% to 82.7 million.

Platform adoption continue to increase as a percentage of enterprise customers with three or more color solutions rose to 46% from 39%.

And the percentage of enterprise customers or more color solutions increased to 26% from 20%.

He called agent subscriptions increased to 27.9 million over this last 12 months up from 23.6 million for the 12 month ended in Q2 2019.

She million additional cloudy transfer approach at this purchase this quarter by single cloud platform customer.

New products release since 2015 contributed approximately 33% of total bookings and acquire up from 23%.

And our average deal size continues to increase growing 8%.

[noise], our scalable platform model continues to drive superior margins and generates significant cash flow.

Adjusted EBITDA for the third quarter of 2019 was 39.2 million, representing a 47% margin in Bush's 45%.

We continue to increase our headcount sequentially and we benefited from attracting great talent in <unk> as well as lower non salary headcount costs and lower third party expenses this quarter as compared to Q2 2019.

Q3, P.S. grew 34% and we generated strong free cash flow for the third quarter of 2019 of 39.9 million and year to date or free cash flow has increased 36% versus the same period last year.

In Q3, we continue to invest the cash we generate from operations back on to call us, including 5.8 million or on capital expenditures, including principal payments under capital lease obligations.

And 49.8 million to repurchase 603417 of our outstanding shares.

Our board has authorized an additional two year 100 million open market share repurchase program, resulting in approximately 141 million in current share repurchase capacity.

We remain confident in our model driven Meyer foundation of recurring revenues and expanding suite of applications.

Our current fiscal year 2019 revenue guidance is an hour range of 321.2 million to 321.8 million.

We are raising fiscal year 2019, non-GAAP EPS from arranger she wants to read into a seven to a range up to 28 to choose Saturday.

We now expect you expand EBITDA margins. This year, we expect our fiscal year 2019, EBITDA margin can be between 42 and a half presented 43%.

And for the fourth quarter, we expect capital expenditures to be in the range from nine to 10 million, which includes approximately three and a half million for the first phase of the build out of a new quality office into an eight.

We're very excited by the robust early adoption of our freight global asset discovering inventory application, which makes it frictionless arent able many of our paid subscriptions.

This provides us the opportunity to accelerate revenue growth as well as expand margins in the future.

As Philippe mentioned, we look forward to seeing many of you at the analyst and Investor session at our upcoming QST user conference in Las Vegas.

With that I'll turn the call back to fleet for final remarks. Thank.

Thanks, Melissa and in summary, and as many such says we're really happy with the progress made in expanding our cloud platform and the increase adoption of all solutions by our existing customers.

Supplies, both large enterprise and this I mean, SMB as well as new customers and in addition, again. They just submitted so did let me read <unk>. The in addition works I think for you to attack both our user conference and the Investor session. This decision would also be webcasted for those who kind that attended.

Person so the good elicited that they're on leisure and the please register on our website than peer is the agenda for one or both events.

Lisa Su med Laurie and I.

I would hope you without that we that medicine happy to answer any of your questions.

As a reminder to ask the question do you need to press star one on your telephone.

With all your questions pressed apparently.

Please standby well, we completed the cure in a roster.

And our first question will come from line of Howard Smith first from first analysis. You mean, yes. Thank you for taking my question. Congratulations on the continued they're very profitable growth first question has to do with the share buyback authorization in activity seemed a little bit stepped up in Q3.

I'm just wondering.

Is there any kind of policy shift in terms of how you, though and the board or thinking about using using the cash returned to shareholders. This way.

Thanks, Howard I'll I'll take that one and so as a framework our share repurchase program is the objective is to minimize the dilution.

Grants conventional plays in there that has not changed that continues to be the same.

We did you see if you look at how we've repurchased over the last couple of years, we end up being a back half back loaded in second half of the year, because our window for repurchasing in the first half, especially the quarter, where we announced yearend earnings and upping. The shortest so think of it a little bit more as a catch up.

Okay, Great that's helpful and then.

You spoke of the success of the kind of the asset inventory.

Rollout.

Previous to that you had served view I think it's kind of a free offering and just in general as Youve rolled out a couple of these and see the result, how are you thinking about using free versions to spur upsell and any tweaks you might be thinking I'm, making going forward with those types of programs.

Yeah as opposed to certain view, which has the more limited upside as the global digested. The venture is very strategic in on many fronts is very strategic as we discussed in fact previously because it gives that visibility that company do not dive and that's absolutely something absolutely crusher and is becoming very obvious that everybody needs to be.

Go that way and what is very unique with our good related inventory is that it spans across your entire environment. It just doesn't undergraduate windows server is old or endpoints or cloudy goes across everything that you had in your informant and so that dead from there there's significant significant upside is unfortunate.

The team.

You have the one which really helped directly related to the global I just debentures, which is for example, the ability now to do control and to fly a system. So there is additional features about the kind of information that you can get you would that you do not get from the free of such a century.

You can and discovery by the way and you can also now synchronized with the service no CMDB guys. So we'd be come naturally the source of truth.

This was seized today very strong interest and we do they probably have a rone hundred customers, which all doing that already.

And then there was also all the other upside which all related to the agent because that what's once you deploy the global let just adventure you want to absolutely to use the capabilities of our cloud agent because they give you a real time, which means anything that that's sudden see changes on the one device, where you up with the original one asset image.

You know what that is and that's exactly what you want security has become an issue of both the scale. It's always been an issue of accuracy and now is becoming obsolete would see an issue essentially upscale <unk> as well and real time, which is obviously things that the requires a significant platform to be able to do that.

So there's many many many upset or fortune <unk> around that cloud agent that that's what we believe it's very strategic and we see already that yes. It is very well received as you know web only you're rolling out to our existing customers about a month ago. The reason why we did that because we didn't want to upsell into the waterfall customers adopting it so.

Trickling, and then having too much load to quickly on our platform, but they have reception is fantastic and this is we continue.

Great. Thank you.

Thank you and our next question comes on line of Dan Ives from Wedbush you may begin.

Yes. Thank you.

So can you maybe just talk about in the market will you have some competitors that are starting to significantly expand their product portfolio.

And rich and some of the broader sort of platform approaches you're maybe kinda talk about that in terms of what you're seeing in the market.

And from product perspective, any changes thanks.

Yes, sorry in terms of that goes again of the company's yes, everybody today realizes that they've got to be.

Platform and that platform cannot be an enterprise software platform. It tends to be cloud platform because the cloud platform gives you the scalability that you need so in that sense wells. So well ahead of the market because I'm sure as you recall, we started that journey back in 1999 so.

And we went through all the different variations of the cloud technology and wed been absolutely. Thanks to the big investment we made in Putney.

Labor to inject the most the newest technology.

We have elasticsearch rough guess capped Cassandra and we're building that scales that today, we don't know anybody doing anything close to the scale that we do we have today 20 828 million agents, but in reality well strive architecture 200, hundreds of millions of agency that billions.

Fidgets, it's all about skate and yes other companies all moving into a direction, but we believe it or.

Far ahead essentially of everybody else.

Thanks could you maybe just talk about.

Especially in cloud with the eyes your channel.

Obviously, gaining more and more success here, what do you get I win.

Just how you.

Think about those market dynamics, playing out and how that potentially bodes well.

Or how you guys a position, especially when it comes from the Microsoft Thanks.

Yes, so that's another great question effectively.

We always I believe if you recall some of the comment that I made in fact in 2009 that was already making that comment publicly or the always say that we distribute security into the cloud we cannot continue boating security on.

In order to do that you need to have the right architecture and this is exactly what our cloud agent the old about but all the major players all using all Cartesian today and millions of them to essentially ensure the sick they have the visibility and ensure the security of their own platform.

As I mentioned I think either lost warning called the one before well done something remarkable with Microsoft whereby were totally integrated our agent with with the Securities Center, whereby and there's an as your customer with the security Center, if as you whereby an as your customers got essentially click on the link.

Go to the security center become a link I didn't talk view of all of the assets. They have on as you take on the second Inc. and have the view of their security and called Sportster. This is thanks to the Qualys. If you prefer embedded agent there and then third it becomes a third link which has nothing to do with us.

But only 100% of Microsoft grade there playbook, and then remediate so securities that new environment I become click click click nothing to installed nothing to update it's all done for you what a big change and then the only thing you do then that you bring your party.

This is because you are the ones the customers would decide youre policies you want to have is three buckets up and or not do you want. These you want that so and then of course securities bid.

And that's where we see the future. So of course, why extremely well position now that there was totally integrated of course, our agents with Microsoft then of course said well very happy to have heard that they have they want the Jed I contract because of course, we naturally go and by the way as you know solution is fed rod authorized so.

This is for US would the way we sold the future happen and now we'll so happy to see that the future is now.

Thank you.

Your next question will come from line of Chris I really from the merger Infinite you may begin.

Great. Thanks, Hey, guys nice job in the quarter.

Can you give us an indication of just now that you have the free download of the acid inventory in the market.

Just some early adoption with some of the attach.

Attach rates look like for pain applications to that.

Yes. So that's yeah. So in fact today, let me remind you the adoption of all the focus them as a with their jobs. They always do a first proof of concept and then they start to do the deployment and that's all that takes sometime in the as you know with all modern we take the revenue as we delivered the service. So we don't do like some of most of all competitors, which have a big.

Trunk of perpetual license that they can of course that inflates. If you prefer their book, but this being said today, we see today that even with these customers, which have adopted we're already starting to discuss with them about all the upset that says capabilities that they are and so we have seen already customers trying now all these additional Kevin.

It is all that are very good initial signs that what we have done and when you read look back everything is integrated so that means you don't have to install another application you what do I have another person managing it order that can be done by the same team, which is currently managing the quality solutions.

So the answer is yes were very happy with it.

Great. Thank you.

And our next question will come from nine line of Nick Yulico from Cowen and company you may begin.

Great. Thanks for taking my question you saw nice jump in the percent of bookings from from new products in the quarter any any one or two products that you would highlight that were key drivers.

Hi Tech.

Yeah, we're delighted with that jump, we try to 33% and new solutions as a percent of bookings from 25% last quarter. Its still remains messy called agent Dan on policy compliance and remember I just discussed its not a perfect metrics because it does include the renewal portion of the M policy compliance when someone Venetian the average.

You know solution into a cloud agent enabled solution and so we did see higher high amount of every now and not.

In that metric this quarter, yeah, no. Good said something good traction now from the field as well.

Okay. So I didn't security monitoring, which is the final integrity monitoring.

Okay, Great and building on an earlier question around cloud early this earlier this week you announced the global like I said discovery out sort of federal market just curious what percent.

For the federal market.

And I'm curious what percent of revenue.

Does the federal government represent today and now that the government is embracing cloud I think about that opportunity moving forward.

Yes. So in fact, the that has been out our journey try to come in as the government to apply the crop the I'll call. It solutions was although you had a lot of people are saying about the there's not much appetite.

Finally is changing so today, whether it's very small percentage I think today. If you include states, 3%. The route of all revenues, all federal and state and if you build up down to federal is probably about the off of it.

So were very good customers.

Very savvy customers the rave about what we are now finally, we're starting to essentially see the government ready to take so walking to make some investments now because again you have always been balancing is not it's not worth starting to invest ahead of the game, but you don't want also to investigate either so you have to time that has been.

As we can so that we see an opportunity really with federal to really grow that market, but again with federal it takes time.

And but I think and that jadeite contract is really I think this meant to be very interesting for us, but again it needs to be deployed and on it also takes sometime in the federal government today, one not seeing any significant revenues early next year, but I think we'll have a bit now with the fiscal.

You are being the at the end of the Eurs. So maybe we could get some some nice addition thing but today, what that really counting that much but we will make the investment it essentially beefing up all federal team.

Thank you.

And our next question will come from line of Matt Hedberg from RBC capital markets you may begin.

Hey, it's Dan Bergstrom for Matt Hedberg, Thanks for taking her questions.

So on the go to market traditionally.

No you adopt new products through the platform, but a black hat and around the event.

Around the globe Lighty asset discovering inventory launch there was a significant awareness and marketing campaign very noticeable toss that attended I think more of a start to market to engage CIO is could you talk a little bit about that strategy and then any early engagements from that.

Yes. So that's in fact, absolutely because that's just like the unfortunate that we have today. So now what you'll get to seize the second they go for campaign. The first campaign as you.

Rightly car characterized it was an awareness campaign. This is what we have for you guys and Ah, Okay, So common and seat.

Now we have enough adopters. The we're now going to have all adopters speak and they'll guns and that's the second company, who are preparing and they all the one who all going to describe the benefits and what theyve done in a cheaper than youre going to see some of that dollar user conference or will welcome to off some of our users talking about it and you will.

Also certain interesting patent or do we answered your question about the CIO. So we are you know a webinar very interesting patterns that no president and Chief product officer. She made will moderate where we have in fact, a wendy Pfeiffer, which is the CIO of new techniques.

Which is on our board now.

Which is also part of creating awareness through the CIO in fact is going to beyond the partner that don't discuss so he was season has your view give or view as the CIA you'll fall due this see the evolution of security and web also some other very good representative.

Of the company. So I think we're just at the beginning of the does defensive either direction that we are they they were continuing to take and you would see acceleration of fall awareness effort toward the CIO and the CTO conference because one of the thing I want to mention the game in securities changing the theme of our user conference is that.

Each other crossroad park to why do they sit bought two is because part one is what is the last year about turning this is where we see the market is going.

And then bought two will be the markets is now their.

What are the implications for the security industry. So when you go into more details and one of the implication is that and we see that very clearly large companies wishes wood, which goes very well for us is that now it's dev ops through sticking offer.

The security component as well as of course additional transmission and so it's a very different mentality. These are engineers. They don't do these big.

Enterprise purchase they want to make sure that geosolutions fits their need and the big changes that you've gotta go to them and described there your roadmap. They don't care about your roadmap they want to discuss you to discuss with them about their roadmap.

It's a totally different game, which is really happening today the industry and again. This is what I had predicted in 2009, but of course it to significantly longer.

So I know why now but.

But that's where our world there are no big change is happening and having a technical sales force at a very strong engineering group that we have is really puts us very very in absolutely very wet position.

For these new that new era to call.

Thanks, Barry Barry prophetic Nonetheless, maybe one for Melissa Melissa you indicated a an FX headwind about 100 basis points each quarter here in the second half previously any changes to that or incremental FX pressures to call out.

Yeah. So it's roughly the same but we are expecting a little bit more in Q4 than we originally projected but on the margin, it's still going to be roughly little less than 100 basis points headwind to like the growth rate.

Thank you.

[noise] [noise] and our next question will come from line Kerr houses from Stifel.

You may begin.

Okay. Thank you very much Felipe over the past few months you talked about a pretty broad question. This in the first half of next year to some pretty significant market.

He our broader endpoint solutions can you talk about the development path for these products. How you know your comfort level about pushing it to some pretty significant it's how you think of differentiate.

Other solutions out there.

Yeah. So of course, you, though the so if you look at what look what this is all about so we are absolutely.

Using internet technology full scale accuracy and everything in one of the reason why don't I realize it took longer because I've I've figured out facility and this is all my God I should have figured that out quite a few years ago, but you know.

Is that what is today fueling [laughter]. These digital transformation is the fact that the Google Facebook et cetera I have.

Very similar to what I'd be ended when they invested a billion or have dollars in Linux. Many many years ago. So they could essentially re architect their entire mainframe business.

These companies they didn't want to depend of enterprise software. So that to be is you know search at the huge scale that that's way less exposed game that you have kubernetes and so forth I would've thought that all these technology and they put that in open source why because at the airports you discussed many many years ago with Steve Mens and say why you didn't acquire or.

The news, which was the 50 people a company at the time and you invested $1.5 billion. His answer was because I didn't want to kill them.

That's exactly the same thing and it took me long time to realize that that the googles and company I've thought about it I wherever they didn't want to put their job they're significant technology enhancements.

Early because then they will have essentially enables competition. So it took them a certain time to bring that into a pencil, but now today Oh my God the upcoming rice and left who would have thought that containers will be there like even three years ago today theyre, taking the world by storm web or using containers.

<unk> platform and we have already replace 70% of all dependency on the VM wherever tradition layer.

So we all builders of of technology of scale like the Google like the Amazon like the well the same world. The same breed so for us essentially when we move into that space. This new space like DDR and anything that we do whether it's the same that's what is it.

Oh my.

Okay accuracy.

And elimination of course was even false negative.

So when I look at how are we going to compete with the.

In the same market, while grant you compete because we will have a better scale.

The level of course significant bigger elimination of false positive, which is a problem today that every seem as.

And then of course, a better price because you are using newer technology, which of course allows you to do more with less.

And same thing one deal bucket and so and of course, we are you have the benefits very unique benefits everything we're doing a ways through the sort of in logic, whereby because we capture the data that nobody does.

Then of course, it puts us into significant position to of course, though create that next generation it should be for upstream and even a PPR and of course one of the interesting strategy that is that if we can put our agent. If we were realizing telemetry that work into get and already engaged with.

What do you need millions of then they go everywhere and that puts us in a very unique position. So the rice. It's all about scale. That's what I'd mentioned earlier that we have architecture, Dol backend not too and the few millions or tens of millions of agent, but hundreds of beat of millions if not billions of agents.

Okay.

Hello.

That does thank you very much maybe one follow up for from Melissa building on that you've been very capital efficient when when you look at your current level of spend do you think you haven't decided not to support the development.

Go to market in the ramp up these new initiatives.

Yeah. Thanks score at we're very proud of our initially leading margins and at wells are.

Strong growth in cash so that's that's quite ourselves here to date.

As you can came from the implied guide for Q4, we do you plan to continue can bath and that and these projects are part of that.

And that will not do other Mandisa said the two is retreated from a from a cost or profitability standpoint on the engineering side, the decision cement and I made especially in 2007 to go to India. Now today. So my God that was the right decision because not only were going to get the talent huge pool of talent, but we also have a significant cost.

About.

By an order of magnitude.

Well that's for the engineering, so whether the engineering power to really continue doing what we do and maintain of course that margin that we haven't in fact seeing as a person stage all percentage of expense in engineering should certainly not grow but you could see after some put the skate us what that want to go to market. The big advantage we have here.

Is the modern said.

The cost of distributing free of charge of our global I just inventory is very sequel to nothing.

We have today to support that marketing effort wed be what we called the Tos. The technical account representative in India, which are people, who which we'd young people do we hard from the technical schools and then they all the one essentially onboarding people obvious free services to make sure that there's a good experience from the get go.

And then after that of course now suddenly we can that said these customers and again in a very very not aggressive way, but essentially informing them of all the services that can have and get more value from it and which is all model. So this is very efficient from us some assays point.

And that's the nature of our mother and for the customers. It's fantastic because everything is already in the platform. They don't have to install anything they just have to be educated so another investment well well starting to make is really to try to get more or this is something for example, like has done very well is older libraries of training.

Of use cases, so it becomes even easier and easier for customers to essentially implement if you prefer or deploy it's pretty easy, but then to it to configure and take advantage of fall solution for fall for their needs.

That's very helpful. Thank you both.

Thank you enter next question will come from line Melissa Frenchie from Morgan Stanley You may begin.

Thank you for taking my question I wanted to ask you about the guidance for Q4.

And you modestly lower at the high end of the a finite team guidance, although it seems like things are going pretty well for you. All so I'm. Just wondering if you can talk about what's driving not and the puts and takes that's embedded in that outlook.

Yeah sure. Thanks, Melissa we had a very good where we were delighted with the acceleration and how they can ads and the increase and not that product adoption.

We did take down the high end of is driven by a couple of factors. One is as high earlier I mentioned, the incremental FX headwind, we expect to see as well. The fact that actually have just cast for leveraging our leadership position to match competitor pricing, where it makes sense because it's so much upsell opportunity in front of us.

Okay got it and then just another follow up for you I'm looking at billings growth, we did see a slow down modestly. The current billings was better. So can you maybe talk about what you thought for durations this quarter.

Yeah, So if you're referring to that total billings and remember that includes that multiyear prepaid, but you can't manage ship because we don't intend to our sales force for that we really let that be driven by and by our customer so far in that specifically the multiyear prepaid which affects that long term deferred revenue we had a bigger.

Dollar value increase and acquire a year ago. Then then in this quarter on you know in turn to that the current billings as we've talked about you know, we don't manage to wait because theres multiple scenarios. So much a renewal doesn't happen at the same time at the initial signing of the deal and so yeah, we point to that trajectory of our annual revenue guidance at the best price.

Except for business momentum, because certainly our current backings and farmer cadence there and then we had another thing I mean decide it's nice to have you back.

Oh, Thank you very much.

Thank you Melissa thanks.

Thank you and our next question will come from Atlanta, Alex Henderson from Needham and company May begin.

Hi, This is Roger Boyd on for Alex Thanks for taking my questions I, just wonder if you could comment on what percent of customer bases in the cloud agent I think last quarter, you said it was 20%.

Have you seen any incremental penetration from customers started off quite deployment.

The growth coming from from new customers trying out.

<unk>.

Yes. So it's it's now in 20 cheaper sent out a customer base that are still significant opportunity not only in the customers that don't have that processors discussed we know that our customers are using cloud agent or not fully deployed in their environments in terms of this quarter, where the buying much from it kind of varies quarter to come.

Whatever but actually this quarter as the.

Personally bookings from new CRADA ask from new products, such as I said, what's missing cloud agent, it's actually a bit hiring new than existing customers.

Got it makes sense and then just really quickly is it fair to assume that customers you're seeing pick up the free version of inventory or tend to be that for me. Some SMB customers are using enterprise customers try that.

Oh no. It's it's a it's a all walks of life I mean, because that's a universal problem. So for the it's sort of than the enterprise in fact, the enterprise in fact today I have a bigger need than the low end of the market because in the north of one bucket. This went especially on the SMB you got one guy and maybe 50 Pcs or.

Whether it be season, some companies yet so they can do though still badger deals spreadsheets. The enterprise cannot the problem that the enterprise does is that they need the dental parts or did the enterprises the large enterprises fundamentally changing.

The silos are crumbling, but is the message funded the again, that's what I thought they would would have up in 10 years ago that is happening now so the silos, we're very very jealous of their tools. So the window team having their tool to do that what inventory and the these under that and now today again the cycles or crumble.

Being unique everybody needs to accelerate the juice transformation. So today, we find that that visibility is starting to become.

Very high on the on the on the mind of the CIA yours and the Csos would do not really really wants to see the resistant continue with their own tools that they either they're familiar with they are getting more and more replace when you look at the tenure the average tenure of Cisos today.

The large enterprises about 1.2 years.

So huge movement and of course Dev ops is the one behind you know changing things are the Midmarket I think this we see a very good adoption. Because then they have bigger networks more complexity, if even if I look at Qualys today, you would be amazed did I give the demo reinstalled before on inventory and or using of course own age.

The discovery.

I couldn't believe the complexity of the environment that we have or that accompany of 13 under deeper.

And so that's so for the is it means that it's a much more something then they want to do now we're not the enterprise. They know they've got to do it but they really got to go and you need to other momentum at a bit from the top because the side, although resisting <unk>.

And just to add onto that you know this.

Calls on the tough Felipe said you know, we're seeing more of the enterprise customers using an existing said about 40%.

She thing it that's just an a couple months since launch at sort of an early I still early data I, certainly enterprise and its you know clustered in Tempur, San Antonio and that's because many of these existing enterprise customers already have Cartesian solutions, which we see into very positive sign because once they then to play the agent.

Globally for the purpose of free assets discovery and inventory, it's very easy for them to add onto these additional pay television seven which they may be easing in small amount now they can turn it on for their for environment like we talked about what the opportunity to extend VM and policy compliance on the endpoint absolutely.

Great. Thank you I appreciate the color.

And our next question will come from line Shearling already from JP Morgan you may begin.

Hi, this is sidelined for studying.

Thank you for taking my question. So how was the email business in the quarter given the macro backdrop.

So how are you assuming they're very good nothing nothing nothing.

Nothing really to report still well whether very good penetration in Europe as you know and know what we see could receive sintering bid a pickup in Asia I think today, the cloud and I was talking to be more a more appealing to is you I went into Pos it's all about the I wanted my on premise.

Europe is doing very well. So so is the U.S. So so is the we see is kind of a slowdown in the in the.

In the in Brazil, and India in the and in Latin America.

That's about the only place where we see today as a real slowdown.

Thank you I know I apologize if I missed this in the prepared remarks, but do give the split for vulnerability management in the quarter.

It's about the vulnerability management family I still continue to see about 73% other revenues.

Thank you that's all from my side.

Thank you.

Our next question will come from line over Yung Kim from Rosenblatt Securities you may begin.

Congrats on another solid quarter I'm just.

Back to the cloud adoption.

Seems like that's going.

Pretty well consistently for some time.

Can you just describe to us.

Pricing that you maybe see for customers.

Cloud agents, such as those who do not.

Pricing uplift what do you.

Yeah. So it really depends on the nature of application that people use the cloud agents for because I don't purchase the cloud agent Standalone. So what we've talked about is it.

Someone was a previous V and our policy compliance customer and then.

I know our added on let's say cloud agent for the purpose of doing that was applications, even paying about an additional 20%. For example, if they were you know subscribing to file integrity monitoring which is a solution enabled by the cloud agent. That's eight you know a much higher priced Hilary Shane.

So it really depends on the nature of the solution that they're using.

Okay, and just a new.

Yeah, I'm trying to better understand.

Synventive product.

You should help drive incremental costs.

Right.

That's that's yes, that's the second purpose. The first purpose is to give that much needed visibility that the company must stuff and of course, the the advantage for US is that of course, we now see market with the cloud agent, where then you kind of said to all of these other services that we have all these other functionalities yes.

Yes.

Great. Thank you so much.

And our next question will come from line after Calvo from let's say research you may begin.

Thank you for taking my question and congrats on a.

Well, that's a result, especially on the profitability I mean, just credible profitability to be honest really market, leading you just talked through the the puts and takes if possible on the gross margin. So and then you up or operating margin. So I just what happened in the quota.

To kind of print social strong performance.

Yes, happy they show and our pace that I'm very proud of our industry, leading profitability I'm on the gross margin. You know we did have additional expenses related to and data center capacity and suffered maintenance, but they were offset by an increase Mexico in M&A, which we've talked about is really where we're getting a lot of art.

Yeah, Great engineering talent.

You know with regards to the other areas you really benefiting from a number of factors.

Lets you know hiring into an eight ways.

You know lower net hiring than expected lower non salary headcount costings execution across payroll taxes as well as lower third party spanned such as you know legal services consulting and travel.

Okay last one and I can I ask about the buybacks because that that was something that you briefly touched on earlier, but.

He made a change versus prior quarters.

Im asteroid $60 million pull back in the third quarter, which is double the amount.

But in the whole the first off this year I mean, that's something we should expect going forward call. It three more aggressive on buybacks and to use that cash on the balance sheet. So it's a low share counts.

Yeah. So great question and you know were delighted that we have to strong cash that we can do this far shareholders.

You know again the objective is to minimize our dilution and so that's that's really our primary.

What we're trying to achieve because we are preserving capacity for M&A, we continue to be active looking in the market.

So you know I would not suggest that 59 is indicative of what we're going to need every quarter.

You know if you look at sort of.

Average as you know what we've been getting your apart our board has been authorizing 100 million Dollarss and so I think that's really.

Moreover, the way to think of it yeah. They said you know again, depending on the timing of when we're buying in the amount we can do in each quarter. It just it ends up very well, let me repeat the will to thing I will say one thing is that the the that that quarterly wasn't EBIT not normally because we had a very small window the previous quarters.

In a way it was a kind of a catch up because the gold in fact, we out and this is came from discussion we got from our long term investors when we discuss about capital allocation. So essentially a first in the beginning to see what is your strategy to save first of all let me get the cash.

Well, who left the cash with discuss about capital allocation.

A copy the location and then of course, there number one requirements the lucrative.

It said this exactly where the told US look for US if you could that minimizes the dilution because of course, we continue looking for talent.

You know that talent, you know you need to incentivize them I personally prefer the option to the always shoes with us another discussion.

And then, especially okay. So we I said, let me think about then medicine and I was when we discuss with the board and we say, okay, well going to essentially answer the what all long term investors and we committed we will do that so it's not about bumping up the stock is just about the goal is to essentially.

Minimize the did you shouldn't that reduce through the SBC and will trough would do that now today you know we gained some additional flexibility because in the past where in a window limited also which limited.

On the Windows and now today, we've expanded the capabilities to buy on the open market. This century that the board authorized that's about the only change that we made but no change whatsoever in the underlying philosophy.

Very clear thank you very much.

Thank you.

And I'm not showing any further questions at this time I like to kinda call back over to when I ask for closing remarks.

Thank you all attending a coat quarter 19th running.

We look forward to seeing you ask people Midwest one on one conference in Chicago and need them security networking and Communications Conference in New York in November .

We'll also be at NASDAQ Investor Conference in London.

Lets boggles, the M.D. summit in Las Vegas, and go in annual networking and cyber Security Summit in New York in December .

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.