Q4 2020 Qualys Inc Earnings Call
Ladies and gentlemen, the standby and welcome to the Koala fourth quarter of 2020 Investor Conference call. At this time, all participants on the listen only mode.
After the speech of southern shaky there'll be a question and answer the question.
The asked the question of at that time. Please press Star then one on your kind of sounds telephone.
As the amount of today's conference call is being recorded.
I went out of turn the conference of Yahoo.
The hearing Wow, Vice President of corporate development in the bathroom relations Sir you may begin.
Good afternoon.
Welcome to call it fourth quarter 2020 earnings call joining.
Joining me today to discuss it.
The late <unk>.
Tim CEO and Julie Kim our CFO.
Before we get started I would like to remind you that the remarks. Today will include forward looking statements that generally relate to future events on our future financial or operating performance.
Actual results may differ materially from these statements.
Factors that could cause results to differ materially are set forth in today's press release and in our filings with the City Inc.
<unk>, our latest form 10-Q and 10-K.
Any forward looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements.
Of new information or future events.
During this call does it present, both GAAP and non-GAAP financial measures.
Reconciliation of GAAP to non-GAAP measures is included in today's earnings press release.
As a reminder, the press release the benchmark and that's the presentation are available on the Investor Relations section of our website.
I'd like to turn the call over to submit.
Thank you Wayne.
Thank you and welcome everyone to our Q4 earnings call before we discuss our financial results I wanted to say a few words about the separate announcement, we issued this afternoon.
As you have like you've seen by now we disclosed that Philip Porto is taking a leave of absence due to the health issues unrelated to COVID-19.
Please join me in wishing for a speedy recovery.
In connection to this development our board of Directors has appointed me as the interim Chief Executive Officer.
As those of you who have been following the quality snow I have been with quality from nearly 20 years I was appointed Chief product Officer in June 2014 to lead the transformation of how our platform and appointed precedent in October 2019.
I have been working closely with really for many years and we share the same vision of transforming the way our customers secure and protect the organization our it infrastructure and applications with the best in class cloud based security and compliance of the true.
I have a deep appreciation for the tremendous platform, we have built and I'm honored to serve as quality as interim CEO.
I look forward to working closely with the board and the rest of the quality of team to continue building on our strong business momentum and driving the company towards forward while Philippe.
Now for my first half from this at all.
I will walk you through our earnings results for the fourth quarter and full year of 2020.
We are pleased to report another quarter of solid revenue growth and profitability.
We also saw strong growth of our free to cloud agent subscription, which grew more than 80% or what are your $256 million.
Very uniquely our Multifunction agent.
Light weight cloud agent provides the visibility across the entire hybrid environment and as the underlying technology for a number of our it security and compliance solutions that are natively integrated on our platform.
As a result quality of customers can deploy from the M D one of them.
Of the management of detection and response, my director of Edr endpoint detection and response policy compliance file integrity monitoring.
<unk> management global ideas of inventory and our upcoming xdr offering through a single agent, which differentiate us in our industry.
In addition, we continue to expand our black commscope abilities to take the sponsor actions, enabling our customers from the spun quickly the security issues and the environment.
While the importance of all over the management part of our customers remains high for them to be able to mitigate the risk. They also are looking for ways to quickly respond to these of this and texts as these organizations continue to increase their focus on discovering all of the hybrid hybrid at the assets and mitigating the risk in detecting and responding to the.
Ongoing attacks.
While this platform to single pane of glass uniquely provides our customers our ability to do a complete African reentry ncnb synchronization mitigate the risk of breaches with the capabilities like the MTR and patch management as well as at the same time detect and respond to attacks using our edr and upcoming it could be.
Our solution.
With the release of her container of on time protection solution.
And the new SaaS offering as well as our upcoming cloud response solution. We are now expanding similar capabilities and other infrastructure environment as well, giving customers additional opportunities to consolidate the security tools onto the quality of cloud platform.
In terms of our New York based solutions, we continue to see strong growth for our patch management solution.
In Q4 of leading pharmaceutical firm selected our patch management application.
With several competing solutions, given its ability to easily and effectively patch remote endpoints without using the limited bandwidth available on that we've been gateways.
They chose <unk> because of our ability to discover as of inventory, while Liberty management and cash management two of single agent.
This quarter. We also saw strong traction for our feed of global Ips of discovery and inventory application with a large from media conglomerate adopting the application the gain visibility of.
All of the known and unknown assets across multiple environments identify the end of life of the installed software and synchronized with the service now CMT.
Finally.
We again saw robust growth for our container security application with the adoption from large global it services company.
That has already deployed our Liberty management patch management, but it will affect the eventually file integrity monitoring and Edr solutions for the consolidated the security stack with Qantas.
In terms of product innovation, we have continued to make strong progress on our product roadmap.
Some key recent accomplishments include the.
Delivering a free 60 day integrated Liberty management detection and response service to our customers to quickly assess the devices and bucket by solar winds Orion, while the reduce sandbox, the Trojan detection and stolen fireeye erecting boots and use the patch management capability to immediately fix debt exposure with a single.
Using the same Asia.
We also enhanced.
Quality of container security of the small solution with the addition of deep visibility runtime defense capabilities and automated enforcement with delivery of quality set of advanced security.
We recently introduced a brand new extension to our platform part of SaaS detection and response SaaS deal, which provides a single console for it and security teams to gain continuous visibility security and compliance of critical SaaS applications like 40, 65 G suite.
Sales force.
As well as the.
The solution enables our customers to monitor the posture of the users and applications that have access to critical data in the SaaS environment.
Helping bridge the gap between on Prem as well as SaaS assets again to a single platform.
We're also excited that we have.
Expanding while this is the MTR Liberty management detection and response to enterprise mobile devices with the addition of cloud agent support for Android and iOS devices.
As part of their digital transformation organizations continue to leverage more and more hadn't heard of mobile devices to conduct business with access to critical data from these devices. This expansion allows over customers subtract one of the release and as configurations on these devices and take appropriate response actions.
This.
On top of our product of accomplishments from our year of 2020.
Key amongst them part of the shipping of wireless multifactor, Edr, which globally or just.
Adjusted the quality of cloud platform and while the slower in Asia.
The tech ongoing tax on endpoints conduct start hunting and take appropriate response actions.
For the quarterly text with one of the reduced providing unique capabilities of proactive mitigation from additional features.
We also released a comprehensive Inc.
Inventory sync with service now sort of has got off and configuration management DWP MTBE as per.
Part of the new sort of as Gulf connector program of new designation within their technology partner program.
We locked with the strategic launch of the MTR. The early last year, which is a unique all in one cloud based application that automates the entire Liberty management lifecycle of across on premise endpoint and cloud environment, bringing one liberty management type of product position and patching into a single end to end workflow.
Single agent.
Looking ahead, we are enthused with the additional solutions that we plan to introduce in 2021.
The xdr platform expansion, which seamlessly integrates and correlates to date on the Duvernay collected from all call centers.
Context from other third party data sources.
Of this powerful capability will lead customers detect types of beyond the endpoints quality exit. The Ark was also orchestrate the videos of response actions and help our customers reduce cost and complexity.
Of deploying and managing Sim and source solutions.
This capability is currently in private beta with the select the design partner customers, who have been working with us.
We also plan to expand support for patch management for Linux environment, So customers to the cloud agents on these environments can also add quality patch management to these additional devices.
We will continue adding additional capabilities to all of our director of the Edr such as endpoint protection capability.
ETP as well as expanding edr support into the.
The Linux environment.
We are working on a major update to our passive scanning technology that will significantly expand our coverage of industrial control systems operations technology, and vitamins as well as the detection of Iot devices.
We showcased these solutions at our very well attended the <unk> user conference, which was a 12 day virtual event in November 2020.
But what 5000 people across our customer base partners prospects of analysts and investors and the media attended the event and we received very positive feedback.
The development of these native solutions.
Such as the operator base as possible because of the massive investment we've made in our cloud platform and our strong engineering talent base with over 900 employees now, including the India.
These new initiatives of one significant incremental.
The market opportunity for us the also allow our customers to easily and cost effectively consolidated the stock of traditional enterprise security and compliance solutions, while providing them with the single pane of glass view of all aspects of across on premise endpoint cloud SaaS and mobile environment.
In terms of go to market.
We are expanding our relationships with existing partners, our comprehensive platform with detection and response is becoming increasingly strategic for MSP partners as deacon now, providing multiple services and easy upsells to their customers instead of focusing on large amount of resources on building such a scalable platform them.
<unk>.
The integrated multiple other point solutions.
Given the increased breadth of our product suite and the launch of the MTR and my director you have now embarked on a few additional go to market initiatives that leverage the efficiency and effectiveness of our cloud platform. This is a key element of our profitable growth driving value for our customers and shareholders.
Our go to market activities in 2020 include leveraging our global platform.
Patients with free services.
As an example, we launched our free remote endpoint protection solution to help enterprises of secure remote workforces by providing instant security assessment of visibility in the remote patching when it was difficult for them to do this using enterprise solutions or VPN.
We expanded our reach.
The reach into China by establishing a private cloud platform with the partnership for digital China, the largest value out of their provider of integrated products. So the.
<unk> and support enterprises in China.
When we launch the quality of the way cloud platform in Dubai, which further expand while the CIS operations across the continent.
The region.
We expect the extended all of our partnerships with Deloitte advisory with Deloitte Advisory partnered with <unk> to integrate the the MTR and out of our director of Edr offering into the large Hong Kong Ciber managed Liberty services.
<unk> of global MSP, and better quality of the MDI into armor anyway of industry.
The industry, leading cloud security platform, our partnership with armor also includes wireless, Florida view solution for compliance and security posture and management of public cloud environments.
We released cloud, we announced cloud agents general availability on Google cloud, providing customers with the one click workload security visibility directly to Google cloud. Additionally, the natively integrated our.
Our container security solution with Google Cloud artifact registry.
We expanded one Liberty management integration with Microsoft to also include Microsoft Azure arc to allow customers to port form of Liberty scanning on so the worst outside of Azure of Black Swan.
We partner with Infosys, a global leader in the next generation digital services and consulting the integral.
The quality of the MDI and my director EBIT into hybrid index platform, the managed security service offering.
Yes.
While looking forward to 2021, we plan to meaningfully expand our sales and marketing efforts given our increased number of solutions, including our game changing the MBR in the more directly as well at the upcoming <unk> offerings.
Similar to all of our efforts on the cloud platform, we are operating in.
Marketing platform, we have recently hired a CMO and are expanding our marketing awareness initiatives for the sea levels as well as our lead generation capabilities, leveraging our platform, increasing increasing where true events.
On the sales front, we are expanding our quota carrying sales headcount our technical account managers as we call them and have recruiter and EVP of field operations for Americas, The VP of new business for the U S. VP of strategic alliances for system integrators.
And the VP and GM for our SME SMB business. In addition, we are also planning to hire a Seattle the chief revenue officer this year.
We will also continue to invest in R&D and operations as well as other support functions as we continue the scale the organization in anticipation of future growth. We believe these investments will set us up well for long term and profitable growth. We believe the world After COVID-19.
It's going to be different companies are going to be more focused on reducing costs, while increasing business flexibility, which is going to significantly accelerate the transition to cloud based solutions.
Increasing adoption of our cloud agent and our passive scanning technology combined with the breadth of our solutions that span across the end of that hybrid.
Environment enables us to offer customers greater visibility accuracy and scalability.
This positions <unk> well to enable customers to consolidate debt of security and compliance with us providing this can mitigation and type of detection and response on the same platform.
While also drastically reducing the overall spending.
In conclusion.
While this continues to clearly move well beyond while operating management of increases the competitive advantage.
We are optimistic that our adoption of a new newer solutions, including patch management director Edr container security and upcoming Xdr, which saw meaningful problems for our customers will provide us the opportunity to increase bookings growth over the long term.
In summary, we believe that we are now well positioned to expand our revenues with existing customers as well as continuing to expand our customer base for the years to come with that I will turn the call over to Jeremy to discuss our fourth quarter financial results and the full year fiscal 'twenty 'twenty one guidance.
Thank you, Matt and good afternoon.
Before I start I'd like to note debt, except for revenue all fine.
Our non-GAAP and growth rates are based on comparisons to the prior year period unless the.
The other line.
We are delighted with our increasing cloud agent adoption, which lays the foundation for future revenue growth and industry leading profitability.
Our Q4 financial and operational highlights.
Revenue for the fourth quarter of 2020 grew 12% to $94 8 million.
Looking forward, we expect Q line 2021 calculated current billings growth to be negatively impacted by the timing and amount of prepaid multiyear subscription that's not of shorter duration embracing.
Our average deal size decreased 3%.
Excluding strategic alliance deal, which normalizes for the impact of channel customers coming off of an OEM relationship deal size increased percentage.
Paid cloud agent subscriptions decreased.
In the over the last 12 months of.
From $15 million per the 12 months ended Q3 2020.
And 29% at the end customer outgrowing your line the quarter renewed in two of the MTR from Shen.
Excluding strategic alliance deal the <unk> adoption with 35% to Q3.
Our scale the copper model continues to drive superior margins and generate significant cash flow.
Adjusted EBITDA for the fourth quarter of 2020 with $43 4 million.
Representing of 46% margin versus 44%.
Q4, EPS grew 13%.
And our free cash flow for the fourth quarter of 2020 increased 27% to $31 9 million, representing a 34% margin.
In Q4, we continue to invest the cash we generated from operations back into call it including the.
With $9 million from capital expenditures for operations.
The principal payments under capital lease obligations.
And $34 8 million to repurchase 352000 of our outstanding share.
Looking back on the year.
Proud to have continued our cardiac reader share meaningfully growing earnings and cash flow for our shareholders.
In 2020, we released several new products features and enhancements.
Cloud agent adoption of <unk>.
80% from 31 million cloud agents subscription to $56 million.
We grew EBITDA by 23% net.
The record EBITDA margin of 47%.
We utilized $126 7 million of our cash to repurchase approximately $1 3 million of outstanding share.
And finally, we grew EPS by 25%.
We remain confident in our business model driven by our foundation of nearly 100% recurring revenue.
Expanding suite of applications.
Looking to 2020 line, we are excited about the revenue growth opportunity from our newer solution.
The MTR patch management, and multi debt youre eating arm.
We expect full year revenue in 2020 line to be in the range of 399 million to $14 million, which represent the growth rate of.
Ken.
Percentage.
In terms of 2020 of our profitability.
Debt to maintain industry, leading margins leveraging our highly profitable operational model.
Preserving the ability to further on debt to drive future revenue growth.
We expect full year non-GAAP EPS in 2020 line to be in the range of 2.0 to two six line.
For Q1, we expect revenue to be in the range of $94 8 million from $95 4 million what's.
Which represents the growth rate of 10% to 11%.
We expect non-GAAP EPS in Q1 to be in the range of 68 to 70 cents.
We expect first quarter of 2021 capital expenditures from operations to be in the range of six to 7 million.
And full year 2021 to be in the range of $30 million to $35 million.
As you May have mentioned, we are very excited by the robust adoption of the MTR and the launch of our multi vector Edr solution.
I'm optimistic about the company's future.
We feel very confident during the period of uncertainty due to the value provided by our cloud platform as well as our underlying highly scalable and profitable operational model.
With that Matt and I are happy to answer any of your question.
Thank you.
Again, ladies and gentlemen, I'd like to ask the question from Chris.
One of your touch tone telephone.
One moment for the first time.
Okay.
Our first question comes from Daniel Ives of Wedbush. Your line is open.
Things well with fleets in the.
Some regards.
Hi.
Just back to the to the business.
Can you just talk about in terms of this environment that we're seeing across the board in terms of increased cyber security spend.
The larger deals, but the enterprise and federal just talk about where you guys of position. There I mean is that something that you're seeing in terms of giving you increased confidence for the year. Thanks.
Yes, I think what we're seeing right now is that a lot of our customers, especially if you see some of the early signs of attacks they are.
Really looking at <unk>.
Solutions that are going to help them detect the issues quicker faster and bigger response actions.
So that they kind of mitigate this because otherwise with the cut off point solutions that are out of that it takes a long time for them to be.
Being able to find the.
The breaches that are going on or the miss configurations that each of these breaches and <unk>.
Today, we feel like with the platform, which focuses on both aspects of security, which is the risk mitigation as well as of the type of protection in the.
The sponsor capabilities.
We feel like our platform is well positioned for that and in our conversations with our customers and when as I mentioned, a couple of examples of the way there.
Customers are adding.
The capabilities of patch management to those agents that already have the MD out as an example of or looking to add us. So that they can consolidate that agent and get to the point of getting the information across these different solutions quickly.
The fee the value and the work we are doing and obviously as they look to ingest the quality the platform and integrate that into the current.
Environment of this is something that we work with them. Some of it is part of the free services that we offer so they can see the value of the platform and what it brings to them.
So we we feel that.
The customers will be looking at a solution like quality of essentially to consolidate the payout.
The solutions not just from a perspective of spend but also just being able to get to the issues for security quicker and faster rather than spending large amount of dollars on on putting together these points.
Point solutions.
Same etcetera and the.
Having a lot of analysts are having to read through those defined the issues that they have.
Great. Thank you.
Our next question comes from from.
The capital market. Your line is open.
Thank you again, sorry to hear about Philip in the quake.
Quick recovery Julien quick.
Quick question on the guide it looks like the based on your Q1 guidance in the guidance for the U N U line.
Somewhat consistent year over year growth throughout the year.
The 11% of seven weeks.
The yen the MBR of adoption.
Tailwind from the revenue growth.
In the second half of the year.
Just kind of better understand the.
Other than that thanks to the revenue growth that we're not thinking about.
Yeah. So it's true that with the New York solutions, we're very optimistic about the MTR patch management, even the multibank vector etiology of Mueller.
The adoption of newer products and when it's going to translate into revenue.
Barton and the historically, what we've guided to you know with setting the annual revenue guidance and really when you look at our current bookings and pipeline to inform our guidance and because of that this is the visibility that we have right now.
In Q1 of the guidance that we have is basically what we expect to achieve based on the opportunity that we see ahead and then for the latter half of the second half of the year, it's a little bit too early to tell but we thought that it was prudent to guide to the 10% to 11% growth fiscal year.
And if I can add to that.
<unk> debt.
Currently something that we.
See customers really asking for it and we see that it takes them sometimes based on the environment to deploy the amniotic like once they have that.
Which drives the adoption of the agent.
We are seeing as I give that example, and also earlier in the year. We saw some customers are able to move very quickly to add additional services within a couple of weeks in other cases customers do take time to integrate that into advanced security of portfolio before they can then move on to additional capabilities of the MBR.
Pumps the base for.
Okay, great and assume that first congrats on the CEO of appointment.
The V M D. Our adoption is going well.
The big thing.
We are in launch coming up.
From the product perspective, you guys have definitely become a full platform provider now so the next step is.
We'll go to market and you know obviously the southwest ramp.
Our remarks, Theres a lot of hiring a lot of hiring plan.
But can you give us some insight into how aggressive you are planning to add some capacity. This year and also any update in regards to your go to market.
On the plans and the Hyperscale cloud environment because of the U N GT and.
And as that channel of the Hyperscale, the kind of environment that channel like the need to them by a new customer adds.
Yeah, So I think of.
In the first to address on the sales most of that I think as you saw we've already started on the hiding.
As I mentioned, we have hired EVP for field operations in the U S and we'd be for new business in the U S VP and GM for SME SMB business.
And then as I mentioned, we would also be hiring a chief revenue officer of the CR.
And there's many other things that we're doing so it's not just hiring of the sales people of course, we plan to increase the count of our Quebec, adding sales folks but in addition, we've also really.
We'll start our marketing platform hiding the CMO.
We also hired a few heads of product VP of product for flowers and the MTR and a few of these other areas really to help the package, but the the platform work with our sales team for a better sales enablement and so a combination of all of those things is what we are optimistic.
Dick about will drive the.
The.
The expansion in the revenue.
And I think that's really the strategy of data.
In terms of just how we're going to proceed the in the future as far as the GCB and the Azure environment goes I think that's the.
It's a lot of it is about baked in capability and the vessels, we have of our platform really.
Quickly allows these customers who are moving into the cloud environment to be able to leverage.
Not just one liberty management, but patching.
In some cases, the cloud environments will stinker of nickel data like five of them they need the file integrity monitoring the new Edr. So we are well positioned to provide those once they get the agents. So what we are focused with the Google and Azure and everybody is the backend integration of getting our agent integrated and you saw a couple of those.
The announcements.
Operating behind <unk> is to get that back end integrated into data platform. So then the customers who we could be in and we see them make sometimes it's net new customers, who are looking to quickly build a solution.
Leverage the operating capability in other cases existing customers.
Take a hybrid approach where they are.
The <unk> quality platform for certain capabilities. They have the built in integration and Azure. So that they can provide their end users quick visibility into what they need the fixed whereas the security team has been able to look at the visibility of the overall security portfolio within the quality console. So we are we feel that.
As more organizations are moving into more of the old cloud native architecture of the solution I think we provide a pretty robust integration and also the opportunity to add more capabilities quickly because then that Adrian the seamlessly dropped onto those.
The those what are the devices around the in those environments.
Great. Thank you so much for the detailed answer.
Congrats on the appointment of against the net.
Thank you.
Thank you. Our next question comes from Matt Hedberg of RBC capital markets. Your line is open.
Great. Thanks for taking my questions and the our thoughts go out the Felipe as well.
You guys when Sun burst in silver wins hit you guys had a lot of really helpful press releases out sort.
Sort of talking about the benefits of the cross platform.
Obviously, it didn't impact your Q4 revenue, but I'm curious if you could talk about.
Does it aided pipeline generation and I would assume you're probably not including it in your guidance, but maybe just talk about if that's helping kind of the go to market the pipeline initiatives.
Well, it's a tool.
Sort of a two pronged approach one is obviously, we put out the services just like we did with the free endpoint security solution reported the services start for central or most of the health of our.
Existing customers get the handle of data environment may be able to use modules that they don't have from quality right now how in purchase of going to be able to use that can mitigate the risks. So when we did that 60 day of free service around the solar gate. We what was the really unique is that not just where are we providing the detect.
<unk> of these.
Liberty is the core part of the Fireeye stolen tools, which we as we publish was like in the millions.
Our debt. We also provided the ability for these customers to leverage of the quality patch management capability for free to immediately patch does a lot of the.
The reduced right. So that's the big difference that it's not just what you are saying here around the scanning the see the findings where we focus on is if you call of duty how quality agent and youre not using patch management here.
Turn it on and within a few hours, you're able to actually as a host for these while every day and you can see the ease of use of that platform.
<unk>.
Obviously that generates additional lead and things like that the.
The goal there really for us is to establish that of.
Let's call it like a proof of concept or the credibility with our customers to help them see the ease at which that they can leverage the additional capabilities from call. This one is the already have the MTR or if they can quickly move to the MBR and they can grow from there and once that is established that.
At the end of the day that doesn't necessarily mean that the customer is immediately going to purchase the solution, but what it does is that it creates the foundation for them to understand that the solution already in place that they can move quickly whenever that may be existing solution is coming up for renewal of replacement and so we look at it more as just creating.
<unk> of that opportunity to showcase to them the capabilities of the platform and as you know, we don't really push our customers.
Two.
Being the subscription service too bye bye bye.
We really work with them on their schedule and the comfort.
The key there for the free services sales, which is a key part of our go to market is just being able to have the ability to showcase to them Hey, if you already have in Asia and within a couple of hours you can see the ADR in line for that on these critical systems.
That's helpful and then.
I just wanted to ask kind of dig into kind of core VM growth, obviously, youre seeing a lot of growth you talked about.
Cloud agent subscription growth of 80% and there's a lot of new products that are launching.
But I guess I guess my question is as you know with the.
With a 10 to 12 are of 10% to 11% guide this year I mean, I kind of think of that as kind of like the the VM growth rate.
Is there something the suppressing VM of bid I mean is it of Covid headwind I'm, just trying to get a better understanding of how youre thinking about sort of of the core growth obviously, you've got growth outside of that the fading, but just kind of core VM would be it would be helpful.
Well I mean, the core VM really we changed the game for OEM last year of acreage of the MDI and so where it was.
Really in the past just about can you told me a list of Cvs has really been transformed by quality of <unk> into a single capability, which includes the prioritization and the ability to fix those issues as well and so our and that's why you see the the excitement and our customers to move to a.
Liberty management solution that does all of those together in a single.
Adrian doesn't example, right and but obviously when they when they look at that and they want to move to that it does.
Damian.
The existing patch management solution, a batch of management team that is different from the security teams. So that is a process that they go through the walk through with these customers and sorry with their teams internally too.
Figure out the right way, where maybe they may in some cases, they may start smaller for a bunch of management in certain areas in case, we see patch management is driving the the MBR sale as well in some cases of the customer takes time too.
Integrating the MTR into their solution and in the last year. We also saw in some cases, we have the customer that I was able to move to while dispatching.
Because the already hired the MBR for 250000 assets within two weeks. So it's just different for different customers based on where they are in their journey that environment. So in some cases.
We saw that with Covid.
The remote endpoint.
The need for patching drove quicker quicker adoption of.
Of patch management and other cases the teams so are taking longer to go through their process of implementing the solutions.
Thank you very much.
Your next question comes from.
Kelvin.
Your line is open.
Yeah. So thank you very much can you talk about the.
The potential for the company to Reaccelerate growth to the mid teens.
No you are waiting for the new products to ramp, but when they are ramping.
Whether it's maybe later this year early next year do you think the potential is there to grow in the mid teens.
You'll see look we've really been focusing on as you saw on the platform right not just the quarter and the MDI, but also you saw some of the new services that we announced like SaaS and getting into additional environmental what what our focus has been is to get that platform to the level of where customers are looking to consol.
Maybe a.
A few months later this year.
Early next year whenever that is that we have all of the capabilities lined up for them to be able to move into the quality of platform and so we are hopeful with all of these changes and debt additional called the market.
The initiative that we have put in place.
We are hopeful of horror and acceleration of growth.
Sure.
In the near in the next few years.
Okay and also your percentage of VM customers up for renewal, who renewed with the BMD are I think it didn't really grow that much.
35% adjusted the same as last quarter.
Why do you think it didn't grow and where do you see that percentage going to by say the end of the year.
So I think we think that 35 per cent is a good percentage of front of adoption.
For our customers.
Especially when you have customers that are the larger so it really depends in that particular corridor, where does the mix of customers that is up for the new so if those customers who have for whatever reason are going to take time too because as you as you see with the MBR of it's not just the of our Liberty management of feed it comes with additional capabilities.
The inventory and Patrick reduction and a prioritization so the customers need to also be able to ingest and that capability into the current security program and so that may need some resources on their side. The lineup of maybe develop parts to get the API calls et cetera. So it just depends on that quarter, what the mix of customers comes up.
And.
The other but I need to do is as you know, we don't really push push push from them to do it because it's in the subscription based business but.
What we what we do expect obviously is that we will already had these people can work there. So as the next quarter is coming down.
The convergence will build on top of the existing conversions that we've already done the right. So obviously, we see that through the next few quarters, we will see more and more of our customer base getting converted to the MBR.
Thank you.
Thank you. Our next question comes from Eric.
JMP Securities Your line is open.
Question again.
<unk>.
And the best wishes for a speedy recovery from Felipe.
The hiring it sounds like Youre going to step up hiring in sales, but my impression was that.
You've been hiring as quickly as you could in sales in the past.
What are you going to do to.
The accelerate your hiring efforts there.
Yes, so I think of.
As you saw already in the last couple of quarters with the list of the key hires that we have done.
We have already started on the journey to accelerate the hiring in the sales and marketing right. So we have some key folks hired not just on the sales side, but also as I mentioned on the VP of product side, who are going to help the sales enablement as well as bringing in the CMO and bringing in.
Additional head count on.
The product, adding salespeople, but.
Part of that as I mentioned like we're also going to the Harding, our chief revenue officer, who will come in and how we're focused approach towards accelerating our revenue and what of the media strength that we can do in addition to these hires that we have done too.
To do a better.
Our approach to our customers positioning our backs on positioning our portfolio and having them look at quality as an option because the existing security solutions. So so that's really the the direction that we are going in of you've already started on the journey.
And then.
How are you looking at operating margin.
Terms of longer term targets.
Are you going to be.
Right now you're in the upper thirties.
Where do you think that your longer term target in the fall.
It's going to be stepping up some of your investments.
Yeah. So I mean this year, we set a record EBITDA margin of 47% of the way we think about it is we really have the industry leading margins.
The focus right now is better balancing growth with profitability, we don't see a scenario, where we wouldn't have the NDA.
Three of leading margins, regardless of what we said before was.
Even with an increase in investment of <unk> talked about in sales and marketing R&D as well as customer support and operations and G&A, We think that our EBITDA margin at the end of the day, we'll be above 40% range and that with an acceleration of revenue, which will commentary following the investment I think that we will sell the have a really great.
Profile of and I'm, very optimistic because especially with with the traction that we've been able to me with hiring the sales leadership as well as marketing leadership, we do think that the acceleration will be happening on the hiring front ex box is the leader in place.
Okay, and you said it will be around 40% or above 40 per cent per se.
Yeah.
Yes.
The 40%.
Okay very good thank you.
Thank you. Our next question comes from from.
One of the line.
Okay.
This is Matt on for Sterling. Thanks for taking the question you mentioned you metrics, excluding a channel partner that turned off your OEM.
Solution I was wondering if you could elaborate a bit more on that and if there was any impact of the quarter in terms of revenue and how is that affecting the guidance for for the next day.
Thanks.
Yeah, it's not of China is actually just normalizing per channel customers, who are coming direct and OEM relationships. So for example under to teach the Lions.
We had one one partner where it was the OEM relationship that cut that partner had multiple different customer at the endpoint of Natus has come direct and so obviously that did impact the number of debt.
When you want the us up for renewal in Q4, and so normalizing for that noise and ended up being about 35% of the M cut more upper end of what a renewed and two the MTR and if you take a look at on the dollar impact of small it's trending nicely. So it wasn't it wasn't the negative impact at all.
Great that's very helpful. The clean that up.
Just a follow up question what was the big jump in the long term deferred.
This quarter interest.
Trying to see if you could provide any additional color on that impact then shouldn't be kind of expect a higher level of long term deferred as an overall part of the mix. Thanks.
Yeah. So that's really driven by customer so what we've seen is with B M D or we've seen the average contract length has been trending up and that's actually demonstrated by that the RPM.
Growth in our 10-Q and 10-K, it's been going up and I think that's a testament to how our customers really see the value in our product and theyre not a free to sign up for more than a year and so that that really drove the increase in long term deferred but it's not something that we push on customers ex the meta it's really up to the customer and sales as they are willing to sign up from Morgan here, it's great to see.
The market in light of the price then it's better for them and Thats reflected in the half in each of them.
Great. Thanks, guys.
Yeah.
Thank you.
Question comes from the home.
Uh-huh of North America.
Okay.
Yeah. Thank you.
So I just wanted to double click on the <unk> 'twenty one guidance in the context of your short term billings growth of 12% and 10% for the full year.
Well, maybe it was the other way round anyhow.
It seems like a good billings good billings on the short term billings basis and.
Excluding the.
The strategic relationship that you talked about which is not affecting anything at all in reality. It just seems like.
I wanted to understand why are you guiding to a deceleration of revenue growth given the.
The robust short term billings that you saw in the most recent quarter.
Yeah, if the current billings tend to fluctuate if you take a look at.
Because of our subscription base for the revenue that the amortized over 12 months of our current billings.
Earlier in 2020 is actually taking place and having an impact from from the line.
So for example, our current billings Kevin first of thank you.
Okay. That's the eight per tonne in Q3, and then Q4 withdrawn therapy of <unk> 12 per ton, but there are puts and takes free there are natural fluctuation and if you just take a look at the revenue amortization schedule. It ends up being that you know based on the total revenue, which approximately 85% of its already but based on the prior Anthony right and so this is that the visibility that we have.
Alright, now ending the debt.
We are estimating the quarter will end at about 10% and the.
The the other factor that want the highlighted typically the Q1 is lighter just because of the number of days that gets impacted so this quarter, especially in terms of the year over year, we aren't losing.
We are losing a day in the quarter over quarter, we are losing two days since the that that actually impacts the revenue items as well.
I see that's helpful.
And then slide 15 is the.
Recurring slide that you guys have but.
The data from the does look good.
It does of tests to increase in spend due to the platform approach.
Is it possible that you are seeing elevated customer churn in the U S.
The <unk> segment that debt.
The slide because all the.
Sort of capture.
No.
And kind of of returns.
Of course.
Yes.
Quite honestly, we've done this day, we've seen very strong retention of job growth I think that's what's really been impacted from COVID-19 at new and potentially upsell, but in terms of our retention rate nothing nothing significant net change and we haven't we haven't seen of a downward trend.
In both the enterprise right.
Yeah.
Okay. Thank you.
Thank you. Our next question comes from Hamzah <unk> of Morgan Stanley. Your line is open.
Got it. Thank you for taking my question and I'd also like to extend my best wishes to Felipe on the speedy recovery.
My first question for you.
The kind of a follow up to the cooler when the question.
The drilling too.
The discovery, specifically right because that's one area I think we've heard a lot about.
Coming out of the supply chain attack.
You know really trying to figure out kind of you know.
What assets are exposed.
Can you talk a little bit about the prioritization of of that service, specifically I know youre not going to see anything in your pipeline right away of the taxes just happened in December but I'm wondering in terms of your customer conversations and when you speak the customers both solar winds if that's something that comes up a lot.
Absolutely this is the <unk>.
Something that we are hearing a lot from our customers because we know if you look at a little bit of the mechanics of the debt I mean that was the supply chain.
We are of the software came in towards the nice software, but then there was also lateral movement within the environment that it was lateral movement into the SaaS environment. So there was the elements of <unk> hundred 65 accounts of that went back and forth between the.
The.
The email in the 65 of environment as well as the 80 that goes in the house and so.
The first thing that everybody really scrambled honest to say well what do I have in mind right of return where do I have.
The estrogen I of software.
Before I get into knowing whether I have liberty's or issues are not and thats the way out of that asset inventory and the ability for us to.
Give them kind of.
One of the most accurate viewers of the inventory within the range that environment that includes.
Assets that are managed and unmanaged, so with the combination of our agents and ask the scanner really that conversation is coming up.
More and more.
And also leading into conversation about it.
What am I running what is the.
At the end of life software that I'm running what do I need to do about the what.
Where do I find the end of life software towards United The version what assets is that particular assets speaking to in the environment. So that's where the combination and this was the part of those trying to make earlier is that fair.
First approach is going to be well I need to find and I need to find.
Find it that has an impact right that's the way to attract detection and.
The response, which is your Edr Xdr solutions are kind of waiting to come into play then I need to make sure that I am taking all of that remediation actions to be a way to make sure. The mitigating my risk by identifying other devices from the environment that may not be properly configured that can be leveraged for lack of rate movement et cetera, and if you tie in.
Our SaaS released that we just did which gives you the configuration of your order of 65 zone Salesforce et cetera. So now you add the other element that also make sure that.
Customers moving to a hybrid environment that in order to see a much more holistic picture the back from the definitely the starting point for all of that is the global asset inventory.
The fact that it is bundled as part of the platform and that they don't have to go and get another solution to deploy for finding the inventory is definitely helpful and that's what we hear from our customers.
Got it. Thank you and then just maybe a follow up on go to market.
You announced a number of sales leadership appointments right Youre looking for the CRM currently I'm wondering who was the facto head of sales.
The war I mean was it.
It was the belief and also do you think that this is a function of maybe of adding capacity or do you think that there has to be sort of more changes in the sales organization structure.
Yes, I mean the Felipe.
The fact of held for sales.
Uh huh.
However, I was very involved working with leap one with the fusion as well and I think it's a combination as we mentioned the right. So there is all of our model. We are very strong believers in our model of the hunters and the farmers were not changing that the go and push.
More and more of our customers don't need products. However.
Ringing.
CRO of bringing that leadership is going to help us.
Find additional ways to focus on.
Where do we can approach customers, which customers can the.
Track for <unk>.
Targeting for up sales et cetera, so while there obviously there will be some changes in the way that the.
The new Seattle or the new leadership that is coming in is looking to find as an example of the ways to have more of a connect with C level executives'.
So that can begin.
Annualized from our of the overall platform rather than just the of our Liberty management approach that we have taken so I think that will be obviously newer ideas that we will be looking at the end looking to implement.
But fundamentally the.
What we have been working on we do believe in the.
In that basin and the <unk>.
Of that model.
Thank you very much.
Thank you again, if you'd like to ask the questions. Please press Star then one of our next question comes from Brian Essex from Goldman Sachs. Your line is open.
Yes.
Good afternoon, and thank you for taking the question and we'd like to extend my thoughts for a speedy recovery per belief as well hopefully.
All of us well with him.
Maybe.
Jimmy.
I know the in the past you've talked about some hesitation about investing in sales of marketing and bringing on new reps in a period of economic volatility maybe.
Maybe could you talk a little bit about what youre seeing and maybe some net chime in as well.
In terms of what Youre seeing.
I guess the different now that gives you a little bit more confidence that you can onboard reps in head count and the sales and marketing.
Organization, where they could ramp efficiently in the might be productive and they'll hit expectations.
Yes, I think.
And Jimmy will obviously answer of that part, but where I see right now is that.
A big part of this is more and more of our newer services are.
Have matured and are coming to fruition and our customers are adopting them and seen that interest and the <unk>.
Speed of adoption in the cases, where they have the MBR already so that obviously drives our top process on.
We feel that the.
If you look at file integrity monitoring container security patch management. Some of these things are really starting to.
Sure.
Very good.
Tracking and with our customers and of the Upcycle government. So I think that is also part of our when we look at <unk>.
Bringing additional leadership headcount is.
Or how where are and how ready are out of our customers as well.
Got it in.
And maybe for Jimmy so helpful. Thank you for that.
Do you mean, if we think about the level of margin contraction. We will see this year is as you invest in sales and marketing and R&D.
How should we think about.
The level of balance to growth and margin expansion going forward in other words.
Is there is there a framework that you are looking at in terms of.
With respect to being able to deliver margin expansion after of Europe, maybe call it a recovery.
And we might see better better growth.
In 2022.
Yeah, the way, we think about it.
And that's something that we it's new to US we've done it before because if you take a look at the company history like for example, and our Investor Day, We show of the kicker from 2017 back in 2017 of our current billings grew by 21% range and at that point of time, our EBITDA margin was 37% if you take a look at the EBIT.
The margin now we're at 47% and so you could argue that you know and we could definitely do a better job in balancing growth with profitability, we should definitely invest more and that margin expansion of what's really driven by the sales and marketing under spend relative to that point back in 2017, So in 2017 of the sales and marketing.
The central revenue with 26%.
It is now down to 17%.
That said, given our scalable business model and in our infrastructure and housing from we don't think that we have to go up as high and that's why we think that EBITDA margin will be above 40 per se, but we understand that.
That can be for free and that's more in sales and marketing that will return and will translate into billings growth and then eventually revenue.
Got it that's helpful. Thank you very much.
Thank you.
There are no further questions at this time I'd like to turn the call back over to the car for any closing remarks.
Well. Thank you everyone for attending out of our earnings call and for all the questions and we hope that you are safe.
We really feel very fortunate to be well positioned with our cloud platform in an environment, where the better its still are a lot of point solutions are not focusing only on one aspect of security, whether it's just the edr or just Liberty management tool.
Today, we have really worked hard to build the platform.
That is providing multiple different capabilities, including the SaaS, TR and but with the the MTR, which might give it could edr SaaS Dr. Forthcoming ex VR solution, we continue to invest in expanding the capabilities of our platform and aggressively developing new solutions. Additionally, we are also focused on growing our revenue and maintaining our industry leading profitability.
The ability, while creating long term value part of our shareholders.
Hope all of you remain safe and healthy thank you very much.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may all disconnect.
Okay.
Sure.
Sure.
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