Q3 2021 Qualys Inc Earnings Call

Good day, and thank you for standing by welcome to the qualities third quarter of 2021 Investor call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Ask you a question during the session you will need to press star one on your telephone if you require any further assistance please spread Sars zero.

I would now like to hand, the conference overthrew your first speaker, Mr. Blair King Investor Relations. Sir. Please go ahead.

Thank you Rachel good afternoon, and welcome to Polish his third quarter 2021 earnings cool.

Joining me today to discuss our results are Samantha Smith, Packer for President and CEO and Jimmy camera CFO.

Before we get started I would like to remind you that our remarks. Today will include forward looking statements are 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 or set forth in today's press release inner filings with the S. E C.

Including her latest Form 10-Q and 10-K.

Any forward looking statements that we make on this call are based on assumptions as of today, we undertake no obligation to update these statements as a result of new information for future events.

During this call we will present, both gap in non-GAAP financial measures. The reconciliation of GAAP to not get measures is included in today's earnings press release, and as a reminder of the press release prepared remarks, and Investor presentation are available on the Investor Relations section of our website and with that I'd like to turn the call back to submit to that.

Thanks, Blair and welcome everyone to our third quarter earnings call.

Continuing to build on our momentum where police to report another coke for a solid financial performance Wipha advancing our strategic agenda to the X. Let it go and drive continued black home innovation.

Taking a closer look into Q3 cloud agent subscriptions grew 40% Yoda what are your to 70 million, reflecting study or adoption of other while everybody management reduction in response to the M. D. R solution, which is not deployed by 32% of customers wanted way.

Forget about anything I want a security solution consolidation approach and the power of a single Adrian several of our top of new customers not only purchase we M. B at but also made additional call the solutions.

Out of their first purchase highly.

Highlighting a few of these notable new ones in this quarter, a multinational bank selected a b M D R and patch management together to continuously detect in frog dies, one word with these endless configurations Ah Cross it's hybrid Ivy environment the ability of the call. This love Black form that is fun, but I, probably do it immediately and <unk> all one word.

Both or already compromised so I'm a single black phone with built in orchestration stood out amongst several convenient solution.

We believe this approach will help them to reduce the this much faster than Siloed point solutions.

Our newly released that were security asset management application to receive a lot of interest from customers and we are pleased with the early momentum of your city.

Early momentum illustrates all the ability to understand our customers it while the pinpoints. This one quickly.

Jordan up and actually our time to market with differentiate your security solutions that helped fuel autograph.

Ah Forbes to tell them company selected the M. B, a along with that person can be asset management of what several competing solution.

The ability to provide comprehensive acid discovery across its infrastructure through uniquely add context for security centered visibly D. C. M D. B C integration alerting irresponsible.

To differentiate compared to other vulnerability detection solutions.

Rudy direction only solutions in the market.

And to reduce the number of agents and its network and secure and increasing knew that most workforce that could no longer effectively elaborate on for installation a large government agency in the APEC region.

Added to purchase both a M D. R N E D O.

Ability to provide a privatize it has to be slowed liberty and Margaret detection response with a female agent until the <unk> the.

Beyond you the new customer when several large existing enterprise customers significantly expanded that effective.

<unk> application on our platform or better validating platform approach.

For example in the car for a 1400 customer so that's gonna be M. D. Our policy compliance container security I'm filing debating monitoring cost effectively consolidate their lack of legacy the stock of legacy Enterprise security Incompliant solutions with a single pane of glass view.

All ethics spending on <unk>, and <unk> and Clara environment.

We believe that these new ones and expansions illustrated bedroom customers all ready to the architect can consolidate their security strike clause is the best cloud named him might be solution platform to meet their needs.

We have a working toward having that I go to market emotion in place, which includes a strong focus on digital marketing, winning new business, expanding our offerings with existing customers and building a partner network.

To complement our deck and channel sales initiatives within a line Pollack focus on security solutions that class and wines flower container move by the end of class environments, where do you think he hired a season she's still a officer.

As I mentioned on out by our call. We also brought in you Chief marketing officer to ensure were toppled the mind as customers around the world to consolidate the security staff.

And to continue to improve our business processes tools and systems. We recently added and you see I O as well.

Great to have these experience I can think of no join call. This as he continued to make investments to accelerated growth and find that I balance with proper W.

As an example of focus on enhancing our channel started the G. I'm pleased to announce that duty cynics as we send you Selectric Wallace as its north American distribution partner Gee do some X, it's gotta be offering the <unk> platform too it's expensive <unk> in the region, including our game changing <unk> solution and patch management capabilities to help customers.

Simplify security operations and an order of compliance costs.

<unk> video released as you don't touch patch as an extension to our patch management application to help IP and security teams for the offer me that a mediation of <unk>.

Our automated patch management solution enables customers to setup patching in advance with predefined policies by leveraging the Qantas cloth platform Dakota late on Friday is long overdue.

While bypassing the need for ITN security team intervention after the fact.

In the current environment, often I predicts fluoridation of wanting to reduce dysfunctionality changes the game and patch management with the the old time at a mediation and significantly reduces the exposure window.

As well as a legacy IP costs.

Garnering brought industry attention, we have received positive initial feedback from our customers.

For that extending our value proposition in the market of this based on Liberty management, We recently launched a R 60, they feed on some <unk> assistant service.

<unk> are looking for something actionable unmeasured or both when it comes to put on some <unk> powered by B M. D. R. A.

Bargaining research on curator dropped somewhere specific vulnerabilities. This service includes comprehensive as I've been around three Paradise on number games configuration detection in remote catching up but I'm from right along with the <unk>.

A single unified workflow, along with executive dashboards, enabling enterprises to track of this and a measurable way.

We can do it walled capabilities of our container security solution recently in collaboration with that I'd had we have containerized equality slowed agent to extend security visibility and goods operating system. While this is the first solution to scandal that had enterprise to the next <unk> and I'd had a whole bunch of shift to reduce that as.

While this container security delivers comprehensive as of your D from the host operating system through the images inconvenience running on open shift and other container that's platforms.

Looking ahead as the industry continues to move towards cloud Native solutions Mis configured resources. So they want into a large into the number one reason for.

Incidences in in the cloud.

We've got into your currently in beta with our infrastructure escort icy assessment capabilities, which will enable customers to catch cloud security issues from the time code is written for the time it is deployed.

This extension Dweller Cloud security question management, Florida view solution.

<unk> will have come to consider deep into both of them up cycling and runtime security posture.

Look forward that would extend that protection in response xdr solution going G. By the end of this year. It could you add is that what the next generation security analytics, an incident response application, which Nathan would be integrated Temco relates Africa inventory risk based along with the new management Patching E. D. R and Fame security, telling my plea with additional Sidebar D D.

Integration to provide high fidelity detection in response.

We will showcase these and other new solutions and our upcoming while the security conference give us see I encourage you to attend this conference which will be a four day light and virtually ran from November 15th to 18, and it will have many informative products sessions as well as customer presentations, we already have over 3000 people registered to it then you can access.

The agenda ended undisturbed for the conference at <unk> Dot Com Slash <unk>.

Big picture, our market position as strong we're focused on executing on our immediate opportunities with product is going to market investments advancing new product initiatives.

It for the comfort differentiation and will only expand out or just a low market.

With that I will turn the call over to Jimmy discuss our third quarter financial results and outlook for the fourth year in full year 2021.

Thank you and good afternoon.

Before I die 19 et cetera revenue often you just take your cat and Gregory.

Prior year period.

N y.

Alright, please to reply to continue to acceleration and L. T and calculated cramping like another corner at times have any brat and profitability.

Only financial and operational.

I put any revenue with your past hundred million at the first time I'm 19.

19% to one O 4.9 million.

Like a Q U F. P M. How can lead to crank billings credit at 15%.

13% in Q T M and 8% in queue line. Please let me at least contact within five to 10.9 cats, yeah celebrate not any <unk>.

Okay.

Okay.

Okay that last time.

I'm 54 million.

Mmk and Q2 2029.

Alright.

At about 10 at the N D I.

Now, 32% from 28% in T T M and comprehend a year now.

I came about last amount I'll continue to try superior Martin and generate significant cash style I.

I guess it even after the third quarter of 2029.

Eight 3 million representing at 48% my can align with last year.

Non-GAAP EPS for the third quarter of 2021 like 86 cents.

70, 710 plants here.

Free cash style and the third quarter of 2021 41.3 million, representing a 39% Martin.

Put that much here.

Free cash flow Martin like 47%, 44%.

Last year.

N G. Three we continue to them that the cash we generated from operations back into play <unk> 7.2 million and capital expenditure and 31.7 million three <unk> 290000 around sandy here.

<unk> announced that airport.

At $200 million increase for share repurchase program, we can often can mitigate our favorite delusion and try shareholder value.

Including one 7 million <unk> Q3 cause I could passionately three O 7 million and she had a a pretty capacity.

And we need an average delay to hearing that having a T $339 nine onion App I'm 48, now you match here.

We remain confident and I've taken some advil and believe that we're well positioned to track brown, giving the tracking or anything in the order all the time right.

Right now I just need anything else on your 2021 Guy Dang I've.

They both revenue tiring.

They're raising the bottom and top and never guidance range for the full year revenue to be now and arrange that 4992 point 10.1 million.

Higher range at 424 and 7.5 million.

There anything are pulling your non-GAAP E T S. I N kidnapping arrange at 3.9, K 2318, and a pirate <unk> three point out to Ya 237.

I forget fourthquarter, we expect revenue to be in the range of one O 8.1 million to one out of 8.7 million French represent a range of 14% to 15% growth.

We expect <unk> to be in the range of 78 to 80 N.

Two four cabinets furniture survey I can give me in the range of 4 million 5 million.

With that Tonight, and I am happy to answer any of your question.

Thank you as a reminder to ask you a question <unk> and then the number one on your telephone keypad and if your question has been answered are you. They should take a move yourself from the queue. Please press the pound.

Please stand by while the cute well we come back thank you any rusty.

Your first question comes from the line of Matt had break from RBC capital markets. Please proceed with your question.

Hey, it's dam burst or for Matt Hedberg, Thanks for taking our questions. So.

It really nice to see the revenue acceleration here at 13% gets quarter Uhm first 12% in the first half guidance implies 14, and a half at the midpoint in the fourth quarter can you talk a little bit about the components leading to revenue acceleration here in the second half and then particularly with the fourth quarter Guy.

Yeah Happy T O.

So we've been talking about that revenue acceleration for awhile now and you can tell by the <unk> well, let me see and continue to grow.

I mean getting customers as my last meal.

Alright, as how can she directory I'm looking at that time.

Right now it could you need adoption of the N P. R, which has been critical enter T degree very important.

Can I continue dot dot B M. P R.

That customer penetration from that.

As in helping us to land for customers as well as.

Additional products I've seen that mentioned drinking.

And the threat like.

It's not his name we all think introduced any product iced tea and no I think that our our market positioning have strengthened with a new product launches and that has increased incentives.

I need to get the password ethanol at uhm with our pipeline N I E L.

Great and then you mentioned B M. D are there could you talk about the traction in Multiproduct product adoption by new customers you mentioned that the prepared remarks and then the last couple of calls you know what's driving that trend is it simple as vendor consolidation or customers increasingly realizing the power of the platform.

On that initial sale.

Yeah, I think it's a combination of.

Both of those things I think.

E C. So you talked to they didn't really do want to consolidate their stock.

And too many vendor solutions and the time is wasted and trying to get disillusion to work with each other so let me take that that's essentially that's what the market is that you're looking for and then when you look at the wireless approach off the black phone ready six really unified black phone not just a combination of different schools put together.

What that does give <unk> has that ability to sharpen the amount of.

Time.

That'd be potentially have to have exposure, because we not going to give you a list of <unk> like a a scanner to do but then you take that into the Friday edition as well as the ability to provide patching of those are all everybody's with the same solution. So you can really get a better deal could reduce X whichever window and make that much quicker and faster than <unk>.

A big part of the M. D. Odd is also the adoption of the agents abroad trying so add customers who are deploy b M. D. On them. They have a Jones then that ability to drive additional module conjunctions on you already how Beijing I was talking to me as a quicker way for them to see.

The value so that they can turn on file integrity monitoring that can turn on cyber security Upper management and so what we see right now is.

A new customers when they are coming to us and the mental.

Mental stayed with any of the I was looking to give you all could take the security solution I look for a new rendered and so when they see the wireless is providing not only just a list of all the reviews, but the ability to pass the ability to have I was hoping to benji.

Nobody could go have highly integrated marketing and other gave him the fees.

He got blindsided and that's the way we see that.

New customers. This Walker as we said also last quarter right off the bat when they buy something from call is there not just buying them beyond their buying a dedicated repeat including patch management as well as finally integrating monitoring and other solutions right over the back. So you see that desire to consolidate the fact that our platform actually provide.

Cause I can see Miss an easy manner, a combination of that is what we see no conversations with customers.

Great. Thank you.

Thank you. Your next question comes from the line upgrade this volunteer from stomach point capital B, specifically to your question.

I think I'd almost for taking my question, what can I get your thoughts on capital allocation. So I noticed the <unk> family Trust installing chairs in the open market since August it looks like it's been a bit of an overhanging probably explains the 10% short interested in the stock and I mean, given out while you're executing until and you're experiencing cyber I'm I'm, a little bit surprised that stock Empire. So I know you spoke a little bit about share.

Uhm share buyback authorization. So I was wondering if you'd be willing to get a bit more aggressively share buybacks or maybe that conducted tender offer to remove the court to a family Trust overhang, yeah, just kind of getting a little bit more aggressive than yourself seem deletion problem sure based comp.

Yes, great question, we've actually been talking about the capital allocation strategy on a regular beat that uhm, what that for it and with management asthma and I did actually one of the reasons why the board at the authorize additional 200 million when we have slightly over $100 million <unk> F. T. Three we do <unk>.

Yeah, our our socket undervalue from our perspective, and it's a good opportunity for us to elaborate your cash on our balance sheet with our cash enjoy camera. Upon security is kind of near any of that 500 million Mark and so that is our intention you will be executed based on that number by spread.

That's fantastic. Thank you.

Thank you. Your next question comes comes from the lineup Eric Sappy Chair from JMP Security. Please proceed with your questions.

Yeah. Thanks for taking the call a couple of questions. One just in light of a number of the new executives that you brought on including the C. R. O I'm curious have you.

Formulated any differences changes in strategies and go to market or or anything any observations that we could we could take away and then secondly in terms of the the X D. R. A product I'm. Just curious are there any particular profile customer that you're you're looking to to take that into.

<unk> is there a logical direction that that you would initially take with with taking that to the market.

Yeah, Great. That's a great question, signing first I will definitely I'm excited to have these season leaders come on board I think.

As we have saved our focus really is to drive continued back home innovation and that's everything someone.

Onboard as a C. P O really helps us to ensure that we are continuing with our innovation continue with all of their engineering.

Innovation, and then working closely with the Seattle in the CMO and their teams to have a much better education between the product and then your products like you're creating and the new opportunities that we're creating and ensuring that we have a good that's a as in a moment we have a good.

And to and work flow between marketing and sales. So that we are getting all the campaigns driven through the product from others.

Sources as well as the driving next to the sales team. So that they can focus on and working visa card, so and and I, let them know hasn't been here for five six months and we really work very well together and you really establish or are you a good working relationship so quite excited to see him start to.

Focus on having an impact here and we have been working through different strategies in terms of how we wanted to proceed with.

Investments, where do we want to make them and I think as we as we will work through that to the rest of the year and we should have some additional tops.

Two for me.

And then on the <unk> site Uhm.

And I think the there's a lot of same solutions that are starting to burn, but I'd like to be out of the issue with a lot of them is that the the.

Same solution really doesn't need.

And the ability to have.

I'd better vendors deployed to collect the daytime I that into the same solution and that's where we differentiate ourselves in the pro expect with one is black farm deployed as you see some new solutions already consolidated on the platform.

A customer who has the garden called escape every piece already is getting all the telling me you needed it for everything.

Everything from endpoints Liberty management and venture UDR filing degree the events and then also a lot of the data from the cloud inconvenient environment is already coming into the call. This platform as part of their subscription so the amount of additional information needed a four correlation phone third party.

Oh products is elimidate, the firewalls and a few other solutions like that so the deployment and the value that a customer can get by being that existing while this accounting, enabling this capability G. R capability, and then being able to bring a third party data. We believe is going to be very differentiating in the market career.

The Big leagues, you are solutions that quite a lot of time to get them deployed and get them working and a lot of professional services are required. So clearly received that this was going to be a journey, where we will focus on the initial focus upper <unk> will be on the mid market in Lord of the market where customers do need.

A simplified singleplatform solution there, it's not just a a depictions black one but it also does that this litigation with my liberties and patchy and so the they don't have as many of these sources I mean does a general charges of cyber security resources across the market, but especially on the mid market in the lower end of the market certainly that.

<unk> more needs for consolidated solution. There then you fewer people to manage and monitor in the glove you solution. So and I think we have used cases, we are working with larger customers as well, where they see a specific value in <unk> well this is bringing despite them having some.

They're the same renting Dr platforms, just because of the amount of context of that already has collected and call us in the target intelligence is already there is very valuable to them. So I think as as the next year or so it was you will see more of that that shift and also how.

Mid market customers, something going up for a larger and of the customers how they even started up in the solution.

Very good thank you very much.

Thank you. Your next question comes from the line of Brian S X from Goldman Sachs. Please proceed with your question.

Hi, good afternoon, and thank you very much for taking the question I was wondering if maybe if I could fall into one of the previous questions that were asked and I apologize if I missed it if it was it was commented on before but I guess I'm in sales and marketing initiatives given the changes in executive management any sense of what we might anticipate for the trajectory is spend there.

And how you might think about incremental spending relative to maintaining profitability to drive growth.

Yeah, and can pull the account in marketing and we're working very hunting with S. M. I T. R. O I thought C. P O 200.

And can I can send that we think is necessary and we should be spending and we we do have an attention to increase and that may I. Please oh and I'm sorry to repeat that every corner and then taking a little bit of time for active formulated a plan just because everyone to kneel and of course. It takes time to further inquiry in a meaningful way end up by.

We're keeping that right why am I, so with that that we're going through that budget planning cycled right now we will be providing additional color and guidance at next part I won't eat <unk> annual revenue.

Yeah.

Got it and that's helpful. Thank you and I and nice nice to see the incremental B M. B R. A penetration within your installed base hip you offered and I apologize again, if I missed it but the percentage of the N. P. R. As a percent of your total bookings over the last 12 months or any any kind of other metrics to give us.

Kind of a bookings of revenue penetration rate.

Yeah, so that.

Does that present in LTM fucking P. M. P. Right now makes up over 40% in Connecticut, and I wanted to make sure that we talked about that the corner really you know that when you want that for for.

Right at the M. Felicia, you're talking about Africa, and it actually went up to 57% up from 47% a lot harder than what you were seeing and what room and I'm on that Hamburger anything that we wanted to make sure that we we communicate Emily that message.

We really see that my complaint or you see a couple of corner I have.

I'll take and the leading indicators that we're tracking the M. P. R. S. One and that has kind of country do it.

Perfect.

<unk>, it's spelled a little bit earlier on.

We do yeah patterns are strong retention rate continuing that sounds great and adult continuing to track them on my end of the business.

This will lead to further salary shana revenue, we're hoping to get a little of that more color and of course, that's all your guide and thanks to the next corner.

Got it that's helpful. Thank you very much.

Thank you. Your next question comes from the line of <unk> farther Lola from Morgan Saturday. Please proceed with your question.

Hey, guys. Thanks for taking my question and I apologize a thousand a little bit late I thought this is already answered but I'm just.

First question for for Jimmy just housekeeping one for the current billings metric.

Was there I need to put a contribution from the total crowd acquisition at all either to acquire deferred revenue or revenue in the quarter.

No I had no no impact you, that's how fine financial cut off.

Okay.

Got it and then just.

My follow up on the hiring environment obviously.

A very difficult labor market.

A lot of companies are seeing a lot of ways pressures I'm curious as it relates to hiring what's the experienced then like there and in the past couple of quarters, and how you're kind of reflecting that into your four margin outlook. Thank you.

I think we choose the we have done I would say a good job in the last few months of getting a lot of the key hires higher than the company right. So yes, I think the market is interesting, but I think <unk>, a good strong opportunity and usually because they are coming in to call us, believing the story in the upper checked here I think.

We're seeing that we do feel you know the market right now as it can get sometimes inflicted for certain rules et cetera, but I think when we are finding the time to talk to the right people to show them that I go to that they can have a call. This I think we're seeing good results in terms of mustard, and you're going to be able to hire the right people and bring them.

On board and I think that's what we're looking at across the board even on the engineering side and then also it helps us in different ways because a good part of what we do with the engineer Department. They will open minded also spread out with other teams in India there'll be able to large presence as well so it gives us more opportunities.

To be able to find good telling between different locations and continue to.

Invest in higher.

That I shall assist in like Thailand, and India as well so that kind of helps us in terms of being able to withstand the person that we get from the market right now and the hiding.

Seen that we're seeing right now.

And I can kind of our our margin forecast Uhm I, primarily if you if you take a look at a cute for that in pine Marten is slightly lower than what we've been uhm achieving to find your to date him primarily it's due to our I Q for a bad <expletive> you had mentioned that you like the F line and we'll be in prison in Las Vegas, and the last point halftime, Indiana all online.

But we do have income that additional marketing that's how we keep it clean cranky for.

Okay. Thank you.

Thank you I'm showing no further questions I would now like to turn the conference back to submit the card. Please go ahead.

Alright.

[noise], Okay, alright. Thank you all for joining US today, we believe that we are well positioned to capitalize on the move in the market towards a consolidator security solution and that sort of a platform really I'll first and we look forward to sharing can.

Get your progress in the coming quarters. Thank you very much.

Thank you. This concludes quality third Carter investor call. Thank you for participating you may now disconnect.

Goodbye.

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