Q4 2021 Qualys Inc Earnings Call
Sure.
Thank you for standing by and welcome to quality fourth quarter 2021 Investor call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone please be advised that today's.
Conference maybe recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host Blair King Investor Relations. Please go ahead.
Thank you Latif and good afternoon, and welcome to the <unk> fourth quarter 2021 earnings call.
Joining me today to discuss our results are submit the car for president and CEO and Jim <unk> our CFO .
Before we get started I'd like to remind you that our remarks today will include forward looking statements generally relate to future events or future financial or operating performance.
<unk> results may differ materially from these statements factors that could cause results to differ materially are set forth in today's press release, and our filings with the SEC, including 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 as a result of new information or future events.
During this call will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release.
And as a reminder, the press release prepared remarks Investor presentation are all available on the Investor Relations section of our website.
So with that I'd like to turn the call now over to Keith Smith.
Thank you Blair and welcome everyone to our fourth quarter earnings call. We are very pleased to report another quarter of strong financial performance.
Selecting a year of progress in our efforts on advancing our go to market initiatives significant platform innovation and strong momentum heading into 2022.
In Q4 cloud agent subscriptions grew 34% year over year to $75 million purchased over the last 12 months.
There was also a steady adoption of our loyalty management detection and response, our <unk> solution, which is now deployed by 36% of our former customers worldwide.
These results continue to validate our security consolidation approach and the power of single agent as customers increasingly transition to <unk>. Our go to market enhancements are starting to yield results as we are executing well to seize on heightened demand trends and opportunities we see in the market.
Customer stories, I will share with you today, not only highlight our growing leadership among larger enterprise customers, but also the growing desire amongst dsos and the CIO was to consolidate their security stack and leverage automation in their security and compliance operations achieved expedient remediation of risks in their organizations.
Recent high profile ransomware attacks and critical Walnut rudi's like log for shell in Ponca have highlighted organizations need for a scalable vulnerability management solution like qualities, we MBR.
That not only accurately detect these while liberty's, but also helps reduce exposure time with integrated asset discovery and remediation capabilities.
Within days of a bunch of announcing lot portion of all Liberty quality research.
The engineering team and product teams release of free targeting loss share detection and remediation service leveraging multiple quality capabilities like cyber security asset management, MBR patch management and web application scanning.
Since the law partial announcement in early December of last year. The quality cloud platform has detected millions of unique lock for shell Walnut brigades underscoring the strategic relevance of our platform and our customer environment. Additionally, given the extensive impact of walk for shelf. The global organization. Our research team released multiple open source.
Tools to help discover and remediate this one liberty for the global community further demonstrating both our leadership and commitment to the industry.
A few illustrative wins in the quarter include an existing global Fortune 200 customer in the EMEA region, which standardize on quality as we <unk>, our policy compliance patch management and Africa inventory capabilities to cost effectively consolidate it stack of legacy enterprise security and compliance solutions into a natively integrated platform.
Linking multiple data center endpoint environment.
In addition, a new fortune 600 customer selected the MBR and cyber security asset management over several competing solutions the ability to uniquely provide comprehensive asset discovery for security centric visibility.
MTB synchronization alerting and accurate response capabilities once again stood out among well liberty detection only solutions in the market and was a key differentiator in our win.
We believe these new wins and the early success, we are experiencing with our newer applications characterize that when customers are already towards the architect and consolidate their security stack.
This is the best cloud native solution platform to meet their needs.
<unk> back at 2021, I believe the quality team has responded incredibly well to unexpected challenges and opportunities demonstrating the transformative value of our newer solutions the depth of our customer relationships and the extraordinary ability to afford a global and diversity.
We continue to broaden our platform and grow our business building a strong team with additions of new exited business touring our new CIO and CMO CPU and CIO more recently Bill <unk> joined <unk> Board in December Bill has extensive board of market experience in enterprise software sales and marketing and <unk>.
We believe he will be a great asset to the team as we build out our go to market motion in 2022.
With this foundation in place.
Over the next several quarters, we plan to increase our sales and marketing investment with a focus on digital marketing programs to drive pipeline and customer reach grew while our sales team to further leverage our opportunity in the market and expand our channel by recruiting and enabling partners.
With respect to black some innovation our goal is to remove friction for customers by making product expansions and doesn't hassle free a customer who may currently on the use of the MBR shouldnt be able to adopt all of our other obligations with the click of a button.
In 2021, we executed well against this objective wasn't changing the game in security as we brought together asset inventory risk mitigation and threat detection and response and to a natively integrated cloud based platform.
We believe this platform innovations have helped customers with immediate while liberty's much faster than alternatives siloed detection only solutions.
Further advancing our platform innovation agenda, I am pleased to announce that our context, because our solution is now.
As many of you know this is a natural extension to the quality cloud platform and our next generation security analytics and incident response application.
Context, xdr obligation natively integrate Zheng correlates asset and risk based upon liberty context, patching Edr file integrity monitoring and secured retail inventory with additional third party data integration to provide high fidelity detection and response.
Customers are telling us they want a simplified solution for security analytics and response, we believe this solution satisfies that demand as it leverages, our scalable back end and its array of sensors, which already collect enrich normalize and correlate trillions of data points across all environments on a single cloud agent for Qantas customers.
While the overall market for this solution is still in the early innings. We are excited about this product and its potential especially in light of the positive feedback we have received from customers who have been early adopters.
<unk> of our xdr capabilities.
Looking ahead to 2022, we plan to maintain a dual innovation strategy.
Primarily we will continue to invest in internal R&D and scale our organization to further differentiate our automation detection and response capabilities.
And we will further expand our product portfolio into Edr cloud container security and industrial control system security.
Secondarily, making highly targeted and opportunistic acquisitions to enhance our platform and accelerate our time to market.
As a reminder, in 2021, we completed the acquisition of Gogo cloud to bring visual Florida remediation workflow technology for the Qantas club platform.
To further support our growth agenda, we plan to invest more broadly in the business to expand our cloud platform presence and to enhance our business processes tools and systems to help drive better operational efficiency and business outcomes.
In summary, we believe the quality cloud platform as the go to solution for Adrian consolidation cost savings increased user productivity and better cyber protection.
We believe we are well positioned to continue our market momentum and expand our leadership as we build out our success enhance our.
But home capabilities and further extend our reach into new and adjacent markets.
With that I'll turn.
Turn the call over to Jeremy to further discuss our fourth quarter results and outlook for the fourth quarter and full year 2022.
Thanks, and good afternoon before I start I'd like to note that except for revenue all financial figures are non-GAAP and growth rates are based on comparisons to the prior year period.
The other line.
We're pleased to report continued acceleration and chunk profitability as reflected in the following financial and operational highlights.
For the fourth quarter of 2021 credit, 16% to $109 8 million up from 13% growth in Q3.
Welcome majority of the beat with teacher outperformance in renewal and upsell with our net dollar expansion rate increasing to 108% upfront one 3% last year.
Other than expected growth in new business also contributed to the revenue acceleration.
With that Q4, <unk> calculated current billings, Brad at 18, 5% up from 16% in Q3 and 13% in GTS, we're entering the year with strong momentum and increased confidence in our ability to drive shareholder value.
We believe the investments we've made in platform innovation.
Each of the products.
Our value proposition with customer and how to win new business opportunities throughout the year.
This quarter with no different are excited by the continued adoption at the MTR.
Customer penetration now at 36% up from 32% in Q3, and 19% a year ago.
And continued adoption of point solution increased large customer spend with now over 125 customers spending $500000 or more with that.
This represents 17% growth from 2020.
We attribute this success to our position as a leading security and compliance cloud based platform that is centrally managed and self updating.
Knowing our customers.
Our staff, while helping to build security and compliance into their digital transformation initiatives.
Our scalable platform model continues to drive superior margins and significant cash flow.
Adjusted EBITDA for the fourth quarter of 2021, $49 6 million, representing a 45% margin.
EPS for the fourth quarter of 2021 at 84 cents.
And our free cash flow for the fourth quarter of 2021 with $35 5 million.
Representing a 32% margin.
In Q4, we continued to invest the cash we generated from operations back into <unk>, including $4 3 million on capital expenditures and.
And $35 1 million to repurchase 273000 of our outstanding shares.
Looking back on the year, we're proud to have continued our product leadership, while growing revenue.
<unk> and cash flow for shareholders.
In 2021.
With focused execution, we finally possible inflection point and started on our journey of revenue acceleration.
We operated effectively through the pandemic and then from the changes in the company to reverse course, and delivering better than expected results in both new and existing customer span.
Hi, Ethan adoption grew over 34% from 56 million.
A year ago.
<unk> now accounts for 46% of total bookings.
This is a testament to our success in continuing to build relationships with customers and the opportunities ahead to seamlessly cross sell other products solution, such as patch management cyber security asset management.
After Edr and recently launched MTR.
Notably this was achieved even before a meaningful increase in investment with EBITDA margin of 42%.
However to regenerate demonstrates the efficiency of our model and gives us confidence in stepping up ongoing investments into the tent.
With the new executive team, we plan to significantly increase investments across business functions can maximize return and also to enable us to remain highly competitive in the market.
Last year, we grew EPS by 12% and generated strong free cash flow.
Ending the year with a 43% margin.
Of our 500 million of cash cash equivalents and marketable securities on our balance sheet.
This is after returning $130 million of cash to shareholders.
Purchasing approximately $1 1 million of shares.
Given our highly scalable business model, even with incremental additional investment in 2022.
And we will continue to deliver industry, leading margin relative to peers.
Shifting now to guidance for 2020.
Our success validates our thesis that.
Organizations of all sizes are increasingly looking to consolidate their security stack.
And so as single agent with exploration.
With an executive leadership team in place.
Armed with powerful new cross platform capability.
The kind of ROI for us with the power of our platform in the market.
That's more in the business.
Given that.
We anticipate operating expenses to increase I think stand our sales organization and our channel efforts.
Our focus on digital marketing and demand generation initiatives.
Additionally, as a leading vendor of security and compliance solution and.
Innovation remains a top priority.
The incremental investment in our platform is anticipated to enhance automation and cloud security capability for our customer.
And to support our growth expectation.
We expect to make investments in our infrastructure no people throughout the year.
We believe these planned investments will position us to further accelerate our growth maximize shareholder value.
With that framework in mind for 2022, we expect full year revenue to be in the range of 482 million to 485 million, which.
Which represents a range of 17% to 18% growth.
In terms of profitability, we expect full year EPS to be in the range of $2 87 to $2 92.
This implies an EBITDA margin in the high 30.
With higher incremental increase in expense in the second half of the year.
With the first quarter, we expect revenue to be in the range of $112 5 million to $113 1 million, which represents a range of 16% to 17% growth.
We expect EPS to be in the range of 80% to 82%.
Our planned capital expenditures in Q1 is approximately $67 million.
And for the full year 2022.
Expect to invest in the range of $25 million to $30 million.
In conclusion as we enter 2022, we remain excited about our opportunity to drive durable top line growth, while leveraging our highly scalable model to maintain industry, leading profitability and margin expansion long term.
With that Matt and I are happy to answer any of your questions.
Okay.
As a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question press the pound key again Thats star one on your Touchtone telephone to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the lineup Erik <unk> of JMP. Your line is open.
Yes, Thanks for taking my question and good quarter.
Talk a little bit about the competitive dynamics that you think youll.
You'll see as you start to expand into some of these markets.
How do you what kind of advantage do you think youll have as you get into the the Edr market.
And what what features or functions do you think youll have.
To compete against the likes of clubs.
Crowd strike in Sentinel won and some of those players.
Alright. Thank you got great question I think when we look at.
The work that we've done with our customer sort of period of time I think today a lot of.
Organizations are dealing with Siloed solutions, including a lot of the black concert are out there.
You bet only focused on detection somewhat focused only on inventory.
Others, maybe Andreas competition, and so I think where do we see the.
Quarter advantage that we have and as you saw in the release that we did with context 60 odd is that.
We have we believe that we have a platform that is obviously highly scalable with being a cloud native platform.
It also brings a lot of the additional context that typically detection only solutions.
But that will be mainly focused on quarterly think long data. So a lot of times analyst really need to find out in the context of the asset the business context the galaxy.
Posture of those assets is it running end of life software et cetera in that context is missing from any of these they are HDR solutions out there and so that's why as we work with our customers and we saw the challenges that they are facing we focus on creating a solution on top of our platform that not only does the long.
Litigation.
Obviously, we did this very natively on our platform.
Not really.
Trying to put different technologies together through acquisition is something that we felt like that looking on the black Swan would give us that need a correlation that comes with having a very strong.
Inventory capably being very strong risk assessment capably be ability to patch and so I think might be what it does is that it brings the various elements of security that are looking for which is of course, no what should help second.
Finance and media deal risk.
<unk> targets.
Detection and response altogether in a single platform so the ability for us to not only detect the.
Sure Tyler.
I think the sponsor but at the same age understand platform also has been patch things proactively so youre not getting compromised. We see those are some of the tier one business relative to other solutions or platforms that have sort of put together solutions by taking different technologies.
Okay.
And Jimmy.
In the past I think you've given a customer count at the end of the year.
Do you have a customer count for 2021.
Okay.
Yes, before when we had disclosed that over 90000. It absolutely included free customer if you take a look at just our chief customer I think Dover comparison, the growth and the customer.
It has been in single digits until 2022, our focus and priority is to increase market share increase of new customers and we're planning to do that by increasing our quota carrying sales Rep. In addition to working on some of the other metrics performance metrics, including the win rate as well.
That's correct.
Did you say that historically, it's been growing in the in the 10% range or what what was the growth that you had said.
It's in the single digits, it's less and single perspective right.
Great.
Okay Alright.
Last question.
Any updates on on your web security or your cloud container security business.
Some of the smaller companies have been.
Having some good growth in that space any any updates in terms of your progress on that front.
Yes, I think we continue to see the.
Early on.
Conversations are your adoption of some of these solutions by our existing customers and I think it really comes down to the same.
Conversation that we have is that a lot of the smaller players. They ended up focusing only on the cloud aspect of it almost all organization have to deal with the hybrid environment that includes on.
On Prem Opex heading towards.
Remote work.
So we're still working from home as well as cloud and multi cloud and big data environments altogether and so when they are looking for risk.
An example at the block for sure. They don't want to go before different solutions, one for cloud to find your exposure one for <unk> one for our endpoint.
We do see that continuing with that consolidation and providing these capabilities on the same platform and enhancing those capabilities, which we.
Flanker delivered by 2020.
Additional updates to those products.
I see that the customers will be looking forward to getting a more consolidated or is it may be it other than sort of having Florida, siloed cloud only solutions and wind only solutions.
Very good thank you.
Thank you. Our next question comes from Matt Hedberg.
<unk> capital markets. Your question please.
For Matt Hedberg, Thanks for taking our questions. So nice to see the revenue acceleration for 'twenty two here a momentum to start the year.
To me you pointed out in your prepared remarks, some of the acceleration of inflection maybe somewhat preceded incremental sales and marketing spend just curious if that evolved or may be redirected any areas. You had planned for investment previously or was where the targeted areas more decided with budgeting based on what you saw at the time.
And then maybe.
What was your view around determining the right magnitude of investment.
Yes, great question within your executive team in place we have some in depth discussion with the CIO and CMO as well as our CTO and other executives to determine where are the right priorities that we should focus on and how do we.
Maximize our ROI and what we decided on or for 2020 tier there are multiple different levers that we're working on right now and.
One of the key priority is attracting and retaining great talent and I think part of that could you do with our quota carrying sales that if you take a look at our sales and marketing head count in 2021, we ended the year at slightly over 300, which is single digit growth over the prior year, we think that there is definitely room there.
And for April to increase our sales force that should help to increase.
Our bookings greater than 60% of our revenue actually comes from direct salesforce versus 40% of channel. So that hasnt changed in terms of the magnitude here.
Turning to increase investments to the extent possible, where we've actually increased our recruiting team to make sure that we're taking advantage of that opportunity out there I think that given the inflationary pressures and a lot of the companies are facing some challenging time, Fortunately for us given our highly profitable business.
We do have the flexibility to increase spend at this time to not only gain market share but to scale the team and the business. So that we can target a higher longer term margin where as.
As we said before we think that given our business model.
The fundamentals remain strong we think that there is definitely a possibility for us to get our margins back up to that 40% plus and the longer term for us to do that we need to be able to accelerate the momentum in <unk>.
To execute against that this year.
Okay, Great and then certainly an elevated threat environment you mentioned the three.
330 day web application scanning trial around log for shell in December in the prepared remarks, just curious around the reception of that free service that drive new customers and then maybe more generally.
Log for shell was that something that benefited the quarter and then maybe does that persist through 'twenty two.
Yes, I can take that I think as you've seen with some of the services really throughout the year with that in some way or even so along with our focus generally.
And as you heard in the prepared remarks as well are full but generally is first to create a solution that will help the customer base and existing customer base other non customers the ability to really protect themselves and that's why we also have these open source tools. This time.
But we're not.
Targeted specifically at our existing customers.
Our goal definitely is to show the capability of the platform and how quickly we can spin up a new service and how quickly the customers in the case of luck. Fortunately as an example can can sign up and start getting value out of a cloud based solution, where they can sign up and start using a web application scanning to detect this.
In a matter of minutes or hours.
And so the way we look at that is that that generates engagement.
The biggest customers and prospects.
It gives them the opportunity to experience the capabilities of the quality of quality that doesn't necessarily mean that they are at the point immediately within that timeframe or changing their existing solution or acquiring any solution, but it does help us create that engagement, which.
So since it's a displacement.
Our focus for.
Them that they already do have experienced the coldest capably be when that existing products may come up for renewal et cetera. So I think we look at that.
More of a.
Engagement strategy that allows us to have multiple points of engagement and be able to quickly show the capabilities of the platform not just on the endpoint, but also on the web applications as an example.
Definitely lot for shell.
Really highlighted.
Critical air disc.
Professional Liberty management solution, but more importantly, it also highlighted that customers. It's not just a one liberty management solution they needed the ability to have a southern Africa inventory.
As an example, the list of software that contain lock for shell that goes there at least by some people.
People should focus on so their ability on the platform and novel New detect a multiple instance would also provide asset inventory and patch management is a way to.
To get remediation done and a broader scope and I'm using edr on the same platform to track if some of those slides are actually being executed I think thats the engagement and the power of showing multiple capabilities was important so I think in <unk>.
What I would say that a lot of we were very focused on helping our customers who were really.
At that point expanding too.
Respond to that and we were able to do.
Millions of these while nobody's on customer environment that help them.
<unk> seen where they are.
I'd say it helped a little bit nothing material I would say it will be helped with just some customers.
Wanted to maybe.
Acquired some of those licenses that they were looking for quickly, but I do think that.
In 2022, it's not just specific.
Typically to lock for shell, but I think just the elevated on recession around lock for show and ransomware and <unk>.
How can you do the conversations that we think are favorable in terms of customers looking at Liberty management remediation.
<unk> platform.
Going into 2022.
That's great. Thank you.
Thank you. Our next question comes from John Kim of Loop capital markets. Your question. Please.
You assume that Julian congrats on a solid quarter and a positive guidance good to see that business momentum building here.
So, Matt obviously youre benefiting from the <unk> upgrade cycle within your installed base, that's driving that additional attach and whatnot it looks.
Like that's tracking very well can you talk about at least qualitatively the velocity and perhaps the timing of the expand once the customers upgrade to the MBR and weather.
Is it more driven by usage or additional attach of additional products and should we continue to expect the rate improving more of your customers are on <unk>.
I think it's a mix of different things from customers as they see the value of <unk>.
Greece the licenses for <unk>.
Florida the aging.
Cedar Bayou and the remediation so some of them when they look for patch management and others. They have compliance requirements and they looked at highly dilutive monitoring.
And I think the.
The advantage of ICU is that because we have so many different capabilities on the platform, we're able to meet the customer where they have the need in that particular quarter from their business needs perspective, what is driving maybe in that quarter. There had been driven more for patch management another quarter, they maybe dividend or some other customer in the same quarter maybe drill.
And by compliance needs et cetera. So I think we look at it more holistically in terms of that.
Our fundamental belief that.
BR.
A very powerful capability and the single agent.
We'll have customers looking to see opportunities to consolidate their existing tools site and so were encouraged with some of the initial momentum that we're seeing and we're going to continue.
Through that and make these capabilities available for customer to meet them, where their needs are and rather than.
Certainly focusing on one thing or the other.
Okay great.
Has the timing between the initial upgrade to <unk> and then the addition of purchase once they are on the platform at that time timing between the two events strength a little bit overdone.
Almost two years now or is that not necessarily changed.
If you look at the cohorts of the.
The first wave of customers, who upgrade to BMD are what is their expansion late in the second year or.
Okay.
Yes.
Yeah like I said, I think we focus on and Holistically I don't think Theres anything material there to talk about right now, but I think we.
We continued to see the conversations of the platform consolidation driving.
Initially when the initial desire to want to risk management is the future ability to expand into these additional capabilities of desplat form.
As one of the drivers that and so we continue to see back more.
Okay great.
<unk>.
You can see that the math agenda.
The speed of adoption.
It's much faster than what we had anticipated with 36% of our customers now having <unk> and it hasnt been that long since we launched the MTR and go beyond your contribution of a total booking is now nearing 50%. So given that what we're looking at it on a holistic basis I think you could tell by the net dollar expansion rate that we share.
It's 108% up from one 3% and I think that.
Pardon me definitely driven by our strategic move and launching the MTR and attractiveness and the value proposition that our customers understand that recognized.
Okay, great that makes sense to me.
Yes.
Just going back to.
You answered to Eric's question earlier on is there a way to kind of look at how the mix between new and existing customers have trended.
Especially since the introduction of the MBR.
We're seeing that in 2021, I think that that acceleration and the momentum and the bookings growth and that has translated into revenue growth.
Primarily driven by existing customers, however, without that new bookings did better than what we had anticipated as possible.
We're seeing multiple different levers and.
And that the business itself is turning around if youre, taking a look at whether it's from an average deal size increased average deal size increased for both new customers as well as existing customers.
As well as the retention is higher for existing customers.
Looking ahead in 2022, we think that.
No material impact to our bookings and our revenue.
Could be driven by new customer and that will really focus on gaining market share at this point and added investment in sales and marketing will help with that.
Okay, Great and then in terms of your revenue guidance for fiscal year 'twenty, two should we expect fairly linear growth throughout the year or how should we think about what we just saw in Q4.
Or this past quarter in terms of strong sequential ramp in Q4.
Yes, if you take a look at our revenue growth it's always.
Always lagging right. So if you take a look at our I think current billings to revenue is a good indicator for us.
Sample last year on an LTM basis, even though our current billing trended upward from 8% to 13%, 15% ending the year strong and 18, 5% taking a look at the revenue growth it was 12%, 12%, 13% and 16% and our guidance for Q1 of 16% to 17% that we expect that kind of trend there.
Momentum to continue it will have a material impact in terms of the <unk>.
Revenue acceleration and the momentum since that revenue core revenue.
Revenue guidance for the full year of 17% to 18%.
Thank you. Our next question comes from Andrew Smith of <unk> Capital. Your line is open.
Hi, just with regard to the step up in investments for fiscal year 'twenty two to further that growth I've heard the comments on increasing quota carrying reps and digital marketing to drive new sales and I believe you also briefly mentioned and investments in the channel to can.
Can you just break out how you're thinking about that investment and that's been an increasing quota carrying reps a higher priority at the moment, then furthering investment into the channel.
Yes, I think as we look at again, we look at it holistically.
I think were decided to really invest but R&D across the board.
And our people and talent.
The focus on sales and marketing and so forth on getting sales folks.
Remarketing.
Even investment in product management that will help with.
Sales of Centennial Bank. So we can increase the productivity of our sales reps or what I'll focus on the noble acquisition and the investment that as well as partnerships.
I will say investing in solution architects as customers deploy multiple different solutions, having technical additional technical hub that can help do the proof of concepts et cetera. So I think if it's a broad based.
Approach for us to invest across the board within the company.
Morning.
<unk> and <unk>.
Getting the right talent as you've seen we continue a lot of organic developing on the platform as well. So we're not just essentially that maintenance mode or something.
They invest in R&D and product management as we bring our newer solutions like Xdr just came out.
So obviously the asset management came out there about six months ago, the brand new solution.
We have additional things that we're focusing on the cloud with Edr with the rest of the year.
Thats more of a broad based investment that includes focus on sales and marketing.
Got it thank you.
Sure.
Thank you. Our next question comes from Brian Essex with Goldman Sachs. Please go ahead.
Great good afternoon.
Thank you for taking the question.
Maybe submit.
Last quarter, you noted a partnership with Red hat open shift and I was wondering how the traction has been with that particularly given log core Jay and impact to perhaps an open source platforms.
I mean, I think if you look at the walk for Sharon.
Protections that we talked about with millions of connections across the board I think it was not specifically.
<unk> just on open show file level or what do you do.
Also highlight there is backlog project did not impact just your traditional side was it impacted endpoints mandate impacted cloud and entertainment and wider banks. We have we have that partnership with that I'd had been so.
We are off to customers, who have been leveraging that I.
Didn't they got a better ability to detect.
Something like lot pushout in a closed environment.
Mike.
As an example.
But it is something that we saw broad based across the board in many different infrastructure that we were able to discover lots for shallow drilling.
The containerized environment as well.
And that's that's sort of where the customers see the value of the platform that is bringing all these different capabilities because those customers who are on open chip. We're also at the same time trying to figure out all of the endpoints of the cloud resources everything that cardiac for Charlotte we went in.
To show that to them in a single pane of glass.
Just one one aspect of the infrastructure.
Got it got it Super helpful. Thank you and then maybe Jimmy just as we're as we're fine tuning our models.
The guidance.
Just kind of baking in.
I guess, what would the implied impact is to net income.
And.
Operating margins.
I think that'll be probably offset by deferred revenue growth how do we how should we think about free cash flow margins in light of the investment ahead.
What extent might.
Billings and deferred revenue offset some of the spend is you have kind of a timing difference there from a revenue recognition perspective.
Yes in terms of the free cash flow.
The lower relative to EBITDA margin than prior year, just because we do have increase in cash taxes that we anticipate paying I mean with that said, we don't know what's going to happen with the tax reform, but that's one lever the second lever it because of the new tax legislation, that's going into effect in 2022 and the mandatory calculation.
R&D expenses, we do see some pressure there as well the increase in Capex spend we are guiding to $25 million to $30 million this year.
Obviously, if there is additional incremental bookings deceleration there is additional pressure on corn and might actually be higher to you, but with that said all in all.
There is no change in terms of our overall billing and deferred tax that deferred revenue that we enter this year.
There might be a little bit of pressure, but not significant.
Okay. That's very helpful. Thank you.
Thank you. Our next question comes from Hamzah <unk> of Morgan Stanley . Please go ahead.
Hey, guys. Thanks for taking my question probably began.
So Matt I just wanted to congratulate you over the last year, taking on fee and accelerating momentum that causes that.
Thank you.
So Jamie maybe a question.
For you.
Do you think this is sort of the.
Final reset if you will for quality in terms of.
The investment in Europe , because clearly you've got line of sight now into 20% revenue growth.
Seems like you had the field leadership <unk> got the strategy here do you think this will be the year where.
Margin finally bottom and if so where do you see them bottoming I remember last year, you mentioned, 40% EBITDA margin was with sort of the floor that you were looking at it seems like this year is going to be lower so where do you where do you see that Bob.
Great question, I am hesitant to say the bottom and the timing of a thin and light.
And the current report that just came out I think that last year. When I had talked about I don't see a reason why we can maintain EBITDA margin above 40% I don't think any one of US expected the inflationary pressures that we're seeing right now with without latest EIA report coming out at seven 5% and one of the things that we are keeping in mind as well.
We feel that we're very fortunate and that we have a very strong highly profitable and sustainable model and so what we have baked into the guidance is the wage adjustments and light.
Given the increasingly important for us to attract and retain top talent and so just to give you a little color on that without this change in the macroeconomic trends I think that our guidance would have been 40% plus on the EBITDA margin. So with that said we are planning to embed outside.
To that end sales and marketing <unk>, R&D as well as customer support and operations.
If we see the ROI, where that actually gives us a return that we see.
To further accelerate momentum in 2023 and 2004 onward.
Could have margin kind of continuing on and the high thirty's or even potentially at Nomura.
Have to make sense and it would have to be justified from a growth perspective as well.
I hope that gives a little bit of color, but I think for right. Now. This is what we have planned that we think that that makes sense to maximize shareholder value.
Maybe just a follow up Jimmy on your earlier comment about the MTR. So almost 50% of your bookings now when you talked about the higher net retention. So are you in this phase where the customers who may have bought the MBR.
Heavily discounted rate or perhaps.
Even even bought it for almost free.
Youre not going back to that renewal base, and saying Hey.
You've found value from the solution.
We're now going to true up that price to what the actual value that's being delivered.
That's not how we're approaching and thats not the discussion that we're having with customers. We really think of it as a relationship and a partnership and so how we're approaching it when do you recognize the value they are actually increasing the cloud agent deployment and more common to purchasing additional solutions as well as increasing their spend at the MTR itself and so if you take a look at our bookings trajectory.
And our revenue guidance takes into account what we're seeing right now based on that and I think that because of that we're really optimistic about the potential acceleration and the momentum that we're seeing.
Alright, thank you.
Thank you at this time I'd like to turn the call back over to cement for call for closing remarks, Sir.
Thank you very much and good.
Fusion as we enter 2020 to do we remain excited about our opportunity to drive durable top line growth, while leveraging our highly scalable model to maintain industry, leading profitability and margin expansion in the future.
This concludes today's call. Thank you.
Sorry, I just wanted to finish that I'll start with China, China Order My page. Thank you all for joining today I wanted to briefly they get cleared but we believe the future of cyber secure so we're sticking to the sides on a single unified platform driven by solutions designed to solve key IP and security and compliance challenges, we're entering 2022 with strong.
Momentum accelerated growth along with our balanced approach to profitability.
We look forward to sharing continued progress in coming quarters. Thank you.
And this concludes today's conference call. Thank you for participating you may now disconnect.
Goodbye.
Okay.
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Thank you for standing by and welcome to quality fourth quarter 2021 Investor call. At this time, all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference maybe recorded should you require any further assistance. Please press star zero I would now like to hand, the conference over to your host Blair King Investor Relations.
Please go ahead.
Thank you Latif and good afternoon, and welcome to the <unk> fourth quarter 2021 earnings call.
Joining me today to discuss our results are Smith, <unk>, President and CEO and Jimmy Kim our CFO .
Before we get started I'd like to remind you that our remarks today will include forward looking statements generally relate to future events or 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 our filings with the SEC inquiry.
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 as a result of new information or future events.
During this call will present, both GAAP and non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and <unk>.
As a reminder, the press release prepared remarks Investor presentation are all available on the Investor Relations section of our website.
So with that I'd like to turn the call now over to Keith Smith.
Thank you Blair and welcome everyone to our fourth quarter earnings call. We are very pleased to report another quarter of strong financial performance.
<unk> being a year of progress and our efforts are advancing our go to market initiatives significant platform innovation and strong momentum heading into 2022.
In Q4 cloud agent subscriptions grew 34% year over year to $75 million purchased over the last 12 months.
There was also a steady adoption of our loyalty management detection and response, our <unk> solution, which is now deployed by 36% of our customers worldwide.
These results continue to validate our security consolidation approach and the power of single agents as customers increasingly transition to <unk>. Our go to market enhancements are starting to yield results as we are executing well to seize on heightened demand trends and opportunities we see in the market the customer stories I will share with.
Would you today not only highlight our growing leadership among large enterprise customers, but also the growing desire amongst dsos and the CIO is to consolidate their security stack and leverage automation in their security and compliance operations to achieve expedient remediation risk in their organizations.
The recent high profile ransomware attacks and critical vulnerabilities like log for shell in Ponca have highlighted organizations need for a scalable vulnerability management solution like qualities, we MBR.
In fact, not only accurately detected these while liberty's, but also helps reduce exposure time with integrated asset discovery and recommendation capabilities.
Within days of a bunch of announcing lock portion of Liberty the quality research.
The team engineering team and product teams release of free target a loss share detection and remediation service leveraging multiple quality capabilities like cyber security asset management, the MBR patch management and web application scanning.
The law partial announcement in early December of last year, the quality Clark Blackstone has detected millions of unique lock for shell Walnut brigades underscoring the strategic relevance of our platform in our customer environment. Additionally, given the extensive impact of lock foreshadowed the global organization. Our research team released multiple open source tools.
To help discover and remediate this vulnerability.
The global community further demonstrating our leadership in the industry.
A few illustrative events in the quarter include an existing global Fortune 200 customer in the EMEA region with standardized on quality as we MBR policy compliance patch management and Africa inventory capabilities to cost effectively consolidate it stack of legacy enterprise security and compliance solutions into a natively integrated platform.
Linking multiple data center and wired environments.
In addition, our new Fortune 600 customer selected the MBR and cyber security asset management over several competing solutions the ability to uniquely provide comprehensive asset discovery for security centric visibility <unk> synchronization alerting and accurate response capabilities once again stood out among <unk>.
<unk> detection only solutions in the market and was a key differentiator in our win.
We believe these new wins and the early success, we are experiencing with our newer applications characterized that when customers are ready to re architect and consolidate their security stack. While this is the best cloud native might be solution platform to meet their needs.
Looking back at 2021, I believe the quality team has responded incredibly well to unexpected challenges and opportunities demonstrating the transformative value of our newer solutions the depth of our customer relationships and the extraordinary abilities of our global and diversity.
We continue to broaden our platform and grow our business building a strong team with additions of new exited business during our new Seattle, CMO CPU and CIO.
More recently built <unk> joined <unk> Board in December Bill has extensive board of market experience in enterprise software sales and marketing and we believe he will be a great asset to the team as we build out our go to market motion in 2022.
With this foundation in place or.
Over the next several quarters, we plan to increase our sales and marketing investment with a focus on digital marketing programs to drive pipeline and customer reach through our sales team to further leverage our opportunity in the market and expand our channel by recruiting and enabling partners.
With respect to black some innovation our goal is to remove friction for customers by making product expansions in Berlin hassle free a customer who may currently only use the MBR shouldnt be able to adopt all of our other obligations with the click of a button.
In 2021, we executed well against this objective while changing the game in security as we brought together asset inventory and risk mitigation and track detection and response and to a natively integrated cloud based platform.
We believe this platform innovations to help customers with immediate wallet bodies much faster than alternatives siloed detection only solutions.
Further advancing our platform innovation agenda I am pleased to announce that our context equity our solution is now.
As many of you know this is a natural extension to the quality of cloud platform and our next generation security analytics and incident response application.
Our context xdr obligation natively integrate Zheng correlates asset and risk based on already context.
File integrity monitoring and security talent battery with additional third party data integration to provide high fidelity detection and response.
Customers are telling us they want a simplified solution for security analytics and response, we believe this solution satisfies that demand as it leverages, our scalable backend and its array of sensors, which already collect enrich normalize and correlate trillions of data points across all environments on a single cloud agent for Qantas customers.
While the overall market for this solution is still in the early innings. We are excited about this product and its potential especially in light of the positive feedback. We have received from customers who have been early adopters adopters of our xdr capabilities.
Looking ahead to 2022, we plan to maintain a dual innovation strategy.
Primarily we will continue to invest in internal R&D and scale our organization to further differentiate our automation detection and response capabilities.
And we will further expand our product portfolio into Edr cloud container security and industrial control system security.
Secondarily, making highly targeted and opportunistic acquisitions to enhance our platform and accelerate our time to market.
As a reminder, in 2021, we completed the acquisition of Gogo cloud to bring visual Florida remediation workflow technology for the Qantas club platform.
To further support our growth agenda, we plan to invest more broadly in the business to expand our cloud platform presence and to enhance our business processes tools and systems to help drive better operational efficiency and business outcomes.
In summary, we believe that wireless cloud platform as the go to solution for Adrian consolidation cost savings increased user productivity and better cyber protection.
We believe we are well positioned to continue our market momentum and expand our leadership as we build out our success.
Enhance our.
Back home capabilities and further extend our reach into new and adjacent markets.
With that I'll turn the call over to Jeremy to further discuss our fourth quarter results and outlook for the fourth quarter and full year 2022.
Thank you, Matt and good afternoon before I start I'd like to note that except for revenue all financial figures are non-GAAP and growth rates are based on comparison to the prior year period unless stated otherwise.
We're pleased to report continued acceleration in China profitability as reflected in the following financial and operational highlights.
Revenues for the fourth quarter of 2000 is from the line credit 16% to $109 8 million.
13% growth in Q3.
Yes.
Welcome majority of the B with future outperformance in renewal and upsell with our net dollar expansion rate increasing to 108% up from 103% last year.
Here than expected growth in new business also contributed to the revenue acceleration.
With that cute offhand calculated current billings, Brad at 18, 5% up from 16.
16% in Q3 and 13% in GTS.
Entering the year with strong momentum and increased confidence in our ability to drive shareholder value.
We believe the investments we've made in platform innovation.
<unk> enhanced our value proposition with customer and <unk>.
How to win new business opportunities throughout the year.
This quarter with no different are excited by the continued adoption at the MTR with total customer penetration now at 36% up from 32% in Q3, and 19% a year ago.
And continued adoption of point solution increased large customer spend with <unk>.
Now over 125 customer.
$500000 or more with that.
This represents 17% growth from 2020.
We attribute this success to our position as a leading security and compliance cloud based platform.
Truly managed and self updating.
Our customer.
Zack, while helping to build security and compliance and generic digital transformation initiatives.
Our steel copper model continues to drive superior margins and significant cash flow.
Adjusted EBITDA for the fourth quarter of 2021, with $49 6 million, representing a 45% margin.
EPS for the fourth quarter of 2021 with 84 cents.
And our free cash flow for the fourth quarter of 2021 with $35 5 million.
Representing a 32% margin.
In Q4, we continue to invest the cash we generated from operations back into <unk>, including $4 3 million on capital expenditures and.
And $35 $1 million to repurchase 273000 of our outstanding shares.
Looking back on the year, we are proud to have continued our product leadership, while growing revenue.
<unk> and cash flow for shareholders.
In 2021.
With focused execution, we finally profitable a inflection point and started on our journey of revenue acceleration.
Operated effectively through the pandemic and then from the changes in the company to reverse course, and delivering better than expected results on both new and existing customers.
Hi, Ethan adoption grew over 34% from $56 million cloud agent subscription a year ago.
<unk> now accounts for 46% of total apathy.
This is a testament to our success in continuing to build relationships with customer and the opportunities ahead to seamlessly cross sell other products deletion, such as patch management cyber security asset management, multi vector Edr and recently launched SCR.
Notably this was achieved even before a meaningful increase in investment with EBITDA margin of 46%.
The leverage we generate demonstrates the efficiency of our model and gives us confidence in stepping up ongoing investments into the tent.
With the new executive team, we plan to significantly increase investment across business functions.
<unk> return and also to enable us to remain highly competitive and the talent market.
Last year, we grew EPS by 12% and generated strong free cash flow ended the year with a 43% margin.
500 million of cash cash equivalents and marketable securities on our balance sheet.
This is after returning $130 million of cash to shareholders.
Purchasing approximately $1 1 million of shares.
Given our highly scalable business model, even with incremental additional investments in 2020.
We believe that we will continue to deliver industry, leading margin relative to peers.
Shifting now to guidance for 2020.
Our success validates our thesis that organizations of all sizes are increasingly looking to consolidate their security stack.
As a single agent with exploration.
Mccann executive leadership team in place armed with powerful new cross platform capability.
We believe the time is right for us with the power of our platform in the market and invest more in that business.
Given that we.
We anticipate operating expenses to increase as we expand our sales organization and our channel efforts at.
With box focused on digital marketing and demand generation initiatives.
Additionally, as a leading vendor of security and compliance solution.
Innovation remains a top priority.
So the incremental investment in our platform is anticipated to enhance automation and cloud security capability for our customer.
And to support our growth expectation.
These steps can make investments in our infrastructure no people throughout the year.
We believe these planned investments will position us to further accelerate our growth maximize shareholder value.
With that framework in mind for 2000, and 2010, we expect full year revenue to be in the range of 482 million to 485 million, which represents a range of 17% to 18% growth.
In terms of profitability, we expect full year EPS to be in the range of $2 87 to $2 19.
This implies an EBITDA margin in the high 30.
With higher incremental increase in expense in the second half of the year.
With the first quarter, we expect revenue to be in the range of $112 5 million $213 1 million, which represents a range of 16% to 17% growth.
We expect EPS to be in the range of 80 to 82.
Our planned capital expenditures in Q1 is approximately $6 million to $7 million.
And for the full year 2022, we expect to invest in the range of $25 million to $30 million.
In conclusion as we enter 2022, we remain excited about our opportunity to drive durable top line growth, while leveraging our highly scalable model to maintain industry, leading profitability and margin expansion in the long term.
With that Matt and I are happy to answer any of your questions.
Okay.
As a reminder to ask a question you will need to press star one on your telephone.
Draw your question press the pound key again Thats Star one and you touched on telephone to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the lineup Erik <unk> of JMP. Your line is open.
Yes, Thanks for taking my question and good quarter.
Talk a little bit about the competitive dynamics that you think youll.
You'll see as you start to expand into some of these markets.
How do you kind of advantage do you think you'll have as you get into the the edr market.
And what what features or functions do you think you'll have.
To compete against the likes of.
Crowd strike in Sentinel won and some of those players.
Alright. Thank you guys great question I think when we look at.
The work that we've done with our customer sort of period of time I think today a lot of.
Organizations are dealing with Siloed solutions, including a lot of the black concert of our debt ox EBIT only focused on detection somewhat focused only on inventory.
There is some maybe under excellent condition and so I think where do we see really the quarter advantage that we have and as you saw in the release that we did with cortex xdr is that.
We have we believe that we have a platform that is.
Highly scalable cloud platform.
But it also brings a lot of that additional context typically detection only solutions.
But mainly focused on quarterly think long data. So a lot of times analyst really need to find out in the context of the asset the business context to galaxy.
Posture of those assets is.
Running end of life software et cetera in that context and missing from many of these there are solutions out there and so that's why as we work with our customers and we solve the challenges that they are facing we focused on creating a solution on top of our platform that not only does the log aggregation in August .
We did this very natively on our platform.
Not really.
During two different technologies together through acquisition is something that we felt like Nathan Redeveloping. The black Swan would give us stagnate a correlation that comes with having a very strong.
Inventory capably be very strong risk assessment capably be ability to patch and so I think maybe what it does is that it brings the various elements of security that T cells are looking for it which is of course, no what should help second.
Finance <unk> risk and then target the target.
In response altogether in a single platform. So the ability for us to not only detect the tobacco and take the sponsor. The same agency platform also has been patch things proactively so youre not getting compromised we see those are some of the tier one business relative to other solutions or platforms that have sought.
Put together this solutions by taking different technologies.
Okay and Jamie.
The past I think you've given a customer count at the end of the year.
Do you have a customer count for 2021.
Yes, before when we had disclosed the over 90000 it absolutely included free customer if you take a look at just our please customary I think Dover comparison the growth in the customer base has been in single digits and so.
In 2022, our focus and priority is to increase market share increase in your customer and we're planning to do that by increasing our <unk>.
<unk> West in addition to working on some of the other metrics performance metrics, including the win rate as well as <unk>.
That's correct.
Did you say that historically, it's been growing in the in the 10% range or what what was the growth that you had said.
It's in the single digits, it's less than a single 90%.
Okay Alright.
Last question.
Any updates on on your web security or your cloud container security business.
Some of the some of the smaller companies have been showing some good growth in that space any any updates in terms of your progress on that front.
Yes, I think we continue to see the early.
<unk> early adoption of some of these solutions by our existing customers and I think it really comes down to the same.
The conversation that we have is that a lot of the smaller players may end up focusing only on the cloud aspect of it.
All organization has to deal with the hybrid environment that includes on.
On Prem Opex that influence.
I've got a remote.
Workers, who are still working from home as well as cloud and multi cloud environments altogether. So when they are looking for risk.
An example is the block for sure. They don't want to go before different solutions one for cloud define your exposure one four on grab one of our endpoint.
We do see that continuing with that consolidation and providing these capabilities on the same platform and enhancing those capabilities, which we.
<unk> 2002.
With additional updates to those products.
I see that the customers will be looking forward to getting a more consolidated or is it maybe it other than sort of having siloed cloud only solutions and wireless solutions.
Very good thank you.
Thank you. Our next question comes from Matt Hedberg of RBC capital markets. Your question. Please.
For Matt Hedberg, Thanks for taking our questions. So nice to see the revenue acceleration for 'twenty two here a momentum to start the year.
To me you pointed out in your prepared remarks, some of the accelerated share inflection maybe somewhat preceded incremental sales and marketing spend just curious if that evolved or may be redirected any areas. You had plan for investment previously or was where the targeted areas more decided with budgeting based on what you saw at the time.
And then maybe.
What was your view around determining the right magnitude of investment.
Yes, great question within your executive team in place we've had some in depth discussion with the CIO and CMO as well as another executive to determine where are the right priorities that we should focus on and how do we maximize our ROI and what we decided on or for 2022 here.
There are multiple different levers that we're working on right now and one of the key priority is attracting and retaining great talent and I think part of that could you do with our quota carrying sales that if you take a look at our sales and marketing head count.
In 2021, we ended the year slightly over 300, which is single digit growth over the prior year. We think that there is definitely room. There if we're able to increase our field force that should help to increase.
Our bookings growth and 60% of our revenue actually comes from direct salesforce versus 40% of channel. So that hasnt changed in terms of the magnitude here, we're planning to increase investment to the extent possible, where we've actually increased our recruiting team to make sure that we're taking advantage of that opportunity.
Out there I think that given the inflationary pressures and a lot of the companies are facing some challenging time, Fortunately for us given our highly profitable business model. We do have the flexibility to increase spend at this time to not only gain market share but to scale the team and the business. So that we can target a higher longer term margin.
No as we said before we think that given our business model.
The fundamentals remain strong we think that there is definitely a possibility for us to get our margins back up to that 40% plus and the longer term for us to do that we need to be able to accelerate that growth momentum and what we're planning to execute against that this year.
Okay, Great and then certainly an elevated threat environment you mentioned, the 330 day web application scanning trial around.
Log for shell in December in the prepared remarks, just curious around the reception of that free service that drive new customers and then maybe more generally.
Log for shell was that something that benefited the quarter and then maybe does that persist through 'twenty two.
Yes, I can take that I think as you've seen with some of the services really throughout the year with that in some way or even solar winds earlier, our focus generally.
And as you heard in the prepared remarks, as well, our full which under lease for us to create a solution that will help our customer base and existing customer base other non customers the ability to really protect themselves and that's why you also to use open source tools. This time.
But we're not.
Targeted specifically at our existing customers. So our goal definitely is to show the capability of the platform and how quickly we can spin up a new service and how quickly the customers in the case of lot portion as an example can can sign up and start getting value out of our cloud based solution, where they can sign up and start using the web application scanning to detect this.
In a matter of minutes or hours.
And so the way we look at that is that that generates engagement.
The biggest customers and prospects.
It gives them the opportunity to experience the capabilities of the quality of quality that doesn't necessarily mean that they are at the point immediately within that timeframe or changing their existing solution or acquiring any solution, but it does help us create that engagement, which.
So since it's a displacement.
Focus for them that they already do have experienced the coldest capably be when their existing products may come up for renewal et cetera. So I think we look at that.
More of a.
Engagement strategy that allows us to have multiple points of engagement and be able to quickly show the capabilities of the platform not just on the endpoint, but also on the web application. So as an example.
And definitely locked for shell.
Really highlighted how critical it is to have a really professional liberty management solution, but more importantly, it also highlighted that customers. It's not just a one liberty management solution they need at the ability to have a solid effort inventory.
As an example, the list of soft goods that contain lock for shallow levels or at least by that people.
People should focus answer that ability on the black Hawk the novel, New detect a vulnerable incidence will also provide asset inventory and patch management is a way to.
To get remediation done and a broader scope and them using edr on the same platform to track. If some of those exploits are actually being executed I think thats the engagement and the power of showing multiple capabilities was important. So I think in Q4, I would say that a lot of we were very focused on helping our customers.
At that point Stanley.
Fund to that and we're able to do.
Millions of these while nobody's on customer environment and help them.
<unk> seen where they are.
I would say it helped a lot.
Nothing.
Deal I would say it helped with just some customers.
Wanted to maybe acquire.
Acquired some of those licenses that they were looking for quickly, but I do think that.
In 2022.
Just specifically to lock for shell, but I think just the elevated conversation around lock for shell and land somewhere and.
<unk> has created a conversation that we think are favorable in terms of customers looking at one liberty.
Liberty management, Adam radiation and efficient platform going into 2022.
That's great. Thank you.
Thank you. Our next question comes from John Kim of Loop capital markets. Your question. Please.
Sumit Julien congrats on a solid quarter and positive guidance good to see that business momentum building here.
Sumit, obviously youre benefiting from the <unk> upgrade cycle within your install base, that's driving that additional attach and whatnot it.
It looks like that's tracking very well can you talk about at least qualitatively the velocity and perhaps the timing of the expand.
The customers upgrade to the MBR and weather.
Low driven by usage or additional attach of <unk>.
Products and should we continue to expect.
The rate improving.
A lot of your customers are on <unk>.
I think it's a mix of different things some customers as they see the value of the MBR will increase the licenses for <unk>.
Florida, the aging Cedar Bayou and the remediation so some of them when they look for patch management and others. They have compliance requirements and they look at file integrity monitoring.
And I think.
The advantage at ICU.
Because we have so many different capabilities on the platform, we're able to meet the customer where they have the need in that particular quarter from their business needs perspective, what is driving maybe in that quarter. There had been driven more for patch management another quarter, they maybe dividend or some other customer in the same quarter, maybe driven by compliance needs et cetera.
I think we look at it more holistically in terms of that.
Our fundamental belief that.
The MBR.
A very powerful capability and the single agent.
We'll have customers looking to see opportunities to consolidate their existing tool side and so we're encouraged with some of the initial momentum that we're seeing and we're going to continue.
Through that and make these capabilities available for customer to meet them, where their needs are rather than.
Certainly focusing on one thing or the other.
Okay great.
Has the timing between the initial upgrade to <unk> and then the addition of purchase once they are on the platform at that time timing between the two events shrank a little bit overdone, almost two years now or is that not.
Honestly changed.
If you look at the cohorts of the.
First wave of customers, who upgrade to BMD are what is their expansion late in the second year or.
Okay.
Second here, yes.
Yeah like I said, I think we focus on and Holistically I don't think there's anything material there to talk about right now, but I think we.
We continue to see the conversations of the platform consolidation driving.
Actually when the initial desire to.
<unk> management is the future ability to expand into these additional capabilities with this platform.
As one of the drivers of that and so we continue to see back more.
Yes.
Yeah, Okay, great and then a little bit of colonial.
You can see that the magnitude of that.
And then the speed of adoption.
It's much faster than what we had anticipated with 36% of our customers now having <unk> and it hasn't been that occupancy launched the MTR and go beyond your contribution of total of total bookings is now nearing 50%. So given that what we're looking at it on a holistic basis I think you could tell by the net dollar expansion rate that we share.
It's 108% up from 103% and I think that that partner definitely driven by our strategic mode and launching the MTR and attracted this into value propositions that our customers understand and recognize.
Okay, great that makes sense to me.
Just going back to.
You answered to Eric's question earlier on is there a way to kind of look at how the mix between new and existing customers have trended.
Specialty says the introduction of the MBR.
We're seeing that.
In 'twenty, one I think that that acceleration in the momentum and the bookings growth and that has translated into revenue growth was.
Primarily driven by existing customers, however, without that new bookings did better than what we had anticipated as boss of Amish Shah.
We're seeing multiple different levers and.
Fine.
The business itself is turning around if youre, taking a look at whether it's from an average deal size increased average deal size increased for both new customers as well as existing customers.
Upsell as well as the retention is higher for existing customers and so looking ahead in 2022, we think that.
No material impact to our bookings and our revenue.
Could be driven by new customer lands will really focus on gaining market share at this point and added investment in sales and marketing will help with that.
Okay, Great and then in terms of your revenue guidance for fiscal year 'twenty, two should we expect fairly linear growth throughout the year or how should we think about what we just saw in Q4.
Or this past quarter in terms of strong sequential ramp in Q4.
Yes, if you look at our revenue growth it's always.
Always lagging right. So if you take a look at our I think current billings to revenue is a good indicator.
Remember last year on an LTM basis, even though our current billing trended upward from 8% to 13%, 15% ending the year strong and 18, 5%.
Taking a look at the revenue growth it was 12%, 12%, 13% and 16% and our guidance for Q1 of 16% to 17% and we expect that kind of trend and momentum to continue and we will have a material impact in terms of the <unk>.
Revenue acceleration and momentum since net revenue core revenue guidance for the full year, 70% to 80%.
Thank you. Our next question comes from Andrew Smith of <unk> Capital. Your line is open.
Hi, just with regard to the step up in investments for fiscal year 'twenty two to further that growth I've heard the comments on increasing quota carrying reps and digital marketing to drive new sales and I believe you also briefly mentioned and investments in the channel too.
Can you just break out how you're thinking about that investment and that's been an increasing quota carrying reps are higher priority at the moment then further investment into the channel.
Yes, I think we look at again, we look at it holistically.
I think were decided to really invest broadly across the board in our.
Our people and talent.
With a focus on sales and marketing and so forth are getting sales folks digital marketing.
Even investment in product management that will help with.
Sales like I said to enable banks. So we can increase the productivity of our sales. So that's one.
What I'll focus on the noble acquisition and the investment as well as partnerships and also.
I will say investing in solution architects as customers deploy multiple different solutions, having technical additional technical hub that can help do the proof of concepts et cetera. So I think it fits.
<unk> based.
<unk> approach for Austrian post across the board within the company.
Judy.
<unk>.
Retaining the right talent WC, we continue a lot of organic development on the platform as well. So we're not just in sort of essentially a maintenance mode or something we continue to invest in R&D and product management as we bring out more solutions like HDR just came out.
It's obviously the asset management team out there are about six months ago as a brand new solution and.
We have additional things that we're focusing on that cloud edr with the rest of the year. So I think.
I think thats more of a broad based investment that includes focus on sales and marketing.
Got it thank you.
Thank you. Our next question comes from Brian Essex with Goldman Sachs. Please go ahead.
Great. Good afternoon, and thank you for taking the question.
Maybe sumit.
Last quarter, you noted a partnership with Red hat open shift and I was wondering how the traction has been with that particularly given log core Jay and impact to perhaps some open source platforms.
I mean, I think if you look at the walk for Sharon.
The protections that we talked about with millions of reductions across the board I think it was not specifically concentrated just on open show follower. What I'd also highlight there is backlog project did not impact just your traditional side was it impacted endpoints and it impacted global entertainment and wider planks.
We have that partnership with that I'd had been so.
The early adopter customers, who had been leveraging that.
They got a better ability to detect.
Something like a lock for shell in.
Closed environment like that had a one chip as an example.
But it is something that we saw broad based across the board in many different infrastructure that we were able to discover lots for shows including the containerized environment as well.
And that's that's sort of where the customers see the value of the <unk>.
Columbus is bringing all of these different capabilities because those customers who are on open chip. We're also at the same time trying to figure out all the endpoints of the cloud resources everything that Hardie ultrashort.
We're able to show that to them in a single pane of glass.
Just one one aspect of the infrastructure.
Got it got it Super helpful. Thank you and then maybe Jimmy just as we're as we're fine tuning our models.
For the guidance.
Just kind of baking in.
I guess, what would the implied impact is to net income.
And.
Operating margins.
No I think that'll be probably offset by deferred revenue growth how do we how should we think about free cash flow margins in light of the investment ahead, and what extent might.
Billings and deferred revenue offset some of the spend is you have kind of a timing difference there from a revenue recognition perspective.
Yes in terms of the free cash flow, we should see lower relative to EBITDA margin than prior year, just because we do have increase in cash taxes that we anticipate paying I mean with that said, we don't know what's going to happen with the tax reform, but that's one lever the second lever because of the new tax legislation.
Going into effect in 2020 to you and the mandatory calculation.
Yes.
R&D expenses, we do see some pressure there as well as the increase in Capex spend we are guiding to $25 million to $30 million this year.
And there are some additional incremental bookings deceleration there are some additional pressure on corn and might actually be higher to you, but with that said all in all there is no change in terms of our overall billing and deferred tax that deferred revenue that we enter this year no.
Might be a little bit of pressure, but not significant.
Okay. That's very helpful. Thank you.
Thank you. Our next question comes from Hamzah <unk> of Morgan Stanley . Please go ahead.
Hey, guys. Thanks for taking my question before I begin I just <unk>.
I just wanted to congratulate you over the last year taking on.
Telerik momentum.
Charles has had.
Thank you.
So Jamie maybe a question.
For you.
Do you think this is sort of the final reset if you will for quality in terms of.
The investment in Europe , because clearly you've got line of sight now into 20% revenue growth.
Seems like you had the field leadership <unk> got the strategy here do you think this will be the year where.
Margin finally bottom and if so where do you see them bottoming I remember last year, you mentioned, 40% EBITDA margin was with for the floor that you were looking at it seems like this year is going to be lower so where do you where do you see that bottom.
Great question.
Is it going to stay at the bottom of the timing of it in line.
Current report that just came out I think that last year. When I had talked about I don't see a reason why we can maintain EBITDA margin above 40% I don't think any one of US expected the inflationary pressures that we're seeing right now with us without latest EIA report coming out at seven 5% and one of the things that we are keeping in mind as well.
We feel that we're very fortunate and that we have a very strong highly profitable and sustainable model and so what we have baked into the guidance is the wage adjustment in light.
Given the increasingly important for us to attract and retain top talent.
So just to give you a little color on the without the change in the macroeconomic trends I think that our guidance would have been 40% Mark on the EBITDA margin. So with that said, we are planning to invest outside of that and sales and marketing <unk> R&D ecmo is customer support and operations.
But at.
If we see the ROI, where that actually gives us a return that we see to further accelerate momentum in 2023 and 2004 onward.
We could have margin kind of continuing on in the high thirty's or even potentially lower but we'll have to make sense and it would have to be justified from a growth perspective as well.
I hope that gives a little bit of color, but I think for right. Now. This is what we have planned that we think that that makes sense to maximize shareholder value.
Got it maybe just a follow up Jimmy on your earlier comment about the MTR. So so almost 50% of your bookings now when you talked about the higher net retention. So are you in that phase, where the customers who may have bought the MBR.
At a heavily discounted rate or perhaps.
Even even bought it for almost free.
Youre not going back to that renewal base, and saying Hey.
You've found value from the solution.
We're now going to true up that price to what the actual value that's being delivered.
That's not how we're approaching and thats not the discussions that we're having with customers. We really think of it as a relationship and a partnership so how we're approaching it when do you recognize the value they are actually increasing the cloud agent deployment and more common to purchasing additional solutions as well as increasing their spend at the MTR itself and so if you take a look at our bookings trajectory.
And our revenue guidance at that takes into account what we're seeing right now based on that and I think that because of that we're really optimistic about the potential acceleration and the momentum that we're seeing.
Alright, thank you.
Thank you at this time I would like to turn the call back over to cement for call for closing remarks, Sir.
Thank you very much.
Fusion as we enter 2022, we remain excited about our opportunity to drive durable top line growth, while leveraging our highly scalable model to maintain industry, leading profitability and margin expansion in the future.
Okay.
This concludes today's call. Thank you.
So I just wanted to finish that I'll start with China, China Order My page. Thank you all for joining today I wanted to briefly of the airplanes that we believe the future of wallets cyber secure office I wish I could be the size on a single unified platform driven by solutions designed to solve key IP and security and compliance challenges, we're entering 2022 with strong.
Momentum accelerated growth along with our balanced approach to profitability.
We look forward to sharing continued progress in coming quarters. Thank you.
And this concludes today's conference call. Thank you for participating you may now disconnect.