Q3 2022 Qualys Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome to the quality third quarter 2022 Investor Conference 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 to ask a question. During this session you will need to press star.
One one on your telephone keypad at this time I would like to turn the conference over to Mr. Blair King Sir please begin.
Thank you Howard good afternoon, and welcome to <unk> third quarter 2022 earnings call.
Joining me today to discuss our results are C met the car, our president and CEO and Julie Kim our CFO .
Before we get started I would 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.
Or is 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.
We undertake no obligation to update these statements as a result of new information or future events.
During this call we will present, both GAAP and non-GAAP financial measures.
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.
All are available on the Investor Relations section of our website, so with that I'd like to turn the call now over to Smith.
Thank you Blair and welcome everyone to our third quarter earnings call wallet again delivered another quarter of strong revenue growth and cash flow generation, while further executing on our focused investment strategy to deliver profitable growth.
Given the accelerated growth in scope and complexity of hybrid and an uncertain macroeconomic and geopolitical landscape see southern Cio's continue to broadly prioritize natively integrated security solutions to both fortified their security posture and optimize budgets through introduction of agents and response times to reduce risk and cut costs.
As a result, while this is a quality <unk> another quarter of steady of the MBR.
Adoption, which is now deployed by 45% of our customers worldwide.
Key competitive wins in the quarter include multiple customers.
Down market and in the Forbes 1000.
The strength of policies, we MTR solution has clear momentum in the market Olive garden machine significant industry recognition.
Recently announced qualities of MBR application was awarded the best one Liberty management solution at that 2022 Effie Awards.
This award evaluates the vendors based on input from security practitioners worldwide and it's highly high ft. We believe quality space. One is the number one vulnerability management solution further validate our investments in the platform and represents the standard for securing customer requirements today and in the future.
With multiple long term growth drivers in our business I will take a moment to share some of the early successes, we're seeing to broaden the platform adoption with customers and partners.
On the customer front in a highly strategic competitive win a large government agency and third.
A large government agency entered into a seven figure upsell agreement to expand its asset count with the MBR and patch management after selecting cyber security asset management policy compliance and multi vector edr as part of an initiative to transform its IP security architecture.
This customer selected <unk>, because we offer the only security and compliance stack available in the market today that utilizes a program authorized platform.
Single lightweight agent to enable full asset visibility and context aware mapping to prioritize one of it is proactively reduce technical debt automate patchy and continuously monitor endpoints with high fidelity telemetry to defend against future malware around somebody runs across multiple environments.
In Q3, we also expanded our engagement with the Fortune 100 company.
Compared to do mid six figure upsell that.
Customer selected quality cyber security asset management policy compliance and the MTR capabilities, the ability to significantly enhance it security program with comprehensive internal and external asset context.
The MTB integrations, alerting prioritization and accurate response capabilities with built in ticketing and compliance monitoring on a single console, while consolidating agents were a key differentiator in this way.
Beyond these wins, we continue to see new customers, our top cyber security asset management and patch management alongside of the MTR.
Instead of just being a one dimensional tool user protect and produce a list of our liberties. These new competitive wins underpin policies ability to help customers not only detect but also prioritize risk across all assets Wilder immediately when liberty is much faster than alternative Siloed solutions.
This is becoming an even stronger value proposition in the current macroeconomic environment as customers increasingly seek multiple security offerings and capabilities out of a single call as platform.
Investing in our partner ecosystem continues to be a key pillar in our go to market agenda in the quarter, we expanded our relationships with several MSR speeds and entered into a new partnership with the cyber security Cyber insurance company through.
To enable to reduce premiums for their customers using <unk> with true risk. We also expanded our strategic alliance with IBM.
Through this collaboration quality solutions are being positioned as a key platform for securing ibm's Zillow next mainframe infrastructure to bring highly accurate, while leveraging protection and compliance capabilities to several of the world's largest financial institutions, while utilizing the same quality.
Additionally, we continue to see an increase in new customer deal registrations by our partners. We believe the expansion of our partner program ramps since its launch in May reflects our strengthening brand awareness and strategic position in the market.
A cornerstone of our strategy is engineering innovation, and we challenge ourselves everyday to do the industry. While we have been very focused on helping customers secure their cloud and container environment for some time now our recent launch of Google cloud for a reflection of the power of our platform by enabling cloud native MBR reflects that.
By pairing agent and agent less zero tax assessment options with high efficacy, while leveraging detection and prioritization capabilities organizing scan now extend the platform to continuously view all cloud assets with your lifetime direct attack surface and reduce risk by affiliate and radiating in preventing this configuration central Liberty's from bench to run time.
With quality agents already securing over 13 billion work towards in the cloud. We believe the solution provides the most holistic flexible.
Approach to modern cloud and container security available in the market today.
We will showcase total cloud with Flex, Canada Bullet Security conference in Las Vegas from November seven per ton.
We already have over 900 people registered to attend and we welcome all of you to access large under either district Wallets Darko at this conference our product and engineering teams will showcase the innovation and quality platform and our customers will talk about their success with quality, including focused conversations on how they have been able to save cost and they're secure.
City program by moving to a unified <unk> platform with a single agent.
With Walgreens perfecting.
At an unprecedented pace in the face of growing cyber security skills gap now more than ever architecture matter.
With the recently announced acquisition of Blue Hexagon qualities can now apply cloud scale, our official intelligence and machine learning capabilities to the cloud platform and its more than 13 trillion data points collected from over 100000 micro scanners on over 90 million cloud regions.
Which makes this combination so significant is it the ability to discover and identify relationships and patterns within our highly integrated data lake to rapidly predict and detect anomalous activities and customer environment that are invisible and undetectable traditional security solutions specifically.
The integration this capability will allow wireless customers to detect active already exploitation identified advanced network threats and enable adapter risk mitigation, including real time zero day attack protection across all assets applications and environments.
This is a uniquely powerful new addition to the quality of our platform and we're pleased to welcome some of the best Security Martins associate or innovation in AI and ml to the qualified.
In summary, we continue to pioneer and define a security cloud category.
To solve modern security challenges and given the large market opportunity in front of us with multiple growth engines in our business. We anticipate that we can grow at scale long term generate cash and continue to invest in key initiatives that will further extend the gap between call it underground patient.
With that I will turn the call over to Jamie to discuss in more detail, our third quarter results and outlook for the fourth quarter and full year 2020.
Thanks, 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 comparisons to the prior year period unless stated otherwise.
We're pleased to announce another quarter of strong revenue growth and healthy cash flow generation.
Revenues for the third quarter of 2022 grew 20% to $125 6 million.
From 13% growth in the year ago period.
LTM calculated current billings grew 18%.
Our net dollar expansion rate speaks to the power of our platform and improving land and expand sales model driving year over year increases over the past several quarters.
In Q3, our net dollar expansion rate on a constant currency basis was 111 upfront one off for a year ago.
Our LTM average deal size increased 18% as organizations continue to turn to call. It to Tom Modern security challenges the cloud native platform that aggregate and analyze data in the cloud operate at web scale leverage network effects to produce superior outcome and are easy to deploy and simple to manage.
Well Youre ability management continues to be a cornerstone of customer security program.
Table, you real time visibility of their security posture.
Pollack unified platform approach differentiates itself from other vulnerability reporting only fruition through an integrator combination of capability, including comprehensive asset discovery rapid with detection prioritization and remediation on the single agent.
In Q3 total customer penetration for <unk> with that 45% up from 32% a year ago.
We're also pleased with the continued adoption of our newer products.
Management, and cyber security asset management.
In Q3 on an LTM basis, the two products combined contributed to 8% of total booking and 15% of new bookings with both applications growing over 50% from last year.
Continued adoption I'll call it increased.
Increased large customer spend with 151 customers spending 500000 or more with us.
This represents.
9% growth from the year ago period.
T J will airplanes, and our customers' digital transformation initiatives.
We remain focused on leveraging our scalable platform model to continue to drive superior margins and significant cash flow.
Adjusted EBITDA for the third quarter of 2022 was $54 9 million, representing a 44% margin.
EPS for the third quarter of 2022 with 94.
And our free cash flow for the third quarter of 2022 with $40 9 million, representing a 33 K Martin.
Year to date, Martin with 40%.
Longterm profitable growth.
Specifically these investments continue to include expansion other partner programs and enhancing our relationships to leverage to a large distribution network.
Alongside this we will continue to invest in digital marketing initiatives and expand product management capabilities as well as sales capacity and support functions.
Additionally, assume I touched on earlier shortly after quarter, and we announced that acquisition of Blue Hexagon. This is expected to have a <unk> impact on full year results.
With that full year revenue is expected to not be in the range of 488.6 million to 489.6 million, representing the 19th 19 per cent growth.
This compares to prior full year revenue guidance of 488 million two 489.5 million.
In terms of profitability, you're raising a full year EPS guidance to now be in the range of 3.602362 from the prior range 3.50 to 3.55.
This implies an EBITDA Martin in the mid forties.
For the fourth quarter, we expect revenues to be in the range of $129 7 million to $137 million, which represents 18% to 19% growth.
We expect a T S to be in the range of 89 to 91 cents.
A planned capital expenditures in Q4 is approximately 2.5 to 3.5 million and for the full year 2022, we expect investments in the range of 15 to 17 million.
In conclusion, we believe our product differentiation will enable us to improve our competitive edge and drive durable top line growth, while leveraging our highly scalable model to maintain strong cash flow and industry leading profitability.
We believe that with customers, becoming more cost conscious with heightened scrutiny. Other security spend will continue to see higher levels of customer interest associated with the value proposition of consolidating vendors and a single agent and see that dynamic clean welfare call us longterm.
With that and that and I are happy to answer any of your questions.
Ladies and gentlemen, if you have a question mark on it at this time. Please press star one one on your telephone keypad.
If you have a question or comment at this time. Please press star one one on your telephone keypad.
Please stand by while we compiled the Q&A roster.
Our first question or comment comes from the line of Joshua Chilton from Wolf Research. Your line is open.
Hey, guys. Thanks for taking my question is there any chance you can just.
Start off with maybe commenting on the calculator billings grows in the quarter, maybe it will cause the detail from the from the quarter before.
Mmm, yes, so this quarter in Q3 current billing screwed by 13%.
For us for business most of the time current balance could be indicative of bookings that there are multiple different reasons why it might it may different. So for example, this quarter, specifically I think uhm cramped ellingsworth impacted by a multiyear prepay deal with at ran off as well as there was some F. S impact that has not translated net full impact too <unk>.
Avenue.
So I guess, maybe just as a follow up to that.
Are you guys or you're not are you guys not seeing any macro impact yet I'm just trying to understand seem pretty positive on the prepared remarks, but you also have the kind of this slowing billings growth. So just help us understand what you guys are seeing from the macro and maybe where those impacts are not showing up.
Yeah, I think that we are seeing the impact of the macro we are seeing the uncertainty in terms of the current billing. So I think that most of the majority of the Empire is ff's adjusted it's not materially different from last quarter. So the impacts on that affect headwind eighth grader this quarter than last quarter and it even excluding that because ethics.
Does have an impact on both bookings and current billing if we did have a negative headwind or impact from the multiyear prepays as well. So you can think of it as a couple of hundred basis points Uhm negative head to current balance this quarter.
Thank you very much.
Thank you.
Our next question or comment.
Oh, Matt Hedberg.
RB RBC capital markets Mister Hedberg your line is.
Hi, This is a nice stuff I might hedberg name for taking my question.
Maybe just you know on the hiring but if you could just update us on the hiring from you talked about double digit growth and seals headcount in 2022.
Does that progressing and then looking out of 2023 as you set your priorities and budget how are you thinking about hiring yeah.
Yeah, we were very happy with the progress that we've been making this year wasn't investment here for us and I think that so far we're on track I think that the double digit growth in sales and marketing <unk> that we had shared at the earlier. This year, we've already achieved that mark and so right now we're kind of turning to look to see where.
Sure, we can optimize and focus on that return. So next year, although we will continue to invest in sales and marketing as well as other functions. The focus will be more on the optimization.
Got it and then maybe kind of a follow up on that when do you think about 2023, how should we think about the mix up investment around headcount channel and digital marketing it seems like you're leaning wanting to the channel maybe if you could just elaborate on that.
Yeah that channel investments started this year, it's new for US still early in the fees and I think we're we're satisfied with the progress we've been making so far but it's a little too early so we'll be able to share more thoughts around that at our queue for earnings.
Got it thank you.
Thank you. Our next question or comment comes from the line of Trevor Walsh from J M. P Securities.
Mr. Walsh Your line is I'm sorry, our next question Mccormick, which one Mister met Salzman for Morgan Stanley Mister Saltzman. Your line is open.
Hey, Thanks for taking my question. So just first question trying to understand how much of the MGR growth is coming from the existing base vs.
Customers and the second part of that question is as penetration into the existing base continues to increase and you need more net new business for further growth how are the channel incentive is going to impact the margin structure going forward.
Yeah, I think that historically our growth has been.
Primarily coming from the existing customer base has demonstrated by aren't as strong a dollar expansion rate I think that we've been very successful in selling into our existing customers. The retention still remains to be very strong on the new business front I think there's work to be done if we.
We could have executed better this quarter on the new business side and in terms of the unit economic how we're thinking about pricing and incentives, especially with respect to chuckling right now it's a little too early we are working through that right now to think about how we're going to.
Think through the profit sharing as well as the pricing overall, because we are seeing increasing in pricing competition.
Got it thanks, so much.
Okay. Thank you.
<unk>.
Our next question their time it comes from the line of.
Trevor Walsh from JMP Securities Mr. Walsh Your line is open.
Hey can you guys here.
Yeah.
Okay, great. Thanks for taking my question maybe for you was curious if you could walk us through the thought process around the Blue Hexagon acquisition I My understanding and that's more of a network protection response type offering for the most part so.
Far as building or buying or partnering actually probably more importantly, giving you've got some integration with other network centric players can you just help us understand kind of what what was special about them and the logic behind that and then kind of Relatedly may be kind of what you are seeing in the broader xdr picture and how that might help to kind of flesh out you're offering there. Thanks.
February questions.
You know they really brought to us a very strong female platform, but understands machine learning more.
More specifically in the security space and so when you have that kind of a platform with quality, having the large amount of data <unk>.
So we talked about there being back from the preliminary that we get there's many different applications that we can see.
Very relevant to the security, but can be sort of created from that combining platform that'd be have from a machine learning perspective with the data that we have and the ability to sort of detect metro based intrusion. Some mallory in the environment that you mentioned about is sort of one.
Application of sort of.
The force more mature application, but we will be looking to integrated into our total cloud.
<unk> leveraging the network data that we've seen the cloud environment, we will be able to provide protection around zero to explore its et cetera, but we see a broader application over the next few.
Few quarters over the next year or so.
Different aspects of our.
Our data into the machine learning platform and you'll be able to help different applications, including more targeted patching affordable liberties that I'm using a little more electric bubble up to be the ones that are going to be the most exploitable et cetera, and then just providing more inside your customers on what to prioritize on reputation as well as help with Ah.
Noah xdr capabilities to bring our additional how much I'm learning capabilities into those.
<unk> says well for analyzing the data and so as we continue to build a more holistic back home, whereas really think about it is.
Summers needs to know other devices, they need to be able to mitigate risks.
Be able to monitor the threats and that's where a combination of African <unk>.
M B R blood pressure management, and then plus xdr phone call. This is going to benefit from the integration of <unk>.
Great. Thank you.
Thank you I'm sure know additional questions in the queue at this time I would like to thank everyone for participating in today's call.
[noise] program you may now disconnect everyone have a wonderful day.
Goodbye.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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