Q4 2023 Qualys Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to Qualys' fourth quarter 2023 investor call. At this time, all participants are in a listen-only mode.

Good day and thank you for standing by welcome to Qual is fourth quarter 2023 Investor call. At this time, all participants are in a listen only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.

After the speaker's presentation, there will be a question answer session to ask a question. During the session you will need to press star one one on your telephone.

We'll then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please.

Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Blair King, Investor Relations. Please go ahead.

Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Blair King Investor Relations. Please go ahead.

Blair King: Thanks, Gigi. Good afternoon, and welcome to Qualys' fourth quarter 2023 earnings call. Joining me today to discuss our results are Sumit Dakar, our president and CEO, and Jumi Kam, our CFO. Before we get started, I'd like to remind you that our remarks today will include forward-looking statements that generally relate to future events or our future financial or operating performance. Actual results may differ materially from these statements, and factors that could cause results to differ materially are set forth in today's press release and in our filings with the SEC, including our latest Form 10-K and 10-Q. 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, we will present both GAAP and non-GAAP financial measures.

Blair King: Thanks D G. Good afternoon, and welcome to call us or sports quarter 2023 earnings call.

Blair King: Joining me today to discuss our results are still let the car, our president and CEO and Jimmy camera CFO before.

Blair King: Before we get started I'd like to remind you that our remarks today will include forward looking statements that generally relate to future events or our future financial or operating performance.

Blair King: Actual results may differ materially from these statements.

Blair King: Factors that could cause results to differ materially are set forth in today's press release.

Blair King: Filling with the SEC, including our latest Form 10-K and 10-Q.

Blair King: 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.

Blair King: During this call we will present, both GAAP and non-GAAP financial measures.

Blair King: Reconciliation of GAAP and non-GAAP measures is included in today's press release. And as a reminder, the press release prepared remarks and investor presentation are available on the investor relations section of our website. So with that, I'd like to turn the call over to Smith.

Blair King: Reconciliation of GAAP to non-GAAP measures is included in today's press release.

Blair King: And as a reminder, the press release prepared remarks investor presentation are available on the Investor Relations section of our website, so with that I'd like to turn the call over to Smith.

Sumit Dakar: Thank you, Blair, and welcome, everyone, to our fourth quarter earnings call. 2023 was a strong year for Qualys in terms of product innovation as we expanded our platform capabilities, strategic relevance in the industry, and market opportunity. We introduced software composition analysis in on-premises and cloud environments to identify open source software across the production environment of virtual images for our customers.

Smith: Thank you Blair and welcome everyone to our fourth quarter earnings call 2023 was a strong year for quality and transfer product innovation as we expanded our platform capability strategic relevance in the MBS market opportunity. We introduced software composition analysis in on Prem and cloud environments to identify opened for software across the production line.

Smith: Environment.

Smith: Images for our customers, we advanced our custom assessment and remediation capabilities into our Adrian basically MBR policy compliance solutions and launched a groundbreaking first party software its management solution, we deployed Gulf cloud.

Sumit Dakar: We advanced our custom assessment and remediation capabilities into our agent-based VMDR and policy compliance solutions and launched a groundbreaking first-party software risk management solution. We deployed GovCloud, a FedRAMP high-impact level-ready vulnerability and patch management cloud platform that meets President Biden's executive orders and NIST compliance. We harnessed technology from our acquisition of BlueHedge.com and extended our cloud scale deep learning AI to discover and identify relationships and patterns within our own highly integrated data lake that are visible and undetectable in traditional signature-based solutions. We unified cloud workload protection, cloud security, posture management, cloud detection and response, infrastructure as code, and container security and brought an organically integrated agent and agentless cloud native application protection platform CNAP to the market.

Smith: DRAM high impact level ready when Liberty and patch management cloud platform that meets precedents guidance I could give you orders.

Smith: And missed our compliance.

Smith: We harness technology from our acquisition of Blue Hexagon and extended our cloud scale deep learning AI to discover and identify relationships in practice within our own highly integrated Italy that are visible and undertake invisible and undetectable in traditional signature based solutions.

Smith: A unified cloud workload protection cloud security procure management.

Smith: Detection and response infrastructure, it scored and container security and broaden organically integrated agent and agent less cloud native application predictions that consumer to the <unk>.

Sumit Dakar: And at QSC in November, we announced our Enterprise Tourist Platform, with which we are now embarking on the most innovative advancements to the platform in Qualys' history, a comprehensive enterprise-wide initiative aimed at holistically measuring, communicating, and eliminating cyber risk. The role of CISOs and security leaders is increasingly shifting away from just buying and deploying point security solutions towards being able to measure and articulate the amount of risk being posed to their business C-level executives and boards are increasingly looking to monitor cyber risk and the risk reduction ROI from cybersecurity spend. The Qualys Enterprise Tourist Platform is focused on helping security leaders measure, communicate, and eliminate cyber risk and become a partner in de-risking their business. The Qualys platform aggregates and orchestrates data from around 25 threat intelligence feeds, as well as third-party risk signals from non-Qualys products to provide organizations with comprehensive AI-powered insights that translate risk signals into measurable scores and provide optimized remediation actions based on business

Smith: Market.

Alright accuracy in November we announced our enterprise towards platform with which we know are embarking on the most innovative advancements to the platform and quality for phase III, a comprehensive enterprise wide initiative aimed at holistically measuring communicating and eliminating cyber risk.

Smith: The role of CFO that security leaders increasingly shifting away from just buying and deploying security solutions towards be able to measure and articulate the amount of risk posed to their business C level executives and boards are increasingly looking to monitor cyber risk and the risk reduction Ottawa from the cyber security spend the quality <unk>.

Smith: <unk> platform is focused on helping security leaders major communicate and eliminate cyber risk and become a partner in de risking our business.

Smith: Quality platform aggregates and orchestrate data from around 25, great intelligence feeds as well as third party with signals from non quality products to provide organizations with comprehensive AI powered insights that translate risk signals into measurable scores and provide optimized remediation actions based on the business impact.

Sumit Dakar: This single source of truth within a unified workflow and powerful integrated dashboard empowers customers to effectively measure and communicate risk, secure cyberspend, add value, prioritize, and eradicate threats across on-premises cloud and multi-cloud environments, and sets a new gold standard in the industry for risk management solutions. Continuing the space of disruptive innovation on the platform, we're also extending our remediation capabilities to include AI-powered patch management and several other mitigation solutions, including virtual patching, configuration updates, and compensating controls guided by the TrueRisk quantification technology. This new combination of capabilities, which we call TrueRisk Eliminate, uniquely softens organizational boundaries and enables security teams to apply flexible, automated, and intelligent risk-based response solutions to address cyber risks based on their organization's own unique operational characteristics, remediation timelines, and business objectives.

Smith: The single source of truth within a unified workflow and powerful integrated dashboard empower customers to effectively measure and communicate this secular cyber spend add value prioritizing eradicate cards across on Prem cloud and multi cloud environments and Thats, a new gold standard in the industry for our risk management solutions.

Smith: Continuing this pace of disruptive innovation on the platform. We're also extending our remediation capabilities to include AI powered patch management and several other mitigation solutions, including virtual patching configuration updates and compensating controls guided by the cruise quantification technology.

Smith: This new combination of capabilities, which we call true risk eliminate uniquely solve softened organizational boundaries and enable security teams to apply flexible automated and intelligent risk space with Splunk solutions to address cyber risk based on their organizations on unique operational characteristics remediation timelines and business objectives.

Sumit Dakar: Early customer feedback is quite encouraging. And with over 54 million patches deployed on Qualys agents in just the last 12 months alone, we believe this new approach to eliminating cyber risk will not only help our customers transform their security operations but further magnify our competitive differentiation in the market. Today, we announced a major new upgrade to our Total Cloud CNAP solution to provide comprehensive vulnerability, posture, and threat management from development to runtime across multi-cloud and SaaS environments.

Smith: Early customer feedback is quite encouraging and with over $54 million matches declared on quality agents in just the last 12 months alone. We believe this new approach to eliminating cyber risk will not only help our customers transform their security operations, but further magnify our competitive differentiation in the market.

Smith: Today, we announced a major new upgrade to our total growth in App solution to provide comprehensive on liberty posture in direct management from development to run time across multi cloud and SaaS environments inclusive in this upgrade is the introduction of terrific insights, which integrates data from our <unk> CVR and external asset management solution.

Sumit Dakar: Inclusive in this upgrade is the introduction of TrueRisk Insights, which integrates data from our CWP, CSP, and CDR and external asset management solutions to provide organizations with a unified and prioritized view of risk. Combined with additional new, reintroduced capabilities such as SSP and SaaS posture management, open source software vulnerability detection, and multi-cloud ITSM integration with ServiceNow, we have created what we believe is one of the most comprehensive cloud-native security solutions in the market with a unified, actionable dashboard for immediate prioritization and remediation. The net benefit is faster results, better security outcomes, and lower overall costs for our customers. Additionally, I'm pleased to announce that we are enhancing the Qualys cloud agent with passive sensor capabilities to help new and existing customers obtain real-time continuous visibility of unknown, unauthorized, or rogue assets communicating inside their IT and OT environments. This unique approach to internal asset management enables millions of existing cloud agents to detect many more unmanaged devices with just a single click and eliminates the complexities associated with network appliance-based passive sensing.

Smith: To provide organizations with a unified view.

Smith: View of risk combined with additional new we introduce capably be such as SaaS FSP SaaS portion management opens our software vulnerability detection and multi cloud IBM integration with service now we have created what we believe is one of the most comprehensive cloud native security solutions in the market with a unified actionable dashboard for <unk>.

Smith: Media prioritization and remediation.

Smith: Net benefit faster results better security outcomes and lower overall costs for our customers.

Smith: Additionally, I'm pleased to announce that we are enhancing the quality cloud agent with passive centric capabilities to help you in existing customers obtain real time continuous visibility of unknown unauthorized assets.

Smith: FX communicating inside there.

Smith: And Ot environments. This unique approach to internal asset management enables millions of existing cloud agents to detect many more unmanaged devices with just a single click and eliminate the complexity associated with network appliance based passive sensing.

Sumit Dakar: This enables organizations to rapidly turn previously unknown assets into security-managed assets with seamless cybersecurity asset management, and VMDR enablement, for comprehensive risk assessment, prioritization, and remediation across their attack surface. These innovative new approaches to cybersecurity risk management, along with several others on our roadmap for 2024, allow our customers to reduce complexity as they standardize on a trusted platform that delivers an immediate ROI and lower total cost of ownership relative to siloed and detection-only technologies out in the market. Turning to business update for the go-to-market motion in Q4, we experienced another quarter of steady VMDR adoption, which is now deployed by 56% of our customers worldwide. Key competitive VMDR wins include a leading healthcare provider, several global financial services, technology, and manufacturing companies, and multiple new and other existing customers both down market and in the global 2000s.

Smith: And if enables organizations to rapidly previously unknown assets into security boundaries FX with seamless cyber security effort management of the MTR enablement for comprehensive risk assessment prioritization and reputation across the attack surface.

Smith: These innovative new approaches to fiber securities management, along with several others on our roadmap for 2024 allow our customers to reduce complexity as they standardize on a trusted platform that delivers an immediate ROI and lower total cost of ownership relative to siloed and detection only technologies out in the market.

Smith: Turning to business update for our go to market motion in Q4, we experienced another quarter of steady <unk> adoption, which is now deployed by 56% of our customers worldwide key competitive emdr wins include a leading health care provider several global financial services technology, and manufacturing companies and multiple new and other.

Smith: Existing customers books down market and in the global 2000.

Sumit Dakar: Added to these wins, I will take a moment to share a couple of examples of how our customers and partners are expanding their use of Qualys's capabilities to further consolidate their security. On the customer front, one of my favorite new logo wins in Q4 was with a Fortune 300 media organization. Their organization was frustrated by the high volume of alerts being generated by their legacy security tools and the inability to uniformly contextualize and manage risk across dispersed agencies and environments, which hampered its team's efficiency and obstructed critical incidents.

Smith: Adding to these wins I will take a moment to share a couple of examples of how our customers and partners are expanding their use of quality capabilities to further consolidate the security stack on the customer front one of my favorite New logo wins in Q4 was with a fortune 300 media organization. Their organization was frustrated by the high volume.

Smith: Although it is being generated by the legacy security tools and the inability to uniformly contextualize and manage risk across the sports agencies in environments with tampered its team's efficiency and obstructive critical incidents.

Sumit Dakar: Recognizing the increased value they could gain by modernizing their security stack and consolidating on Qualys, this customer replaced several existing vendors and adopted four modules from Qualys, including VMDR, Cyber Security Asset Management, External Attack Surface Management, Web Application Scanning, and our newly introduced Total Cloud CNAP solution in a highly competitive seven-figure new customer booking to end. In another highly strategic and high-stakes example of booking upsell, an existing Fortune 200 healthcare provider expanded its existing relationship with Qualys to standardize on our enterprise travel platform. This customer struggled to communicate their risk posture and list of prioritized risk remediation recommendations to their management, as well as their different IT teams.

Smith: Obscure critical engines, recognizing the increased value gained by modernizing their security stack and consolidating on quality as customer replace several existing lenders and our doctor.

Smith: Four modules from quality, including <unk>, it can be asset management with external IDEXX Records management and web application scanning and.

Newly introduced Gogo cloud <unk> solution in a highly competitive seven figure new customer bookings.

Smith: In another highly strategic and high six figure booking Upsell example, an existing fortune 200 healthcare provider expanded existing relationships with quality to standardize on our enterprise storage platform. This customer had struggled to communicate the risk posture and list of prioritize risk remediation recommendations to them.

Smith: Management as well as their different ITT, a tourist platform help them consolidate risk factors from different quality modules into single score with business context, which led them to purchasing multiple quality modules as part of this platform consolidation and expansion.

Sumit Dakar: The TrueRisk platform helped them consolidate risk factors from different Qualys modules into a single score with business context, which led them to purchasing multiple Qualys modules as part of this platform consolidation and expansion. On the partner front, we continue to advance our evolving ecosystem with two leading global managed service providers, Orange Cyber Defense and Kudels, who have both expanded their offerings beyond VMDR to include our patch management capability. These partners have indicated they chose Qualys over competing solutions due to our ease of orchestration, natively integrated platform, and single-agent approach to simplify their security operations and significantly reduce remediation times for their customers. In addition, we expanded our relationship with Oracle Cloud, with OCI, which is now making the Qualys enterprise storage platform available in the market. We also evolved our partnership with Microsoft Azure by setting up our vulnerability assessment-only integration to provide Azure customers with the full capabilities of VMDR in its marketplace, and we'll start ingesting Defender data into VMDR Tourist Platform.

Smith: On the partner front, we continue to advance our evolving ecosystem with two leading global managed service providers Orange Cyber defense and kudos ski both expanded their sort of offerings beyond <unk> to include our patch management capabilities. These partners have indicated they chose quality over competing solutions.

Smith: Due to our ease of orchestration natively integrated platform and single agent approach to simplify their security operations and significantly reduce them radiation times for their customers. In addition, we expanded our relationship with Oracle cloud with OCI, which is now making the quality enterprise storage platform available in the marketplace.

Smith: We also evolved our partnership with Microsoft Azure by Sunsetting, our Liberty assessment only integration to provide azure customers with the full capability of <unk> and its marketplace and we'll start adjusting the <unk> data into the MBR tourist platform further continuing our partnership with Microsoft We are also selected to participate.

Sumit Dakar: Further continuing our partnership with Microsoft, we have been selected to participate in a security copilot, leveraging an AI-powered security solution. Finally, on the partner front, we expanded our relationship with Ingram Micro, which is now offering a full suite of our cybersecurity asset management VMDR and prioritized remediation workflows to its customers in the APAC region. As evidenced by these wins and several others like them, Qualys is much more than just a vulnerability management vendor, but more and more companies are beginning to turn to Qualys to reduce their security gaps, complexity, and costs, enabling them to transform and consolidate their security stack on the Qualys TrueRisk platform.

Smith: And the security copilot, leveraging an AI powered security solution finally on the partner front, we expanded our relationship with Ingram micro which is now offering a full suite of our cyber security asset management of the MTR and prioritize remediation workflows to its customers in the APAC region.

Smith: As evidenced through these wins and several others like them quality is much more than just a one liberty management vendor with more and more companies begin to return to quality to reduce agents.

Smith: <unk> complexity and costs, enabling them to transform and consolidate their security stack on the quality risk platform largely as a result of customer spending 500000 or more with us in Q4 grew 14% from a year ago 283.

Jumi Kam: Largely as a result, customer spending 500,000 or more with us in Q4 grew 14% from a year ago to 183%. In summary, we believe our natively integrated platform that measures, communicates, and eliminates cyber risk brings a highly differentiated value proposition to our customers as they get more security using fewer resources with the Qualys Enterprise Tourist Platform. Looking ahead into 2024, we'll continue our disruptive innovation, advance our go-to-market investments, and execute our strategic vision with a proven approach to balance growth and profitability. With that, I will turn the call over to Jumi to further discuss our fourth-quarter results and outlook for the first quarter and full year 2020. Thanks, Ned, and good afternoon.

Smith: In summary, we believe our natively integrated platform that measures communicates and eliminate cyber risk brings a highly differentiated value proposition to our customers as they get more security using fewer resources with the quality central West Taurus platform. Looking ahead into 2024, we will continue our disruptive innovation advanced solar.

Smith: Go to market investments and execute our strategic vision with a proven approach to balance growth and profitability with.

Smith: With that I will turn the call over to Jamie to further discuss our fourth quarter results and outlook for the first year fourth quarter and full year 2024.

Jamie: Thanks, Matt and good afternoon.

Jamie: Before I start I'd like to note that except for revenue.

Jumi Kam: 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 report a strong finish to the year with Q4 revenues in line with expectations and strong earnings beats, delivering 13% revenue growth and 47% adjusted EBITDA margin in 2023. The leverage we generated this year demonstrates the efficiency in our model and enables us to step up investments in new technologies, sales force, targeted marketing programs, and people to accelerate long-term growth and further enhance our position in the market as a trusted security partner of choice. Now, let's turn to our fourth quarter results. Revenues grew 10% to $144.6 million at the midpoint of our guidance.

Jamie: Financial figures are non-GAAP and growth rates are based on comparisons to the prior year period unless stated otherwise.

Jamie: We're pleased to report a strong finish to the year with Q4 revenues in line with expectations, and Tom earning fee delivering 13% revenue growth and 47% adjusted EBITDA margin in 2023.

Jamie: The leverage we generated this year demonstrates the efficiency in our model and enables us to step up investments in new technology sales motion targeted marketing programs and people to accelerate long term growth and further enhance our position in the market as a trusted security partner of choice.

Speaker Change: Now, let's turn to fourth quarter results.

Speaker Change: Revenues grew 10% to $1 $44 6 million at the midpoint of our guidance.

Speaker Change: Growth from channel partners Lp's direct at 16% versus 6% growth from direct with continued investment in our channel. Our revenue contribution next has shifted slightly over the past year with the channel, making up 44% of revenue in Q4 versus 42% a year ago.

Jumi Kam: Growth from channel partners outpaced Direct at 16% versus 6% growth from Direct. With continued investment in our channel, our revenue contribution mix has shifted slightly over the past year, with the channel making up 44% of revenues in Q4 versus 42% a year ago. We expect a similar trend to continue in 2024. By geography, 13% growth outside of the US was ahead of our domestic business, which grew 9%.

Speaker Change: We expect a similar trend to continue in 2024.

Speaker Change: Thank you your 13% growth outside of the U S. With ahead of our domestic business, which grew 9%.

Speaker Change: Looking ahead to 2024, we expect our U S and international revenue mix to remain roughly at 60% and 40% respectively.

Speaker Change: Okay Astra calculated current billings, although we don't focus on managing manage to this metric anticipating question related to protein that LTM calculated current billings growth to revenue growth guidance, we would like to note that our Q4 calculated current billings was positively impacted by the timing of invoicing a multiyear prepaid subs.

Jumi Kam: Looking ahead to 2024, we expect our U.S. and international revenue mix to remain roughly at 60% and 40%, respectively. As for calculated current billings, although we don't focus on or manage this metric, anticipating questions related to bridging this LTM calculated current billings growth to revenue growth guidance, we would like to note that our Q4 calculated current billings was positively impacted by the timing of invoicing of multi-year pre-paid subscriptions and large early renewals. Normalized for this, LTM calculated that current billings growth would have been approximately 12%.

Speaker Change: Friction and large early renewal.

Speaker Change: Normalized for the LTM calculated current billings growth would have been approximately 12%.

Speaker Change: Turning to land and expand results with customers confirming their prioritization of security with NIH budgets.

Speaker Change: The selling environment in 2024 to remain stable with ongoing budget scrutiny being the new normal for many organizations.

Speaker Change: In Q4, we are pleased to see improvement in the new business, although the upsell environment remained challenging but our net dollar expansion on a constant currency basis at 105% down from one 6% last quarter.

Jumi Kam: Turning to land and expand results, with customers confirming their prioritization of security within IT budgets, we anticipate the selling environment in 2024 to remain stable with ongoing budget scrutiny being the new normal for many organizations. In Q4, we were pleased to see improvements in new business, although the upsell environment remained challenging, with our net dollar expansion on a constant currency basis at 105%, down from 106% last quarter. While there continues to remain room for improvement from smaller customers, LTM revenues from customers spending $25,000 or more with us increased by 12%. In terms of product contribution to bookings, patch management and cybersecurity asset management combined made up 12% of total bookings and 22% of new bookings in 2023. In 2023, the increased adoption of these products will result in over 50% growth on a combined basis.

Speaker Change: While there continues to remain room for improvement from smaller customers LTM revenues from customers spending $25000 or more with us increased by 12%.

Speaker Change: In terms of product contribution to bookings.

Speaker Change: Management, and cyber security asset management, combined made up 12% of total bookings and 22% of new bookings in 2023.

Speaker Change: In 2023, the increased adoption of these products resulted in over 50% growth on a combined basis.

Speaker Change: Our cloud security solutions made up 5% of 2023 booking led by our natively integrated <unk> offering.

Speaker Change: Turning to profitability adjusted EBITDA for the fourth quarter of 2023 with $65 8 million.

Speaker Change: Resenting, a 46% margin compared to a 42% margin a year ago.

Speaker Change: Although operating expenses in Q4 were largely unchanged up only 2% to $59 5 million sales and marketing expenses increased by 12% with us closing out the year with 138 sales and marketing head count of 16% from last year.

Jumi Kam: Our cloud security solutions account for 5% of 2023 bookings, led by our natively integrated Total Cloud CNAP offering. Turning to profitability, adjusted EBITDA for the fourth quarter of 2023 was $65.8 million, representing a 46% margin compared to a 42% margin a year ago. Although operating expenses in Q4 were largely unchanged, of only 2% to $59.5 million, sales and marketing expenses increased by 12% with us, closing out the year with 438 sales and marketing headcounts, a 16% increase from last year. EPS for the fourth quarter of 2023 was $1.40, and our free cash flow was $32.3 million. Free cash flow for the full year of 2023 was $235.8 million, representing a 43% margin compared to 37% in the prior year.

Speaker Change: Okay.

Speaker Change: EPS for the fourth quarter of 2023, with 140, and our free cash flow was $32 3 million.

Speaker Change: Free cash flow for the full year 2023, with $235 8 million, representing a 43% margin compared to 37% in the prior year.

Speaker Change: Thank you for it we continue to invest the cash we generated from operations back into call it including $1 5 million in capital expenditures and $23 1 million to repurchase 140000 of our outstanding shares.

Speaker Change: After the ended the quarter, we had $83 7 million remaining in our share repurchase program.

Speaker Change: I'm pleased to announce that our board has authorized an additional 200 million share repurchase program, bringing the total available now for share repurchases to $283 7 million.

Speaker Change: With that let's turn to guidance starting with revenue.

Speaker Change: For the full year 2024, our revenue guidance is 600 million to $610 million, which represents a growth rate of 8% to 10%.

Jumi Kam: In Q4, we continue to invest the cash we generate from operations back into Qualys, including $1.5 million in capital expenditures and $23.1 million to repurchase $140,000 of our outstanding shares. As of the end of the quarter, we have $83.7 million remaining in our share repurchase program. We're pleased to announce that our board has authorized an additional $200 million share repurchase program, bringing the total available amount for share repurchases to $283.7 million. With that, let us turn to guidance, starting with revenue. For the full year 2024, our revenue guidance is $600 million to $610 million, which represents a growth rate of 8 to 10 percent. For the first quarter of 2024, we expect revenues to be in the range of $144.5 million to $146.5 million, representing a growth rate of 11 to 12 percent. This guidance includes an estimated 1% reduction to revenue growth in 2024 from sunsetting our embedded solution for Microsoft Defender effective May 1st. Earlier this year, Microsoft Defender for cloud users using Qualys solutions were notified that we will be retiring our integration on Microsoft Defender and transitioning to a BYOL model.

Speaker Change: For the first quarter of 2024.

Speaker Change: We expect revenue to be in the range of $144 5 million to $146 5 million.

Speaker Change: Sending a growth rate of 11% to 12%.

Speaker Change: This guidance includes an estimated 1% reduction to revenue growth in 2024 from sunsetting, our embedded solution for Microsoft defender effective may 1st.

Speaker Change: Earlier this year, Microsoft defender for cloud users you can collect deletions were notified that we will be retiring our integration of Microsoft defender and transitioning <unk> model.

Speaker Change: With this change these customers will be able to leverage call. It total cost sina to effectively manage our security risk for cloud and container workloads.

Speaker Change: Although the strategic shift is estimated to result in a short term negative impact to revenues. We believe it will be key to delivering long term value to customers.

Speaker Change: Normalized for this change our revenue guidance for the full year 2024 would have been 9% to 11%.

Speaker Change: Shifting to profitability guidance for the full year 2024, we expect EBITDA margin to be in the low 40, implying approximately 20% to 25% increase in operating expenses similar to increase investment in 2022.

Speaker Change: And free cash flow margin in the mid <unk>.

Speaker Change: We expect full year EPS to be in the range of $4 99 to five to seven.

Speaker Change: For the first quarter of 2024, we expect EPS to be in the range of $1 87 to 135.

Jumi Kam: With this change, these customers will be able to leverage Qualys' TotalCost Xena to effectively manage their security risk for cloud and container workloads. Although the strategic shift is estimated to result in a short-term negative impact on revenues, we believe it will be key to delivering long-term value to customers. Normalized for this change, our revenue guidance for the full year 2024 would have been 9 to 11%.

Speaker Change: Our planned capital expenditures in 2024 are expected to be in the range of $15 million to $20 million.

Speaker Change: For the first quarter of 2024, and a range of $3 million to $5 million.

Speaker Change: In 2024, we plan to align our product and marketing investment to focus on specific initiatives aimed at driving more pipeline enhancing our partner program.

Speaker Change: Pending our federal vertical and supporting sales, while maintaining a disciplined approach to unit economics.

Speaker Change: As a percentage of revenue, we expect to prioritize and increasing investments in sales and marketing as well as related to port functions systems and people with more modest increases in engineering and G&A.

Jumi Kam: Shifting to profitability guidance, for the full year 2024, we expect EBITDA margin to be in the low 40s, implying approximately 20 to 25% increase in operating expenses, similar to increase in investments in 2022, and Free Cash Flow Market in the Mid-30s. We expect foliar EPS to be in the range of 4.95 to 5.27.

Speaker Change: As we increase our focus on sales and marketing and a new brand.

Speaker Change: Our success in productivity and respond to a more stable selling environment. We believe we will be able to drive wallet share and long term returns, while balancing growth and profitability.

Speaker Change: In conclusion in 2023, we delivered a healthy topline growth and industry, leading profitability in the wake of a challenging macroeconomic environment.

Jumi Kam: For the first quarter of 2024, we expect EPS to be in the range of 1.27 to 1.35. Our planned capital expenditures for 2024 are expected to be in the range of $15 to $20 million, and for the first quarter of 2024, in the range of $3 to $5 million. In 2024, we plan to align our product and marketing investments to focus on specific initiatives aimed at driving more pipeline, enhancing our partner program, expanding our federal vertical, and supporting sales while maintaining a disciplined approach to unit economics. As a percentage of revenues, we expect to prioritize an increase in investment in sales and marketing, as well as related support functions for SINs and people, with more modest increases in engineering and G&A.

Speaker Change: We continue to lead with product innovation and announced an exciting new roadmap for the <unk> enterprise platform.

Speaker Change: And our ability to deliver on our growth opportunity long term and remain committed to maximizing shareholder value.

Speaker Change: With that <unk> and I will be happy to answer any of your questions.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Josh Tilton from Wolfe Research.

Josh Tilton: Hey, guys. Thanks for taking my questions I, just want to sneak two in here.

Josh Tilton: The first is on the really strong billings growth in the quarter I know in the prepared remarks, you kind of highlighted as the one off but could you maybe just give us a little bit more detail around the <unk>.

Jumi Kam: As we increase our focus on sales and marketing in a new blend of customer success and productivity in response to a more stable selling environment, we believe we will be able to drive wallet share and long-term returns while balancing growth and profitability. In conclusion, in 2023, we delivered healthy top-line growth and industry-leading profitability in the wake of a challenging macroeconomic environment. We continue to lead with product innovation and announce an exciting new roadmap for the Qualys Enterprise Tourist Platform. We are confident in our ability to deliver on our growth opportunity over the long term and remain committed to maximizing shareholder value. With that said, Sumedh and I would be happy to answer any of your questions. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Josh Tilton: One off early renewal and then again I understand that it's early but you should still be able to Rev. Rec is the way to think about it that revenue growth would have been our revenue guidance would have been lower at this early renewal not happened in Q4.

Speaker Change: So in terms of the early renewal.

Speaker Change: We booked it earlier and typically when we book early renewals at the combined with an upsell. So it actually doesn't have a rev. Rec impact earlier in the period, because we closed the deal earlier for the revenue recognition as an example, if there was an early renewal that was supposed to renew on January one and were renewed on December 1st because the customer wanted to have in <unk>.

Operator: Please stand by while we compile the Q&A roster. Our first question comes from Josh Tilton from Wolf Research. Hey guys, thanks for taking my questions. I just want to sneak two in here.

<unk> combined with the renewal and we closed the entire deal on December 1st because thats, what the customer preferred.

Josh Tilton: The first is on the really strong billing growth in the quarter. I know in the prepared remarks you kind of highlighted it as a one-off, but could you maybe just give us a little bit more detail around the one-off early renewal? And then again, I understand that it's early, but you should still be able to revise it.

Speaker Change: Early renewal piece, even though it impacted billings, because we would invoice for the total amount when have had an impact on our revenue into Q4.

Speaker Change: Super helpful.

Speaker Change: And then I guess just my follow up.

Really appreciate the.

Speaker Change: The clarity on the Microsoft partnership and the contribution to revenue.

Jumi Kam: So is the way to think about it that revenue growth would have been, or revenue guidance would have been lower had this early renewal not happened in Q4? So in terms of the early renewals, we booked it earlier and typically when we book early renewals it's combined with an upsell. So it actually doesn't have a rubric impact earlier in the period because we closed the deal earlier. So the revenue recognition as an example, if it was an early renewal that was supposed to renew on January 1st and we renewed on December 1st because the customer wanted to have an upsell combined with the renewal and we closed the entire deal on December 1st because that's what the customer preferred, the early renewal piece, even though it impacted the billing because we would invoice for the total amount, wouldn't have had an impact on the revenue into Q4.

Speaker Change: Could you maybe just dive one level deeper on obviously the short term negative has a clear impact, but how do you guys envision this being more of a long term positive for quality.

Speaker Change: That's a great question and you also I think if you look at what.

Speaker Change: <unk> has evolved quite a bit over the last few years in <unk> that we came out with which took the scan only be M&A evolved it into multiple other additional capabilities, including inventory.

Speaker Change: Detection as well as certificate management, giving an ability to patch system and so that <unk> really in my mind set that standard for what a end to end modern VM needs to be and so what with the relationship with Microsoft.

Sumit Dakar: Super helpful. And then I guess just my follow-up is, really appreciate the clarity on the Microsoft partnership and the contribution to revenue. Could you maybe just dive one level deeper on, obviously, the short-term negative is a clear impact, but how do you guys envision this being more of a long-term positive for Qualys? That's a great question.

Speaker Change: The vertical integration was the legacy scan only VM that they were leveraging and so moving to the full.

Speaker Change: <unk> allows us to have the ability to work with our customers putting the full the MTR license into.

Speaker Change: The agile environment, and then with that we'll be MBR license of course, it allows us to not only sell them. The MTR, but also allows us to have conversations with them out on <unk> patch management file integrity monitoring total cloud upsell, because inoculate cloud security is evolving and integrated.

Sumit Dakar: I think, if you look at what VM has evolved quite a bit over the last few years, and VMDR, that we came out with, which took the scan-only VM and evolved it into multiple other additional capabilities, including inventory and threat detection, as well as certificate management, giving an ability to patch systems. And so VMDR really, in my mindset, is the standard for what an end-to-end modern VM needs to be. And so, whatever the relationship with Microsoft, the particular integration was the legacy scan-only VM that they were leveraging.

Speaker Change: <unk> with elaborating management, which we provide is significantly better than just getting getting a CBE lift outbid and so.

Speaker Change: With that we feel.

Speaker Change: Over the longer term it gives us opportunities to have more up sells and more access to these customers to talk to them about additional capabilities of quality.

Speaker Change: <unk> see a much more unified view of their overall risk posture, especially as we talk about banker by storage platform and so as the partnership with the World, we will be taking a different their data into our neutral risk platform that we're working on as well as.

Sumit Dakar: And so moving to the full BYOL allows us to have the ability to work with customers to bring the full VMDR license into the Azure environment. And then with that full VMDR license, of course, it allows us to not only sell them VMDR but also allows us to have conversations with them about CSAM, patch management, file integrated monitoring, total cloud upsell because, you know, cloud security is evolving, and integrated CSPM with vulnerability management, which we provide, is significantly better than just getting a CV list out there. And so with that, we feel over the longer term, it gives us opportunities to have more upsells and more and access to these customers to talk to them about the additional capabilities of Qualys and help them see a much more unified view of their overall risk posture, especially as we talk about the enterprise travel platform.

Speaker Change: Pushing <unk> into copilot for.

Speaker Change: Type of insight that Microsoft provides and so for.

Speaker Change: The <unk> is still give that integrated experience.

Speaker Change: And the ability to embed the quality Adrian.

Speaker Change: Just that the licensing then comes to quality and does not become sort of an embedded thing.

We don't really have access to it.

Speaker Change: Makes sense. Thank you so much.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Jonathan Ho from William Blair.

Jonathan Ho: Hi, good afternoon.

Jonathan Ho: In terms of your investments in sales and marketing can you maybe help us understand the magnitude of those investments and just given that you've got the new sales leadership here in place what are some of the specific opportunities that youre seeing to make those investments. Thank you.

Sumit Dakar: And so as the partnership has evolved, we will be taking Defender data into our new tourist platform that we are working on, as well as pushing Qualys data into Copilot for different types of insights that Microsoft provides. And so, BYO still gives that integrated experience and ability to embed the Qualys agent, just that the licensing then comes to Qualys and does not, you know, become sort of an embedded thing that we don't really have access to. It makes sense. Thank you so much.

Jonathan Ho: Okay.

Jonathan Ho: The way we're looking at the investment in 2024, it's relatively in line with what we had in 2022. So back in 2002, we felt that it was going to be an investment year, and we had increased sales and marketing investments by approximately 25% that's done and we have increased our sales and marketing head count by 22%. This is kind of what we're looking to.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Jonathan Ho from William Blair: Hi, good afternoon.

Jonathan Ho: Repeat in 2024, especially given that we've only cross sales and marketing by 14% in 2023.

Jonathan Ho: Primarily you will be driven by increasing the sales and marketing the employee count that hiring four quota carrying sales reps as well as other support functions associated with that especially with a particular focus on the channel managers with our focus on partner first additional investment that we plan to make is related to anything that's like pipe.

Jonathan Ho: In terms of your investments in sales and marketing, can you maybe help us understand the magnitude of those investments? And, just given that you've got the new sales leadership here in place, what are some of the specific opportunities that you're seeing to make those investments? Thank you.

Jumi Kam: The way we're looking at the investments in 2024 is relatively in line with what we had in 2022. So, back in 2002, we said that it was going to be an investment year. We had increased sales and marketing investments by approximately 25 percent back then, and we had increased the sales and marketing headcount by 22 percent.

Jonathan Ho: <unk> generating activities, including marketing trade shows the bank and <unk>.

Partner enablement as well as sales enablement.

Jonathan Ho: Yes, we're pretty excited about what we're seeing with the response on <unk> solution with total cloud and enterprise storage platform kind of coming up and so with.

Sumit Dakar: This is kind of what we're looking to repeat in 2024, especially given that we've only grown sales and marketing by 14 percent in 2023. Primarily, you'll be driven by increasing the sales and marketing, the employee counted, hiring for quota carrying sales reps, as well as other support functions associated with that, especially with that particular focus on the channel managers with our focus on partner first. Additional investment that we plan to make is related to anything that's like pipeline generating activities, including marketing, trade shows, events, and partner enablement as well as sales enablement. Yeah, we're pretty excited about what we're seeing with the response on our CNAP solution with Total Cloud and then Enterprise Tourist Platform kind of coming up. And so we're pretty encouraged with what we're seeing for new logos as they're coming to us and really interested in the cloud security solution, not VMDR or not just VMDR, I should say. And so we're going to also invest more in sort of marketing around our cloud security solution as well this year, in addition to the sales marketing headcount growth that we look at for 24 as a way for us to invest into our platform. Fantastic.

Jonathan Ho: Pretty encouraged with what we're seeing for new logos or they are coming to us and really interested in the cloud security solutions are not <unk> or not just with <unk> I should say.

Jonathan Ho: And so we're going to also invest more in sort of marketing around our cloud security solutions as well. This year. In addition to the sales and marketing headcount.

Jonathan Ho: We look at 424 is the way for us to invest into our platform.

Speaker Change: Fantastic. Thank you.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Mike Walkley from Canaccord Genuity.

Mike Walkley: Hey, guys. Good afternoon of stern on for Mark Thanks for taking the question.

Mike Walkley: So in the prepared remarks, you called out expectations.

Mike Walkley: Shifting more revenue.

Mike Walkley: Coming from the channel can.

Mike Walkley: Can you give us some additional color on what Youre seeing with your channel partners.

Mike Walkley: Sort of how this is progressing following the hiring has been announced.

Mike Walkley: Yes, we're pretty happy with Dino having come onboard we also hired in Q4 and an SVP of channels that we are really working closely with both and so as we're looking into 2024 and encouraged by the mix that we're seeing with partners or with correct. We're going to continue in 2024 bit invest with our partners.

Operator: Thank you. Thank you. One moment for our next question. Our next question comes from the line of Mike Walkley from Canaccord Genuity. Hey, guys. Good afternoon. It's Daniel on for Mike.

Mike Walkley: Thanks for taking the question. In the prepared remarks, you called out expectations of, you know, I guess, more revenue coming from the channel. Can you give us some additional color on what you're seeing with your channel partners? And, you know, sort of how this is progressing following the hiring of Zeno? Yeah, we're pretty happy with Dino having come on board.

Mike Walkley: The next phase of our partner program that we're planning to roll out there in a couple of months as well.

Mike Walkley: <unk>.

Mike Walkley: You see some of these additional partnerships that were making whether it's with orange cyber defense or.

Mike Walkley: <unk>, taking on our additional solution like patch management also as part of that too.

Mike Walkley: To take it to market. So we're also investing in hiring some partner focused marketing as well as partner focused product management roles.

Sumit Dakar: We also hired in Q4 an SVP of channels who was really working closely with us. And so as we are looking into 2024, encouraged by the mix that we are seeing with partner versus direct, we're going to continue to invest with our partners in 2024. There's, you know, the next phase of our partner program that we are planning to roll out in a couple of months as well. And as you see, some of these additional partnerships that we are making, whether it's with Orange Cyber Defense or Koudelski, taking on our additional solutions like patch management also as part of that to take them to market. So we're also investing in hiring some partner-focused marketing as well as partner-focused product management roles internally as well.

Italy as well.

Mike Walkley: And are encouraged by the conversations we're having with our partners and seeing sort of the contribution that we're making.

Mike Walkley: Good comprehensive Glenn this year to invest with our partner ecosystem, including <unk>.

Mike Walkley: Focusing really on net new logo generation and working with our partners to help.

Mike Walkley: Going to generate that pipeline for us and work with them on most of them are net new logos.

Mike Walkley: Alright, thanks for the color and just as a quick follow up maybe for Germany, how should we sort of think about the potential timing for the increased sales and marketing investments should we anticipate maybe with the step up in cost to be more backend loaded or kind of just progressed throughout the year.

Sumit Dakar: And overall, you know, encouraged by the conversations we're having with our partners and seeing sort of the contribution that they're making, we have a good comprehensive plan this year to invest in our partner ecosystem, including focusing really on Netmeat logo generation and working with our partners to help kind of generate that pipeline for us and work with them on most of our Netmeat projects. Thanks for the call.

Mike Walkley: I think what you should assume it that progress evenly throughout the.

Mike Walkley: Throughout the entire year, but it will be more heavier in the second half in the first half.

Speaker Change: Great. Thank you very much.

Speaker Change: Thank you one moment far next question.

Jumi Kam: And just as a quick follow-up, maybe for Jeremy, how should we think about the potential timing for the increased sales of marketing investments? Should we anticipate maybe the step up in cost to be more backend loaded or kind of just progress throughout the year, even when? What you could assume is it progressed evenly throughout the entire year, but it will be heavier in the second half than the first half. Great Thank you very much.

Speaker Change: Our next question comes from the line of Brian Colley from Stephens.

Brian Colley: Hi, Thanks for taking my questions.

Brian Colley: So could you talk about what your win rates look like in the C&I space today, and kind of what you view as your biggest competitive competitive.

Brian Colley: Differentiation in that space, whether or not you see seen app is becoming a source of new lands rather than just landing with <unk> in the future.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Brian Cauley from Stevens.

Speaker Change: Great question.

Brian Cauley: Hi, thanks for taking my questions. So could you talk about what your win rates look like in the CNAP space today and kind of what you view as your biggest competitive differentiation in that space, whether or not you see CNAP as becoming a source of new lands, rather than just landing with VMDR in the future? Great question.

Speaker Change: With our in App solution with total cloud.

I think the biggest differentiator that we see right now is that.

Speaker Change: Cloud is not the only infrastructure of our customers deploy and so while they're a cloud only security solutions. They do not give them the full perspective of the risk that these.

Speaker Change: Cloud environments have as an example, if a cloud environment access is on a laptop or a particular admin employee in that laptop has certain liberties and risk mitigation that can lead to a compromise that can then lead to a compromise in the cloud and so today with our early it's too early right now in terms of calling out win rates et cetera, because we've just recently.

Sumit Dakar: With our CNAP solution with Total Cloud, I think the biggest differentiator that we see right now is that the cloud is not the only infrastructure that customers deploy. And so while there are cloud-only security solutions, they do not give them the full perspective of the risk that these cloud environments have. As an example, if a cloud environment access is on the laptop of a particular admin employee, and that laptop has certain vulnerabilities and misconfiguration that can lead to a compromise, that can then lead to a compromise in the cloud.

Speaker Change: <unk> now.

Speaker Change: Released additional updates to that but we do see is that customers really want to see that comprehensive view of the risk not just in cloud environments, but across different environments, and our ability to tie the different components of cloud and non cloud together to give them a more holistic risk score is really something that we're excited about it now.

Speaker Change: Sort of uniquely introducing this concept of SPM, which is SaaS offshore management as part of our cloud security solution is also very interesting because if you recently saw.

Sumit Dakar: And so today with our early – it's too early right now in terms of calling out Windrace, et cetera, because we just recently launched it, and now we've released additional updates to that. But what we do see is that customers really want to see that comprehensive view of their risk, not just in cloud environments, but across different environments. And our ability to tie the different components of cloud and non-cloud together to give them a more holistic risk score is really something that they are excited about. And now, sort of uniquely introducing this concept of SSPM, which is SaaS Partial Management, as part of our cloud security solution is also very interesting, because, as you recently saw, the SEC requires that CISOs be also responsible for data hosted in cloud environments. And so it becomes more important that when you look at cloud security holistically, it is not just about your own public cloud environment but also being able to look at your SaaS provider's configuration where you are storing all of your data.

Requires that <unk> will be also responsible for data wholesaling cloud environment and so it becomes more important that when you look at cloud security Holistically. It is not just about your own public cloud environment, but also being able to look at your SaaS.

Speaker Change: Providers configuration radio story, and all of your data and so with that we're pretty excited to have a more comprehensive solution, which we believe compared to the cloud security cloud security only solutions out there.

Speaker Change: And also what we are seeing very early on right now it's still early small numbers, but we are seeing net new logos coming because of the interest in cloud security solution or.

Speaker Change: First time buyers directly coming in and buying the total cloud solution from us not just the <unk> solution and so that's definitely encouraging and thats kind of where I look forward this year to invest more in.

Speaker Change: Our cloud security and looking to generate more opportunities in pipeline you.

Sumit Dakar: And so with that, we're pretty excited to have a more comprehensive solution, which we believe, compared to the cloud security-only solutions out there. And also, what we are seeing very early on right now, it's still early and small numbers, but we are seeing net new logos coming because of the interest in cloud security solutions, or first-time buyers directly coming in and buying the total cloud solution from us, not just the VMDR solution. And so that's definitely encouraging, and that's kind of where I look forward to investing more in our cloud security and looking to generate more opportunities and pipelines, to say, look, you can go and look at a cloud security solution, which gives you only a small view, or look at a more comprehensive solution like Qualys, which does cloud and non-cloud on-prem, all kinds of different assets together in one view.

Speaker Change: You can say look you can go and look at a cloud security solution, which again is year on year.

Speaker Change: A small view or look at a more comprehensive solution like wallets, which does cloud and non cloud on prem all kinds of different assets together in one.

Speaker Change: Got it.

Speaker Change: Helpful and it is definitely encouraging to hear.

One for Jimmy I am curious.

What your expectations are for gross margins in 2024, and also just longer term if you kind of view.

Jimmy Camera: Really just beyond 2020 for PVA low Forty's is.

Jimmy Camera: The new normal for EBITDA margins or you see other opportunities for leverage in the model to maybe start re expanding margins again beyond this year.

Jimmy Camera: Yeah in terms of the EBITDA margin when we said before once we I mean, if you take a look at our 2023 EBITDA margin was up 47%. So it was clear to us that obviously, there's room for us to reinvest back into the business in light of the changes that we're going through right now and the opportunities ahead.

Jumi Kam: It's super helpful and definitely encouraging to hear. One question for Jumi: I'm curious what your expectations are for gross margins in 2024. And also just longer term, if you kind of view, or really just beyond 2024, the low 40s as the new normal for EBITDA margins, or if you see other opportunities for leveraging the model to maybe start re-expanding margins again beyond this year. Yeah, in terms of EBITDA margin, what we said before, we, I mean, if you take a look at our 2023 EBITDA margin, So it was clear to us that, obviously, there's room for us to reinvest back into the business in light of the changes that we're going through right now and the opportunities ahead.

Jimmy Camera: For 2024, and we believe that this is an appropriate guide.

Jimmy Camera: Renew to ramp the investments in sales and marketing and catch on catch up on some of the investments that we had planned earlier in 2023.

Jimmy Camera: <unk> I think it's a little too difficult to say because if we think that theres really an opportunity where there is a high ROI and an investment area and we think that it would make sense for us to trade more of that margin Winter road, but that model that have to work out for us to really change our huge and reset our targets.

Jumi Kam: For 2024, we believe that this is an appropriate guide as we continue to ramp up the investment in sales and marketing and catch up on some of the investments that we had planned earlier in 2023. Longer term, I think it's a little too difficult to say because if we think that there is really an opportunity where there is a high ROI in an investment area, we think that it would make sense for us to trade more of that margin for growth. But that model would have to work out for us to really change our new strategy and reset our target. I got it. Thank you for your time.

Speaker Change: Got it thank you for the time.

Speaker Change: Thank you one moment for our next question.

Our next question comes from the line of Trevor Walsh from citizens G JMP Securities.

Trevor Walsh: Great. Thank you for taking my questions maybe.

Trevor Walsh: Maybe ask a couple for you.

On a real high level, what are you seeing from a budget perspective, as we're kind of starting out 2024, just broadly within security and then I kind of just depending on how you answer I have a follow up around the MBR if I can.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Trevor Walsh from Citizens JMP Securities. Great. Thank you for taking my questions. Sumedh, maybe just a couple for you.

Trevor Walsh: Brian the second part of the question.

Brian Colley: So the second part.

Brian Colley: Just based on what Youre seeing with budgets I'm curious just you provide good visibility around the <unk> penetration rate in your investor deck I'm. Just wondering you had 56% kind of for this past quarter and it kind of trended I think in a fairly kind of even keel throughout the year last year.

Trevor Walsh: On a real high level, what are you seeing from a budget perspective as we're kind of starting out 2024, just broadly within security? And then, depending on how you answer, I have a follow-up question around EMDR. Can I get a second part of the question?

Operator: So the second part, just based on what you're seeing with budgets, I'm curious, just you provide, you know, good visibility around the VMDR penetration rate in your investor deck. I'm just wondering, you had 56% kind of for this past quarter, and it kind of trended, I think, in a fairly kind of even keel throughout the year last year. I guess what's the internal view of what's good and kind of where you are striving for, and if there are limitations to that expectation? Is it around, you know, for the first part of the question, is it more budget constrained, or is it more competitive type of things coming into play? Just like how those sorts of push and pull together, if that makes sense.

Brian Colley: What what's the what's the internal view of what's good and kind of where where are you striving for and if there are are there limitations. If there are limitations to that expectation is that around.

Brian Colley: To the first part of my question is that more budget constrained or is it more competitive type of things coming into play and how that how those sort of push and pull together that makes sense.

Speaker Change: Gotcha, Okay, alright, so yes, we are.

Speaker Change: Really not seeing a big change in terms of sort of the budget.

Speaker Change: <unk> or the amount of time it is taking for our customers to do a POC or even updated with plc and the timing of when they will actually make a purchase or the size of the purchase compared to the initial start of the POC et cetera, I'm really not seeing much of a difference I think Q4, we saw a couple of customers, we're actually able to do.

Sumit Dakar: That's okay. All right. So yeah, we are really not seeing a big change in terms of sort of the budget or the amount of time it is taking for customers to do a POC, or even after they do a POC, the timing of when they will actually make a purchase, or the size of the purchase compared to the initial start of the POC, etc. We aren't really seeing much of a difference.

Speaker Change: Close the projects that <unk> started with us for a while and be able to close the deals.

Speaker Change: Not necessarily translating that into 'twenty forward as being any major investment increase in Delphi, particularly in restaurant I think theres, a little bit more sense of stability in the sense that they sort of have an idea now this is kind of airline.

Sumit Dakar: I think in Q4, we saw a couple customers were actually able to close the projects that they had started with us for a while and close the deals, not necessarily translating that into Q24 as being a major increase in their cybersecurity investment. I think there's a little bit more sense of stability in the sense that they sort of have an idea now, this is kind of where I want to go, and I'm more optimistic that their budget will not be taken away in the middle of the year like it happened with some of the customers. And so I think there is no clear..., change in direction in the way I see it from what we have seen in the last few quarters. I think it's continuing like that.

Speaker Change: More optimistic that their budget will not be taken away in the middle of the year.

Speaker Change: And with some of the customers and so I think there is no clear chain.

Change in direction in the way I see from what we have seen the last few quarters I think its continuing like that we just focus on improving our execution being able to listen to the customer better.

Speaker Change: Our <unk> and close the right side of the deals.

Speaker Change: In terms of <unk> I think <unk> penetration, we are very happy with where it is but it is.

Speaker Change: Kind of reached a point, where we will see continued sort of incremental growth, but our focus really is on how do we as you saw we talk a lot about cyber security asset management, which management. Our focus is those customers now who have <unk> and they have the agent deployed.

Sumit Dakar: We just focus on improving our execution, being able to listen to the customer better, size our POCs the right way, and close the right size of the deals. In terms of VMDR, I think VMDR penetration, we are very happy with where it is. It is kind of reached a point where we will see continued sort of incremental growth, but now our focus really is on how do we, as you saw, we talk a lot about cybersecurity effect management, patch management. Our focus is those customers now who have VMDR, and they have the agent deployed. How can we leverage those deployments and work with those customers for additional upsells on agent-based solutions? And that's why I'm super excited about this ability that we introduced where any existing Qualys Cloud agent can immediately be turned into a listener on the network to find any additional devices that are not communicating, that are not part of their Qualys inventory.

Speaker Change: How can we leverage.

Speaker Change: Deployments and work with those customers for additional Upsells on Adrian based solutions and that's why I'm Super excited about this ability that we introduce ware and any existing as well as lower agent can immediately returning to a listener on the network to find any additional devices that are not communicate that are communicating that are not part of.

Speaker Change: The quality of inventory and so now customize and immediate access and with that they can now leverage that agent to find new assets. We did not know about and immediately out of that into the quality subscription. So that they can sort of grow the number of assets that are brought into the quality umbrella so to say and so we continue to really.

Speaker Change: Focus on innovating around.

Speaker Change: C sandbox management et cetera to those.

Speaker Change: <unk> customers, while we expect we MBR penetration for sort of.

Sumit Dakar: And so now a customer has immediate access, and with that, they can now leverage that agent to find new assets they did not know about and immediately add that to their Qualys subscription so that they can sort of grow the number of assets that are brought into the Qualys umbrella, so to say. And so we continue to really focus on innovating around C-SAM Patch Management, etc. to those VMDR customers While we expect VMDR penetration to sort of continue at this sort of slow pace, we continue to work with those customers, and opportunities that are coming for us to convert sort of legacy VM-only customers into VMDR customers are always encouraging for us. Great. I appreciate the color.

Speaker Change: Meanwhile, the sort of slow pace and we continue to work with those customers.

Opportunities that are coming for us too can work sort of legacy VM only customers into <unk> customers are always encouraging for us.

Speaker Change: Great I appreciate the color. Thanks.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of <unk>, Kim from loop capital markets.

Kim: Okay great.

Kim: Like you said <unk> adoption has been steady cloud agent deployment seems to be steady here over the past several quarters.

Kim: Patch management, and cyber security management solution.

Operator: Thanks. Thank you. One moment for our next question. Our next question comes from Yun Kim from Loop Capital Markets. Okay, great.

Kim: Doing well.

Kim: You have our guidance for the year, but I am assuming you are hoping to do better.

Yun Kim: Sumedh, just like you said, VMDR adoption has been steady. Cloud agents deployments seem to be steady here over the past several quarters. You have patch management, and a cybersecurity management solution consistently doing well. I know you have guidance for the year, but I am assuming you are hoping to do better.

Kim: Do you feel about the incremental sales and marketing investments and new go to market motion could drive that upside to your guide or do you feel that you need another new chiller products to jumpstart the growth.

Sumit Dakar: Do you feel that the incremental sales and marketing investments and new go-to-market motion could drive that upside to your guide, or do you feel that you need another new killer product to jumpstart the growth? I think there aren't enough products at Qualys, right? So we continue to innovate and work with our customers and make sure that we align our go-to-market with that. And so, look, I think cybersecurity asset management and batch management are continuing to do well over multiple quarters. I'm pretty excited about the opportunity that we are generating with Total Cloud and our CNAP solution there, and the response that we are getting with customers' ability to display some of the large cloud-only vendors that are out there. So that's an area that this year I'm looking forward to, you know, making more investments in marketing, et cetera, so we can generate more opportunities from that upside perspective. But also, as I mentioned, we launched the TrueRisk platform at the end of last year at our QSC, and so that product is actually now going beyond just Qualys.

Kim: Seeing no lack of product set quality side, where we continue to innovate and work with our customers and make sure that we align our go to market with guidance. So.

Speaker Change: Look I think.

Speaker Change: But through different management patch management, continuing to do well over multiple quarters pretty excited about the opportunity that we are generating with.

Speaker Change: Total cloud <unk> solution they are in.

Speaker Change: The response that we're getting the customers ability to displace some of the large cloud only vendors that are out there. So that's an area that this year I am looking forward to do more investments in marketing et cetera. So we can generate more opportunities to form.

Speaker Change: From that upside perspective, but also as I mentioned, we launched the.

Speaker Change: Terrific platform.

Speaker Change: The end of last year at our KFC and so that product is actually now going beyond just quality and so not only that it is going to help us focus on getting our customers to to look at getting multiple modules from call listen one gorgeous because they get a unified view of their endeavors score in one rather than having to go module by module.

Sumit Dakar: And so not only is it going to help us focus on getting our customers to look at getting multiple modules from Qualys in one go, just because they get a unified view of their entire risk score in one, rather than having to go module by module, but also the ability that we're going to add to ingest third-party data from multiple other sources, like, you know, competing VM solutions, cloud security solutions, as well as, you know, code-scanning solutions, et cetera, which means that that gives us additional opportunity to ingest data and charge the customer for taking the data that they have from other solutions and then adding additional analytical and meaningful value from a business context to that. And so TrueRisk platform, we're super excited about that as we continue to launch that through the rest of the year.

Speaker Change: But also the ability that we're going to add to ingest third party data from multiple other sources like.

Speaker Change: Competing VM solutions cloud security solutions as well as <unk>.

Speaker Change: CT scanning solutions et cetera, which means that that gives us additional opportunity to ingest data and charge the customer for.

Speaker Change: Taking the data that we have from other solutions, and then adding additional analytical and meaningful value from our business context to that and so tourists platform. We're super excited about that as we continue to launch that through the rest of the year and that's an area that im looking forward to next year to really be something that we will get more and more of our customers adapting to that.

Speaker Change: Because at the end of the day the <unk> like all this like finding counts in basketball to define but I'm not a way to articulate to my board.

Sumit Dakar: And that's an area that I'm looking forward to next year to really being something that we will get more and more of our customers adopting it because, at the end of the day, the CISOs are really saying, like, all this, like, finding counts and dashboards are fine, but I'm not able to articulate to my board and my executives and my CFO what the risk is. I'm not able to articulate how much money I'm willing to spend to bring that risk down.

Speaker Change: And my.

Speaker Change: Executive than my CFO, what the risk is I'm not able to articulate how much money I'm willing to spend to bring that risk down and so I think you're talking about things of nuclear product and I think towards the enterprise platform are super excited about that.

Speaker Change: Okay.

Speaker Change: Sure and hyper scaler in general are you getting increased increasing traction with your marketplace or app store offerings.

Sumit Dakar: And so I think, you know, you talk about things like the nuclear product, and I think TrueRisk, the enterprise platform, I'm super excited about. Okay, on Azure and hyperscalers in general, are you getting increasing traction with your marketplace or app store offerings? On the Azure marketplace, I mean, look, we have the BYOL one, and that is we already have a lot of enterprise customers who leverage Qualys directly in Azure that don't go through the marketplace. We have millions of agents today running in Azure that are through our enterprise customers already.

Speaker Change: On the.

Speaker Change: The marketplace I mean look I, we have the <unk> is one and that is <unk>.

Speaker Change: We already have a lot of enterprise customers, who leverage wallets directly in Azure that don't go to the marketplace that we have millions of agents per day running.

Speaker Change: Running in Azure developed through our enterprise customers already and so I think <unk> is one channel for us potentially now to get customers coming to us, but other than that amount.

Speaker Change: Demand of our customers that enterprise customers are using azure already coming to us because they are looking for a more holistic solution that goes across multiple clouds on prem platforms laptops et cetera.

Sumit Dakar: And so I think BYOL is one channel for us potentially now to get customers coming to us. But other than that, a good amount of our customers, our enterprise customers using Azure, are already coming to us because they are looking for a more holistic solution that goes across multiple clouds, on-premises platforms, laptops, et cetera. So we'll continue to see how that channel evolves more, but you know it's too early to say right now. And then Chumi, real quick, any insight into any ASP trends in the quarter, and how do you see that metric trending this year? The average yield side is growing by double digits, and so we kind of expect it to continue to 2024. Okay, okay. Thank you so much.

Speaker Change: So we'll continue to do.

Speaker Change: See how that channel evolves more but.

Speaker Change: It's too early to say right now.

Speaker Change: Okay, and then Jimmy real quick.

Jimmy Camera: Any insight into any ASP trend in the quarter and how do you see that metric trending this year.

Jimmy Camera: The average deal size is growing by double digits and so we kind of expect it to continue to 2024.

Speaker Change: Okay, great. Thank you so much.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Dan Bergstrom from RBC capital markets.

Speaker Change: Hi, It's Dan Bergstrom for Matt Hedberg, Thanks for taking our question.

Jumi Kam: Thank you. One moment for our next question. Our next question comes from the line of Dan Bergstrom from RBC Capital Markets. Hey, it's Dan Bergstrom from Matt Hedberg.

Dan Bergstrom: So you called out a couple of Fortune 500 wins in the prepared remarks and looking at the earnings materials. It looks like you've had some nice incremental adoption in that fortune 500, the global to carryover 2023.

Dan Bergstrom: Thanks for taking our question. So you called out a couple of Fortune 500 wins in the prepared remarks, and looking at the earnings materials, it looks like you've had some nice incremental adoption in that Fortune 500, the global 2K over 2023, I guess, you know, following a couple years of kind of more consistent penetration. Amy, can you help us with what drove that incremental traction at the upper end of the market? Was it product, partners, or reach? Thanks.

Dan Bergstrom: Following a couple of years with kind of market penetration.

Dan Bergstrom: Amy can you help us with what drove that incremental traction at the upper end of the market was at a product partners reach thanks.

Amy: I think the combination of all but I would say that.

Amy: Call is generally does really well on the enterprise side in terms of solving complex problems and so as our.

Amy: Cyber security management product has matured backs measurement as mature as our customers see.

Sumit Dakar: I think it's a combination of all of them, but I would say that Qualys generally does really well on the enterprise side in terms of solving complex problems. And so as our cybersecurity asset management product has matured, patch management has matured, our customers are seeing, you know, there was a hesitation at the beginning to say, well, are VM buyers going to buy patch management from a VM vendor, right?

Amy: <unk> at the beginning to say well where are the VM buyers going to bypass management from a VM vendor and so that was a lot of pushback at the beginning but now seeing that 55 million packages have been deployed by quality agents in the last 12 months I think that adoption and customers really having those conversations with each of that and seeing the outcome of that is definitely helping.

Sumit Dakar: So there was a lot of pushback at the beginning, but now seeing that 55 million patches have been deployed by Qualys agents in the last 12 months, I think adoption and customers really having those conversations with each other and seeing the outcome of that are definitely helping sort of drive that focus on these additional modules and additional upsells. As you saw, I talked about a couple of our partners have started now to actually provide patch management as a service based on Qualys patching in addition to VMDR, right? So now, and we already have a couple of smaller partners that are doing that. So now to see Orange and Koudelski starting to do that, those partners are also helping us have these conversations with the customers because sometimes the partner has better access to the IT team than we do directly from the security team.

Amy: Drive that.

Amy: Our focus on these additional modules and additional upsells.

Amy: As you saw I talked about a couple of our partners have started now to actually provide a patch management as a service based on the quality patching. In addition to WMD alright, So now and.

Amy: We already have a couple of smaller partners that we're doing that is not to see orange and kudos to be starting to do that those partners are also helping us have these conversations with the customers because sometimes the partner has a better access to the ITT and then we do directly from the security team. So having these partners starting to adopt the patch management is also very exciting because now.

Amy: I'd actually thinking back to management to these customers and helping push that and so I think it's a combination of sort of helping overcome the silos of I'd and security showing the success that we've had and then our partners really taking us out data and multiple of our customers at our user conference.

Sumit Dakar: So having these partners starting to adopt patch management is also very exciting because now they are actually taking batch management to these customers and helping push that. And so I think it's a combination of sort of helping overcome the silos of IT and security, showing the success that we have had, and then our partners really taking us out there. Multiple of our customers at our user conference and in QSC, including GE and others, talked about how they were actually successful with our patch management solution and our cybersecurity management solution with the external attack surface. So I think it's a combination of all these things, and that's one of the reasons that I'm looking forward to making this a year where we invest more while we are in a good place with the ability for us to grow our sales and marketing headcount when a lot of others are having to riff and reduce their sales and marketing expenses. So I'm excited, and I think that's kind of where we're looking to make an impact from those investments this year. Thank you. One moment for our next question. Our next question comes in the line of Aiden Perry from Piper Sandler. Hi, this is Aidan on behalf of Rob Owens.

Amy: <unk>, including GE and others talked about how they would actually be successful with our patch management solution and our <unk>.

Amy: <unk> solution.

Amy: With excellent IDEXX, our fits so I think it's a combination of all these multiple things and thats kind of one of the reasons that I am looking forward to.

Amy: Make this is a year, where we invest more wisely and we are in a good place though.

Amy: The ability for us to grow our sales and marketing head count when a lot of others are having terrific reduce there.

Amy: Sales marketing expense so.

Amy: I am excited and I think thats kind of where we're looking to see how we can make an impact from those investments this year.

Amy: Okay.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Aden Perry from Piper Sandler.

Aden Perry: Hi, This is Aaron on for Rob Owens. Thank you for taking my question I just wanted to ask if you could touch upon the comments made with the sales mix geographically can you elaborate on the comments made to keep the U S and foreign sales mix around 60, 40, and the thought process on foreign investments in the future.

Aiden Perry: Thank you for taking my question. I just wanted to ask if you could touch upon the comments made about the sales mix geographically. Can you elaborate on the comments made to keep the US and foreign sales mix around 6040 and the thought process on foreign investments in the future? Yeah, the way we're thinking about it is we have a huge opportunity because we have a large target addressable market. And for us, the majority of our growth will be driven by our platform play, where if you talk about the patch management system, total cloud, all these products are relatively new to Qualys. And this is where we think that we could, we have a huge opportunity across all different regions. So we do plan on investing not only in America but also internationally as well.

Aden Perry: The way we're thinking about it is we have a huge opportunity.

Aden Perry: Because we have a large target addressable market for us majority of our growth will be driven by our platform play where if you talk about the patch management SaaS total cost. All these products are relatively new to <unk> and this is where we think that we can't we have a huge opportunity across all different region. So we do plan on investing not only.

Aden Perry: In Americas, but also internationally as well we expect to grow two to kind of continue as is if you take a look at the past prior years, there have been some periods where that outside of international revenue growth will be faster than the U S and vice versa and so that's why we gave the guidance we expect it to be approximately similar 60 40 going forward.

Aiden Perry: So we expect the growth to kind of continue as is. If you take a look at the past prior years, there have been some periods where the outside international revenue growth would be faster than the US and vice versa. And so that's why we gave the guidance we expected to be approximately 60-40 going forward based on our investment plan for 2024. Thank you. Thank you. One moment for our next question, which comes from the line of Shrenik Kothari from Baird.

Aden Perry: Based on our investment plan for 2024.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Nick Yako: Our next question comes from the line of Shred, Nick <unk> from Baird.

Nick Yako: Yes, thanks for taking my question.

Jumi Kam: Yeah, thanks for taking my question. So, Sumedh, you highlighted the TrueRisk platform and how it's aligning with the customer priorities under these tighter budgets with CSOs, getting to monitor the ROI. So, of course, early feedback you said is pretty positive and kind of underscores the platform's potential. Now, you mentioned catalyzing the rolling up of multiple modules, but there are others out there who have started monetizing or at least planning to monetize such a high-level dashboard that's kind of standalone payments queues, given the demand potential and strength. Is that a model that you are considering or could potentially consider?

Nick Yako: So sumit.

Nick Yako: You highlighted the crew risk platform and how it's aligning with customer priorities under these tighter budgets.

Nick Shred: <unk>.

Speaker Change: Getting to monitor the ROI so.

Speaker Change: Of course, the early early feedback.

Speaker Change: Pretty positive and kind of underscores the platform's potential now.

Speaker Change: You mentioned about capitalizing the rolling up of multiple modules.

Speaker Change: But there are other others out there who have started kind of monetizing or or at least planning to monetize such kind of high level dashboards.

Speaker Change: It's kind of a standalone premium skus.

Speaker Change: Even the demand potential and the strength is that the model that you are considering a potentially consider.

Shrenik Kothari: So that's, I have one quick follow-up. Even other solutions that are integrating different capabilities together, standalone solutions. Yeah, and the dashboard in itself becoming a kind of monetizable standalone SKU at some point, Oh, I see what you're saying. Yeah, so I don't, I think we're still early in the game to have a specific pricing model that we have released.

Speaker Change: So I have one quick follow up as well.

Speaker Change: You mean other solutions that are integrating different capabilities together standalone solutions.

Yes.

Speaker Change: The dashboard and it's.

Speaker Change: <unk>, becoming.

Speaker Change: One is that we will look standalone SKU at some point.

Okay.

Speaker Change: Oh, I see what Youre, saying, yes, so I don't.

Speaker Change: I think we're still early in the game to cover specific pricing.

Speaker Change: The model that we have.

Sumit Dakar: We are working with our customers to understand that. But see, the advantage that I see over sort of standalone dashboard consolidating products is first that customers already have Qualys. So instead of having Qualys and then buying another solution to pull data from Qualys and other solutions into that, that dashboarding solution itself is an operational challenge for them. The second thing is that none of those solutions actually do elimination or help to get the customer to fix those issues that they find directly onto the platform.

Speaker Change: <unk> believes we are working with our customers to understand that but to the advantage that ico, where sort of standalone dashboard consolidating products as forces.

Speaker Change: The customers already have wallets, so instead of having quality and then buying another solution deployed data from quality and other solutions and good night.

Speaker Change: Dash boarding solution itself was operational challenge for them. The second thing is that.

Speaker Change: None of those solutions actually do elimination or help into.

Speaker Change: Getting the customer to fix those issues that defined directly onto the platform and so today, our focus is not necessarily on monetization of the of the dashboard. So but it is about if you get that particular dashboard are you more inclined to say I'm, just I don't want to get five different point solutions and build a dashboard myself I would rather just by <unk>.

Sumit Dakar: And so today our focus is not necessarily on monetization of the dashboard itself, but it is about if you get that particular dashboard, are you more inclined to say, I don't want to get five different point solutions and build a dashboard myself. I would rather just buy five modules from Qualys, and then the dashboard already provides me with that. So the dashboard, in fact, becomes an enabler for you to try to get these additional modules from Qualys.

Speaker Change: <unk> modules from Wallets, and then the dashboard already providing so the dashboard in fact becomes an enabler for you to try to get this additional modules from quality and then the upsell from there becomes that or can also help you fix this by leveraging patch management and mitigation and the terrific eliminate that we've talked about is also very exciting because.

Sumit Dakar: And then the upsell from there becomes that, oh, I can also help you fix this by leveraging patch management and mitigation. And the TrueRisk Eliminate that we talked about is also very exciting because patching sometimes has some resistance because people don't want to deploy a whole patch. But now, with TrueRisk Eliminate, we are providing other mitigation options that the customer will be able to deploy that do not require a patch to be deployed. They can actually make config changes to Qualys and fix some of the things on the asset itself, especially in a zero day.

Speaker Change: Batching, sometimes have some resistance because people don't want to deploy a whole patch, but now have tourists eliminated we are providing other mitigation options that the customer will be able to deploy that do not require a pass can be deployed they can actually make them quick changes to quality and fixed some of the things on the asset itself, especially in a zero day, so the idea that as Julia.

Sumit Dakar: So the idea there is really about the platform being an organically developed single platform. And so the dashboard is what unifies everything together. But the unified dashboard is the reason why you would consolidate multiple modules rather than get five different products from five different vendors and try to do it yourself with a sixth vendor. Got it. That's super helpful. And just very quickly, a follow up.

Speaker Change: About the platform.

Speaker Change: And organically developed single platform and so the dashboard is what unifies everything together, but the unified dashboard is the reason why you would consolidate multiple modules rather than getting five different products from four different vendors and trying to do it yourself with a sixth director.

Speaker Change: Got it got it sorry, that's super helpful. And then just very quickly follow up Julian.

Shrenik Kothari: So you mentioned channel partners compared to direct sales. Again, the channel partner growth is kind of outpacing the direct sale 16% with a 6%. Can you provide some color around how that is being factored into the overall margin trajectory and our margin guidance for the year? And is that the right assumption?

Speaker Change: So.

Speaker Change: You mentioned about the channel partners compared to direct sales again, the job order growth is kind of.

Speaker Change: Farnell outpacing the direct sales, 16% with a 6% so.

Speaker Change: Jenny can you provide some color around kind of how is that being factored into the <unk>.

Speaker Change: Overall margin trajectory in the op margin guidance model for New York and.

Jumi Kam: Or are you guys essentially assuming a different mix to end the year with? Sorry, if somebody already asked. Yeah, no problem. So it's already factored in.

Jenny: That is the right assumption you guys are.

Speaker Change: Assuming a different mix.

Speaker Change: Sorry, if somebody already asked the questions.

Jenny: Yeah, no problem. So it's already factored in and what's really interesting for us and this is something that we have mentioned at the beginning when we started to really think about how does that our partnerships with our with.

Jumi Kam: And what's really interesting for us is, and this is something that we mentioned at the beginning, when we started to really think about how to better our partnership with our different, you know, channel partners. If you take a look at our mix, right, channel partners used to make up approximately 40% of our revenues, and that's trended up to 40, 41, 42, and ending the year 2023 was 43%. It really didn't have much of an impact on our gross margin.

Speaker Change: With different.

Speaker Change: Channel partners.

Speaker Change: If you take a look at our mix right channel partners use to make up approximately 40% of our revenues and Thats trended up to 40% 41, 42, and ending the year 2023 with 43%. It really didn't have much of an impact on our gross margin and if you take a look at our EBITDA margin as well you can kind of see it had it's not really tied to.

Jumi Kam: And if you take a look at our EBITDA margin, as well, you can kind of see it's not really tied to the percentage increase from the partner mix going from 40 to currently sitting at 43% for the total year 2023. And that's why we think that, you know, it will slowly continue to step up with it being 44% for Q4, maybe a percentage or two. But we don't think that it'll have a meaningful impact on our margin. I got it. Thanks a lot.

Speaker Change: The percentage increase from the partner mix going from 42 currently standing at 43% for the total year 2023, and that's why we think that it will.

Speaker Change: Slowly continue to step up with it being 44% for Q4, maybe a percentage or two we don't think that it will be a meaningful impact to our margins.

Brian Essex: Thank you. One moment for our next question. Our next question comes from the line of Brian Essex from J.P. Morgan. Hi, good afternoon, and thank you for taking the question.

Speaker Change: Got it thanks a lot.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Brian Essex from J P. Morgan.

Brian Essex: Hi, good afternoon, and thank you for taking the question I guess a question for me.

Sumit Dakar: I guess, Sumedh, the question for me is basically centered around, you know, SecOps and cloud security. I mean, two segments that we're seeing quite a lot of demand for and growth across the industry. So I guess the question is, with your, what seems to be an approach of landing with a cloud agent-based risk management strategy and then expanding into what seems to be some pretty robust features. Features and Functionality in those Emerging Segments Any focus on shifting the strategy to lead with SecOps or cloud security and then cross-selling risk management? And just kind of wondering if there's a way to adjust the strategy to capture some of that. Demand as opposed to leading with risk management.

Brian Essex: Basically centered around tech ops, and cloud security and in the two segments that are we're seeing quite a lot of demand for and growth across the industry.

Brian Essex: The question is.

Brian Essex: With your what seems to be an approach of landing with a cloud agent based risk management strategy and an expanding into what seems to be some pretty robust future.

Brian Essex: <unk> features and functionality in those emerging segments.

Brian Essex: <unk> focus on shifting our strategy to lead with black ops or cloud security and then cross selling risk management and just kind of wondering.

Brian Essex: If there's a way to adjust our strategy to capture some of that.

Brian Essex: Demand as opposed to leading with with risk management, and then maybe a part b, particularly on cloud cloud security.

Sumit Dakar: And then maybe part B, particularly on cloud security, any headwinds there if that might be a bit of a different sale than the overall risk management platform? Great question. So that's what I mentioned, that we are quite pleased, again, in smaller numbers but in the last couple of quarters, to see that net new business is coming to us with interest in cloud security. And to the question that you asked, we're finding that, you know, we have a fairly robust solution now. It's not just the cloud agents. We have CSPM built in, and we have now acquired Blue Hexagon, which gives us the malware capability as well.

Brian Essex: Headwinds there that might be a bit of a different sale than the overall risk management platform.

Brian Essex: Great question, So thats, what I mentioned that we are quite pleased again smaller numbers of ordering in the last couple of quarters to see that net new <unk>.

Brian Essex: Business is coming to us with interest in cloud security and to the question that you asked we are finding that our we have a fairly robust solution not just the cloud agents we have CSB.

Brian Essex: <unk> integrated ANV, and our acquired Blue hexagon, which gives us the myeloid everybody as well and so we're finding that our sellers are actually a lot comfortable with pushing in.

Sumit Dakar: And so we're finding that our sellers are actually a lot more comfortable pitching and providing the POCs for the cloud security solution as well, even in our SMB segment, where there is, you know, kind of a smaller POC cycle, etc. So that's encouraging for us. And so that's the reason why, like I said, this year, part of our sales marketing investment is to do cloud security specific demand generation, to bring, you know, people who are looking for cloud security directly to us, and not just the VMDR piece. And so those who are looking for cloud security, then we can say, look, a lot of these, you know, top big vendors that have cloud security only solutions, those customers, at the end anyway And so then they have two consoles, and they have to connect all of those together.

Brian Essex: Providing the plc for the cloud security solution as well even in our SME SMB segment, we added that.

Brian Essex: Smaller.

Brian Essex: Cycle et cetera, so that's encouraging for us and so that's the reason why like I said this year. We are looking at part of our sales marketing and restaurant is to do cloud security specific demand journey to bring.

Brian Essex: People are looking for cloud security directly to us and not just the <unk> and so those were looking for cloud security then we can sell a lot of these top big vectors that have cloud security only solutions those customers are they in any way end up using call. This cloud agent in the cloud for a much better comprehensive vulnerability management and so then they.

Brian Essex: Two consoles and there will be all of those together and so without providing a package all in one solution and providing a single view of the risk on theyre not only cloud environment, but in the non cloud environment that is an area, where we're looking we're continuing to work with our team on GBM enablement.

Sumit Dakar: And so with us kind of providing an all-in-one solution and providing a single view of the risk on their not only cloud environment but in the non-cloud environment, that is an area where we're looking. We're continuing to work with our team on GTM enablement from a sales enablement perspective. And with our launch of Total Cloud 2.0 today, providing SaaS capability, which is a big differentiator where, you know, any CISO is concerned about their O365 configuration and really does not have a good way to see that today. And so with our Total Cloud solution, we combined that into a single risk view as well to say, well, maybe your S3 bucket is fine, but, you know, your user in O365 MFA is disabled, and that same user has access to the cloud bucket.

Brian Essex: Enablement from a sales enablement perspective, and with our launch of the two o'clock throughout all today, providing SaaS capability, which is a big differentiator outerwear.

Brian Essex: <unk> is concerned about the ultra 65 configuration and really does not have a good way to see that today and so with our topical solution. We combine that into a single risk of U S load to say well maybe your three bucket is fine but your user in the 65 MFA is disable in that same view that I have access to the cloud.

Sumit Dakar: So we are encouraged to see the early adoption of Total Cloud by new customers. And we do, right now, believe that investing in demand generation for cloud-specific demand will be something that we will be doing as part of our 24 strategy. I got it. Super helpful. Maybe a quick quick follow-up for me for Jeannie, any thoughts on providing maybe some metrics so we can track some of these emerging segments outside of the core, I guess, the MDR-based risk management suite, whether it's EDR, XDR, or the cloud security, you know, maybe like a percentage of net new business attributable to the emerging segments, just get a sense of traction. Yeah, that's a good point.

Brian Essex: In bucket and so now you have risk. So we are encouraged to see the early adoption of Gogo cloud fortinet new customers than we do.

Brian Essex: Right now believe that investing in demand Gen four cloud specific.

Brian Essex: <unk>.

Brian Essex: Be something that we will be doing as part of our 24 strategy.

Speaker Change: Got it Super helpful and maybe as a quick quick follow up for me for G&A.

Any thoughts on providing maybe.

Speaker Change: Some metrics. So we can track somebody that's emerging.

Speaker Change: Segment outside of the core I guess, the MBR based risk management suite, whether it's <unk>.

Speaker Change: <unk> xdr or the cloud security.

Speaker Change: Maybe like a percentage of net new business attributable to the emerging segments, just get a sense of traction.

Brian Essex: We'll think about it internally and, as we always do, make sure that we disclose relevant metrics to provide more clarity and guidance. Got it. Well, thank you very much. I appreciate all the clarity. Thank you. One moment for our next question. Our next question comes from the line of Hamza Fodderwala from Morgan Stanley. Hi, good evening.

Speaker Change: Yeah. That's a good point, we'll think about it internally as we always do to make sure that you will be disclosing relevant relevant metrics to provide more clarity and guidance.

Speaker Change: Got it Super well. Thank you very much I appreciate all the clarity.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of Hamzah fodder Wala for Morgan Stanley.

Hamza Fodderwala: Thank you for taking my question. I appreciate it. I just had one clarification around the, I understand they're a partner, as well as the customer, on the customer front. Any comment there around this Microsoft commitment to Qualys?

Speaker Change: Hi, Good evening. Thank you for taking my question I appreciate it.

Speaker Change: I just had one clarification around that.

Microsoft relationship I understand they're a partner as well as the customer.

Hamza Fodderwala: On the customer front.

Hamza Fodderwala: Any comment there around <unk>.

Hamza Fodderwala: Microsoft.

Hamza Fodderwala: <unk> commitment to quality of the customer going forward.

Sumit Dakar: We have a really good relationship with Microsoft. They are a partner with us. They internally use Qualys. I think those are two completely different teams, and they have different goals.

Speaker Change: Thank you.

Speaker Change: Really good relationship with Microsoft, they're a partner with us.

Speaker Change: Internally use quality. So I think those are two different completely different teams in there.

Sumit Dakar: And the team that is working on the defender piece is looking at their solution. The internal team is looking to make sure that they get the best solution out there, and they have a very good relationship with us. We continue to work with them, and so at this point, the combined sort of of Azure, the partner piece, as well as their internal usage of Qualys is in the low single digits as a percentage of revenue. And so while we continue to look at opportunities to expand with them, at this point, there is really no change from what we have seen or heard.

Speaker Change: They have different goals and the team that is working on the different pieces there.

Speaker Change: They're looking at their solution. The internal team is looking to make sure that they get the best.

Speaker Change: Solution out there and they have very good relationship with also continue to work with them and so.

Speaker Change: At this point.

Speaker Change: <unk> sort of with Azure.

Speaker Change: The partner fees as well as their internal usage of quality and the.

Speaker Change: <unk>.

Speaker Change: Low single digits as a percentage of revenue until we continue to look at opportunities to expand with them.

Speaker Change: At this point there is really no change from what we have seen or heard.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: At this time there are no further questions.

Operator: Thank you. At this time, there are no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye. Thank you for watching!

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Okay.

Speaker Change: Goodbye.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Sure.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].