Q1 2025 Qualys Inc Earnings Call

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 future financial operating performance.

Actual results may differ materially from these statements factors that could cause results to differ materially are set forth in today's press release, and our filings with the SEC, including our latest Form 10-Q and 10-K.

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

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

Reconciliation of GAAP to non-GAAP measures is included in today's earnings press release and as a reminder, the press release prepared remarks investor presentation.

They are all available on the Investor Relations section of our website.

Smith: So with that I'll turn the call now over to Smith. Thanks.

Speaker Change: Thanks, Blair and welcome all to our first quarter earnings call.

Speaker Change: We are entering a new era for cybersecurity risk management powered by real time data automation and AI against this backdrop, we executed well in this quarter, resulting in a better than expected revenue growth strong profitability and solid cash flow generation.

Speaker Change: Fueled by customer insights, while the submission is to bring innovative new security solutions to the market.

Speaker Change: With over 25 years of evolving our platform to meet the next generation of modern security challenges. We have established a strong track record of converting operational challenges into secular competitive advantages, while maximizing lifetime value.

Speaker Change: Ensuring frictionless outcomes at scale and driving immediate ROI on security spend.

Speaker Change: In doing so we believe we have built a new security industry paradigm, which today leverages, our powerful real time data processing capabilities across more than 18 trillion data points on a natively integrated platform to help organization streamline that cyber security risk management program with a risk operation Center rock.

Speaker Change: But security Operation Center Sock is used for detection of productive after a breach the rock is neither by organization for proactive risk management to reduce the chance of breaches, but deploying their fiber projects, where the highest risk of loss.

Speaker Change: Unlike other <unk> solutions that only reveal exposure without providing effective remediation. While this is cloud native.

Speaker Change: Enterprise risk management E beam solution is purpose built to deliver a single comprehensive airpower orchestration layer unified security findings from multiple quality and non quality sources to implement an effective at all.

Speaker Change: By unleashing the scale of the cordless platform.

Speaker Change: From multiple sources, including kind of broke out strike ways.

Speaker Change: Normalized risk signals enriched with threat intelligence analyze anniversary behavior and provide organizations with actionable enterprise wide insights to prioritize and remediate cyber risk through a common language of business context and financial impact.

Speaker Change: This holistic approach.

Speaker Change: Uniquely insurance organization, not only understand their fiber routes and quantifiable terms, but can take immediate action to reduce the risk that matters. The most wood.

Speaker Change: With prospects of POC is more than doubling from last quarter and over 25 active iOS is already underway since launching of GE.

Speaker Change: A short while ago, we continue to see many parallels between this new market opportunity and the early days of the MTR launch, including significant greenfield opportunity in a growing demand.

Speaker Change: Anything that might have in the market. We further evolved our APM solution through.

Speaker Change: Through an expanding ecosystem of emulation solutions in doing so we have advanced our tourists eliminate agenda by enabling organizations to amplify powered by deregulation tools with security insights from quality to prioritize patching or activate other compensating controls available through the quality platform.

Speaker Change: With this latest innovation organization can soon leverage a unified quality workflow with end to end automation.

Speaker Change: MTB and DSM integration to prioritize rapid remediation across all environments from the Apache vendors of choice.

This is a strong competitive differentiator for quality for the neutralizes IPM checkout procurement friction.

Speaker Change: And it significantly expands our market opportunity by going well beyond patch management.

Continuing this rapid pace of innovation, we're expanding our quality total, yes, and tourists capabilities to help organizations address the evolving cuts associated with elegance.

Speaker Change: With this latest release total AI brings full visibility across our supply chain data applications and pipelines to protect malicious called policy violation in advanced multimodal Xbox hidden within images audio and video files by enhancing our AI security posture.

Speaker Change: The SPM with NATO internal Llm's scaling expanded jail break detection and seamless integration into MLR pipeline, we're equipping security teams with agility and insight needed to protect Martin are driven workloads from development all the way through run time, while building. What we believe is the most advanced AI security solution available in them.

Speaker Change: Market.

Speaker Change: In addition, with the launch of policy audit and audit fix we are now providing organizations of all sizes with the ability to streamline audit operations by providing our data our data reporting and automated evidence collection across 450, plus technologies and over 1000 out of the box audit processes for framework like PCR and next door are hereby et cetera.

Speaker Change: This solution addresses a growing area of focus and cyber sprint foresee so as they are under pressure to ensure their organizations don't feel audits, while at the same time, reducing their spend in order to readiness with automation.

Speaker Change: Not only detecting the gaps, but automation and also fixing them.

Speaker Change: Moving to our business update will be of course starts that relative quantification workshops attended by many of the most forward thinking see sold around the world in recent quarters and the message is clear organizations are increasingly anchoring reached fiber, Spain, the quantifiable risk reduction in their business, which is easily articulated two boards and business partners.

Speaker Change: So as Warner platform that speaks of a unified language of risks, while letting their teams choose their own tools with various components of the stack rather than trying to consolidate multiple vendors into a single platform.

Speaker Change: Requirements, let's say, a centralized risk fabric that seamless unified underlying tools of choice.

Speaker Change: Secondly, major communicate and fortify and organizations risk posture, while reducing complexity operating cost and time to production.

Speaker Change: Time to equity issue as a result, our technologies are not only fueling new logo lands, but also helping to increase dollar platform adoption, especially in the areas of the MTR side basically asset management patch management cloud security and increasingly thereafter delivered to quality of ATM solution with thousands of customers consolidating.

Speaker Change: This enterprise platform, let me share a couple of recent wins, which illustrate why these companies are turning to quality to help unify their security tools quantifying that mediate cyber risk in that environment and achieve a better security outcomes.

Speaker Change: First an existing global 100 multimedia National media company with a rapidly growing multi cloud and container environment.

Speaker Change: Main deck, managing silo tools added complexity to their operations like integration and MS detection, while embedding their ability to assess the risk and centralized emendation this customer chose qualities.

Speaker Change: Transform siloed risk factor spanning core deposit rates endpoints identity cloud container Iot network assets into a cohesive real time risk management solution by consolidating wallet and non public data.

Speaker Change: This included purchasing eight quality modules and deploying ATM to bring operationalized to begin operation Ivy bedrock and consolidated industrial data from days, resulting in a seven figure annual booking steel, including a big mix mid six figure public cloud seat App upsell.

Speaker Change: We are now quickly migrating numerous data sources and the quality platform and delivering a record vendor agnostic orchestration layer with full visibility of that back surface centralized risk assessment quantification prioritization and remediation while unleashing the operational efficiencies of security stack consolidation looking ahead. This customer is now in the Prost.

Speaker Change: Assess of planning to power its the rockwood lithium across 33 separate entities worldwide.

Speaker Change: Further advancing our progress lots in that momentum another marquee seven figure annual bookings when the global 50 financial services company.

Speaker Change: This existing customer launching share to strengthen its cloud and container security solution against advanced threats close security gaps and immediately with Ikea some indication for single dashboard.

Speaker Change: It also needed to meet.

Speaker Change: Increasingly stringent global regulatory requirement and extended its on prem visibility to multi cloud and container environment through its evaluation. This customer chose our pogo close in App solution and is now leveraging the quality of enterprise risk platform for complete visibility across its entire attack surface to quantify and borrowed by <unk>.

<unk> initiatives and increased operational resolution and compliance.

Speaker Change: Our growing leadership in the cloud market was further evidenced in <unk> report banking quality is a leading outperformer in cloud workload security with customers beginning to pursue quality is a leading this fashion platform that consolidates all districts multiple security solutions and workflows.

Speaker Change: Growing increasingly confident in our ability to drive long term growth and gain market share.

Speaker Change: Confidence was again would start in Q1 with customer spending.

Speaker Change: 5000, $500000 or more with us grew 6% from a year ago to 280.

Speaker Change: It's consolidating workflows isn't just happening at customers. It's also embracing prioritize about our partners underscored by an increasingly strong mix of new business and significant growth.

Speaker Change: As we continue to endorse our partner forces motion partner like the registration fees again Q1 <unk>.

Speaker Change: In addition, we have now certified six leading podcasts, who are actively marketing the delivery of our fresh new managers cooperations Amdocs services and just beginning their efforts to capitalize on our centralized and automated approach to pre breach risk management on top of ETF.

Speaker Change: Advancing our momentum towards our global rock ecosystem, we look forward to start deferring fewer additional strategic partners in the months ahead.

Speaker Change: <unk> already demonstrated our firm commitment to spearheading this initiative with call it as that embark partner of choice.

And finally as the federal government seeks to show efficiency and replace our bigger and costly on Prem deployments from years past with modern cloud native risk management solutions, we are at.

Speaker Change: Especially excited to host our second annual <unk> conference in Washington, DC towards the end of this month.

Speaker Change: We recently made good progress advancing our fed drop highest certification startups and we continue to believe we are on track to achieve authorized milestone.

Speaker Change: Later this year fueling a new leg of growth for the company.

Speaker Change: In summary quality is increasingly well armed with fresh new capabilities to further strengthen our strategic position as the partner of choice for customers Ardito centralize their response to cyber risk solid modern security challenges and reduce costs. Looking ahead. We believe we will continue to outpace our competitors to extend our leadership in the market.

Speaker Change: Built upon an already strong foundation to drive durable long term growth in the business.

Speaker Change: With that I will turn the call over to Jeremy to further discuss our first quarter results and look forward to the second quarter end.

Speaker Change: The year ahead.

Speaker Change: Thank you, Matt and good afternoon.

Speaker Change: Before I start I'd like to note that except for revenues.

Speaker Change: All figures are non-GAAP and the growth rates are based on comparisons to the prior year unless stated otherwise.

Speaker Change: Turning to first quarter results revenues grew 10% to $159 9 million. The channel continue to increase its contribution making up 49% of total revenue compared to 45% a year ago.

Speaker Change: As a result of our continued commitment to leverage our partner ecosystem to drive growth, we were able to grow revenue from channel partners by 19% outpacing direct which grew at 2%.

Speaker Change: <unk>, 16% growth outside the U S.

Speaker Change: Domestic business, which grew 6%.

Speaker Change: U S and international revenue mix was 57% and 43% respectively.

Speaker Change: In Q1, we were pleased to see some improvements in our gross retention rate, however, growing macroeconomic uncertainty towards the end of the quarter presented an increasingly challenging epsilon environment with our net dollar expansion rate of 103% unchanged.

Speaker Change: From last quarter.

Speaker Change: In terms of product contribution to bookings patch management, and cyber security asset management combined made up 15% of total bookings and 24% of new bookings on an LTM basis.

Speaker Change: Our cloud security solutions total cloud seen up eight 5% of LTM backing.

Speaker Change: We credit this momentum to customer demand for a more comprehensive and contextual understanding of their expanding attack surface supported by seamless integrated risk management and remediation workflows across all environments within a unified platform.

Speaker Change: Turning to profitability.

Speaker Change: EBITDA for the first quarter of 2025 with $74 8 million, representing a 47% Martin in line with last year.

Speaker Change: Operating expenses in Q1 increased by 10% to $62 5 million, primarily driven by investments in sales and marketing which grew 15%.

Speaker Change: Demonstrating our ability to innovate and invest in our long term growth initiatives, while remaining capital efficient EPS for the first quarter of 2025 with $1 67, and our free cash flow with $107 6 million, representing a 57% margin compared to 57% in the prior year.

Speaker Change: In Q1, we continue to invest the cash we generated from operations back into call it including $2 million on capital expenditures and $39 6 million to repurchase 292000 of routes Sandy shares.

Speaker Change: Please condensing RCRA repurchase program in February 2018, we have repurchased nine 6 million shares and returned nearly $1 1 billion in cash to shareholders.

Speaker Change: And does it ended the quarter, we had $303 8 million remaining in our share repurchase program.

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

Speaker Change: For the full year 2025, we expect revenue to be in the range of $648 million to $657 million, which represent a growth rate of 7% to 8%.

Speaker Change: This compares to prior guidance of $645 million to $57 million.

Speaker Change: For the second quarter of 2025, we expect revenue to be in the range of $159 seven to 160 to 70.

Speaker Change: Representing a growth rate of 79%.

Speaker Change: While we believe our platform approach to cyber risk management provide some insulation ongoing macro volatility this guidance assumes increased.

Speaker Change: Now more challenging environment for new business growth in 2025.

Speaker Change: Shifting to profitability guidance, given our strong Q1 performance for the full year 2025, we expect an EBITDA margin in the low to mid 40%, implying a 15% to 17% increase in operating expenses and our free cash flow margin in the mid 30.

Speaker Change: We expect full year EPS to be in the range of $66 three upfront prior range of five five to $5 nine.

Speaker Change: For the second quarter of 2025, we expect EPS to be in the range of one four to one five.

Speaker Change: Our planned capital expenditures in 2025 are expected to be in the range of $8 million to $11 million and for the second quarter of 2025, and the range of one 5% to $3 million.

Speaker Change: We continue to believe organizations will increasingly adopt cloud needed both Dr security and compliance coverage to meet the demands of today's threat landscape and reduce costs.

Speaker Change: And the impact of the macro economy is still unfolding, we are closely monitoring the business environment and adjusting our priorities accordingly.

Speaker Change: Considering the long term growth opportunities ahead of us and our industry, leading margins, implying. Furthermore for investment we intend to continue to responsibly align our product and marketing investments to focus on high impact initiatives aimed at driving more pipeline accelerating our partner program and expanding our federal vertical.

Speaker Change: As a percentage of revenue, we expect to prioritize increased investment in sales and marketing and engineering with a more modest increase in G&A.

Speaker Change: Distant with a commitment of balancing long term growth and profitability.

Speaker Change: With that Jonathan I'll be happy to answer any of your questions.

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

Speaker Change: And the first question will come from Jonathan Ho with William Blair. Your line is open.

Jonathan Ho: Hi, good afternoon, and congrats on the strong quarter I, just wanted to maybe understand a little bit better what your thoughts are around the macro environment.

Jonathan Ho: Haps, what youre seeing from customer spending so far and maybe what underpins your confidence to tighten the guidance range a little bit higher.

Jonathan Ho: Yes, I would say that at a high level. What we're seeing is similar to what we've seen in the last couple of years, where cyber securities.

Jonathan Ho: Continues to be an important aspect of risk management for the company and that is continued focus.

Speaker Change: However, as we have seen that as an excuse.

Speaker Change: More scrutiny on the spend ROI of the spend is important and we're seeing longer cycles. Because people are taking longer time to make that decision. So I think that that is what we continue to see right now for us given more recent changes.

Speaker Change: That is a little bit of uncertainty I would say and so.

Speaker Change: A little bit of that is factored into how we're thinking about the rest of the year, though we haven't particularly seen anything specific here.

Speaker Change: We're just being prudent about sort of what we see now and a little bit of expectation at all.

Speaker Change: People are scrutinizing things slow a bit more and continuing to.

Speaker Change: Spect budgets for not just in spite of fiber overall budget.

Speaker Change: Budget spend across the board with everything.

Speaker Change: Got it and then just in terms of your discussion of the rock can you talk a little bit about how that works from a customer journey perspective, what they may be add to their existing solutions and you know what.

Speaker Change: It looks from a it looks like from a financial perspective. Thank you.

Speaker Change: Yes, that's a great question I think really where everybody is struggling right now with OLED investments across multiple tools are generating content tons of risk signals and we routinely see that.

Speaker Change: You take one of our dealers an example, less than 95% of those one number to use.

Speaker Change: Our.

Speaker Change: I would say like less than 5% of our liberties or even have some form of potential immediate attack vector and so.

Summers: Summers as they're trying to figure it out.

Summers: How they don't end up with 10 different consoles from them different solutions and they look at risk.

Summers: We're seeing is our ability to take the risk operation Center idea of consolidating all assets from all tools all findings applying counterintelligence, providing contextual from a business perspective, adding dollar values to the business potential loss that they could have and then providing remediation plans as well as board reporting is what is sort of a <unk>.

Summers: Or any of our risk operations center and it starts with consolidation of assets and for US what we are seeing with EPA and we're able to.

Summers: Walk into customers, who they have multiple solutions and not necessarily start off with the conversation of replacing something that they have and so.

Summers: It took some of them.

Summers: Names that were currently pulling data from and so we're able to say look if you have this particular VM solution. If you have this particular information solution. If you have this particular identity solution you can keep that we can ingest the data from these tools and provide you a higher level of visibility of what your actual risk is that it aligns with pure.

Summers: Dollar value risk from your business entities that you have and then provide your reporting that you can take to the board and also the ITT is in terms of prioritizing what is the most important thing that they need to fix and what we're finding is that this approach is helping them.

Summers: Partner with the ITC team to not spend time on 16, hundreds and thousands of issues that actually are not exploitable or not available right now and so this is actually creating potential cost savings for the company in terms of not wasting developer and.

Summers: Time, as well as not wasting itt's time on fixing things that are not immediately.

Summers: And then going back and focusing on the things that are immediately actionable. So from a customer journey perspective, they look at it as something that layers on top of what they have so they don't need to work through a replacement plan and essentially pay an additional amount to quality as for the cost savings that they end up getting in terms of consolidation.

Summers: And not having to waste time on fixing things that are not important and so they are able to walk in and makeup.

Summers: Make a case for additional budget for this population center because they see the savings are coming out from the outcome of the risk Operation Center.

Summers: Got it thank you.

Patrick Colville: And the next question will come from Patrick Colville with Scotiabank. Your line is open.

Speaker Change: Thank you guys for taking my question I guess, let me just ask one to Sumit and Jimmy.

Patrick Colville: In your prepared remarks.

Patrick Colville: There was a comment that macro at the end of the quarter was a challenge.

Patrick Colville: <unk>.

Patrick Colville: I mean.

Patrick Colville: Are there any deals that pushed at the end of <unk> into <unk> or pooled.

Patrick Colville: Or was that comment kind of in isolation.

Didn't have an impact on current billings.

Patrick Colville: Yeah, there wasn't any material deals that was pushed airport and the current quarter that was more of the commentary around the fact that like let's say a customer that was set to renew in the quarter, we had anticipated higher upsell rate potentially from that customer increasing their spend with us.

Patrick Colville: And we saw some pushback and so that that doesn't necessarily mean that it's a push it it's going to be closed in Q2 in the quarter impact of calling out.

Patrick Colville: Okay Crystal clear and.

Patrick Colville: Congrats on the all these.

Terrific announcements made by Colas at RSA Conference.

Speaker Change: I will actually touch on the announcement made by a competitor.

Speaker Change: Best known for endpoint security, they gea product expanding into network based.

Speaker Change: I mean would you mind just commenting on.

Speaker Change: Your thoughts on.

Speaker Change:

Speaker Change: I guess other cyber security players moving into network.

Speaker Change: And.

Speaker Change: How close is defending.

Speaker Change: Against these guys. Thank you.

Speaker Change: Yeah, Great question, and I think we're actually pretty happy too.

Speaker Change: See that competitors are acknowledging that their current solutions, which are agent only are not enough to give customers a full view of what.

Speaker Change: Also our tax offices from one Liberty perspective, and so while we haven't really seen that solution.

Speaker Change: With any of our current customer engagements or prospect engagements, we've heard about it to.

Speaker Change: To me I think as I had mentioned earlier.

Speaker Change: And even going back four five years ago quality really has been talking about the evolution of our Liberty management.

Speaker Change: Less about finding more vulnerabilities that you are not able to fixed and more about focusing on the ones that actually matter to the risks and then actually helping them remediate and so our focus really has been about how do we help them prioritize and remediate the findings and rather than just finding more findings, which are not being fixed anyway and two.

Speaker Change: To that extent we are.

Speaker Change: We are taking data.

Speaker Change: Those findings from the competitor and providing customers a higher value capability around taking that information.

Speaker Change: A big Bob of findings that are hard to decipher and adding the right context with over 20 plus years of significant research that we have done in all of these and one of the <unk> exploitation and using back to provide additional value on top of that and so I think it's really leading to the customer having the choice that they can either.

Speaker Change: This quality of service to others.

Speaker Change: Sure.

Speaker Change: Something that satisfies their needs for that particular environment, we will still be able to take that data.

Speaker Change: Already seeing consuming data from competitors. So I think when the solution comes out that we will take a look at it and see how our customers feel about that but having said that we're not dependent on the customers leveraging all the scanner necessarily define the while liberty's as we move forward with our focus on risk Operation Center.

Speaker Change: Yes, that's very clear and.

Speaker Change: Thank you so much.

Speaker Change: And the next question comes from Kingsley Crane with Canaccord. Your line is open.

Kingsley Crane: Hi, Thanks for taking the question I appreciated your comments on total AI curious how would you would characterize the competitive market in ASTM.

Kingsley Crane: How do you think security budgets are going to play out with respect to that market do you think that they need to lag as we wait for upstream adoption or are you already seeing some nice uptick.

Kingsley Crane: Great question.

Kingsley Crane: Right now everybody seems more in the exploratory phase rather badly.

Kingsley Crane: There are some very very early adopters, but I think overall, we feel like a lot of customers are just trying to understand the risk of vectors that are coming from.

Kingsley Crane: Perpetually AI, they're looking at what are the solutions out there. So I don't think this is more of a competitor being as much as an educational phase that customers are going through as they are looking at various AI security solutions that are out there trying to figure out where within the AI journey is the place that have the maximum risk from a business perspective to mitigate and so we have hired some great.

Conversations around totally out of you already have a couple of customers that are engaged with POC with us on Gogo.

Kingsley Crane: In terms of being able to focusing on llm's that theyre going to put out and now with our new announcement that we will they will be able to run LLM scans within their environment means that they can actually test. These LMS in the preproduction before they go out and the dynamic that is playing out right now is <unk>.

Kingsley Crane: Our ready to say, Hey, Here's a few llm's, we're ready to go to production with their asking a security being for sign off before they go and the security team doesn't necessarily have a good knowledge our idea of what they can do for the final perspective, and so with the <unk> solution is like a point <unk> scanner.

Kingsley Crane: Pointed to the LLM. It gives you a green yellow red signal to say, whether this aluminum is good to go or not so that's the dynamic in terms of people who are evaluating looking at it and trying to figure out I think the second dynamic is.

Speaker Change: Given that overall security budgets are not increased significantly when with the onset of AI people are in the mode right now of trying to figure out what the potential loss that they could have from an AI.

Speaker Change: <unk> entered into certain perspective, and then using that this year to formulate their ask for budgets for next year.

Speaker Change: So while we will continue to see more interest and more adoption in terms of Poc's this year and maybe.

Speaker Change: Few customers signing up for a few more AI related scans.

Speaker Change: I think this is a journey that is going to take a couple of more years, where people really have the Gordon make the case for why they need.

Speaker Change: No budget for AI security and then the willingness of the business to give them additional versus asking them to adjust against existing budget thats been a look at it to them I think that remains to be seen.

Speaker Change: Thanks, that's really helpful and then for Jimmy.

Speaker Change: A quarter ago, we were looking at EPS guidance that was down year over year now we have meaningfully raised this quarter.

Speaker Change: Good points roughly flat from last year, but can you speak to what.

Speaker Change: Went into the change over the past quarter I think last quarter, you had called out.

Speaker Change: Investments in data centers and aligning some product marketing with.

Speaker Change: To break into federal just kind of curious any specific points that have changed thanks.

Speaker Change: Yes last quarter the guidance was informed by our annual planning until we like to do it we'd like to set aside sufficient funds to be able to execute on the priorities that we had set at the beginning of the year and as we move through the quarter you see that our EBITDA margin came in at 47% with our sales and marketing growing.

Speaker Change: 15%, which is a healthy growth in and of itself, but with that said.

Speaker Change: Looking back at Q1 performance and achievements and initiatives that we have.

Speaker Change: First off for the rest of the year, we felt that that growth right now.

Speaker Change: We're expecting on the Opex is more along the lines of 15% to 17%, while we've seen a great SaaS or on traction in and our ability to work very closely with our partners, which may not really translate to a significant increase in sales and marketing spend this year and so that kind of speaks to why.

Speaker Change: The margin contraction is not as significant as what we had anticipated at the beginning of the year.

Speaker Change: Okay helpful. Thank you.

Speaker Change: And the next question comes from Rudy Kessinger with D. A Davidson your line is open.

Speaker Change: Hey, Thanks for taking my questions.

Speaker Change: I saw the LTM 500, K, plus ACB customer count actually dropped by four versus Q4.

Speaker Change: One of your competitors had called out a record quarter of seven figure deals at the same time I heard you guys call out I believe improved gross retention so.

Speaker Change: Were there any large customer losses, or some down so that push customers grow that threshold or just any comment on that.

Speaker Change: And really nothing out of the ordinary to call out, Florida order win rates have been stable and as you saw we improved our gross retention and so that that metric you talk about is an LTM metric and so we continue to see in some quarters, sometimes customers might have.

Speaker Change: So with that has been offset by a larger upsells with another customer or we might that sometimes can drop down below the 500 cable, but again I think we're.

Speaker Change: We're glad to see that there continues to result in that area.

Speaker Change: Year over year.

Speaker Change: From our perspective, we're glad to see that with our focused efforts, we're seeing some good incremental improvement in our retention.

Speaker Change: Got it Okay, and then Jimmy for Ya apologies I joined the call a bit late I just wanted to understand maybe some of the increased conservatism in the guidance the macro for the remainder of the year I guess are you now expecting.

Speaker Change: The retention rate.

Speaker Change: Maybe come down a point or two versus kind of staying flat at the $1 3 million and what are you expecting on a new book New logo bookings standpoint for the rest of the year I guess versus prior guidance and versus last year.

Speaker Change: No material change.

Speaker Change: By that I know that <unk> right now what we're seeing in the business today is at the end of the call to that end of the quarter, we did see some pushback and some impact from the macro.

Speaker Change: And what that resulted in is.

Speaker Change: Even with the lower than what we would have liked to accelerate to be it was more than offset by the cost side, our retention rate was a little bit better and so all in all we did end up 130%. So we're assuming lastly, with that well four throughout the rest of the year. We do expect to continue to see some headwinds in your pocket and its affiliates.

Robyn: Thank you Robyn.

Robyn: We're guiding to a revenue growth rate of 7% to 8% for the full year.

Trevor Walsh: And the next question comes from Trevor Walsh with citizens. Your line is open.

Trevor Walsh: Great. Thanks for taking the questions.

Speaker Change: Maybe for you could could you just block us through how youre thinking about the amrok kind of rollout with partners and how youre getting mind share with them when they've got a lot of different managed services that they are probably trying to bring to market and then and then kind of with that why not why just kind of the six to start.

Speaker Change: A lot of other players you could go after out there to partner with so is there kind of more to fall or how youre thinking about just onboarding to dose. Thanks.

Speaker Change: <unk>.

Speaker Change: Well, that's a relief.

Speaker Change: Good question and we're pretty excited about this because.

Speaker Change: As you know the last three years or so we've really been focused on our partner strategy and our partner first strategy and you can see that in the numbers the way the business is moving more towards partners and so part of that we really felt like we wanted to do something that was meaningful to our partners and it wasn't just about a few points here or there in terms of resell.

Speaker Change: And when we talk to some of the partners as you said they are.

Speaker Change: Managed services to enable a lot of their managed services that are around MTR, which is becoming a more and more commoditized are price sensitive because everybody is offering some sort of an MBR service. However, MBR services, our post breach detection.

Speaker Change: There is somebody in my environment.

Speaker Change: That I can detect and be able to alert and take action by looking at data from all of their different tools and that's a different architecture.

Speaker Change: We talk when we talk to our partners. They felt like they did not have really great.

Speaker Change: Services from our managed service perspective, other than sort of point solution type services for scanning service as a managed service or patching as a managed service.

Speaker Change: So when we introduced the concept of risk Operation Center. It was also pretty clear that the implementing the risk operation Center, we have a great platform that we have with EDM that consolidates all of these findings however, the customer doesn't need help with this.

Speaker Change: This quantification, putting dollar value terms in terms of how their business is evolving what the discard that need some help with connectors that need help with actively monitoring risk because today. The issues there are millions and millions of findings, which out of doors once qualities prioritize truly actually impact their environment by looking at their environment, So sort of a.

Speaker Change: Edison monitoring service and then ultimately aristocrat mediation sideways and so these are fairly new services that most MSP is don't have when we talk to them and so they were excited about the ability to launch new or different services and the market rather than just launching another MD auto which is a pretty saturated so.

Speaker Change: But from that perspective, we wanted to work closely and prioritize with the.

Speaker Change: Partners that truly understand the vision and audio.

Speaker Change: Investing together with us in terms of resources hiring the right people on their side for quantification type services and working with us to provide a tightly bundled.

Speaker Change: Service and so today, we focused on those first six theres other large partners that are a few others.

Speaker Change: Talking to as well and the ability the excitement for them is can they make a few more dollars of services on a dollar of quality <unk> that they sell is the exciting part for them. So we are going to continue to work with selected strategic partners that are really working closing investing or other things or solar.

Speaker Change: It available on the shelf and they're resetting so thats really the focus and our target there is that <unk> partners would be more excited too.

Speaker Change: <unk>.

Speaker Change: More customers to quality because that will allow them to create more dollars of services.

Speaker Change: This may be a competitor who is competing with them on services offered in professional services and does not provide a lot of capability to add additional services on top of just reselling. So it's a very strategic move for us and we're excited to see.

Speaker Change: Globally multiple partners actually signing up and excited about this.

Speaker Change: Awesome, that's great I appreciate all the color there Jimmy maybe just one quick follow up for you kind of along the same lines.

Speaker Change: I think last quarter, you had mentioned some gross margin pressure as these partner programs are rolled out but it looks like at least from just the results in this quarter that you were a little bit ahead of kind of where expectations were around gross margin. So does that just a function of maybe the partner program is still kind of.

Speaker Change: Basically still launching and so youre not seeing kind of added gross margin requirements, there or do you have kind of a new perspective on kind of where our gross margins should track kind of heading into the rest of the year.

Speaker Change: Yes, we have talked about the gross margin contraction, primarily due to the data center operations investments that we plan to continue to make throughout the year.

Speaker Change: So that really hasn't changed from the pressure on the partner side I think that we've actually seen it we don't expect it to be material. If you take a look at our revenue.

Speaker Change: Continue to tick up with 49% of our revenue coming from the channel side and so from that perspective.

Speaker Change: Unless there's any meaningful change of pricing retentive program, which we don't foresee for this year, we kind of see no impact on gross margin.

Speaker Change: To our partnering initiatives.

Speaker Change: Awesome. Thanks, Paul I appreciate the time.

Speaker Change: The next question comes from Joshua Tilton with Wolfe Research Your line is open.

Joshua Tilton: Hey, guys. Thanks for taking my questions I have two I will also apologize if they've been addressed just jumping around on a few calls.

Joshua Tilton: My first question is on billings I think you've kind of been asked a few times, but I'm just going to be a little bit more direct with the billings growth that you saw in the quarter in line below or above your expectations for the quarter and then going forward, how should we think about billings growth relative to revenue growth and <unk>.

Joshua Tilton: Pacifically <unk> given the interest income from last year.

Joshua Tilton: Yes, correct, because we don't manage to it we don't really have the necessarily expectations for the current quarter that well we did comment on his last last quarter. We did expect current billings to be more or less in line with the annual revenue growth rate guidance of 6% to 8%. So 7% current billings for the quarter wasn't at the <unk>.

Joshua Tilton: This to us and I would say that even though we don't actively managed to ask you where to look for a color for the annual current billings growth and it'll be more or less the same as our prior guidance of 6% to 8%.

Speaker Change: Super Helpful. And then maybe just one follow up here I think in response to a question about the bottom line beat you talked about how your plan for the year you talked about some potential investment for you guys.

Speaker Change: Go into the year setting yourself cushion for in case, you can execute I guess from your perspective.

Speaker Change: What would it take to ignite growth on the direct side of the business.

Speaker Change: Kind of trend towards there'll be more in line with what you are seeing on the partner side.

Speaker Change: I think for the direct side of the business, we are not expecting an acceleration on that side just because we are taking a partner first approach for this year, whether it's from a new new business perspective, as well as existing customer perspective, so what this year.

Speaker Change: Really focused on is making sure that were building the channel partner team in house at Roth working closely with our top partners to come up with different programs and initiatives. So that they can help us with the lead generation as well as us kind of discussing with them for our existing policy curtailments are currently direct with us where it makes sense for them to go.

Speaker Change: <unk> partners could add more value and so for us it's about the partner kind of driving rattler diverse it trying to moderate the deceleration on the direct side.

Speaker Change: Makes sense. Thank you guys I appreciate it.

Sharon: And the next question comes from Sharon.

Speaker Change: Sorry with Baird. Your line is open.

Sharon: Hey, Congrats Tim Thanks for squeezing me in again was running a bit late so I apologize.

Speaker Change: You disclosed the total cloud C&I kind of now 5% of bookings.

Speaker Change: Mid six figure Sienna deal and that sounds around licensure. So can you kind of help kind of breakdown. The elements of that ran like how are you differentiating in what is arguably.

Speaker Change: Alright, great.

Speaker Change: And that the.

Speaker Change: I believe you said the audit readiness message integrated risk all of that is serving as a key right.

Speaker Change: Just curious how does.

Speaker Change: Cross selling to random.

Speaker Change: Fox overall, the snap is growing and is it mostly greenfield and then I had a quick follow up.

Speaker Change: Yes.

Speaker Change: Still early days with the cloud solution I think we're happy with.

Speaker Change: Having reached 5% LTM.

Speaker Change: Image of our bookings again shows that our solution is that the level of our investment in getting our sales force trained and our partners working with US is working even though it's early days.

Speaker Change: As you said the market is crowded I think customers have different requirements. If not every customer has the exact same requirements for cloud and what we see is that there are times when customers prefer to take the program that they are built with <unk> <unk>.

Speaker Change: All these years.

Speaker Change: Also from the auditor perspective with expand that into the cloud in some cases, they might want to go with some other provider for some part of the cloud and so continue with quality.

Speaker Change: On the workload side. So today our approach really is.

Speaker Change: We're pretty mature solution now that is offering all kinds of different capabilities, including <unk>.

Speaker Change: <unk>, including identity cloud identity management.

Speaker Change: Bottom out oxy combination so we're seeing those wins when we're going head to head depending on what that particular customer ones. In some cases, we see that customers are adopting quality for one part of the environment and maybe somebody else force ESPN I think the exciting thing for us is that with the ATM the.

Speaker Change: Operation Center solution, we have customers, where they might be using a different cloud provider for part of their cloud fit and we're actually now able to bring the data from that cloud provider in the call is to give the customer a unified view of all of their different capabilities, whether it's on laptops and that has gone on.

Speaker Change: Prem environments, whether it's on the cloud they are able to see a unified view of the risk and so for us.

Speaker Change: Where it makes sense for the customer to leverage our cloud native solution, we're working with them in some cases, it's a partnership with other providers and in some cases.

Speaker Change: There is another provides us whatsoever.

Speaker Change: Looking at production revenue from them, because we're pulling the findings and data, adding meaningful context to the wallet began with some condition side of it and to your point on the arbitration is this is what we see is a big area of focus on spine for C stores, where part of it is on risk management, but the other part of the strength of our budget for them is around <unk>.

Speaker Change: Ensuring that they don't feel audits because thats fully within your control as organization to make sure that we don't failure audit by putting the right controls in place and so the.

Audits are costly and.

Speaker Change: Whether it's cloud and the cloud our liberties on Prem and the amount of work that goes into manually collecting evidence and once the order is onboard when they go and ask you to find some data. So we're seeing the combination of quality not just about finding buckets, but also helping them.

Speaker Change: The findings in the bigger context of risk, but also in the context of audit readiness. So that they can be completely prepared for audits.

Speaker Change: He is helping drive that focus on saying well, maybe we should just lowers the wireless plug in for cloud security, but if it's not then they have something else, we're more than happy to take the data, which will as being in the current POC, where we are taking data from other cloud providers already in giving the customer a single view.

Speaker Change: Got it thanks, a lot so Mike very helpful and Joey just a quick follow up to some of the previous line of questioning and then yeah.

Speaker Change: Definitely onto the longstanding margin discipline are targeting of course.

Speaker Change: Low forty's.

Speaker Change: I guess, just shifting bookings or towards higher value commodity with C&I Botswana.

Speaker Change: Just curious like how are you deciding in autosomal feel free to chime in as well.

Speaker Change: How to deploy the incremental opex.

Speaker Change: The lines of new sales leadership.

Speaker Change: Okay, and then last one is in total cloud, which is tax rate that just broader ethanolamine and product just curious how youre thinking about it.

Speaker Change: Yes, So we were thinking about it is at the beginning of the year. We do go through a number of initiatives, whether it's from a product development standpoint that engineering effort and investment that we have to make on the R&D side as well as operations and data centers. In addition to the sales and marketing the go to market.

Speaker Change: Basically based on what we think that we'll be able to achieve and thats great year, what the goals, we set for ourselves and then the risk weighted adjusted target does that makes sense and then because of that you have.

Speaker Change: Syed significant flexibility for us to execute on a number of initiatives that you have the bandwidth to do way aside from that we did take into consideration that.

Speaker Change: If we were to onboard and use C. R.

Speaker Change: There will be some kind of re evaluating some of the initiatives we want to make sure that we have enough funds available for us to make some bets that are appropriate for our business today.

Speaker Change: Got it I appreciate it thanks a lot.

Speaker Change: Yes.

Speaker Change: The next question comes from Ian Kim with loop.

Speaker Change: Your line is now open.

Speaker Change: Hey, Matt.

Speaker Change: On your channel strategy around MSP partners, how long does it take for these MSP partners to ramp and then also are these.

Speaker Change: B partners, how you're initially focused on.

Speaker Change: Are they targeting certain customer segments like <unk>.

Speaker Change: Primarily targeting SMB or mid market.

Speaker Change: Yes, let me this is a new services right. This is not like MD out of it it's a well known service. So as they are ramping up they are also figuring out on operationally on their side.

Speaker Change: Are they in restaurants that they need and they are making those investments to make sure that they're able to.

Speaker Change: Work with the customers that need this kind of a view.

Speaker Change: So there is excitement around that.

Speaker Change: I think the time it takes.

Speaker Change: We're already engaged with a couple of partners who are part of these poc's who brought us. These POC. So we're seeing the excitement and we're seeing that engagement already.

Speaker Change: I think the last part of your question that regards sorry.

Speaker Change: Just are these partners kind of focus on certain customer segments like are they primarily if I can the F&B market.

Speaker Change: I think overall I feel like the risk operation Center solution, we're pretty much more for anybody who has more than three security solutions, which is pretty much everybody at this point, However, I think.

Speaker Change: Yes.

Speaker Change: The number of findings and the amount of triage that they have to go through to figure out those findings I think there is a lot more of high priority for the larger customers right now so most of the POC is that we see engagement or <unk>.

Speaker Change: Large enterprises that have multiple tools multiple solutions and are really struggling to convince their it teams to focus on fixing things as well as they are struggling with.

Speaker Change: Showing ottawa large spend to their CFO onto their aboard and so thats kind of where we are seeing.

Speaker Change: Target for.

Speaker Change: For these customers for that necessity is the large customers that have a bunch of these large tools on a large number of efforts.

Speaker Change: Okay, great all right thanks for that.

Speaker Change: Kent, if you can remind us how renewals are lined up for the rest of the year do you expect the typical.

Speaker Change: Seasonal pattern like we saw over the last couple of years or do you see it certainly video is kind of shifting.

Speaker Change: Between first half and second half.

Speaker Change: Yes, I would say I assume the same seasonality as the prior year.

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

Speaker Change: The next question comes from Rob Owens with Piper Sandler Your line is open.

Speaker Change: Yes. Good afternoon, thanks for taking my question.

Speaker Change: Just a quick one on geographic mix and so I guess more so from the standpoint, if I look over the last year North America has been very soft for you guys growing low to mid single digits, while internationally, you've actually put up some some pretty reasonable results can you just parse your success internationally and why why domestically it's been.

Speaker Change: So difficult for you guys. Thanks.

Speaker Change: But I would say at the high level of international tends to be more partner oriented business and as we are focusing more on working with our partners and channel partners.

Speaker Change: With them, we are naturally seeing a little bit more success, we're already it's a much more partner oriented things I think we do see opportunity for continuing to improve.

Speaker Change: Our execution in North America, with our partners and so that's where part of the embark services.

Speaker Change: Aligning up with creating ability for them to be able to provide more services around quality.

Speaker Change: It can be that.

Speaker Change: That's sort of a.

Speaker Change: Catalysts that we are working with them to see if as we bring them we bring our existing direct accounts in North America to them, how do we do a gift to get where they are able to bring us additional new business.

Speaker Change: That we don't have today and Youre come from moving some of these custom.

Speaker Change: Customers to them. So those are the motions that were going through right now and we're looking forward to executing on some of these.

Speaker Change: Improving how we can get this business in North America as well.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: And our next question comes from Oscar Saavedra with Morgan Stanley. Your line is open.

Oscar Saavedra: Hi, Thank you for taking my question and congrats on a great quarter. Jeremy regarding partners can you give us an update on performance in terms of lead generation and pipeline generation.

Oscar Saavedra: How has that been tracking against your internal expectations and when we think about the guidance.

Oscar Saavedra: To what extent is it assuming that that continues to improve or is it assuming still.

Oscar Saavedra: Similar to what Youre seeing in the current quarter. Thank you.

Oscar Saavedra: Yes.

Oscar Saavedra: Been satisfied with the progress that we've been making on the partner side relative to the direct business, we've seen like pipeline increase accessing increasing the deal right.

Oscar Saavedra: And our guidance, we're kind of assuming is not.

Not a meaningful improvement from what we see today, it's kind of stayed the course given that we are expecting an increase in budget scrutiny given the macro so we've adjusted and we've taken that into consideration when setting guidance, but with that said we are very happy with the progress that we're making with partner can you kind of are hoping that once the macro improves we will see meaningful improvement.

Oscar Saavedra: There.

Oscar Saavedra: Very clear thank you very much.

Oscar Saavedra: There are no further questions at this time.

Oscar Saavedra: Does conclude the Q&A session and today's conference call.

Oscar Saavedra: Thank you for participating and you may now disconnect.

Oscar Saavedra: Goodbye.

Oscar Saavedra: Okay.

Oscar Saavedra: [music].

Oscar Saavedra: Okay.

Oscar Saavedra: Yeah.