Good day, everyone, and welcome to Qualys' First Quarter 2018 Earnings Conference Call. This call is being recorded. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions for asking a question will be given at that time. I would now like to turn the call over to Joo Mi Kim, Vice President, FPA and Investor Relations.
Please go ahead, ma'am.
Thanks, Brian. Good afternoon, and welcome to Qualys' Q1 2018 earnings call. Joining me today to discuss our results are Philippe Couto, our Chairman and CEO and Melissa Fisher, our CFO. Before we get started, I would 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.
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 Q and 10 ks. 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. A reconciliation of GAAP to non GAAP measures is included in today's earnings press release. As a reminder, the press release, prepared remarks and an accompanying investor presentation with supplemental information are available on our website.
With that, I'd like to turn the call over to Philippe.
Thank you, Jumi, and welcome, everyone, to our Q1 earnings call. As we've previewed with many of you, we have shortened our prepared remarks to allow more time for questions and discussion. Melissa and I are pleased to report another great quarter that included both strong revenues and leading profitability. Melissa will go through those details in a moment. These results reflect our position as the leading security and compliance cloud based platform that is centrally managed and self updating and which provides for the 5 key tenets of security to date visibility, accuracy, scale, immediacy and transparent orchestration.
In Q1, our go to market capabilities expanded as follows: In partnership with the Cloud Security Alliance, we launched the inaugural CIO CISO interchange to enable security experts to share best practices on securing the digital transformation expanded integration of the Qualys Cloud platform, including Qualys Vulnerability Management VM and Policy Compliance PC, Cloud Apps with the DXC Threat and Vulnerability Management MSS portfolio. We fully integrated the Qualys Cloud platform with Ertseng Yang Cybersecurity Innovation and Operations Centers that opened in July 2017 to help join clients stay ahead of emerging threats. And we released 2 free groundbreaking services CloudView and CertView, providing companies of all size the instant ability to track and monitor digital certificates and cloud resources. Most recently, we announced the following product achievements: the acquisition of 1 Mobility, which enabled us to uniquely provide enterprises, discovery, inventory, security, compliance and response on both enterprise owned as well as employee owned endpoints, expanding our footprint within our customer base. Our ability to then provide global asset IT inventory as well as cloud inventory in 2 seconds will be unmatched by competitive offerings.
Integration with Illumio to deliver the industry's first vulnerability based micro segmentation and integration also with the Cloud Security Command Center, Cloud SCC for Google Platform GPC. RSA Conference 2018 was clearly a turning point for our company as our platform, which uniquely provides full visibility across on premise, endpoints, cloud environments and soon mobile, resonated extremely well with both customers and partner, including the release of new services and demonstration of new technology to come. We showcased CertView and CloudView, 2 new free groundbreaking services to help organization gain visibility of the digital certificates via CertView and track and monitor public cloud assets and resources via CloudView. We released out of the box Jenkins integration, Swagger support and new Chrome browser recorder We demonstrated live our forthcoming passive scanning technology that delivers near real time network profiling and monitoring for continuous asset discovery of all devices that appears on the network, including mobile and IoT devices. The passive scanner monitors network traffic in a non intrusive manner to discover and fingerprint devices to determine topology, services and network threats.
At the RSA conference, we also saw a greater interest in our platform from our partners as cybersecurity services is becoming a more strategic offering for them. They recognize that the Qualys Cloud platform helps customers regain visibility across their hybrid cloud environment, consolidate their security and compliance stack and enable their digital transformation by helping them build security and not bolt it on. Our Qualys cloud platform user used by over 10,300 customers serves also as a natural distribution channel, making instantly available new solutions and improvements across the globe to customers, thus providing us and our partners with both operational and financial leverage. With that, I will turn the call over to Melissa to discuss our financial results.
Thanks, Philippe, and good afternoon. Before I start, I'd like to note that except for revenue, all financial figures are non GAAP unless stated otherwise. As Philippe mentioned, we continue to see strong demand driven by our strategic positioning as the leading cloud platform in our markets, reflected in the following financial and operational highlights. Revenues for the Q1 of 2018 were $64,900,000 which represents 22% growth over the same quarter last year. The percentage of enterprise customers with 3 or more Qualys solutions rose to 34% this quarter, up from 27% a year ago.
The percentage of enterprise customers with 4 or more Qualys solutions rose to 16% this quarter, up from 9% a year ago. Average deal size continued to increase in Q1, growing 17% year over year. 7,300,000 cloud agents were purchased over the last 12 months, a 23% increase over the last quarter. And we saw good growth from both Cloud Agent and Threat Protection bookings. New products released since 2015 contributed approximately 15% of total bookings in the quarter, up from 8% in Q1 2017.
Our scalable model continues to drive industry leading margins and significant cash flow as reflected in adjusted EBITDA for the Q1 of 2018 of $24,600,000 representing a 38% margin as compared to 32% for the same quarter last year. For comparability purposes, Q1 adjusted EBITDA margin would be 37% adjusted for the impact of 606, specifically the amortization of commissions. And operating cash flow for the Q1 of 2018 increased by 33% year over year to $43,000,000 We continue to invest our cash in Qualys. Capital expenditures, including principal payments under capital lease obligations, were $6,700,000 in the Q1 of 2018. And in Q1, we repurchased 21,288 shares.
We have $98,500,000 remaining in our share repurchase authorization. Driven by our great results, our momentum in the marketplace and our scalable operational model, we're raising the low end of our fiscal year 2018 revenue guidance and therefore our midpoint. Our current fiscal year 2018 revenue guidance is now a range of 276 $800,000 to $278,500,000 We're raising our fiscal year 2018 non GAAP EPS guidance from a range of $1.39 to $1.44 to a range of $1.43 to 1.48 Q2 of 2018 to be in the range of $6,000,000 to $7,000,000 And we have a strong current deferred revenue balance of $147,700,000 as of March 31, 2018, 23% greater than our balance as of March 31, 2017. We look forward to sharing with you our vision, strategy, product roadmap and financial outlook at our virtual QSC user and analyst and investor events, June 13 to 14. With that, Philippe and I would be happy to answer any of your questions.
Thank you. We will now begin the question and answer session. Our first question will come from the line of Alexander Simon Needham. Your line is now
open. Great. Thank you very much. I was hoping you could talk a little bit about the decline in deferred or the slower growth in bookings. The growth I think has slowed down to from almost 20% down to 10% in the quarter.
Was there anything in that, I mean to do with the change in the accounting that accounted for that? Is it just seasonal? Anything along that, give us some sense of that would be helpful.
Yes. So remember, we had a great quarter. We have a very healthy outlook. As we discussed before, what you're the 10% you're referring to is a total billings calculation. And as we've said, if you are going to look at a billings metric, the proper metric would be current billings because our non current deferred revenue is driven by the number and amount of multiyear prepaid deals, which is customer driven.
We don't incent our sales force on that, and so that fluctuates. So that's why we focus on current deferred revenue growth, which is 23% year over year. Also remember, as we've discussed that billings is not a perfect proxy for bookings on a quarterly basis. Over time, it comes close. But on a quarterly basis, it may differ, for example, by the impact of the timing of invoicing.
So we may have a number of deals coming on March 31 that we end up invoicing on April 1. So we really emphasize that the trajectory of our annual revenue guidance is the best proxy for business momentum because certainly current bookings inform our guidance.
Great. That's perfect. Thank you very much. Thank
you. And our next question will come from the line of Sterling Auty JPMorgan. Your line is now open.
Hey, guys. This is actually Ugam Kamath on for Sterling.
Hi, Ugam.
A quick question. Hello. So, Malika, you mentioned that new products considered 15% of total bookings in the quarter. Just to dig in a level deeper, if we just exclude the cloud agents, how does the other products fare in terms of their contribution to the total bookings?
Yes. It's still primarily Cloud Agent bookings and from a proportion perspective, but this as a group, both the Cloud Agent and Threat Protection, which is the other larger category, continue to do very well. In total, they grew over 100 percent year over year.
Okay. And just as a follow-up to that previous question, how much are you penetrated within your base with the cloud agents? Just to think in terms of how much upsell opportunity is left.
Yes, that's a great question. There's still a lot of opportunity. At this point, only about 12% of our customers have a cloud agent. So there's still a lot of upside for us.
Yes. And I would add one point. We're starting now to see more deployment on the endpoints. In fact, we did with 1 customer who has deployed 3 180,000 agents on the endpoint. So we can see our agent moving now from the traditional servers to make vulnerability management and policy compliance more real time, more effective, less more precise, in fact.
Now we see our agent really moving very well on one hand on the endpoints as well as in cloud environment.
And our next question will come from the line of Howard Smith, First Analysis.
Yes. Thank you and congratulations on a solid start to the year. One for Philippe, one for Melissa. For Philippe, CloudVue CertVue, the free offering, a nice way to acquire some customers. I know it's very early days just coming out a couple of weeks ago.
But I was wondering if you could give any color on reception downloads commentary from people you've discussed it with that you're hearing?
Yes, I can certainly give you some color. So to be specific, so CloudView was totally GA. And so we have today about on CloudView, we had about more than 1,000 free sign in. And remember, this is a full service. So this is for people to essentially have the complete view of their inventory across all of their clouds.
So that's very good news, obviously. The 3rd view, which is the free service component is for any company in the world, small or large, who have the ability to track their digital certificates, Internet facing digital certificates, when where are they, when who signed them and when they're going to expire, has not is just now entering full GA. So we have of course, we are expecting to see on this one uptake as well.
Great. And Melissa, your cash flow was very strong this quarter. If I remember correctly, last Q1, there was some stock based comp and due to the accounting that comes in there. Did that repeat? Or was this just working capital items seasonally just coming in strong?
Actually, if you look at the year over year comparison, it's actually the increased profitability that drove it. Last year, we actually had an impact of a lot of multiyear prepaid deals being collected. We actually didn't have that. So it was really actually more driven by the profitability.
That's great. Thank you. Yes.
Thank you. And our next question will come from the line of Melissa Franchi with Morgan Stanley. Your line is now open.
Great. Thanks for taking my question. So just following up on earlier question about the adoption of multiple solutions. So one of the metrics that continues to reflect higher is the number of customers adopting 4 plus solutions. And so you mentioned Cloud Agent and Threat Protect, but I'm just wondering beyond those solutions, what are you seeing good traction in?
It's really across all of our solutions. But obviously, it's also going to include the older ones which have been out longer. For example, customers who are VM customers are adopting web application scanning or policy compliance would drive that as well or vice versa, customer that might have been policy compliance only adopting the vulnerability management.
Okay. Yes, it's brilliant across all of our services. And in fact, what really people appreciate more and more now, Fandel, is that we have essentially it's one single platform. And the analogy that you could really give is that if you look at your phone today, you have multiple apps. But these apps are disjointed in the sense that you go to Uber and you're going to have your credit card there and you're going to pay this, the different application.
With Qualys, all these apps that you have, they speak between each other, which by the way they improve. They essentially add value to each others, but then they're absolutely on one single platform. And that's really the customers are saying now to realize the benefits of that, especially with the amount of services that now we provide. So I think it's very clear that the strategy that all the work that went down to really create that significant back end, which integrates all of these applications is really paying off. And now, by the way, we're also working to really create a front end, which even more smoothly integrate all of these applications.
That's great. And just one quick follow-up for Melissa. So just kind of parsing through the comments that you made earlier in terms of the deferred revenue. So is it fair to say that the contract duration was shorter this quarter than a year ago? It sounds like that's kind of the conclusion.
And just wondering if you could maybe like put some numbers around it in terms of like what's the average length this quarter versus a year ago?
Yes. It's been around 1.1 the last few quarters. I think it may have increased like 1.2 a year ago. So these are kind of small moves.
Yes. And also it's because one thing is that when you look at the length of our contract, we have a lot of very small customers who typically are 1 year.
That's right.
So when we see if you look at the real trends, we see our enterprise customers moving more and more to 3 year contract when the SMB, SMB, they still stay at about a year.
Right. And then even separately from that, as I mentioned, our noncurrent deferred revenues is going to be impacted by the number of customers within that multiyear bucket that actually decide to prepay, which is obviously not all of them as well.
Okay. Thank you very much.
Yes.
Thank you. Our next question will come from the line of Matt Hedberg with RBC Capital Markets. Your line is now open.
Hey, guys. Thanks for taking my questions. Philippe, maybe starting with you. I'm wondering if you can give us a little bit more color on geographic performance. I'm curious if you guys have started to see any real benefit from GDPR yet?
So that's 2 questions. So geographic performance has been good everywhere. Europe doing very well and not really because of GDPR. I think we were not seeing yet really the direct GDPR correlation or obviously there is one, but it's because we see our customers in Europe deploying more and also adopting more new solutions. And we have a very good customer base in Europe, which in the past was essentially mono product.
And now they're starting to finally move to adopting more solutions. And therefore, the deals are getting a bit bigger and therefore, we have very good growth. And the upsells are bigger. So today the 3 markets U. S, the Americas, Europe and Asia are doing very well.
And then maybe one other one. On one of your newer product launches, it's still in beta. I'm curious for your container security solution, it seems like an interesting product. I'm wondering if there's any I know it's early and it's still private beta, but any feedback on that product? Who's sort of been interested in it?
And what does the competitive landscape look like for that?
So again, this is the same versus a very good question. So container is very hot, including for ourselves. I mean, we're now counterizing the entire infrastructure of Qualys. So we are also using ourselves our solutions there. So there's a huge interest for containers.
What again people like compared with other solution that this is again totally integrated with the Qualys platform. So all of our existing customers are really, really bullish. That product is coming close to GA. And I think this is still an early market, but it's becoming a very strategic market as companies are really moving into containers and moving into the cloud as well. So both CloudVue and the container security, again, all of that out of the same platform, which is the analogy I was giving earlier, think of having all of your apps in the phone being centrally managed, self updating with the same pay, everything the same.
Interoperable.
Interoperable, all the costs that you can eliminate. And then on the top of that, the ability for you also to create an app that also brings the data to you the way you like it to our customizable customers. So that's what we have done and I think it resonated, I would say, significantly and our partners were absolutely floored. We showcased the passive scanning, which is also again totally integrated. So now we can detect mobile and IoT devices, any devices connect on the network.
So we are on track to deliver the our passive scanning capabilities fully integrated by late summer.
That's great. Thanks a lot guys.
Thank you. And our next question will come from the line of Suri Nandri with Summit Your line is now open.
All right. Thank you so much. Melissa, I have a question for you. You mentioned the average deal size grew 17% year over year. Can you provide some color why what is driving this growth?
And also, can you comment on the length of the sales cycles in general? Have you seen any compression over the last year or so? I'll follow-up for Philippe.
Yes. Hi, Srini. So, it's a couple of different factors that have been impacting the increase in deal size. We've really seen it continue quarter after quarter to increase. One is we're seeing larger deployments of existing solutions.
So whether it's a new customer starting out bigger than traditionally we had seen or it's customer expanding with, let's say, their VM capabilities, that's part of it. But then it's also, they're adding on new solutions. So it's really multiple drivers, that are driving up the deal sizes.
Yes. And on the sales cycle, I think on our traditional market, I think the sales cycle are about the same. There are not significant changes. What we can see, but this is again this is new this is early, is that on the cloud for people who are looking at the cloud solutions that we can see that the selling cycle should be shorter because of course this is the new this is greenfield and people have need the visibility. And that's why an indication of that is clearly the 1,000 plus people who register for the free CloudView service.
Okay. Philippe, on your recent acquisition, 1mobility, could you provide some color? What does it do? Where is the acquisition expected to close? And who does it compete against in the market?
Thank you.
So, 1 Mobility is a fantastic acquisition that we made. The acquisition has closed. So this is a done deal. The team is already integrated in Pune India totally. And essentially what they provide is what they have done is a very nice mobile application, which with a very well architectured agent that goes into every version of Androids, of Apple iOS as well as Microsoft Mobile.
And if I recall correctly, I think also BlackBerry. And so that essentially, it's a similar agent technology that the one that we have for the traditional devices. And so we're bringing that into Qualys, which means it's going to extend all the capabilities that we currently have with the Qualys to the mobile environment. And that's something that every customer demands. Essentially, I've got this and I'm sure this is your case as well.
I've got this app I use myself an Apple tablet. So today, the only thing that you have is essentially mobile management devices. But in terms of the security of the devices of being able to quarantine that device, if there is something which has been detected, which is not capable, there's really nothing out there.
So I
think this has increased significantly the strategic value of Qualys. And in terms of whether we're going to have that to market, so the current plan is to have, in fact, their solution, which we are integrating into the platform. As you know, everything we do when we acquire these companies, we don't continue selling what they have really, because we put all of our effort to integrating that into the platform. The reason is because once these solutions are integrated into the platform, not only it makes a lot of it makes it much easier and much more cost effective for our customers, but also we can distribute this application instantly across the globe to all of our customers. And again, and then they also centrally manage and self updating.
So again, so we're very coherent with our architecture. So we're anticipating to have that their solution totally integrated with Qualys in the Q1 of next year. Thanks. Thanks for the color.
Thank you. And our next question will come from the line of Eric Carpenter with JPMorgan Securities. Your line is now
open.
Actually, it was the JMP, but two questions. 1, your new products, they have been growing. The percentage of revenues generated by new products have been growing pretty rapidly. If you go back a few quarters, they've leveled off in the last three quarters. I think they were 14, 15 and 15.
Can you give us a sense of how what kind of expectation we might have for that going forward? Is there any reason why that wouldn't reaccelerate or what are your thoughts there? And then secondly, can you give us the metrics for Cloud Agent? How many additional agents you deployed in the quarter?
Yes. So let me take the first question first. So our new products have actually been doing very well. As I mentioned, bookings actually grew over 100% year over year. Remember, the percent of total company bookings is relative to how the rest of the solutions are doing at any point in time.
So for example, in quarters where other solutions are growing very well, like this quarter, vulnerability management, web application scanning did very well, The overall mix isn't going to shift much. So it's a little bit hard to predict. And remember that we focus on total company revenues because we're selling a platform and we don't incent our sales force by products because we don't want them to push customers on product that they're not going to renew. So I think that's why we provided the additional color to let you know that these solutions are doing very well and the mix in any one quarter may change.
Yes. The one thing that I would add to what Melissa said is that, of course, as we deliver more and more services, obviously, you would naturally expect that, of course, the volume of new solutions as compared to the existing ones will grow. So
a
quick question on that front. Does that suggest that over the longer term, we should expect that 15% to reaccelerate? Or is it just difficult to know how the VM side is going to perform?
I would say probably. It's the most yes, absolutely. VM is doing very well because again, because VM now is becoming much more strategic, people realize they need to have the visibility on everything. And so, of course, we have expansion still in our existing customers. There's still there's a lot of companies which are not really doing full EVM.
So we have that behind us. So that will continue. But I think at some point in time, the mass of new services that we're bringing to market, which is quite impressive, of course, is going to have a take.
Yes. And I was going to add to that because we're also we're going to get the leverage from the additional new solutions coming out today. It's primarily still Cloud Agent Threat Protection. For example, FIM IOC, they're still very early. We'll not only have additional revenues from those, but as well as the new solutions that we're talking about GA ing, the CloudView assessment, the management of digital certificates, security.
So we will have right, just by numbers more of it, that should drive it. It's just hard to predict sort of the actual specific numbers over which period in time.
Okay. And the Cloud Agent?
Yes. So I had mentioned that Cloud Agents, we had sold 7,300,000 over the last 12 months. We reported last quarter 6,000,000 Cloud Agents. So the difference is 1,300,000 net.
Okay. That's that. Thank you.
Thank you. And our next question will come from the line of Jason Nolan with Baird. Your line is now open.
Okay, great. Thank you. Philippe, I wanted to ask on RSA, you called it a turning point. How did conversations with customers and did it result in better or higher quality lead generation?
No, no. I think the customers, what would be because of all the demonstration that we make and our customers seeing that we're really delivering everything that is really coming together in a very well integrated. So it was a kind of a moment. Yes, this is it. Qualys is there.
And we saw the same reaction from our partners. Our partners, which typically were looking at us much more like the VM solution that they have and they are very happy with, but certainly they realize all these additional service that they can leverage. So I think it was a kind of a moment. And at the time, which is interesting, when you contrast that with the cacophony of RSA, which you have so many solutions, so many vendors, everybody is lost, including ourselves. So Synchro is bringing all these applications today in a very rational way, in a very well integrated way.
Again, everything centrally managed, everything self updating out of this one single platform. That was really, really music to the ears of both of our customers and our partner.
And just to follow-up there, we had a large integrator at the show tell us or he was joking saying everyone claims to be cloud now and that's the market coming toward you. But does that change the competitive landscape or confuse the buyer at all?
I think the buyers our customers are becoming, of course, less and less confused in a way because obviously, they realize that they made the right often have the ability to essentially start to accelerate our penetration of the market, which is already pretty high. So that's where we came out of that, I would say, very bullish. We did that one initiative with the Cloud Security Alliances, which is quite significant, which is essentially what we're embarking with the Cloud Security Alliance, which as you may recall, it's about 100 chapters in the world with 80,000 volunteers, which are all security professionals. And really, they've been focusing since like us, since 2009 on the metrics to secure the cloud. And now today, they are embarking into what do we need to do to really secure enable the digital transformation.
So we're all going to embark into conferences, into forums everywhere in the world to essentially bring our customers and, of course, other users to with experts to discuss about enabling the digital transformation. So that's a significant initiative. We had done something very similar many years ago. I did that with the late Howard Schmidt when at the time when Vulnerability Management was looked as a kind of a secondary application. So we went with our customers, with our early adopters and with Howard and myself and a few other experts to really evangelize why vulnerability management was important because you've got to know your vulnerabilities simply before the hackers can find them.
And so finally, it took that long. So we I've been evangelizing the cloud as well for so long, but now the time is there. And so we saw what we call transparent orchestration, the full integration with Azure that we did. So people a lot of people speak about orchestration, but that orchestration is still the old way, which is essentially you have workflows when at the end of the day, everything could be totally transparently integrated. And that's what we showcase also at the cloud that we have with Microsoft Azure, which is absolutely remarkable.
And again, in order to do that, you have to have the right architecture, which we go back to your question, which is there's a lot of people talking about how we've got a cloud platform, but how many really do have one. So there's not that many because that's not something that you do that easily.
Thanks for the color, Philippe.
Thank you. And our next question will come from the line of Rob Owens with KeyBanc Capital. Your line is now open.
Great. Thank you for taking my question. I think in your prepared remarks, you mentioned 12% of your customers have the cloud agent. Can you remind me how that's been trending? And I guess if you can slice it one other way with new customer acquisition in the quarter, kind of what's the hit rate of those new customers taking cloud agents?
Yes. So, that's right. It's 12% this quarter, Rob. It was 11% last quarter. So it's kind of been moving 1% to 2% over the last few quarters.
In terms of what new customers buy, it varies quarter by quarter. In general, and I would say it's true of this quarter, they actually tend to disproportionately buy our newer solutions. So obviously, our new solutions are brought by a mix of existing and new, but we see a higher uptake with new in general.
And can you put any color on it? Is it a quarter? Is it half or something of that nature?
Yes. We haven't disclosed that historically, but it's something we can look at providing going forward.
Okay. And then second, as you look kind of at the traditional VM market and some of the acceleration, can you speak a little bit just relative to scanning in the cloud versus scanning on prem? And it seems like cloud has had a much higher attach rate. If you look within your installed base, how much of VM do you think is coming from scanning within AWS or Azure at this point?
So let me make one first comment is that scanning in the cloud and scanning a network are totally different. Scanning in the cloud, you want to have the Qualys agent because putting a scanner in the cloud doesn't make really any sense. So the architecture that we have for the cloud is really the right one, whereas that's what we need to do with Microsoft. So any Qualys customer today any Microsoft as your customer, sorry, can, at a click of a mouse, go to the security center and then at a click of a mouse, automatically a Qualysysion is provisioned, which gave them the view of the security and conference posture on Azure story. And then they can also automatically go to the remediation.
In the console of Azure. And of course, we can do the same thing in ours. So you need that architecture. So we see today, of course, a very good uptake on our agents in the cloud. But again, this is more of a new compared to the huge installed base that we have on the enterprise, the cloud is relatively newer.
Great. Thanks.
Thank you. And our next question will come from the line of Michael Kidd with Imperial Capital. Your line is now open.
Hi. Good afternoon, guys. With the expansion in your product suite over the last 12 months to 18 months and you have a pretty strong product roadmap for 2018. Can you talk about more broadly how you may be changing your selling motion and how you capture more wallet share without potentially impacting deal velocity? And And any thoughts on your go to market strategy?
Thanks.
Yes. So our market strategy have not fundamentally changed, but of course has evolved. So on one hand, we see, as I was mentioning earlier, we've already built significant partnerships out there with all the Indian outsources being Qualys customers, all Indian outsources becoming Qualys partners. We have also been a very large customers and partner like Ertseignan, PwC, etcetera. So we have the Optiv of this world.
So what we see today now is that in the past, again, this channel were more looking at us as the vulnerability management solution. And now today, they can't they see the benefits of everything that we have done. So we're becoming more and more strategic for them. So what we are doing with them is, of course, training them more on our new solutions. So that's one thing that we're doing.
So we have also beefed up our strategic alliance group and we are now providing more and more training on the new services and so forth. Also, these three services are also available for our customers that they can also market as well, so to create lead generation. On the enterprise, what we're doing, we're changing a little bit again adjusting our sales force. As you may recall, our sales force is divided into the hunters and the farmers. They both are technical.
That's what we're doing here is essentially creating different categories of customers and as a result of that of technical account managers. So we have to do more classifying our customers between the very extra large, which are large companies like Microsoft, like Oracle, like Google, etcetera, very large deployments. Scale is of course the issue. So here we have even a very highly technical sales force that we are now starting to build to support these customers. So we will continuously be close to them.
Then we have large customers, which now we are essentially making a higher category, if you prefer, of technical account managers. And then we have our regular customers. And that's the changes that we're making here. And so and that's it. So we're continuously very consistent with our model.
We're just tuning it to the fact that and then we're adding, sorry, a few more subject matter experts, again, to make sure that which are experts in these different modalities. But again, it's so easy to try and buy. So if you're an existing Qualys customer, immediately all these new services are available for you, and you can even yourself automatically create a trial account. And then we have these technical account managers, which are there and eventually subject matter expert to help you evaluate.
And that's why just to add on, that's why we describe the platform as a natural distribution channel, as Philippe mentioned earlier.
Got it. And do you see an opportunity to accelerate your hiring of technical account managers this year and forward investing in some of that sales capacity?
We are doing that. The challenge we have is to really find it's very hard to find good people. I mean and again, in our model, there's plenty today of what I call the unmanaged sales guys as our industry is consolidating that are on the market. But 1, they are extremely expensive and second, they are not technical at all. So that's not the people who are looking for.
So we're still continuing having more the SC type people which are more technical. And our customers at the end of the day they prefer that because they're haunted by too many security vendors, which essentially go for their wallets. And that was the team at RSA. I don't know if you saw the on LinkedIn, the post of the seesaw of Lyft, which essentially was essentially telling at RSA, why do we go there? Because I see the vendors they are coming to me all day long.
So why should I go to San Francisco to essentially go and meet more vendors and in the cacophony of what they say. And so it's a waste of my time.
No, absolutely. Well, thank you very much. Appreciate it.
Thanks, Michael.
Thank you. And our next question will come from the line of Kurt Talpaz with Stifel. Your line is now open.
Great. Thanks for taking my question. So Philippe, with the 4 new products set to hit beta here in 2H 2018, which ones are you most excited about? And then I guess more importantly, how do you think about the competitive environment across each of those? And how do you think about that more broadly speaking as well?
Thank you.
Yes. That's a broad question. So I don't know where to start because I'm excited by all of them. So but let me be specific. So today, by far, the most important new service are the cloud agent because as we discussed, the cloud agents, in fact, are essentially enabling additional services.
We start to be very happy with the fact that these agents are going to the endpoint. What are they doing in the endpoint now? Not only they are doing the VM, which they wanted to do in the past, but they are starting to do the IOC. So we are starting to displace companies like Tanium there and others. Then so that's for the detection of indication of compromise.
Then of course, we have additional services on the cloud. This is totally this is Greenfield. And I think we're extremely well positioned there. So we're very excited about that with CertView, CloudView, all these things. The technology we really, really love as well is the passive scanning technology because that's another the way I look from a strategic standpoint, Qualys has mastered today the scanning technology.
We can scan every IP on the planet, every website on the planet. We do more than 3,000,000,000 scans a year with 6 Sigma accuracy, in fact, better than 6 Sigma. So that's a technology we have mastered. The second technology we have now mastered are the agents. And the agent allows us to have real time information, so we bring all that information to our back end as well.
And now the passive scanning, which is the 3rd technology that we will master, which is essentially being capable of analyzing everything that connects onto the network, whether it's an IoT device, whether it's a phone, whether in fact at RSA, we detected visitor coming in, we detected Apple Watch as well. So and then, of course, if we got the time, we could even launch a scan on these devices. So combining all these 3 different technologies is really going to make us absolutely unique in the marketplace. Nobody has built that. And with also the back end, with the scale where we can absolutely manage significant amount of information now including log information, etcetera.
So bringing all that data into one single place where everything is indexed under Elasticsearch, where we have more than 2,500,000,000 data points currently indexed on Elasticsearch, which allows us to in 2 seconds being able to have the visibility on any devices out there with, of course, most precision where they're located, the users connected to them, how many RAM they are using, what are the applications installed in them and essentially being capable very close with once we combine these three technology together being able to provide you your global IT asset inventory and synchronize that with your CMBBs. That's the key strategic direction of Qualys and I think we'll be there before the end of the year.
Philippe, so fair to say you're excited for the future?
Not me, not me, all of us. I mean, we're really we're very happy with the company that we have built, the way we communicate, the way everybody is focused on when needs to be done. I mean, this is really we're very happy. Not to mention the profitability, which we have been accused of
Having too much of.
Of having too much of it.
Fair enough. Melissa, maybe a question for you here as well. I know you don't provide it, but directionally, given the growth in the number of customers with 3 plus and 4 plus solutions, how has the dollar renewal rate been trending? I guess, with the growth in agent, I would assume it's trending up or at least flat. But I was hoping you could provide at least some directional commentary there, that would be really helpful.
Yes, absolutely. Hey, Gabor. So we focus on dollar net expansion rate, and we've provided it at our last semester day. It was somewhere around 105%. We'll provide an update at our virtual event in June.
But I can say, obviously, given what we've been seeing in our performance, it won't surprise you that's obviously been trending in a positive manner.
That's helpful. Thank you.
Thank you. And our next question will come from the line of Sreedhar Benhayari with Wells Fargo. Your line is now open.
Hi, guys. Thanks for taking my question. I was actually switching between calls. My apology if this question has been asked. But Philippe, when I see the pipeline that products that you're planning to launch this year, already you have 6 product GA in first half and 4 already in the pipeline.
And I feel like some of these products probably be easier to update. So what are the products that you are more excited about seeing quicker adoption versus some of the products maybe have later adoption? So just wanted to understand what are the products that you think like some sort of meaningful revenue contribution in near future versus mid term and long term?
Revenue contribution is a little bit different, but and they all help each other anyway. So today, we're very bullish about our free services that we've launched. And we saw, as I mentioned earlier, maybe you were not on the call. So on our CloudView free service, we have already more have waited in few weeks. In 2 weeks, we have had about 1,000 plus people who register for the free service.
ThirdView, it's about to go GA, so we're anticipating a very big adoption. The beauty of these services is that, 1, they do something very useful that people need to do. So you need to know where the district certificates are, who signed them, when are they going to expire. And then with and same thing in the cloud, you need to know your inventory. What is 3 buckets, how many of them are exposed, etcetera, to the Internet.
So that's absolutely they are a must have application. And then, of course, we have significant upsell. So from it does 2 things. 1, it creates awareness for Qualys, for those who didn't know us before, or they may maybe they were knowing us, but they were not using us. And now it creates also significant upside opportunities because once we have a customer doing with CloudView the assessment of the inventory, now we can sell to them, upsell to them the security assessment.
And same thing with the certificates, if you do your Internet facing fair charge, we can now upsell you on your endpoints, on your internal servers and then we'll also have the management of your digital certificates to upsell you. So these are they have started very well. So we're very excited with that. And this is all green field, all green field. The other thing that we really are really counting on, we see the IR system starting to take off.
And I think with the passive scanning, they're going to be even better because we're going to be able to identify those devices which are suspect, which is something which is very important because then we have the quarantine behind. So these are essentially the key services. And of course, we're improving our VM. We're improving our police compliance. And so all in all, I think we're very happy with what we're doing.
And again, we're now 50% of the sorry, 50% of our engineering ops and product management headcount now, which is in India, where we're continuing really attracting very good people. And as we said, as we did with 1 Mobility, acquiring a few very good companies that we can integrate very well. And so we're currently so we're continuing doing that, of course.
Great. Thanks for the color, Philip.
Thank you. And our last question will come from the line of Patrick Colvin with RD Research. Your line is now open.
Hey, thanks for taking my question. You guys beat in the quarter on revenue. What was the thinking behind not lifting the full year guidance at the top end?
Yes. So we had a great quarter, and we have a very healthy outlook, Patrick. But similar to last year, it's early in the year. And so we chose to raise the bottom end of the full year revenue guidance in there for the midpoint and keep the top end as it is. Also keep in mind, we do have tougher comps in the second half, so we factored that into how we wanted to maintain the guidance as well.
Got it. And just on the contract duration, so you said earlier in the call that your sales guys aren't incentivized to sell longer contracts. Did I hear that right?
That's correct.
Okay.
And so did you give us any color around the slight tick down in the gross margin, why there was a reason for that?
Yes. So we continue to invest in the robustness of our platform as we're moving products into GA from beta and new products into beta. This drove higher headcount expense, corporate allocations and depreciation. We don't guide to gross margin. What we've said is over the year, we don't expect it to be materially different than where it's in the last few years.
Okay. And just as in the last person, I can kind of keep going. On the share repurchase, can you remind me the objective
of that are to
neutralize the dilution on the income statements, right? The kind of is that right?
Sorry, Patrick, can you repeat that?
So the share repurchase, can you just remind me what the objectives of that? Is it to neutralize dilution from stock based compensation?
Yes. So absolutely, when you take a step back, we are very cash generative. We're very proud of our highly profitable operational model. And strategically, we've been focusing on M and A as a use of cash in order to drive value for our shareholders, but we think that it's likely that our acquisitions are going to continue to be tuck ins, which then use up a lot of our cash, and we continue to generate significant amounts of cash. So we thought it made sense to offset the equity dilution that we have either from grants to employees or sometimes in M and A situations by repurchasing shares.
And we could also add that in term of SBC, we're pretty reasonable as compared to other companies.
That's correct.
Yes. Okay. Thank you so much.
Sure. Thank you. And our last question will come from the line of Sterling Auty with JPMorgan. Your line is now open.
Hey, it's Ugham Kamath again for Sterling. Just a follow-up, how much is FX having an impact on increase of EPS guidance for 2018, like your expectations for FX tailwind when you gave the guidance in February versus the expectations right now?
Yes, that's a great question. It actually has an impact to it. The increase in EPS guidance is driven really by our outperformance.
All right. Okay. Thank you.
Thank you. This concludes our question and answer session for today. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody have a wonderful day.