Good day, everyone, and welcome to the Qualys 4th Quarter and Full Year 2015 Investor 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 I would now like to turn the call over to Mr. Don McAuley, CFO of Qualys.
Please go ahead, sir.
Thank you, and welcome to Qualys' 4th quarter and full year 2015 investor conference call. I'm Don McAuley, CFO and I'm here with Philippe Courteau, our Chairman, President and CEO. We would like to remind you that during this call, we expect to make forward looking statements within the meaning of federal securities laws. Forward looking statements generally relate to future events or our future financial or operating performance. Forward looking statements in this presentation include, but are not limited to, the following list: statements related to our business and financial performance and expectations for future periods, including the rate of growth of our business our expectations regarding capital expenditures, including investments in our cloud infrastructure and the intended uses and benefits of those expenditures trends related to the diversification of our revenue base our ability to sell additional solutions to our customer base and the strength of demand for those solutions, our plans regarding the development of our technology and its expected timing our expectations regarding the capabilities of our platform and solutions the anticipated needs of our customers our strategy the scalability of our strategy our strategy, the scalability of
our strategy, our ability to execute
our strategy and our expectations regarding our market position the expansion of our platform and our delivery of new solutions the expansion of our partnerships and the related benefits of those partnerships our ability to effectively manage our costs and finally, our expectations for the number of weighted average diluted shares outstanding and the effective GAAP and non GAAP income tax rates for the Q1 and full year 2016. Our expectations and beliefs regarding these matters may not materialize and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release that we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission, including our quarterly report on Form 10 Q that we filed on November 5, 2015. The forward looking statements in this presentation are based on information available to us as of today, and we disclaim any obligation to update any forward looking statements, except as required by law. We also remind you that this call will include a discussion of GAAP and non GAAP financial measures.
The non GAAP financial measures are not intended to be considered in isolation or
as a substitute for results
prepared in accordance with GAAP. Accordance with GAAP. A discussion of why we present non GAAP financial measures and a reconciliation of non GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures are included in our earnings press release issued earlier today. Now to begin the discussion, Philippe will provide an overview of the company's performance for the Q4 and full year 20 15. Then I will cover our financial results and factors that drove the Q4 in more detail, as well as our outlook for the Q1 and full year 2016.
Then we will open up the call for your questions. With that, I will now turn the call over to Philippe.
Thank you, Don, and welcome to all of you. The Q4 of 2015 was another excellent quarter for Qualys, capping another record year for the year for the company. Don will cover the financial details of our performance for the quarter full year. I will first start off with an overview of the key factors driving our business and positioning Qualys for even more success in 2016 and beyond. 2015 was a fantastic year for us as we expanded our cloud platform with asset view, which provides customizable dashboard and Elasticsearch capabilities and with our groundbreaking Cloud Agent technology.
The Elasticsearch capabilities allows our customers to search across millions of IT assets in second, create customizable dashboards, while our Cloud Agent allows our customer to perform continuous vulnerability and compliance management on many assets, whether on premise, in the cloud or on endpoints. And this without the need of establishing scanning windows and fetching credentials. So this of course strongly enhance our vulnerability management and compliance offerings and give us a clear differentiator when compared with other solutions. Furthermore, both the Elasticsearch capabilities and our Cloud Agent platform allows us to introduce a series of new services and we plan to reveal the details of these new services at the upcoming RSA Conference in San Francisco at the end of this month. In the Q4, we added a number of important new accounts, including Biogen, Boyd Gaming, Capital Group, Chicago Bridge and Iron, CNO Financial Group, Cotimiti, Delphi, Dentons, Discovery Communication, HCS Care, Herbalife, Industan, Unilever, Jive Software, Kingfisher, Herbalife, National Financial Partners, Norfolk Southern and University Hospitals Health System.
For 2015, we added approximately 1100 new customers, compared to approximately 1,000 in 2014 and this brings our total customer count now to over 8,800 customers. We continue to expand our partnerships and global distribution channels through leading managed security providers, global consulting organizations and outsourcing providers. This will also remain a big focus for us in 2015. Our industry leading Fertilution Management solution grew at approximately 18% in 2015. Our new services, which include web application scanning, policy compliance and web application firewall grew at approximately 35%.
And as we have discussed previously, these growth rates were negatively impacted by the headwinds we have seen from currency fluctuations during the past year. An indication of our continuing success in diversifying our cloud platform offerings is that as of December 31, 2015, 62% of our customers had subscribed to more than one solution and these metrics stood at 30% at the end of 2013 and 54% at the end of 2014. In anticipation of the adoption of our Cloud Agents and new services to come, as well as the fact that Qualys has become a strategic vendor with many of the Fortune 500, we have expanded our sales force including several new sales leaders. As a result, we have additional sales personnel that are equipped to set up at higher executive level in the enterprise. And before I turn the call to Don, you may have seen on the wall that we have added to our Board Todd Headley, which was the former CFO of SoSpa, which is a great addition to our team.
And now for the review of our financial performance and our guidance, I will turn the call over to Dan.
Thanks, Philippe. Again, as previously mentioned, our Q4 and full year 2015 results were excellent. Revenues grew in the 4th quarter to $44,400,000 which represented 22% growth over the Q4 of 2014. Full year 2015 revenues grew 23 percent to $164,300,000 Our current deferred revenue balance is $98,000,000 as of Twelvethirty Onefifteen, which is 21% greater than our balance at December 31, 2014. Now a quick review of some other revenue metrics.
For the Q4, the U. S. Represented 70% of revenues, the same percentage as in the Q4 of 2014. Also, we derived 78.7 percent of 4th quarter revenues from subscriptions to our vulnerability management solution compared to 80% in the Q4 of 2014. Annually, we further examine the components of our revenue growth.
In 2015, total revenues grew by $30,700,000 to the $164,300,000 I mentioned earlier. That $30,700,000 increase was comprised of $18,900,000 of revenue growth from existing customers and $11,800,000 of revenues generated from new customers acquired in 2015. In 2014, the comparable numbers were an increase in total revenues of $25,600,000 comprised of $15,700,000 of revenue growth from existing customers and $9,900,000 of revenues generated from new customers acquired in 2014. In 2015, the revenue increase from existing customers represented 114.1% of 20 fourteen's total revenues, which compares to 114.5 percent a year ago. GAAP gross profit increased by 22 percent to $35,400,000 in the Q4 of 2015 compared to $29,100,000 in the prior year period.
GAAP gross margin was 80% for the Q4 of 2015 compared to 79% in the same period last year. Non GAAP gross margin was 80% for both 4th quarter periods in 2015 2014. For the full year, 2015 GAAP gross profit increased to $130,400,000 compared to $104,600,000 in 2014. GAAP gross margin was 79% in 2015 compared to 78% in 2014, and non GAAP gross margin was 80% in 2015 compared to 79% in 2014. Adjusted EBITDA for the Q4 of 2015 increased by 53 percent to 16 point compared to $10,700,000 in 2014.
Adjusted EBITDA as a percentage of revenues increased to 37 percent in the Q4 of 2015 compared with 29% in the same quarter of 2014. For the full year, adjusted EBITDA increased by 79 percent to $56,700,000 compared to $31,700,000 in 2014. And as a percentage of revenues, adjusted EBITDA increased to 34% for the 2015 compared to 24% for 2014. Net cash from operations in 2015 increased by 59 percent to $66,000,000 compared to $41,400,000 in 2014. Free cash flow for 2015 increased by 67 percent to $45,800,000 compared to $27,400,000 in 20 14.
In the Q4 of 2015, capital expenditures were $5,200,000 compared to $3,600,000 in the Q4 of 2014. In the Q1 of 2016, we expect capital expenditures to be in the range of $5,000,000 to $6,000,000 Moving on now to earnings per share. For the Q4 of 2015, GAAP EPS was $0.14 per diluted share versus 0.69 dollars for the Q4 of 2014. You may recall that in the Q4 last year, we recognized $23,700,000 or $0.63 per diluted share of U. S.
Federal and certain state deferred tax assets. So the comparison without that one time item is $0.14 per share in the Q4 of 2015, as I just said, compared to $0.06 in the Q4 of 2014. For the full year 20 15, GAAP EPS was $0.42 per diluted share versus $0.81 in the prior year. That deferred tax asset item accounted for $0.64 on a full year basis in 2014, so the comparison excluding that item is $0.42 per diluted share in 2015 compared to $0.17 per diluted share in 2014. Non GAAP EPS was $0.21 per diluted share in the 4th quarter of $0.15 compared to $0.15 in the Q4 of 'fourteen.
For the full year 2015, non GAAP EPS was $0.70 per diluted share compared to $0.46 in 2014. Now turning to our guidance, starting with revenues. For the Q1 of 2016, we expect revenues to be in the range of $44,700,000 to $45,400,000 At the midpoint, this represents 20% growth over Q1 2015 revenues. For the full year dollars At the midpoint, this represents 20% growth over 2015 revenues. As to earnings per share guidance, we expect GAAP EPS for the Q1 of 2016 to be in the range of $0.06 to 0 point $8 and non GAAP EPS is expected to be in the range
of $0.14 to $0.16 For
the full year of 2016, we expect GAAP EPS to be in the range of $0.36 to $0.41 and non GAAP EPS is expected to be in the range of $0.74 to 0 point 7 $7.9
Our first quarter EPS estimates are based on approximately 38,400,000 weighted average diluted shares
outstanding and our full year 20 16 EPS estimates are based on approximately 38,900,000 shares outstanding. For the Q1 and full year 2016, we have used an expected effective GAAP tax rate of 37% and an expected effective non GAAP tax rate of 36%. Before I turn the call back to Philippe, I wanted to note that this will be my final earnings call with Qualys. As you've likely seen, I've decided to leave the company as of March 1. Between now and then, I will oversee the filing and certification of Qualys' 10 ks filing.
I'd like to say that it has been a pleasure working with Philippe and the team over these past 10 years. With that, Philippe and I would be happy to answer any of your questions. Operator?
Our first question comes from Sterling Auty from JPMorgan. Your line is open.
Yes, thanks. Hi, guys. Let me start by saying, Don, thank you so much. It's been a pleasure working with you all these years and hopefully we'll get a chance to do so going forward. On to the business, I'm kind of curious looking at the revenue result for the quarter and the guidance for the Q1, it would seem like there's some softness in the business.
Looking at the mix, I guess my initial read is it sounds like it's not vulnerability management, but maybe the rest of the solutions that perhaps are growing as robustly as they were that's causing the trajectory to slow. Is that the right conclusion? And what are you seeing in the marketplace around that?
So what we see today is that we're coming up with these agents, which are to come up pretty good, which I think are going to allow us to maintain if not to accelerate the growth of both the policy compliance and the validity management and the policy compliance. These agent technology are really, really are absolutely a game changer for the reason that I mentioned earlier on the call in the sense that they expand the capabilities of Verity Management significantly. So that's what we see. So, of course, we have had big headwinds on the dollars, which have taken of course effect and we are cautious. We are entering into a period, which obviously there is a lot of strain everywhere.
So I think if you are cautious with the business as you have seen, we have built a fantastic franchise with 8,008 100 customers, a very powerful business model. So, there's no fundamental change here.
But just maybe as a follow-up, looking at the currency, the currency headwinds have been there for the better part of 2015 for most of the companies in the space, including yourselves. But yet, it seems like we're seeing, I guess, an incremental change to the trajectory. Is it that you're seeing customers pausing on decisions as they're trying to make the decision around the agent based solution? So maybe we're not getting the uptake that perhaps you would have thought in terms of the regular orders until we get enough comfort around the agent and we start seeing bigger deals or is it something else?
No. There's another factor also which is happening today that our business as said in fact in the very beginning when we went public that gradually we will move from a more direct model to more indirect model and this is what is happening. So we can see today that all the partners that we have established are starting to essentially help us grow the business, but of course it affects to some degree the top line, why being very positive, in fact, on the expense line, because we don't need to build, of course, as big of a direct and expensive sales force that we will have to if we were more direct. And we still have the value of this dollar for another quarter or 2.
Got it. Thanks.
And our next question comes from Phil Winslow from Credit Suisse. Your line is open.
Hi, guys. Actually, this is Citi Panigrahi. Don, I also extend my thanks. It's great working with you and wish you good luck for your future endeavors. I just wanted to focus on the guidance on the earnings side.
Your EPS and implied margin seems to be below consensus. Just wondering, as you're planning to launch new products this year, how much of that due to the investment in our sales marketing versus other factors?
Yes. So, definitively, we're looking at spending a little bit more money on the marketing side. We're also looking at attracting additional senior management because we believe we have the opportunity to really build a significant company. We have built now the foundation. The foundation out there, They are extremely strong both from a technical standpoint with our platform, but of course as well with our financials.
So today, we have for example, a hard which is not yet on board, a VP of Corporate Development and experienced person. So we could focus more on acquisitions and quite a few other executives that we're looking at attracting to the company. So that's what explains.
And in terms of
Hey, Sidious, this is Don. Just another quick footnote. Another small factor there is that we're looking at slightly higher tax rates this year than last year.
Okay. Okay. And then in terms of self serve hiring, last quarter you heard you said I think 5 only, but could you give how many you hired in Q4 and what's your plan for FY 2016? Yes.
So we hired 10 in the Q4, bringing us to 20 for the year, which is in line with what we said at the beginning. And I think we're going to not give an explicit goal going forward. But anyway, we so we added 5% in the 3rd quarter and 10% in the 4th quarter.
Our next question comes from Steve Ashley from Robert W. Baird. Your line is open.
Hi, thanks for taking my question. So your guidance for the coming year at the midpoint calls for 20% top line growth. What does that assume about what kind of growth in the core VM business?
About the same, if not, we expect, but again, this is looking forward that we are going to see by year end probably some because of the agents even more strength on the VM business. Because as you may recall our agents, we count cloud agents if they are for VM into the VM revenue, if they are policy compliance into the policy compliance revenue. And then all these additional services that we are going to release this year will be counted as new services.
Is there any color you could give us on the percentage of the business that is going indirect today and maybe how that compared to a year ago and how that's changing?
So what I could say is that we have essentially had about 3% 3% of our business moving from direct to indirect. That's the amount that we've made.
And it's still about 40% indirect, Steve.
I'm sorry. And you're saying that that was up 300 basis points year over year ish. Is that
kind
of what we're saying?
Correct. Okay.
Thank you.
Our next question comes from Matt Hedberg from RBC Capital Markets. Your line is open.
Hi, it's Dan Bergstrom for Matt Hedberg. Thanks for taking my questions. So, Tahan, the change in current deferred revenue this quarter was the largest we've ever seen. Any color on what's behind that? Is it initial Cloud Agent uptake?
In current deferred revenue?
Yes.
Well, the 4th quarter is our strongest bookings quarter of the year. And the deferred revenue balance is about 21% ahead of last year. So it's in line with all the other metrics. It's just that the Q4, we typically book a little over 30% of our annual bookings in Q4. So that's the quarter where you see the biggest jump in deferred.
Okay. And then last quarter, you talked to ramping up the marketing campaigns around Cloud Agent. Just wondering if those are underway at this point and any more insight? Yes.
We have already started and you will see in fact more RSA. So we have just started to the first campaign around AssetView, which now are hitting. We hired in fact the VP of Digital Marketing recently. So we're really starting to gain big time around these new services.
Great. Thanks.
Our next question comes from Sareen Nandari from Summit Research. Your line is
Philippe, on the press release, you actually mentioned that you released a cloud agent for a software for Windows and you have a beta on Linux and macOS. What is the timeline for the launch of these products? Can you give us a high level rundown on the products which you expected to launch at the RSA next month?
Yes. So, in fact, today we're almost about to release to GA the UNIX agents. It's a question of days. And then next month, it will be macOS.
I see. Okay. If I may, one more question. Philippe, can you talk about your thoughts on your international expansion strategy? You still get 70% of your revenue in the U.
S. Is there a structural issue in the Europe and Asia to grow more rapidly there? Where would you need to grow there and penetrate faster?
In fact, what is happening today is that in the U. S. We're doing much bigger deals we do in Europe in general. So I think we're very happy with our European operation and international operation, which are growing very well. The big difference is that today we are doing much bigger upsells and much bigger deal in the U.
S. This being said, it's also we can see Europe always lagged by about a year to 2 years depending to what is happening in the U. S. So our ability to do bigger sales is relatively new. This is something which happened in 2015.
And in Europe, we can see that happening as well starting to happen now in Europe. So we're very well staffed in Europe in every country. We have a very strong presence. We made an investment early on. We have 20 little companies worldwide.
A total global company, we make the investment. And that speak again to the scalability of our model. We made that huge investment of being we operate in 100 6 countries. We have 20 small little companies that where we have to declare taxes and pay taxes, which is absolutely and do payroll, but we have built that over the years and with that. So, this is going to help us scale as well very well.
Thank you.
Our next question comes from Michael Kim from Imperial Capital. Your line is open.
Hi, good afternoon guys. Hey Don, likewise, I wish you the best in your next venture and it's been great working with you past couple of years. First question was about the delayed large So
So they didn't contribute to the current deferred?
Say it again, Michael, I don't want to give you one Yes.
I think last quarter you highlighted a couple of larger deals and one in policy compliance, one in web app scanning that was pushed out into the closing quarters.
Yes. I think those
are still works in progress and didn't contribute to deferred yet.
Okay. And then just going back to
the core VM business, are you starting to see an acceleration conversions or early conversions of former McAfee customers? And what kind of things are you doing to obtain some of those customer conversions?
So we have to just to make the distinction between the large account, which we have been always over the years there, because of the scalability unique scalability of our platform and then the more of the mid market. So, we were already engaged into many of these replacement deals. They take a little bit longer because you don't rip off an application like VM just like that. McAfee as you may recall has committed that they will continue the support for 2 years. And even I think they've extended that for another year after.
So these deals at the high end are taking a certain amount of time, which typically so we don't see an acceleration. What we see is, of course, the decision by companies to move away from McAfee, since they are not supporting the product anymore. On the mid range, that's a little bit different. It's a more dynamic market. And we're competing here against the traditional suspects here, which are essentially our traditional
Our next question comes from Erik Suppiger from JMP Securities. Your line is open.
Hey, guys. Thanks for taking my questions. This is John Lucia on for Eric. Philippe, early in the call, I think you said that in reference to your guide that you're renting a period of strain. And I wanted to understand if you meant that, if that was all related to currency issues or if you're also discussing the spending environment in North America?
Just getting an understanding of your take on the spending environment in North America would be helpful.
I think what I would say is that it's very clear that the days where companies were buying this kind of magical products, which we're going helping them to essentially secure find these find the bad way. And their companies these days are starting to fade. And so that's for the general tone in the market. Conversely, I think this favor us very well because what companies are now figuring out is that you cannot secure what you don't know. So being capable of doing the full continuous inventory of your assets is becoming very important to try to identify the vulnerabilities.
It's also very important. And now with the new services that we're bringing to market, we're going to also help you to identify those vulnerabilities which are prone to be compromised and receive payloads. So this is part of the some of the new announcement that we're going to make very soon. So we see that volatility management is an application which some people say, oh, it's commoditized. We don't see that at all.
We believe this is an application which is in fact morphing into a very critical application allowing you 1, to discover what you have second to identify your vulnerability, prioritize those who could be the most damaging if you prefer and also going moving with the new things that we're doing into prevention. So we see in fact what is becoming more and more strategic on one hand and all of our large customers they understand that very well. And second, we're adding by adding more and more services, we're becoming a strategic vendors and we're today have been named as a strategic vendors for quite a few large corporations because they see that Qualys not only allows us allows them to do what I've just said, but also we consolidate quite a few of these security point solutions. And by year end, we will probably we'll be able to consolidate. Currently today, we consolidate about 5 applications.
We'll probably double that by year end. All of that are the same cloud platform, which as you may recall, we can very uniquely deliver as an on premise solution and we and you see today that Azure is doing exactly the same thing, but providing Azure as an on premise solution, but yet keeping the same code base. So we have the scalability from an engineering standpoint, which allows us to continue to essentially be more efficient on the engineering side. The fact also on the engineering side that we invested big time in Pune in India is also paying off big time. So we see in fact that our position in the marketplace strengthening significantly, but I think we have to be prudent because today I mean there is macroeconomic factors which as we all know are not very encouraging.
Okay. And then I had one follow-up. I think you noted 62% of customers have purchased more than one product at this point. That's up from 61% in the prior quarter. And then in 3Q, I think the increase was only 1% as well, 60% to 61 percent.
I know it gets more difficult as the numbers get larger, but are you finding it more difficult to penetrate your customer base now that you have a lot of your customers that have purchased more than one product? Or what is that dynamic?
No, that's a good question about the dynamic because yes, it's an issue of dynamic here. The large companies are really adopting more than one solution much more than the smaller companies because we have essentially 3 businesses here. We have the enterprise business, we have the mid market business and we have the small businesses. So there is much less of sale on the small businesses because we have the tendency to create more that can all in one solution. So, of course, in terms of numbers of customers, etcetera, we have more smaller businesses than large businesses, obviously.
So, that's what in a way reflects the fact that we're not there's going to be a point where we probably, I would say, cannot reach 100%. Now, however, this being said, we are also shipping additional services. So that of course these additional services give us another penetration capabilities and other upsell opportunities. So I think because of that we're going to believe I believe that we're going to continue getting more of these customers buying more than one solution.
Okay. Thank you.
Our next question comes from Rob Owens from Pacific Press Securities. Your line is open.
Great. And thank you for taking my question. Just curious around the growth side of the equation. I think a few months ago in Las Vegas at your Analyst Day, you laid out a plan for a 5 year target model. Now if I recall, it was kind of more of a mid-20s type of growth rate.
Now you're guiding to about 20%. I actually believe on my quick math that the margins go down on a year over year basis for 2016 versus 2015. So how are you thinking about balancing growth versus margin? And does the current kind of state of the economy or the industries you're playing in kind of remove that 5 year target model?
Good question.
Yes. No, Rob, the 5 year target model is still intact. And the key to get from here to there is all the new products that Qualys expects to ship over the next year or 2. There's a really significant expansion coming of by and large we're selling 3 products today and there's quite a few other ones coming. So the 5 year plan is really driven by the growth probably especially the agent which will drive several new products plus expand VM and policy compliance as well as a number of other new products that Philippe mentioned earlier.
So that's the there's not a disconnect. It's just that the new products are coming this year and next year and will be a big part of that 5 year plan.
And you're on our way to the model also. This is another thing. We're not this is we already have built a model that shows that's
Our next question comes
the sentiments. I wish you very best in your next adventure and I certainly enjoyed working with you. I guess, as you think about 2016, I wonder if you could elaborate a bit on your outlook specifically for policy compliance and web application scanning versus how you saw them play out in 2015?
I think on the web application scanning, I think we see the same. One of the things that we were expecting to see as a driver of as an accelerator for our web scanning was our web application forward. And as I mentioned, we had to go back to the engineering drawings to make it a little bit better than it was, which we are doing that. And I think we are making very good progress toward that. That I think will accelerate when we deliver that solution because it goes hands on glove with web application scanning.
As you may recall, problem with web we can discover web applications very well, much better than anybody. But then what do you do when you find vulnerabilities in the code, you've got to fix the code and that's very, very difficult to do. So the solution is really a very good web application forward in front of it. So that's what continuing working on this one. And once we deliver that, I think we would see our web applications getting accelerated.
So for the moment, the web application continues about the same. As far as the policy compliance, we believe there's 2 new factors of first of all, the agent really makes the policy compliance very effective. So we see that the agent giving a boost to the policy compliance. And in addition, we are in fact now essentially we have the security assessment questionnaire, which is another component of policy compliance, which I think will be very helpful there. This is now GA.
And then we have also we're working on the file integrity monitoring, which would come later this year, which would be another extension of Policy Compliance. So, we see very good continued growth on the Policy Compliance application as well.
Do you differentiate in your view across your 3 products? If you look looking at this year, do you have a similar outlook for vulnerability management and the other 2 we just discussed? Or do you see some reasonable difference for 1 or 2 of them versus the other, just your outlook for them?
It's a little bit difficult to say because they are especially I would say that about the same, is a little bit difficult because once we for example ship the file integrity monitoring, it's a more expensive application, but you deliver that in less across less servers essentially. You just typically do that on the critical servers or on the endpoint. So the endpoint is also a totally new game for us because we could not access the endpoints and that's really where we see a big boost for both VM and Policy Compliance now that we can essentially very successfully address the endpoint. Finally, with the agent, there is another thing that we could not do before. Now today with the agent we are able now to address the security of this Elastic Cloud, the configuration that's a totally greenfield for us.
We have a very successful company like Amazon, which we're working very closely with. So, that's a new expansion for Qualys as well.
Thank you.
Our next question comes from Gur Talpaz from Stifel. Your line is open.
Great. Thanks for taking my question. So last quarter you noted a greater emphasis on attacking the
other government verticals. Hoping you
can give us an update on any sort of progress you've made and what your thoughts are regarding the public sector as we look towards 20 16? Thank you.
Yes. So we are very committed to the federal market today. We are really expecting to be Fed run certified relatively soon. We have in fact the SEC, the Security and Innovation Commission as our sponsor. We have in fact provided everything.
So I think once we have that certification, which we are expecting that anytime now, that will really make us essentially a one of the first, if not, I think the second cloud service to be FedRAMP certified and that will really give us what we need to really help us penetrate the market. In the meantime, what we're doing is beefing up our team, knocking on doors to essentially accelerate our market penetration there. Let me remind you that the federal market was only representing about less than 1% of our revenues. So we've got of course there significant upside and the federal government is finally moving into cloud solutions. So there is much less resistance for the cloud.
So I mentioned that when our disconnected version, which allows us to do a DoD that disconnected version works very well at Siemens. Today, we consider that we are production ready there and we have also the ability to provide private clouds for the agencies as well. So I think we've got the tools and now it's a question of essentially knocking on the doors. And as you know, it takes time. In the federal market, this is not something that you got the business immediately, it takes some
time. That's good color. I had one more question, if I may. You just noted Amazon. I was hoping to get your thoughts on sort of Amazon's bigger organic push into security.
They just launched their own WAF solution, that talks about other solutions potentially. How do you feel about sort of Amazon even Microsoft getting more in sort of the security game themselves with native solutions? Thank you.
This is a very good question. And in fact, this is what makes Qualys very unique, because we with our architecture as working with Amazon, we can really help these companies to secure the core, the infrastructure. This is what we are doing with Amazon and with other companies, similar companies like that. So, I've always believed that when you look at the cloud, security wants to be absolutely if you prefer embedded into the cloud offering and making that transparent to the customers. Now this being said, you have a huge issue of of scale.
You start now to suddenly do Veracy Management on this cloud infrastructure. You cannot do it with the standard scanning technology. You need to have our agent technology essentially to do that. And that's what Qualys is going to play, I believe, a very big role in helping these large companies securing their infrastructure.
Great. Thank you.
Our next question comes from Alben Kuzin from Arete. Your line is open.
Hi, thanks for taking my question. Just wanted to have a clarification on the guidance. So, yes, I mean according to my math, it looks like the margin is going down. I just was wondering whether that's the case. And if so, what are the investments that you're doing?
Well, Philippe mentioned, Alban, we're making more investments in sales and especially marketing with all the new products. That's one initiative. I mentioned earlier, we also have a higher tax rate this year than last year. That contributes a little bit. And those are the main things.
Yes.
And most senior management as well, which of course, they don't come cheap.
Okay. Okay. Thanks.
At this time, I'm showing no further
At this time, I'm showing no further questions. I would like to turn
the call back over to Philippe Courtente for closing remarks.
Thank you, operator, and thank you all for attending our Q4 year end earnings call. And to end our call on a personal note, I just want to again thank Don McAuley for his great contribution to Qualys over the past 10 years. We all wish him well in the future and we look forward to speaking with you next quarter. Thank you very much.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.