Good day, everyone, and welcome to Qualys' Third Quarter 2015 Investor Conference Call. This call is being recorded. I would now like to turn the call over to Don McAuley, CFO of Qualys. Please go ahead, sir.
Well, thank you, and welcome, everyone, to Qualys' 3rd quarter 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 the 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 and 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 and 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 development operations and support teams in India the expansion of our partnerships and the related benefits of those partnerships our ability to effectively manage costs our plans to expand our sales force our plans to explore strategic acquisitions and finally, our expectations for the number of weighted average shares outstanding and the effective GAAP and non GAAP income tax rates for the Q4 and full year 2015. 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 August 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. A discussion of why we present non GAAP financial measures and a reconciliation of the 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 Q3 2015, then I will cover our financial results and factors that drove the quarter in more detail as well as our outlook for the Q4 and full year 2015. Then we will open up the call for your questions. With that, I would now turn the call over to Philippe.
Thanks, Don, and welcome to all of you. The Q3 of 2015 was another excellent quarter for Qualys. While Don will cover the financial details of our performance for the quarter, I will share with you why I think these are exciting times for Qualys from a growth and strategic perspective. First of all, I would like to thank all of you who participated in our Investor Day as well as in our 15th Qualys User Conference a few weeks ago. Both events were successful, very successful and allowed investors, partners, customers and prospective customers to see for themselves the many extensions we have made to our disruptive next generation cloud security platform.
We also discussed a number of exciting new products which will be coming in the near future and I will highlight several of them in our call today with you. I will start off with another view of key highlights that are driving the momentum in our business and discuss in more details our new product releases. In Q3, we released 2 groundbreaking extensions to the platform that have been very well received by our customers. Let me start first with the AssetView service that allows enterprises to search across millions of IT assets in real time and in a matter of seconds to find information about these assets and create customizable reports and dashboards that both IT and Security teams can use to perform continuous asset inventory and synchronization as well with CMPBs. Asset View is now enabled with agents for our customers to activate for free asset inventory within their IT environments.
2nd, we released Cloud Agents, which is now available on Windows and Linux and will become available on Mac by the end of Q4. We are seeing strong demand from our customers for the agent technology, with a few customers already deploying it at a very large scale on millions of assets, including endpoints and within cloud environment. From such a positive and early adoption of our cloud agents within our customer base as well as with new customers, we believe that we have the potential of doubling the revenue of both our vulnerability management and of our policy compliance solutions as we are now able to address endpoints and Elastic Cloud environments, which we could not address with our traditional scanning technology. We continue to work on our WAP solution to deliver APIs and more customization for enterprise customers. This enhancement will increase product adoption and facilitate faster traction within large enterprises.
We expect to introduce these advanced capabilities for our WAF offering by the RSA Conference in the Q1 of 2016. We completed our integration with Splunk to help customers perform real time security analytics on Qualys data for an enhanced breach detection and faster incidence response. Similarly, we completed our integration with ServiceNow CMDB to help customers synchronize asset information in real time between Qualys and ServiceNow and push updates for assets and their attributes that are discovered by Qualys into Service CMBB. In the Q3, we added a number of important new accounts including BBVA in Spain, Criteo, EIQ Networks, IMS Health, GW Associates in China, Market, Post Office Ltd, Quintilis, Santander U. K, Spectrum Health Companies, State Farm Insurance, Texas Instruments, Department of Transportation I'm sorry Texas, the Department of Transportation, T Mobile, Tropicana Entertainment, WeedBread Plc and Windstream Hosted Solutions.
Our industry leading vulnerability management solution once again continued to grow at approximately 19% and this despite some headwinds that we have seen from currency fluctuation this We saw approximately 40% growth from our newer services, which include web application scanning, policy compliance and web application firewall. An indication of our continued success in diversifying our cloud platform offerings is that 61% of our customers have now purchased more than one solution. This is another data point on our promising land and expand trend line as these metrics stood at 30% at the end of 2013 54% at the end of 2014. Lastly, we continue to expand our sales force including the addition of several new sales executives and as a result are even better equipped to sell at higher executive levels in the enterprise. We are keen to continue expanding our sales force aggressively on a global scale, so we can meet the increasing demand of the market for expanded offerings.
And now for a review of our financial performance and our guidance, I will turn the call over to Don.
Thanks, Philippe. Again, as previously mentioned, our Q3 2015 results were excellent. Revenues in the Q3 grew to $42,500,000 which represented 24% growth over the Q3 of 2014. Our current deferred revenue balance is $91,900,000 as of September 30, 2015, which is also 24% greater than the balance 1 year ago. Similar to many other companies, both our revenues and our current deferred revenue balances faced a considerable headwind due to the strengthening of the U.
S. Dollar compared to last year. Now a quick review of some other revenue metrics. For the Q3, the U. S.
Represented 70.5% of revenues compared to 70% a year ago. Also, we derived 78.5 percent of 3rd quarter revenues from subscriptions to our vulnerability management solution compared to 81% in the Q3 of last year. GAAP gross profits increased by 25% to $33,700,000 in the Q3 of 2015 compared to $26,900,000 in the prior year. GAAP gross margin was 79% for the Q3 of 2015 compared to 78% a year earlier. Non GAAP gross margin was 80% for the Q3 of 20 15 compared to 79% in the Q3 last year.
Adjusted EBITDA for the 3rd quarter increased by 60 7% to $15,100,000 compared to $9,000,000 a year earlier. Adjusted EBITDA as a percentage of revenues increased to 36% in the Q3 of 2015 compared with 26% in the same quarter of 20 14. Net cash from operations in the 1st 9 months of 2015 increased by 68% to $41,700,000 compared to $24,900,000 in the 1st 9 months of 2014. Free cash flow for the 1st 9 months increased by 82 percent to $26,700,000 compared to $14,700,000 last year. In the Q3 of 2015, capital expenditures were $4,500,000 compared to $3,700,000 in the Q3 last year.
In the Q4, we expect capital expenditures to be in the range of $5,000,000 to $6,000,000 as we expand our cloud infrastructure to support more customers, add more solutions and functionality to our platforms and also build out an expanded office facility in India. Moving on to earnings per share. For the Q3 of 2015, GAAP EPS was $0.11 per diluted share versus 0 point dollars per diluted share in the Q3 of 2015 compared to $0.15 in the Q3 of 2014. As most of you already know, starting this year, our earnings are fully taxed. Our impressive GAAP and non GAAP EPS results for this quarter year to date in 2015 are net of a much larger provision for income taxes in 2015.
In fact, our GAAP effective tax rate for the 1st 9 in 2014 was approximately 13% compared to this year's GAAP effective tax rate of approximately 38%. Now turning to our guidance for starting with revenues. For the Q4, we expect revenues to be in the range of $44,300,000 to 44.8 $1,000,000 At the midpoint, this represents 22% growth over Q4 2014 revenues. With 1 quarter remaining in 2015, we have adjusted our full year 2015 revenue guidance range to equal the revenues of the 1st 3 quarters plus the Q4 revenue guidance range that we just discussed. Therefore, we now expect full year 2015 revenues to be in the range of $164,100,000 to 100 and $64,600,000 At the midpoint, this represents 23% growth over $65,000,000 to $166,500,000 Now on to earnings per share guidance.
We expect GAAP EPS for the Q4 of 2015 to be in the range of $0.08 to 0 point of $0.16 to $0.18 Our 4th quarter EPS estimates are based on approximately 38,200,000 weighted average diluted shares outstanding. For the full year 2015, we are raising our guidance ranges for both GAAP and non GAAP EPS. We now expect full year GAAP EPS to be in the range of 0 point 0 $0.37 an increase from our previous revenue previous guidance range of $0.22 to 0 point 2 of $0.65 to $0.67 an increase from the previous guidance range of $0.50 to $0.55 Our full year EPS estimates are based on approximately 38,200,000 weighted average diluted shares outstanding. With that, Philippe and I would be happy to answer any of your questions. Operator?
And our first question today comes from Sterling Auty with JPMorgan. Your line is now open.
Yes, thanks. Hi, guys. Wondering, in terms of looking at the results for the quarter and more importantly, the guidance for the December quarter, relative to your previous outlook, what's the area that you're seeing, I guess, slower growth than what you originally anticipated? Is it the newer stuff? Because it looked like the VM growth held in, in the quarter?
Or is there something happening on
the VM side relative to
what your previous outlook had incorporated?
Yes. Hi, Sterling. This is Don. Yes, as Philippe mentioned, our growth of our newer services, which previously had been growing at 50 plus percent are now approximately 40%, whereas VM stayed the same at 2019.
But is there a particular reason why in terms of is it you've reached a certain penetration within your customers that you're starting to see that deceleration? Or is there any change in the competitive landscape that's caused that change in trajectory?
No, these are this is Philippe. These are this is not the case. In fact, it's more the fact that today we are doing bigger upsells. So the timing of these upsells affect obviously the growth within the quarter. We're doing between $250,000,000 to even $1,000,000 of sales now on policy compliance and on our web application scanning.
So the timing of those when they arrive in the quarter obviously can have an impact have an impact, but can have an impact. So we don't see any nothing to do with the competition. In fact, we see significant opportunity to displace more rapidly solutions like Symatec CCS and others of this policy compliance application where Qualys is a far better solution. And our agent by the way also is extremely well received to precisely displace and compete against these solutions. Okay.
And last question would be on the sales and marketing side. Can you give us a sense of did you hit the headcount hiring plans that you had put into place because they came in several $1,000,000 lower than what we anticipated. I didn't know how much of that would be variable comp versus maybe just timing of hiring?
So we 1st of all, we put the emphasis last quarter on expanding our management and this is something that we have done rather than hiring more sales people, we strengthened significantly the management in many aspects both in our Enterprise business as well as in our SMB business. We have also the RSA this year was of course in the previous quarter, so which is typically a very big expense. And we're now gearing up to essentially launch quite significant marketing campaigns on the cloud agent.
Okay. Thank you.
And our next question comes from Phil Winslow with Credit Suisse. Your line is now open.
Hi, thanks guys. Just as a
follow on to Sterling's question, obviously, he focused on the new products, but wanted to touch on VM. I know in the year you'd mentioned some deceleration in the business, but it continued to have actually a pretty healthy growth, relatively limited deceleration this quarter as you mentioned. Just what dynamics are you seeing there? What was the currency effect on that versus the other dynamics that are going on in the space?
Yes. So effectively the currency has been a significant drag on our VM business because euro and the euro and the currency has an impact of a few percent to our renewal basis. So this is quite significant of course in terms of revenues. We see that marketplace continuing to be very strong with Qualys. I'm sure all of you know that the company which we which whom we were competing the most fiercely at the very high end of the marketplace namely the McAfee MVM, McAfee in fact, Intel announced that they are retiring the product this product.
So that's in fact will accelerate we believe our ability to displace some of the large MVM deployments which still exist and in fact we're already working on those. So that's I think is a very good is a plus. And so of course, generally speaking, we see that VM business totally invigorated by our cloud agents. As now as I mentioned in the introduction, our customers can now scan the endpoints for the laptops which will you have significantly more units there than the servers. So we're essentially limited in the past with our traditional scanning technology to servers essentially.
So that's also expand our ability of both the VM as well as the policy compliance application. So now we see bottom line the VM continuing to be very strong. We have done we have introduced significant breakthrough products with both the agent and our asset view, which allows our customers to create customizable dashboard, which are dynamic, so they can essentially have at their fingertips the security and compliance posture of their enterprise at the scale that none of our competitors can essentially follow.
Phil, I just have a follow-up point on the beginning of your question. So just to clarify for you and everyone else, the growth rate of our VM business hit 20% in the Q4 last year. In the quarter before that and the 3 quarters since that, it's been 2019. So this has been basically a stable environment. This is not a declining environment.
This is a stable 19% growth environment for the last 5 quarters, including the last 3.
Great. Thanks, guys.
And our next question comes from Steve Ashley with Robert W. Baird. Your line is now open.
Perfect. Thank you very much. I'd just like to ask about the cloud agent business. Was there revenue in the period? And when you report your VM growth of 2019, is the Cloud Agent revenue included in that?
Thank you.
So we had some revenue in the period. As you know this is pretty early days for the Cloud Agent. We expect of course to see more coming. I think it has been very well received. We have a lot of interest in the product, a lot of trials for the Cloud Agent.
These are not insignificant upsells for existing customers as again because of the volume that I mentioned earlier. And to answer your second question, the way we count the cloud agent is we have multiple opportunities of revenues on the cloud agent. So we have the VM components, which of course we charge for and that goes with the VM. The policy compliance component that we also charge for and goes to the policy compliance. And then there's a slew of forthcoming new services which we expect to bring to market pretty quickly.
1st with the fine integrity monitoring which is essentially competing against Tripwire. We have a huge demand for that. So that will be part of a new service. We also will introduce early next year the ability to provide indication of compromises which we'll also charge for as an additional service and that also will count as new services.
Perfect. And then one housekeeping. Can Don, we get the number of sales reps you ended the period with? Thank you.
We added 5 more from last quarter. I think that brings us to 144.
Perfect.
Thanks. Our next question comes from Matt Hedberg with RBC Capital Markets. Your line is
I wanted to follow-up on Sterling's question also. You guys had strong billings performance in the quarter. And I understand, Don, you mentioned that newer product sales are slowing slightly. But this still doesn't make sense why Q4 revenues guided lower given the billings in the quarter. I'm curious, was there a change in duration either the quarter or your outlook?
No, there wasn't, Matt. There wasn't a change in duration.
No, it's only the timing of big deals. Of course, if they if a big deal arrives early in the quarter, it contributes obviously to more revenue than it arrives at the end of the quarter.
So, Philippe Beggitt, drilling in on that, is it is that sort of a commentary in terms of where you think some of the large deals in Q4 may likely come later in the quarter more of a back end loaded quarter maybe we were thinking?
Correct.
Okay. And then I guess you touched on your Analyst Day, Day, you brought in a new Head of Sales and a new Head of EMEA. As we look forward to 2016, are there any changes that you guys expect to make given the sales
question. You mean changing into the sales organization or changing
I guess maybe like if territories get reorganized or anything that a new head of sales might do sort of kicking off a new fiscal year?
In fact, we already did that in parallel. So the organizational changes have already taken place. So today we're essentially done with that. So we have the new management. We did all that with them in Q3 almost in parallel.
And then today it's all about hiring more salespeople. So we're very stable and solid in terms of management and that's going to be more headcount both on the new business side as well on the renewal and upsell Since we have so much opportunities on the upsell side, we're increasing also the headcount there as well.
Got it. Thanks guys.
And our next question comes from Erik Suppiger with JMP. Your line is now open.
Yes, thanks for taking the question. On the new services, just to be clear, was it both the web app scanning and the policy compliance that decelerated to 40%? Is there any reason why they would have both decelerated simultaneously?
Essentially, they were just to be very specific, there's 2 on both cases there was 2 large upsell which got delayed.
Say that again, there were 2 what?
2 large upsells in both categories which were delayed.
Okay. And one was in each web app scanning and one
policy compliance? Absolutely. Okay.
And then in terms of the McAfee solution, they've partnered with Rapid7. How do you look at your opportunity to capture some of that business given their partnership?
I think the partnership is something which put yourself in the shoes of the customer which has had a which has essentially I've seen McAfee not supporting the product for quite a while and that's certainly recommending another solution. What we see today of the Mc of the McAfee was, we have an extremely strong position because we scale unlike our competitors. And at the more mid range of the marketplace, we're now essentially preparing as I mentioned we're going to launch a replacement campaign anytime soon. And so this is the way we see the market. So all of the large accounts have already connected with us and these companies they are not going to follow the recommendation of Fintech for sure and they all are evaluating the various options for them.
Okay. Then lastly, on the hiring front, you added 5 sales reps in the quarter. Given some of the management additions that you've had, do you think you're going to be accelerating the sales rep hiring going forward?
Definitively, we've already started. So we're really interviewing significantly as we speak.
Very good. Thank you.
Our next question comes from Srini Nandoori with Summit Research. Your line is now
open. All
right. Thank you for taking my call. Guys, I just want to understand your federal business a little bit. I know that you just hired Mark Huttman recently and I just wanted to understand if you have access to operate with our Sally to federal business? And how much is how big is your federal business as a percentage of your revenue?
So our federal business has been it's extremely small for as a security company, which is about 1% of our revenues. So as you can see it's probably negligible. We have quite a few good customers in that space, which were early adopters like the SEC, like the IRS and a few other agencies. Now today, we're expecting to be FedRAMP. We're in the process of being FedRAMP compliant.
We see the federal marketplace as warmed up to our cloud architecture. And so this is why we believe now is the time for us to really be very aggressive in the federal market. We are in fact already handling a few large opportunities as we speak and we're going to deep up our federal team. So we're very happy to have Mark joining us. He's a very experienced person in that space and so we're ready for it.
Okay. If I may, can you talk about the IT spending environment from your perspective and more importantly on the sales cycles? Have you seen any changes in your sales cycles in the last quarter or so? And also can you talk about the average deal sizes if you
may? No, no. Yes. So in terms of the sales cycle, we have not seen essentially the sales cycle changing. As you know, we are addressing 3 markets with package of solutions with Express Light for the SMB, Express for the SME for the mid market and Enterprise for the large enterprise.
The selling cycle has remained about the same in these three categories. The difference as you alluded to is the fact that we are now doing significantly bigger deals and bigger upsell. So that's the big difference.
All right. Thank you, gentlemen.
Our next question comes from Michael Kim with Imperial Capital. Your line is now
Just going back to the Cloud Agent platform, hoping to provide an update on the deployment to some of the customers that you mentioned at the Analyst Day vis a vis Cisco and the cloud provider, if they've expanded on those deployments? And also with the trials, are they primarily existing customers looking for an upsell opportunity or is that an opportunity to capture new customers?
So all the company we mentioned they all have deployed essentially very successfully. So we're very happy with that. We have, as I mentioned earlier, a lot of trial both from existing customers as well as new customers. I mean, new customers really appreciate the value that we bring for both VM and Policy Compliance. And let me remind you what these values are.
With these cloud agents, you don't have to worry about scanning windows, which has always been a kind of a pain. You don't have to worry about credentials, so you could identify what you have on the devices and their vulnerabilities. So that's another very big advantage. And finally, what you have is the real time component. With the scanning windows, you are depending on scanning your system every week.
In fact, we have today customers believe it or not scanning a 1,000,000 IP every day. So of course, these agents eliminate all of that and give you that ability to fundamentally scan at real time. So we anticipate over time that most of our customers wherever they can put an agent, we use our agent as the technology to identify the vulnerabilities on those devices and only use the scanning technology to essentially for those devices like printers, etcetera, where you cannot put an agent. And as you may know also if you were at the conference, we're also introducing in beta what we call the passive scanning. So with these three technology combined with the scanning technology, we can look at the device from the outside with the agent we can look at the device from the inside and now with our passive technology we can look at what's coming in and out of the device.
And the beauty of our architecture is that instead of having 3 different applications like you find with enterprise software solution, we bring all that data into that one central place which is our cloud platform which we can deliver either as a shared platform or as an on premise solution and now you can correlate all of that information in real time and as well as essentially creating customizable views and dashboards and alerts. So this is what we have done and this is absolutely well received from all of our customers today and prospects.
And as you're going through some of the trials, have you gotten a little better sense on the pricing that you might be able to see as a premium relative to VM or PC policy compliance?
So currently today we believe we could sustain about 1 more in the beginning essentially giving some promotion. But ultimately we see that we could get a premium on the vulnerability scanning both for Policy Compliance and for VM as in fact we create more value for the customers. So we believe we can maintain about a 20% premium over the traditional scanning solutions.
Got it. And then just going back to the core vulnerability management business and the consistency in the growth this year. Has that been driven by share gains primarily or scope expansion by existing customers or maybe expansion in use case to continuous monitoring?
I think it's the continuous monitoring doesn't really drive that much revenue by itself, but it absolutely makes the vulnerability management application much more, if you prefer more effective as you can now create alerts. The big driver is a combination of a lot of new customers that's starting bigger than in the past. In past, we're starting for example to do the perimeter and then it was taking some time for the company to really believe in the model and then adopt us in the inside. Today we see companies from the get go which are really taking both inside and the outside and that obviously makes a bigger deal. So it's a kind of a mix of customers.
Some existing customers for example who have a big bank which has moved
which
is moving from the outside to the inside and of course will create a big upside as well as I mentioned earlier new customers which are starting both from the for the perimeter and for the inside at the same time.
Okay, great. Thank you
very
much. And our next question comes from Mike Sicos with Macquarie. Your line is now open.
Hi, guys. Question for you on
the 2 larger upsells that were delayed, one for the WASS product and one for the PC. Were you expecting both of those upsells to close during the Q3 or the Q4? And I guess have those upsells now closed at this time?
So we had in fact one of each in a way and so and none of them have closed at these times.
So I'm sorry you expected both of those to close you said or just one of them?
No. What I mentioned is was we were expecting to have in the previous quarter and the other one in the current quarter and they both have not closed yet.
Okay. And with I guess with this is the 2nd time you guys have had to take down your full year revenue guidance. And both of them, we can attribute in part to the FX, but also when these larger deals are starting to come in. I guess the question then is, are you guys rethinking or changing your approach to guidance now, just so that way you guys don't have to keep coming out and doing this? Or is there any change in the process that you guys have for when you set your guidance?
Yes. No, Mike. There's no change in the methodology that we use. We have a very granular bottoms up approach to look at our business and forecast it
out.
Okay. Okay. And then just the last question, if I could, was regarding the pricing of the cloud agents. I know you had said you expect that you can command a premium for these agents, call it 20% compared to the traditional scanning solutions. I guess the question is, are these cloud agents being priced on a per device basis or a per IP address?
It's the same, it's the same because it's per device, but it's equivalent to per IP, yes.
Okay. Okay. Thank you.
And our next
Most of my questions have been asked already. Just real quickly, when you look out to FY 2016, any you did mention tax in your prepared remarks. Can you just talk to us on a non GAAP basis how you're thinking about taxes? Thanks.
Yes. At this point, Rob, I expect I don't have any reason to think that rates we're using right now are going to change.
Perfect.
Yes.
And our next question comes from Gur Talpaz with Stifel. Your line is now open.
Hi, guys. This is Chris Speros on for Gur. First of all, thanks for taking our question. 2nd of all, in regards to your continuous monitoring cloud service, could you guys highlight some recent successes and describe the overall state of the pipeline?
Continuous monitoring is an extension to the VM essentially. It allows customers essentially define a certain kind of circumstances where they believe it's the combination of for example a port being open with the severity number 5 that creates an alert. And so and then from with these alerts you now we move that alert into the incident their incident response system. So it's a very natural extension our vulnerability management. Currently today, we see customers have been using it much more for the perimeter and we're starting to see an adoption for doing the same thing for your internal devices.
All right. Sounds good. Thank you
And our next question comes from Rob Owens with Pacific Crest. Your line is now open.
Hey, guys. This is Ben on for Rob. Thanks for taking my questions. First question I have was just kind of around you talked about a deal getting pushed from Q3. I wanted to ask about the linearity of business for the rest of the business throughout Q3.
Was it pretty linear relative to what you've seen in the past? Or did you see some shifts on kind of when deals were coming in?
It was a normal quarter, Ben, in terms of the pattern of business.
And then also wanted to I know in the past you've talked about some of your existing customers coming up and asking for upsells to the point where it kind of surprised you to the degree of what they wanted to buy it as far as additional VM solutions. I wondered if you could talk a little bit as far as what type of visibility you're seeing into these VM upsells? Are you easily able to telegraph which customers are looking for broader deployments? Are you actually seeing significant amount of upsells that are coming as kind of a surprise they're coming to you?
So in fact, we have a very good visibility of those upside on the VM side. And the reason is because again you have some customers which are still only doing the perimeter and this one is obviously a question of time before they go and expand quality inside, which are typically much bigger deals. And then on the other customers, it's essentially much more their growth. So this is also more statistically predictable because we can know how much of the total environment they are currently scanning and we can of course discussing with them understanding their plan of expansion. Those which are so this is very predictable both of them.
What is not predictable and we have quite a few of those is when a company today acquire another company, Now suddenly there's an opportunity of having now Qualys being used into with us in the new companies they have acquired. So there's been a lot of big mergers and because we have a large percentage already of the high end of the marketplace and this is where essentially a lot of that activity is taking place is really favoring us.
Great. Thank you.
Our next question comes from Alban Kazan with Arete Research. Your line is now open.
Hi, thanks for taking my question.
I may have missed that earlier, but Don, would you be possible to spell out the effect of FX? Some of your peers have been able to say that the euro weakness may have impacted their but by stranded bps also. I was wondering whether you could do the same for Qualys.
Yes, we could do that. For Q3 revenues, our forecasted Q4 revenues and also our deferred revenue balance at September 30, approximately 2.5% impact.
Thanks.
And our next question comes from John Lucia with JMP Securities. Your line is now open.
Hey, guys. Thanks for taking my questions. The first question is, I think you said that 60% of your customers have purchased more than one solution at this point. That stood at 54 percent at the end of 201430 percent at the end of 2013. It seems to be slowing from the pace that you had in 2014 going into this quarter.
Can you just talk about what's causing that slowdown in terms of upsells? Yes.
Hey, John, this is Don. We actually mentioned this a quarter ago on our call, kind of preemptively. Today, waiting for the kind of the agent and file integrity monitoring and some of these other products to kick in, which has is just getting started, revenues comprised principally of vulnerability management, policy compliance and web application scanning. And numerically, we give this metric, we're counting customers. And our SMB customers, by and large, don't buy compliance very much.
Compliance is more of an enterprise focused product and the smaller customers generally aren't too compliance oriented. So kind of naturally until we get some other products joining the mix, it's inevitable that the metric will start to level off.
Okay. That makes sense. And then I have one more question. What was total headcount in the quarter? And then did hiring come in below in line with or ahead of your expectations and then also the same for turnover?
Yes. So our headcount was total headcount is 4.97 in the quarter. I already gave the sales headcount. I don't think we really get into what we budget and so forth. So we're always looking for good people.
So I don't think we've previously given headcount targets or turnover figures. Nothing unusual going on this quarter though. We're always looking for good people and we were able to add quite a few this quarter.
And one point that I could add is that one point here in terms of we're also expanding big time in India as Don mentioned. We're moving into new beautiful offices in Pune. We see these we have a unique ability to really attract a lot of good talent there and we're very happy. And that allows us to continue investing in our R and D without of course while maintaining if you prefer our cost structure, if not in fact improving our cost structure.
Okay. Makes sense. Thank you.
And our next question comes from Jeff Cardone with Wasatch Advisors. Your line is now open.
Hi, thank you. I just want another clarification on the deals that didn't won't come through in the Q4. Are they in the backlog number now and that's one of the reasons the backlog accelerated or have they not been slowed yet?
Yes, we don't actually have a you're talking about deferred revenues?
Yes, sorry.
Yes. So deferred revenues are actually deals that closed that we build the customer. So we're not when we say a deal closed, it would be in deferred revenues. These are not in deferred revenues at September 30.
And have they been signed?
As I mentioned earlier, no, not yet.
I'm not showing any further questions at this time. I would now like to turn the call back to Philippe Courteau, CEO of Qualys for closing remarks.
Okay. Thank you, operator. In summary, our new offerings including AssetView and Cloud Agents are a game changer for Qualys. They significantly expand our market opportunity and allow us to play a very important role in the convergence of IT and Security. We are now better equipped than ever to capitalize on our scalable business model and outstanding team, which together allows us to continue accelerating the adoption of our offerings on a global scale.
Thank you for attending our earnings call today. Should you have any follow-up questions, Dan and I are available to you. We are looking forward to speaking with you next quarter. Thank you very much.
Ladies and gentlemen, thank you for