Ladies and gentlemen, thank you for standing by, and welcome to Qualys Incorporated Second Quarter 2020 Investor Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference may be recorded. I will now hand the conference over to your speaker today, Vin Rao.
Good afternoon, and welcome to Cordless's Q2 2020 earnings call. Joining me today to discuss the results are Philippe Coteau, our Chairman and CEO and Joo Min Kim, our CFO. Before we get started, I would like to remind you that the 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, investor presentation and supplemental historical financial spreadsheet are available on our website. With that, I'd like to turn the call over to Philippe.
Thank you, Vinayak, and welcome, everyone, to our Q2 earnings call. We hope that you and your families are healthy and safe. Our priority remains the health and well-being of our employees, while continuing to address and support the changing security needs of our customers. Since mid March, we have seen that Qualys has seamless transition to a remote workforce environment and have continued to effectively deliver on all unprecedented environment with the ongoing COVID-nineteen pandemic has created uncertainties for individuals and organizations across the globe As companies are experiencing a never before seen explosion of remote endpoints connecting to critical assets of their organization, security of these endpoints is paramount. IT team are responding to the challenge of ensuring that employees are able to work productively and securely from remote location and it is becoming imminently clear that traditional enterprise security solutions deployed inside organizations' networks are ineffective for protecting these remote endpoints.
We believe that Qualys is one of the few companies well positioned in this security market evolution due to our priority on investing in the extensibility and capabilities of our platform and our cloud based architecture. Upon the onset of COVID-nineteen, we addressed the needs of our existing customers by promptly releasing a remote endpoint protection service that will help them quickly address the challenge of securing these proliferating endpoints. This service, which we are providing at no cost for 60 days, leverages the Qualys cloud agent and its cloud based architecture to deliver instant and continuous visibility of remote computers as well as their installed applications, obtain real time view of all critical vulnerabilities misconfiguration and remotely deployed missing patches for critical vulnerabilities. These patches are delivered securely and directly from Brambur website and content delivery network, ensuring there is little to no impact on external VPN bandwidth. In Q2, we added malware detection capabilities to the solution and customers that were already using the service could extend their free 60 day license for an additional 30 days.
Malware detection uses file reputation and threat classification to detect known malicious files on endpoint servers and cloud workflows. In addition, this service is now available to U. S. Federal agencies with a no cost 60 day pilot. We currently have over 6.50 companies, including nearly 300 customer prospects actively using this free offering.
This remote endpoint protection service is based on the multifunction Qualys Cloud Agent, which instantly provide visibility to remote endpoints, detects vulnerabilities, manages their security hygiene proactively and patches them quickly at no cost. Our Cloud Agent is the technology platform for 7 of our security compliance and IT solution, Verity Management, Policy Compliance, file integrity monitoring, indication compromise, Patch Management, Asset Inventory and the upcoming Certificate Management, and with more to come. In Q2, we continue to see strong growth in our paid Cloud Agent subscription, with almost $43,000,000 now, representing 81% growth from the prior year quarter. We have continued to make strong progress on our goal of achieving ubiquity for our cloud agent. After organizations download our cloud agent once, it's frictionless for them to subscribe to our paid applications because no additional infrastructure is required to expand the solution with additional products.
Furthermore, this multi product adoption naturally increases the stickiness of our platform and helps makes us impenetrable to our competitors. We do not offer the same our competitors do not offer the same breadth of solution or ease of adoption. This is demonstrated by the fact that the gross dollar retention rate of enterprise that our retention rate of enterprise customers who have adopted 5 solutions or more stands at 99%. Our cloud our Qualys cloud platform combined with the capabilities of the powerful lightweight cloud agent, virtual scanners and network analysis passive scanning allowed us to create an effective and seamless learning management solution that incorporates the 4 key elements of discovery, assessment, prioritization and Patch Management into a single application called vMDR, currency management, detection and response, which went into general availability in April. This solution has been a huge success with our customers and is also driving further penetration of our cloud VLDR takes vulnerability management to the next level by providing the power to continuously detect vulnerabilities and misconfiguration across the entire global hybrid IT environment and responding in real time to remediate assets that are vulnerable or already compromised from a single platform with building orchestration.
Currently, 600 customers have adopted the MBR, which includes approximately 200 new customers. In fact, 8 out of our roughly 43,000,000 paid cloud agent subscription have come from the EMDR, of which $5,800,000 were new agent subscription. VMDR has not only helped proliferate Cloud Agent, but also sets the foundation for further upsell of our paid of our other paid applications. We continue to see good adoption of our free global ITS inventory, with almost 14,000 companies signed up and over 13 50 companies actively using the service. In terms of our other newer solution, we have continued to see strong customer adoption of our Patch Management solution, both in the mid market segment as well as with large customers.
In Q2, a large IT service firm selected our Patch Management application over several competing solutions, given its ability to easily and effectively patch remote endpoints without using limited bandwidth available on VPN gateways. This quarter, we also saw robust growth again for our container security application with a major enterprise video communication provider that has already deployed the LDR across its infrastructure adopting the solutions. In addition, our file integrity monitoring FIM application continues to see solid momentum with a large agent airline having selected our FIM solution as our computing point solution in order to effortlessly leverage the quality cloud agent that already deployed for vulnerability management. Now diving deeper, we are also early to recognize the importance of capturing all of the necessary telemetry, pure sensors and the Internet while building the back end with scale and computing capabilities needed to handle such a large volume of data. Today, we handle more than 9 petabyte of data, indexing more than 7,000,000,000,000 data points on our Elasticsearch clusters, moving 14,000,000,000 messages a day on our Kafka bus, storing 400,000,000 objects in our step clusters and pumping 1,000,000 writes per second in our Cassandra log analysis engine.
As a result, our highly scalable cloud based platform enable us to address all 4 new market segments, large enterprise, cloud providers, next generation of managed security service providers, and OT and IoT environment, providing a single pane of glass view across on premise assets, endpoints, cloud and mobile environment. Last month, we introduced our multi vector EDR solution that goes well beyond the endpoints and not only allows for the reduction of post positive, but also makes it easier to automate the response and greatly reduce the response times and costs. As an app, built natively on the Qualys Cloud Platform, our multi vector EDR leverages power, scale and accuracy to provide unprecedented visibility and telemetry by collecting security data from endpoints, adding context and correlating billions of global events with threat intelligence, analytics and machine learning. To strengthen our entrance into the EDR market, we acquired a software asset of Sped Security, a very innovative security startup in India, and all security employees have joined NowQualys in Pune. The team has unique expertise in threat hunting and malware research as well as deep understanding of the multi vector attacks.
They also have threat hunting products that will be fully integrated into the Qualys platform. Traditional EDR solutions, singularly focused on hunting and investigating endpoints, malicious activities and cyber attacks. Qualys' multi vector approach provides critical context and full visibility into the entire attack chain by providing a faster, more automated and comprehensive response to protect against those attacks. We are delighted with the strong adoption of the MDR by both our customers and managed security service providers and now by the interest in multi vector EDR is generating with them. Moving from multi from VMDR to multi vector EDR is almost instantaneous as it only requires an update of our cloud agent, which is automatically done by our platform once the application is enabled.
We're also pleased to announce that Infosys Managed Security Services has now adopted both the MDR and multi vector EDR. And here is a quote from Vishal Salami, CISO and Head of Infosys Cyber Practice. We are pleased to partner with Qualys to deliver EDR solutions via our globally distributed network of Infosys Cyber Defense Center. The highly scalable Qualys Cloud platform with its lightweight agent and sensors and its forthcoming incidence response capabilities provides us with the intelligent analytics we need to effectively protect our clients and allows us to consolidate our security stack. At BlackHat, we also discussed our upcoming Data Lake SIM solution that we expect to have in early beta at the end of 2020.
This is an important new milestone and new opportunity for our company as current incidence response solutions have become quite complex and costly, requiring organization to use multiple vendors to collect the data needed and bring it into their SIEM with fully contextual information. Qualys, the unique advantage is that we can leverage our robust scalable back end and its array of sensors which collect, enrich, normalize and correlate trillions of data points across on premise, endpoint, cloud, mobile and soon OT and IoT environment. On the hiring front, we are pleased to welcome back Joon McKim as Chief Financial Officer of Qualys. Her extensive finance, strategic planning and investor expertise will be instrumental as we continue to expand the Qualys Cloud platform and grow the company. We're also delighted that Ben Carr, I joined Aqualys as Chief Information Security Officer.
Ben is a proven information and risk executive and thought leader with more than 25 years of experience in executing long term security strategy. Adqualis is responsible for providing cybersecurity guidance and security strategies to Qualys customers, leading the CIO, CECL Interchange and securing our IT infrastructure. Finally, we are also honored to welcome John Zangardi to our Board of Directors. John has extensive experience in digital transformation and has successfully transformed the infrastructure of both the DHS and the DoD as well as modernized the cybersecurity operation. We're grateful to gain this valuable insight and guidance as we continue to expand our cloud platform to deliver innovative security and compliance offering.
In summary, because of the very nature of our business model, which is nearly 100% recurring, and the fact that our solutions have become mission critical, we have a greater visibility than many other security companies in our industry even in such difficult time, not to mention our highly profitable and cash generating business model. Our product and platform achievements lay the foundation for our continued progress to enable customers to consolidate the security, IT and compliance stack, while drastically reducing the spend. And importantly, it is core to the highly profitable recurring and growing revenue model we have built. With that, I'll turn the call over to Jumi to discuss our financial results and guidance for the Q3 and full fiscal year 2020. Thank you.
Thanks, Philippe, and good afternoon. Before I start, I'd like to note that except for revenue, all financial figures are non GAAP and growth rates are based on comparisons to the prior year period unless stated otherwise. We're delighted with our increasing cloud agent subscriptions and multiproduct penetration as well as the strong adoption of VMDR, which lays the foundation for future revenue growth and industry leading profitability. Our Q2 financial and operational highlights include: revenues for the Q2 of 2020 grew 13% to $88,800,000 dollars Please note, our Q2 2020 calculated current billings was negatively impacted by the timing and amount of prepaid multiyear subscriptions as well as requests for shorter duration invoicing, which we expect to continue to next quarter given the current market conditions. Our average deal size increased 7%, and platform adoption continued to increase as a percentage of enterprise customer with 3 or more Poly solutions rose to 54% from 44%, and the percentage of enterprise customers with 4 or more Poly solutions increased to 38% from 24%.
Paid cloud agent subscriptions increased to $43,000,000 over the last 12 months, up from $38,000,000 for the 12 months ended in Q1 2020. And 19% of VM customers up for renewal in the quarter renewed into a VMDR subscription, up from 4% in Q1. Our scalable platform model continues to drive superior margins and generate significant cash flow. Adjusted EBITDA for the Q2 of 2020 was $42,800,000 representing a 48% margin versus 42%. Q2 EPS grew 34%, and our free cash flow for the Q2 of 2020 was $24,900,000 representing a 28% margin and down 20%, primarily due to recent changes in billing and payment terms for selected customers given the current macroeconomic environment.
Year to date, our free cash flow margin is 40% and is up 6%. In Q2, we continue to invest the cash we generated from operations back into Qualys, including $4,300,000 on capital expenditures for operations, including principal payments under capital lease obligations and $25,300,000 to repurchase 242,500 of our outstanding shares. We remain confident in our business model, driven by our foundation of nearly 100 percent recurring revenues and expanding suite of applications. We are delighted to be raising our full year 2020 guidance for both revenues and earnings. We are raising the bottom and top end of our revenue guidance for the full year to now to be in the range of $359,000,000 to $360,500,000 from the prior range of $3.54 to $359,000,000 We are raising our full year non GAAP EPS guidance to now be in the range of 2.60 to 2.65 from the prior range of 2.46 to 2.51.
We expect to maintain industry leading margins in 2020 and continue to produce strong cash flow. And our Q3 guidance for revenue is $91,600,000 to $92,200,000 and for non GAAP EPS is $0.65 to $0.67 For the Q3, we expect capital expenditures to be in the range of $8,000,000 to $9,000,000 which includes approximately $2,000,000 for the build out of our Pune headquarters. Because of COVID-nineteen related delays, the timing of spend on our Pune headquarters has been pushed out a few months, and we now expect that $2,000,000 of our original planned spend will occur in the second half of the year. As Philippe mentioned, we are very excited by the robust early adoption of EMDR and the launch of our multi vector EDR application. We feel very well positioned during this period of uncertainty due to the value provided by our Cog platform and our 20 apps as well as our underlying highly scalable and profitable operational model.
With that, Philippe and I are happy to answer any other questions. Thank you. And our first question is from Erik Suppiger with JMP Securities. Please go ahead.
Hi, thanks for taking the question. Can you talk a little bit about linearity? How did the pandemic play out through the quarter?
Yes, I'll take that question. So linearity, we didn't see any material highlights to note on the linearity. It was similar to last quarter.
Okay. And then on the Vmdr, you talk a little bit about how much adoption you've seen with of using the Patch Management component to that? Yes. So we have a big demand
Go ahead.
Yes. No, we have a big demand for Patch Management. There's no question that this is an application that is already coming up. And VMDR makes it much easier because obviously, the last mile is you patch and it's at your fingertips. So yes, it's very significant.
And we see by the way what is interesting is both on the mid market, but as well as with large enterprise. In fact, I mentioned on the call that we had a large enterprise, which really adopted not only VMDR, but they also adopted a big deployment of batch management. And who are you displacing or who do you see on that patching front? Is that big fix? It's interesting is that it's not so much of the displacement.
It's the fact it become it starts more like adding, for example, it's much easier, of course, to with our solution to patch the endpoints. So we, in fact, believe in some cases they could continue using for example SCCM for other solutions, but on the endpoints it's much easier to do it with Qualys. So and other Patch Management solution, but essentially, it's adding to what they're doing And we see more and more appetite to essentially move to a solution like Qualys, which integrates the entire from discovering your assets to identifying the vulnerabilities on those assets to prioritize the remediation and then remediate. We have also, by the way, the integration with some customers, they don't take the full Patch Management solution, but they take all the information that we provide them with the superseding patches and so forth, so they can continue pushing that into their own patch management solution.
Very good. Thank you.
Thank you. Our next question comes from Shebly Seyrafi with FBN Securities. Please go ahead.
Yes. Thank you very much. I want to drill down on the current billings. It looks like it grew by 13% year to year, down from 15% the prior 2 quarters. And I saw what you said in the script.
So what would current billings growth have been versus 13% reported had duration not changed or declined?
Yes. So we have a healthy business. It's a little difficult to perfectly normalize growth rates to account for the multiple different impacts because for example, one of the reasons why quarterly billings may be impacted is because the renewals are not done at the anniversary of initial deal. There could also be changes in billing terms that we've highlighted in terms of the shorter duration billing as well as amount of prepaid subscriptions that have a negative impact basically in the 1st year upon renewal, you see that fluctuation. So what we like to point to is year to date calculated current billings is up 10% from last year.
And in terms of this actually supports why the trajectory of our annual revenue guidance is the best proxy for business momentum with our current bookings and pulling our guidance. And if you take a look at our annual revenue guidance, we did raise it basically from the prior high end is our current low end. And our bookings actually came in better than expected this quarter, especially from new.
Yes. I want to correct myself. Current billings was up 7%, like you said, 10% for the first half. But I'm trying to see because you expect these moving parts to linger, it looks like, for the next few quarters. And I just want to know when you think things may normalize such that your current billings growth can go back to the historical something like 15% or so?
Do you think it's 2 quarters long or 4 quarters long?
I think it's a little too early for us to tell given the uncertainty of the environment. Basically, we're at this time, we're leveraging our strong financial position to accommodate customers when they're asking for shorter duration invoices as well as delayed billing, which is another factor that we should take into account in addition to the renewals not being done at the time of an like renewal.
Okay. Last one for me is Spell Security. Do you have estimated incremental revenue and expenses for that company?
Yes. So for Spouse Security, it's a small tuck in acquisitions. And similar to what we've done before, we don't see a material impact to our top line or expenses from that acquisition.
Okay. Thank you.
Thank you. Our next question comes from Alex Henderson with Needham. Please go ahead.
Thank you very much. I was looking at the revenue associated with the customers that have bought the highest number of units. And it actually shows the revenue declining from 270 to 257 even as you're adding more revenue per customer. And I was wondering if you're including in those statistics any of the free solutions that you're offering. Why is the average revenue declining on your top customers?
Yes. Average revenue on the top customers, it could fluctuate depending on the category that as customers move into different categories. And another factor that we should consider is we're With the launch of the EMDR, EMDR is really counting as we're With the launch of the EMDR, EMDR is really counting as we're counting it as a 4 product. And so what we said before is generally we expect it to be a revenue neutral impact because for example, for VM only customers, we do expect them to see some uplift as they renew into VMDR, but some other customers who used to subscribe to like several other Qualys products, they may be spending a little bit less.
So are you including in that any of the free solutions or is that not included in the number of solutions?
No. It only includes only paid solutions and it's incremental solution that starts long.
Great. So the second question would be, you've obviously got a lot of free stuff out in the market today. You talked about Patch Management, the free asset inventory, a number of programs. If you were to tally all of those free customer I'm assuming that, that predominantly starts to roll off the free into some of the paid a paid version of it? What type of conversion rate do you expect?
And I think that's mostly in the Q4, is it not since most of that runs through September?
Right. So one thing that I would like to highlight is because as a subscription business, our model is to really allow customers to buy at their own pace. Customers do trials and then often expand at the time of renewal for existing. And then for new, we do realize that with our several of the products that we've launched, it's great that we're seeing adoption and some traction in terms of the active usage, both respect to the endpoint remote protection as well as the asset discovery and inventory. And we are tracking it, but at the same time, we don't it's not that we expect everyone to convert to paid.
We wouldn't be surprised if some people continue to use our free service, which is fine because we don't offer a free service as a half baked offering. And we really don't push products to customers. We kind of see like based on the customers' need, we do expect some to convert. I do think that's a little bit early given that a lot of the products are fairly new.
So don't is there a clip on any of those products that would then force them to make a decision?
Yes. So let me add, on the endpoint of projection 60 day free trials, yes, we do have a cliff. And in fact, we estimate, we can see that there's a very, very happy customers. In fact, some have even deployed very largely. So we expect to see some of these customers convert to the paid subscription when the program will end up as you mentioned that would be at the end of September essentially.
Then we have other services which have been very successful like the global ITS inventory, which is the free global ITS inventory that we are using more for lead generation and that are now today fully integrated with the VNDR. So of course, the global ITS inventory comes with VNDR. So that's all that. So as you can see, we skin that cat in different way. One way of looking at these trade services is looking at them as lead generation, creating of course, exposing the power of our platform to customers.
And then of course, we have a team to essentially add them to onboard them and then of course to try to upsell them as well. So yes, so this is part of our marketing strategy. It's a very cost effective marketing strategy because of course for us delivering we can deliver software at the 4 corners of the universe I would say thanks to our cloud based platform very cost effective.
Okay. Thank you.
Thank you. Our next question comes from Yoon Kim with Rosenblatt Securities.
Actually, congrats on a pretty solid quarter and welcome, Jumi. Philip, one metric that really stands out in the quarter is the acceleration in the adoption of the multiple products. Growth in the percentage of the customers with 2 plus, 3 plus, 4 plus, 5 plus, all accelerated from prior trends, not just 4 plus products. Can you specifically point out anything particular that drove that acceleration in the quarter? And what are you expecting in terms of the that trend going forward?
So the trend will continue. What you see with some of these it's a combination of few things. With some of these products is the maturity that we are reaching with these products. We see that very clearly with phthalene therapy monitoring. We are also seeing of course patch management has been also a very good take while waiting to get the UNIX and the iOS patch capabilities, which are coming in a couple of months, if I recall correctly.
But it's imminently that will boost further the adoption. And so and of course, now what we see more and more is the interest in the platform itself, where you've got all the solution for the integrated. So the MDR is a huge is a really huge success. And it helped us not only essentially have our customers have no reason to look for other solutions today, It also help us in penetrating and displacing current competitors. So VMDR was a big success and anticipate with the multi vector EDR, which is of course brand new will go GA at the end of the month early in September at the latest that there were already significant interest with multi vector EDR.
And by the way, remember one thing is that for all of our customers, which have the agent already installed, moving to EDR or multi vector EDR is a no brainer. They can immediately try and try and buy essentially. So that gives us a huge advantage with all these agents that we have now deployed.
Okay, great. Thanks for that. And obviously, now with the initial success with our Vmdr and obviously a lot of high profile product launches ahead. I think it's pretty clear that you have a platform strategy that is beyond your core VM footprint. Can you update us on any major go to market initiatives you may have planned to support all the product launches and where you are in terms of product positioning today?
And then in that regard, any plans to increase sales and marketing to support these perhaps any new sales and marketing initiatives to perhaps accelerate adoption in the marketplace and really more focus on maybe the initial land deals and whatnot?
Yes. No, this is a very good question. So in fact, our strategy since day 1 was to really build that multi platform. It was it has been a huge, huge undertaking and which we have been able to do because of the significant engineering team that we have now in Pune, India, we're close to 900 people. That was not a walk in the park.
It was very complex. We had to inject a lot of the newer technology like Elasticsearch, etcetera. So that's where our focus has been. At the same time, not only giving up the computing power of the platform was to also acquire telemetry. The problem today that you see with security is that in order for you to have context, you need to build you need to bring data from multiple different application and you have not very much idea of how good that data is.
And that's the problem that the SIEM today have. So not only it's costly, complex, but then to correlate, to analyze, to enrich that data is not also that easy. So that has been our overall strategy. So today, finally, our platform and clearly, VMDR showed that, that we could now sort of integrate all the solution, multivector, VDR is as well our ability now to go well beyond what the current EDR solution offer because we have seen a few more telemetry. And now, of course, our next big thing is essentially to essentially move into the SIM space, which as I mentioned earlier, are planning to go better in at the end of the year.
One of the linchpin of all of that is the unique, and I say and I repeat that unique ability that Qualys has to automatically create the global IT asset inventory across on premise, endpoint, cloud, containers, etcetera, automatically. That nobody you cannot secure what you don't know, end of the story. And I think that ability allows us to essentially really provide, if you prefer that context. And of course, how do we get that is because the combination of our agent, which brings information and our passive scanning, all the network analysis, bringing all that data into one single platform. So now that we are starting to have, if you prefer, solutions that carry significantly more dollars.
So when you look at the EDR marketplace, for example, the EDR marketplace is not so much the cost per endpoint, but it's the fact that you have many of them. And then when you look at the SIEM, it's a significantly bigger standpoint. So yes, to answer your question, we are going as we deliver digital services, obviously expand our marketing and sales capabilities to bring these solutions to market. And we have already a large customer base, which is a huge advantage, of course, because we can bring very cost effectively those solutions to our customers. And the third element of our go to market is we believe that now today we have a platform that essentially becomes very attractive for the managed security service providers because today they don't have the means anymore to take this to build this kind of platforms, which is what they've been doing in the past.
They absolutely need to move beyond the monitoring to do the response, which is now what Qualys provides. And so I think we have already a large number of managed security service providers, which are using Qualys. They are all moving into the MDR. And you saw the announcement that I made about Infosys, which is now also adopting as well the EDR solution. So we see that as another channel if you prefer to bring these solutions to market as well as them being able to consume our incident response solution because obviously this is the core of a managed security service providers.
You need to monitor and then you need to respond. So I think we're extremely well positioned from an architecture standpoint, well ahead of anything which is out there. And of course, now of course, we need to bring all that to market.
Great. Thanks for that detail. But one question I do have on that is, do you plan to maybe accelerate the sales headcount addition for
your Yes, the big advantage we have is that it's in proportion because now we're going to be able to do bigger deals. Of course, you get more you can spend more as a result. It's not going to change really our profitability. We're not going to throw a lot of salespeople. Again, Our model is try and buy.
It's very effective. Again, I mentioned our managed English channels. We see that as the very big channel, so to bring all these new solutions to market. And so that doesn't mean we certainly need to put a lot of salespeople in the field. But yes, we are building expanding our sales force everywhere.
Okay, great. Thank you so much.
Thank you. Our next question comes from Hamzah Fodderwala with Morgan Stanley.
Hi, thank you for taking my question. Philippe, I was wondering if you could comment a little bit more on the competitive landscape in vulnerability management and the sales cycles for Q2. Because clearly, I think, as far as your solutions are concerned, as far as providing more visibility and efficiency in a more distributed work environment, the prioritization of that is clearly increasing, but we're not fully seeing that reflected in results quite yet. So I'm wondering if you could comment a little bit about those two aspects, sort of the sales cycles as well as the competitive environment.
So the sales cycle has not changed essentially. If you look on the enterprise market, it's much more a displacement market, while on the mid market and the small enterprise, there's it's a much more rapid market. But the sales cycle has not fundamentally changed. What has changed today is with the entrance of the MDR, we have totally differentiated our solution vis a vis our competitors. And today with the forthcoming entrants, if we look today, our 2 main competitors now are less, I should say, are Tenable and Rapid7.
So Tenable has essentially, they are a VM company. They don't have the platform that Qualys has. Rapid7 acquired a company as I'm sure you know, which essentially gave them a kind of a SIEM platform. And of course, today, Qualys were entering that SIEM market, and we don't see them very much in the Verity Management. We don't compete in that much more on the VM side.
They are more essentially moving and their growth is coming from that low end SIEM market that they have addressed. So working up with, of course, what we call the next generation of SIEM, which goes well beyond the mid market, well, goes really after the very large installations as well. So our SIEM scales will scale significantly more. So we see ourselves extremely well differentiated against these traditional competitors now. And of course, the question becomes, who can build out there the platform that Qualys has built?
And how long are they there and how long it will take them. And if we look around, we are really well ahead of anybody because we have been working on that for a very long time. This didn't happen overnight, and we're really focused on that. And today, we're very happy again with the VMDR introduction. We demonstrated the power of what we've done now with multi vector EDR and very soon is going to be with our incidence response solution, which is entering alpha now and that we plan to go beta early beta at the end of the year.
Got it.
Thank you. That's helpful.
And then just one quick follow-up for Jimmy. Any way you could quantify perhaps the impact of the shift toward lower durations and some of the renewal timing that impacted current billing?
Yes, we're tracking that internally. I mean, in terms of the shorter duration invoice lifecycle, like, we've experienced a couple million impact to it. With that said, one of the reasons of why we're not actively managing the quarterly billing is because, as you know, we have the industry leading margins with our operating cash flow margin at 33%. And so that's why we wanted to make sure that we take this opportunity to leverage that to help out our customers where it makes sense. We do expect to get paid at the end of the day.
And this is part of the reasons why we've highlighted that we've actually had a great quarter, where the bookings came in higher than what we expected. And so billings is just not tracking or is not indicative of the bookings performance this quarter. And then going forward, we it to be similar because we don't really see a reason for us to not accommodate when we feel that the customers actually need it.
Got it. Thank you very much.
Thank you. Our next question comes from Brian Essex with Goldman Sachs. Brian, you are right.
I apologize. I just had mute on. Good afternoon. Thank you for taking the question. Filippo, I was just wondering if you could maybe give us a sense of conversations that you're having with customers, particularly after what we've seen high demand for endpoint, identity, firewall spend.
Are you seeing any derivative spend now that these more disparate networks may need to focus on security posture now that they've addressed those kind of initial concerns in a more distributed environment?
I'm not so sure could you repeat the question? I'm not so sure I understand the question here.
Yes. Just trying to get
a sense of the conversations that you're having with customers from a budgeting and spending perspective, particularly after we've seen high demand for the obvious kind of work from home solutions like endpoint identity firewall. Are you getting a derivative of that spend now that those issues may have been addressed?
Yes. No, okay. Makes sense. So I think today what happened is that the obviously, the COVID, as highlighted for a lot of companies, the fact that their enterprise security solution, they just they are not built for that world where essentially everything is connected with everything across the Internet. And so of course, enterprise security solutions were not designed for that.
So that became very visible. The first visibility is how do you patch a system, which is outside of your network, very with a lot of difficulties, then you have to buy more VPS, more this, more that. So that has really, if you prefer, essentially given the wake up call that it's about time that people rethink their security infrastructure and layering on all these enterprise security solution not only is very costly. So the move to the cloud is really definitively is happening in our industry. There's no question just to be that our industry was very resisting the cloud because for security reason and so forth.
But now today, of course, we can see that the minds are changing. And with our customers, the discussion is that consolidation. And so that's the number one priority they have. They cannot continue to have that many applications that they have to manage. They don't even find the people to do that.
So they're all looking for solution like Qualys, which consolidates essentially as many solutions as possible. And that's this was our vision. We knew we would get there, that it took much longer than we thought and to build the platform that we build was far more complex than we thought. But I think we kept on going, if I may say so. And I think that serves us very well.
We also see that our multi that our agents the fact that our agents one single agent, if you prefer one platform, one single agent, one global view is what people are looking for. And we see today a lot of interest in our multi vector EDR. This is a marketplace, which of course is growing very fast today because of the need you just described, but it's also a market that needs also some a lot of consolidation as well. So I think we're very well positioned here.
Got it. That's super helpful. And I just want to follow-up with maybe one for Jumie. I think someone touched on a question earlier about particularly for enterprise customers with over 4 solutions that LTM revenue per customer coming down slightly. But it looks like if you look at all the categories, you're coming down.
So I guess I'm just wondering what are the other categories? How are those affected? And what are the drivers of that? Maybe it's a customer growth issue or a mix issue, but just wanted to get a sense of the declines in the other categories as well.
Yes. So in terms of some of the other categories, some of it's attributed to the fact that we've rolled out a lot of smaller solutions. Now with the newer solutions that are coming out that we're expecting to be priced similar to VM, we are expecting the ARPU to go up over time. So for example, we talked about Patch Management, SIEM and IOC that will have a similar deal size, whereas some of the smaller solutions that we've launched, like an example is like continuous monitoring, it's not as price as high.
Got it. But I mean, if I look at this, can I infer that I mean, it looks like it implies that just overall
revenue per customer has gone down? Is that not the case?
Is it just a mix issue or? Per customer has gone down. Is that not the case? Is it just mix issue or?
Well, overall, the average Thank you. Our next question comes from Gur Talpaz with Stifel.
Okay, great. Thanks for taking my questions. Philippe, you noted that you added malware detection this quarter alongside the launch of EDR. I want to understand more broadly what your confidence threshold here is in competing in more traditional endpoint markets. And then I think beyond that, what you've seen in terms of customer interest thus far?
Oh, no. There's a very big interest. Now the malware detection that we added with our 60 day free endpoint protection is detection, not response, because we didn't have yet the capabilities of response in our agent build into our agent and that's what is coming up with multi vector EDR, which give you the full solutions. And the differentiation between our solutions, our solution and other solution is that all endpoint solution today, they essentially have only information about the endpoint. Now of course, because we have all that telemetry, we can look beyond the endpoint and that is very important.
So today, I think we have a solution that technically speaking has significantly more advantages eliminating cost positive, allowing you to do threat much more easily because you've got access to all that information. You don't have to go fishing as I used to call it. And so I think we have a very good solution. Now the big advantage we have here is that we have already a large, large usage of our cloud agent and for us to upgrade to for our customers to really look at the solution, it's very easy because it's instant update of the agent to give them that response capability that just discussed about and that's essentially all that's needed and it's pretty straightforward and now you can try our multi vector EDR. And we call it multi vector EDR because the attacks today are precisely multi vectors.
So it's not only just the endpoint, you need to know what that device connects to because the device could be attacked from another part of the network. And that's why you need that full view, just not the view of the endpoint.
That's helpful. And Jimmy, maybe one for you just kind of building on the last question. How should we think about products like EDR and CEM serving as a lift, if you will, to the ASP or average deal size?
Yes. This is something that we're very optimistic about. We believe that with the launch of the Vmdr qualified EDR and data like instant coming out after when with our customers having already have cloud agents installed at the endpoints, we really think that this will drive our ARPU higher, increase dollar retention rate and overall drive acceleration in revenue.
That's helpful. Thank you.
Thank you. And our next question is from Matt Hedberg with RBC Capital Markets.
Philippe, and maybe I missed it, but or could you comment on sort of some of the geographic trends here and overseas in terms of when economies start to reopen?
I think today we see yes, I think the U. S, as you know, is trying to wrap in this for our market. We've not seen in fact much difference fundamentally between all the markets and we see very, very good adoptions in Europe and in Asia Pac as well. So we have not seen really an economical impact, and the reason is very simple. And the reason is very simple.
You still I take the example of Qualys. We have nobody working in our offices, obviously. However, this is our network that we need to continuously maintain because that's a network that connects us together. So that network is essentially like the nervous system. So that's why the security market and you need to secure this network.
So that's why as a whole, we have not seen significant reduction in the demand. What we see conversely is a lot of companies essentially asking for price concession, payments, etcetera. That's what we see. We see, of course, some companies which are going to are getting bankrupt or will go bankrupt. That's, of course, the dynamic.
Now for us, instead of speaking in term of reduction, we try to essentially now change the debate in saying, by the way, what about consolidating? You are spending so much amount of dollars maintaining this power of solutions, why don't you take a solution like Qualys and look where everything is integrated? And of course, overall, your total cost of ownership is drastically reduced because you don't need that many people to do that. You don't have to worry about the integration between these different solutions. It's all done for you.
And you don't have to worry about the infrastructure costs because of course this is a cloud based solution. So I think we're extremely well positioned.
Got it. And then I know you've historically taken a very
active role in sales, effectively running sales for several years.
World Wide Field Ops last year. As far as I can tell, I don't think she's with the company anymore. I'm wondering if you could comment on that. It's just sort of like the overall sales initiative.
Well, as you know, so we have of course, replaced Glory. And in fact, this is part, as you know, we have very, very long term employees at Qualys, but not everybody stays forever, obviously. And so I think, no, we're very well positioned here. We have, in fact, promoted somebody from within to take a role and who is doing very well. And so I think again, as I mentioned earlier, we're looking at expanding our sales force today.
So I think we're well positioned again there.
Got it. Thanks.
And our next question is from Sterling Auty with JPMorgan.
Yes, thanks. Hi, guys. I think you mentioned a couple of times on the call that bookings in the quarter were stronger than expected. Early in the call in the Q and A, you mentioned linearity was the same as it was last quarter. If that's the case, then I guess I wonder why wasn't revenue in the quarter actually stronger than the reported number?
Revenue, when we guided to the revenue, it was $88,000,000 to $88,600,000 and we actually reported the revenue of $88,800,000 and so it did come in higher than what we had expected. Is that what you meant, Sterling?
Yes. But I guess I would call that more in line with the top end of the range or maybe were the bookings maybe just slightly above what you expected in the quarter? Yes.
And coupled with the fact that sometimes when we do bookings, it really depends on some of our bookings actually are based on a consumption model as well. As you know, like given our established partnership, we do have consumption based scan on behalf of the teams that do come in that could be factored into it. But overall, yes, we were expecting our revenue to be somewhere in the midpoint of our revenue guidance range and actually ended up coming in a little bit higher at 88.8
Got it. And then one follow-up on the Vmdr and EDR. Can you remind us, I think you have some different pricing models, especially with the MDR. How is the uptake under that pricing model? And what should we think about the revenue contribution looking like for this year?
So the pricing model is different. As you know, we are now on asset based model, which makes it very simple, much simpler for our customers to procure than going through the old system that we had, which was a la carte and then also IP based. So I'm not so sure that I understand exactly your question in terms of the impact on what?
On revenue for the year. So given new product, so not knowing how much contribution you expect to total revenue for this year. Is it meaningful? Is it de minimis? Is it a slow ramp, a fast ramp?
Those types of items.
No, no. The EMDR is moving very well. I mean, we have a huge adoption of EMDR as we have mentioned in the numbers. And no, this is everybody is working to the FBR. And what we mentioned, again, in some cases either because for those customers which have adopted already multiple solutions, VMware can end up a little bit cheaper.
And then for those who have not essentially deployed new solution, of course, it becomes a little bit more expensive. And all in all, I mean, it's a very healthy business. And what it does, of course, we anticipate most of our customer base migrating to the MDR relatively quickly, and we see that adoption accelerating. And what it does is populate the agent. It makes us absolutely much more sticky because of course now you have all of these solutions totally integrated.
So we think this is a huge success. I mean VMDR is absolutely a huge success. Thank you.
Thank you. And I'm not showing any further questions in the queue. I would like to turn the call back to Philippe Couture for his final remarks.
Okay. So thank you all. And again, this as you know, we're very excited to see our new solution coming to EMDR. It's been a fantastic, as I mentioned earlier, solution. We're now bringing multivector EDR.
As you can see, we're now moving into detection and response EDR, Vmdr, EDR but more to come. And of course, we're looking forward to launching our new incident response solutions. So with that, we'd like to thank you for your time. And again, thank you very much.
And with that, ladies and gentlemen, we thank you for participating in today's program. You may now disconnect. Have a wonderful day.