Ladies and gentlemen, thank you for standing by, and welcome to Qualys, Inc. second quarter 2020 investor call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during that portion of the call, you will need to press star 1 on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star and 0. I will now hand the conference over to your speaker today, Vinayak Rao.
Good afternoon, welcome to Qualys second quarter 2020 earnings call. Joining me today to discuss the results are Philippe Courtot, our Chairman and CEO, and Joo Mi 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 Form 10-K. Any forward-looking statements that we make on this call are based on assumptions as of today, we undertake no obligation to update these statements in the 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 aspects of our business, including product development, operation, and support services. The unprecedented environment with the ongoing COVID-19 pandemic has created uncertainties for individual 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. 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 the 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-19, 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're 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 and misconfiguration, and remotely deploy missing patches for critical vulnerabilities. These patches are delivered securely and directly from brand new 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 workload. In addition, this service is now available to U.S. federal agencies with a no-cost 60-day pilot.
We currently have over 650 company, including nearly 300 customer prospects, actively using this free offering. The remote endpoint protection service is based on the multifunction Qualys Cloud Agent, which instantly provides 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 seven of our security compliance and IT solution, Vulnerability Management, Policy Compliance, File Integrity Monitoring, Indication of 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 million 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 organization 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. Our competitors who 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 customers who have adopted five 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 Vulnerability Management solution that incorporates the four key elements of discovery, assessment, prioritization, and Patch Management into a single application called VMDR, Vulnerability 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 Agents. VMDR 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 VMDR, which includes approximately 200 new customers.
In fact, 8 out of our roughly 43 million paid Cloud Agent subscriptions have come from VMDR, of which 5.8 million were new agent subscriptions. VMDR has not only helped proliferate Cloud Agent, but also sets a foundation for further upsell of our other paid applications. We continue to see good adoption of our free Global IT Asset Inventory with almost 14,000 companies signed up and over 1,350 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 solution, 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 VMDR across its infrastructure, adopting the solutions. In addition, our File Integrity Monitoring, FIM, application continues to see steady momentum with a large agent airline have been selected our FIM solution, a very competing point solution in order to effortlessly leverage the Qualys Cloud Agent that already deployed for Vulnerability Management.
Now, diving deeper, we were also early to recognize the importance of capturing all of the necessary telemetry via 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 petabytes of data, indexing more than 7 trillion data points on our Elasticsearch clusters, moving 14 billion messages a day on our Kafka bus, storing 400 million objects in our step clusters, and pumping 1 million 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 environments, 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 endpoint and not only allows for the reduction of false 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 the software asset of Spell Security, a very innovative security startup in India, and all security employees have joined now Qualys 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 focus 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're delighted with the strong adoption of VMDR by both our customers and managed security service providers, and now by the interest Multi-Vector EDR is generating with them.
Moving 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 VMDR and Multi-Vector EDR, and here is a quote from Vishal Salvi, CISO and Head of Infosys Cyber Practice: "We are pleased to partner with Qualys to deliver VMDR and Multi-Vector 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 incident response capabilities provides us with the intelligent analytics we need to effectively protect our clients and allows us to consolidate our security stack. At Black Hat, we also discussed our upcoming Data Lake/SIEM 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 incident 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' unique advantage is that we can leverage our robust, scalable backend 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 Joo Mi Kim 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 has joined Qualys 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. At Qualys, he's responsible for providing cybersecurity guidance and security strategies to Qualys customers, leading the CIO CISO interchange and securing our IT infrastructure. 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 their cybersecurity operation.
We're grateful to gain his 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 their security, IT, and compliance stack while drastically reducing their spend. Importantly, it is core to the highly profitable recurring and growing revenue model we have built. With that, I turn the call over to Joo Mi to discuss our financial results and guidance for the third quarter 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 multi-product 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 second quarter of 2020 grew 13% to $88.8 million. Please note our Q2 2020 calculated current billings was negatively impacted by the timing and amount of prepaid multi-year 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 customers with 3 or more Qualys solutions rose to 54% from 44%. The percentage of enterprise customers with 4 or more Qualys solutions increased to 38% from 24%. Paid Cloud Agent subscriptions increased to 43 million over the last 12 months, up from 38 million for the 12 months ended in Q1 2020. 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 second quarter of 2020 was $42.8 million, representing a 48% margin versus 42%. Q2 EPS grew 34%.
Our free cash flow for the second quarter of 2020 was $24.9 million, 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 continued to invest the cash we generated from operations back into Qualys, including $4.3 million on capital expenditures for operations, including principal payments under capital lease obligations and $25.3 million to repurchase 242,500 of our outstanding shares. We remain confident in our business model, driven by our foundation of nearly 100% 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 be in the range of $359 million-$360.5 million, from the prior range of $354 million-$359 million. We are raising our full year non-GAAP EPS guidance to now be in the range of $2.60-$2.65, from the prior range of $2.46-$2.51. We expect to maintain industry-leading margins in 2020 and continue to produce strong cash flow. Our Q3 guidance for revenue is $91.6 million-$92.2 million, and for non-GAAP EPS is $0.65-$0.67.
For the third quarter, we expect CapEx to be in the range of $8 million-$9 million, which includes approximately $2 million for the build-out of our Pune headquarters. Because of COVID-19 related delays, the timing of spend on our Pune headquarters has been pushed out a few months, and we now expect that $2 million 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 VMDR 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 cloud 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 of your questions.
Thank you. Ladies and gentlemen, if you have a question at this time, just press star then one on your telephone keypad. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Our first question is from Eric Zuber 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?
Yeah, I'll take that question. Linearity, we didn't see any material highlights to note on the linearity. It was similar to last quarter.
Okay. On the VMDR, can you talk a little bit about how much adoption you've seen with using the Patch Management component of that?
Yeah. We have a big demand.
Go ahead, Philippe.
Yeah, no, we have a big demand for Patch Management. There's no question that this is an application that is really, you know, coming up. VMDR makes it much easier because obviously the last mile is you patch, and it's at your fingertips. Yeah, it's very significant. We see, by the way, what is interesting is both on the, on the mid-market, but as well as with large enterprise. In fact, I mentioned on the call that we had a large enterprise, you know, which really adopted, you know, not only VMDR, but they also adopted a big, it's a big deployment of Patch Management.
Who are you displacing or who do you see on that patching front? Is it front? Is that BigFix?
It's interesting is that, you know, it's not so much of the displacement. It's the fact it starts more like adding. For example, it's much easier of course to, with our solution, to patch the endpoint. In fact, we believe in some cases, you know, they could continue using, for example, an SCCM for other solutions. On the endpoint, it's much easier to do it with Qualys and other patch management solution. Essentially it's adding to what they are doing and we see more and more appetite, you know, to essentially move to a solution like Qualys, which integrates the entire, you know, 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.
That 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, you know, patch management solution.
Very good. Thank you.
Thank you. Our next question comes from Sterling Auty with FBN Securities. Please go ahead.
Yes, thank you very much. I wanna drill down on the current billings. It looks like it grew by 13% year-to-year, down from 15% the prior two quarters. I saw what you said in the script. What would current billings growth have been versus 13% reported had duration not changed or declined?
Yes. 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 first year upon renewal, you see that fluctuation. What we like to point to is year to date calculated current billings is up 10% from last year. 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 employing our guidance.
If you take a look at our annual revenue guidance, we did raise this 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.
I wanna correct myself. Current billings was up 7%, like you said, 10% for the first half. I'm trying to see, 'cause you expect these moving parts to linger, looks like for the next few quarters. I just wanna 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 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 end, like renewal.
Okay. Last one for me is Spell Security. Do you have estimated incremental revenue and expenses for that company?
Yeah. For Spell Security, it's a small tuck and acquisition, 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 & Company. 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. I was wondering if you were including in those statistics any of the free solutions that you're offering. Why is it, why is the average revenue declining on your top customers?
Yeah. Average revenue on the top customers, it could fluctuate depending on the category that, as customers move into different categories. Another factor that we should consider is we're relooking all their metrics to make sure that they're all still relevant to customers. I think that one of the metrics that we've highlighted before is a multi-product adoption. With the launch of VMDR, we're counting it as 4 products. 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. Some other customers who used to subscribe to like several of our Qualys products, they may be spending a little bit less.
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 small.
Great. The second question would be, you've obviously got a lot of free stuff out in the market today. You talked about Patch Management, you know, the free Asset Inventory, a number of programs. If you were to tally all of those free customer subscriptions up, what type of nut are we talking about? How big a chunk of business would that be? To what extent, I'm assuming that that predominantly starts to roll off the free into some of the paid, you know, a paid version of it. What type of conversion rate do you expect? I think that's mostly in the fourth quarter, is it not, since most of that runs through September?
Right. One thing that I would like to highlight is, because we're 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. Then for new, we do realize that, you know, 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 Inventory. We are tracking it, but at the same time, we don't 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.
We really don't push products to customers. We kind of see, like, based on the customer's need, we do expect some to convert. I do think that it's a little bit early, given that a lot of the products are fairly new.
So don't-
Yeah, that's.
Is there a cliff on any of those products, that would then, you know, force them to make a decision?
Yes. Let me add, you know, on the endpoint protection, 60-day free trials, yes, we do have a cliff. In fact, we estimate we can see that there's a very happy customers. In fact, some have even deployed very largely. 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. We have other services which have been very successful, like the Global IT Asset Inventory, the free Global IT Asset Inventory that we are using more for lead generation and that are now today fully integrated with VMDR. Of course, the Global IT Asset Inventory comes with VMDR. That's all that.
As you can see, we skin that cat in different way. One way of looking at these free services is looking at them as lead generation, you know, creating, of course, exposing the power of our platform to customers. Of course, we have a team to essentially add them, to onboard them, and then, of course, to try to upsell them as well. Yes. This is part of our marketing strategy. It's a very cost-effective marketing strategy because, of course, for us, the different we can deliver software at the four corners of the universe, I would say, thanks to our Qualys Cloud Platform, very cost-effective.
Okay. Thank you.
Thank you. Our next question comes from Yoon Kim with Rosenblatt Securities.
Thank you. Actually, congrats on a pretty solid quarter and welcome, Joo Mi. Philippe, 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+, 3+, 4+, 5+ all accelerated from prior trends, not just 4+ products. Can you specifically point out anything particular that drove that acceleration in the quarter? What are you expecting in terms of that trend going forward?
The trend will continue. What you see with some of 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 File Integrity Monitoring. We are also seeing, of course, Patch Management has been also a very good, a very good take while waiting to get the Unix and the macOS patch capabilities, which are coming in a couple of months, if I recall correctly. It's immediately that will boost further the adoption. Now what we see more and more is the interest in the platform itself, where you've got all these solutions fully integrated. VMDR has been a huge success, is a really huge success.
It helped us not only, essentially, have our customers have no reason, you know, to look for other solutions today, but it also help us in penetrating and displacing, you know, current, you know, competitors. VMDR was a big success. We anticipate with the Multi-Vector EDR, which is, of course, brand new, will go GA at the end of the month, early September at the latest, that there were already significant interest with Multi-Vector EDR. 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 buy essentially. That give us a huge advantage with all these agent that we have now deployed.
Okay, great. Thanks for that. Obviously, now with the initial success with VMDR and, you know, 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, you know, all the product launches and where you are in terms of product positioning today? Then, you know, in that regard, any plans to increase sales and marketing to support these, you know, perhaps any new sales and marketing initiative to, you know, perhaps accelerate adoption in the marketplace and really, you know, more focus on maybe the initial land deals and whatnot?
Yes. No, this is a very good question. In fact, our strategy since day one was to really build that multi-platform. It has been a huge undertaking 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, et cetera. That's where our focus has been. At the same time, not only beefing 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 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. Not only it's costly, it's complex, but then to correlate, to analyze, to enrich that data is not also that easy. That has been our overall strategy. Today, finally, our platform and clearly VMDR showed that we could now certainly integrate all the solution Multi-Vector EDR is as well our ability now to go well beyond what the current EDR solution offer because we have significantly more telemetry.
Now, of course, our next big thing is essentially to essentially move into the SIEM space, which as I mentioned earlier, we're planning to go, you know, beta 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, et cetera, automatically. You cannot secure what you don't know. End of the story. Having that ability allows us to essentially really provide, if you prefer, that context. 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.
Now that we are starting to have, if you prefer, a solutions that carry significantly more dollars, or 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. When you look at the SIEM, it's a significantly bigger standpoint. Yes, to answer your question, we are going, as we deliver these new services, obviously expand, you know, our marketing and sales capabilities to bring these solutions to market. 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.
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 build these 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. I think we have already a large number of managed security service providers which are using Qualys. They are all moving into VMDR. You saw the announcement that I made about Infosys, which is now also adopting as well, you know, the EDR solution.
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. I think we're extremely well-positioned from an architecture standpoint, well ahead of anything which is out there. Of course, now, of course, we need to bring all that to market.
Great. Thanks for that detail. One question I do have on that is, do you plan to maybe accelerate the sales headcount addition for your platform?
No, 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 security channels. We see that as a very big channel, so to bring all these new solutions to market. That doesn't mean we certainly need to put a lot of salespeople in the field. Yes, we are building, expanding our sales force everywhere.
Okay, great. Thank you so much.
Thank you. Our next question comes from Hamza Fodderwala with Morgan Stanley.
Hi, thank you for taking my question. Philippe, I was wondering if you would comment a little bit more on the competitive landscape in Vulnerability Management and the sales cycles for Q2. Clearly I think, you know, as far as your solutions are concerned, as far as, you know, providing more visibility and efficiency in a, 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. I'm wondering if you would comment a little bit about those two aspects. Sort of the sales cycles, as well as, you know, the competitive environment.
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, it's a much more rapid market. The sales cycle has not fundamentally changed. What has changed today is with the entrance of VMDR, we have totally differentiated our solution with EDR competitors. Today with the forthcoming entrants, if we look today, our two main competitors now are less, I should say, are Tenable and Rapid7. Tenable, as 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.
Today, Qualys, who are entering that SIEM market, we don't see them very much in the Vulnerability Management. We don't compete with them 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. Working up with what we call the next generation of SIEM, which goes well beyond the mid-market, goes really after the very large installations as well. Our SIEM scales significantly more. We see ourselves extremely well differentiated against these traditional competitors now. The question becomes: Who can build out there the platform that Qualys has built? How long are they there, and how long it will take them?
If we look around, we are really well ahead of anybody because we have been working at that for a very long time. This didn't happen overnight, and we really focus on that. Today we're very happy again with the VMDR introduction. We demonstrated the power of what we have done now with Multi-Vector EDR, and very soon is going to be with our incident response solution, which is entering alpha now, that we plan to go beta, early beta at the end of the year.
Got it. Thank you. That's helpful. Just one quick follow-up for Joo Mi.
Sure.
Any way you could quantify perhaps the impact of, you know, the shift towards lower durations and some of the renewal timing, that impact the current billing?
Yeah, we're tracking that internally. I mean, in terms of the shorter duration and voice 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%. 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 with the bookings came in higher than what we expected. Billings is just not tracking or is not indicative of the billing bookings performance this quarter.
Going forward, we expect 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're on mute.
Apologies. Apologies I had mute on. Good afternoon. Thank you for taking the question. Philippe, I was just wondering if you'd maybe give us a sense of conversations that you're having with customers, particularly after what we've seen, you know, high demand for endpoint, identity, firewall spend. Are you seeing any derivative spend now that these more like 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 other question here.
Yeah, 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, you know, high demand for, you know, the obvious kind of work-from-home solutions.
Oh.
endpoint identity firewall. Are you getting a derivative of that spend now that those issues may have been addressed?
Yeah, no, I makes sense. I think today what happened is that the obviously the COVID-19 has highlighted for a lot of companies the fact that their enterprise security solution, they're not built for that world where essentially everything is connected with everything across the internet. Of course, enterprise security solutions were not designed for that. That became very visible that the first visibility is how do you patch a system which is outside of your network very with a lot of difficulties. You have to buy more VPNs, more this, more that. That has really, if you prefer, essentially given the wake-up call that it's about time that people rethink their security infrastructure.
Layering on all these enterprise security solutions not only is very costly. The move to the cloud is really definitively happening in our industry. There's no question it used to be that our industry was very resisting the cloud because for security reasons and so forth. Now today, of course, we can see that the minds are changing. With our customers, the discussion is about that consolidation. 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. They're all looking for solutions by Qualys, which consolidate essentially as many solutions as possible. This was our vision.
We knew we would get there, but it took much longer than we thought, and to build the platform that we build was far more complex than we thought. I think we kept on going, if I may say so. I think that serves us very well. We also see that our agent, the fact that our agent, one single agent, if you prefer one platform, one single agent, one global view is what people are looking for. 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. It's also a market that needs also a lot of consolidation as well.
I think we're very well-positioned here.
Got it. That's super helpful. I just want to follow up with maybe one for Joo Mi. I think, you know, someone touched on a question earlier about, particularly for enterprise customers with over 4 solutions that LTM revenue per customer coming down slightly. It looks like if you look at all the categories are coming down. I guess I'm just wondering is, 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, just wanted to get a sense of the declines in the other categories as well.
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 that ARPU to go up over time. For example, we talked about Patch Management and then IOC that will have a similar deal size, whereas some of the smaller solutions that we've launched, like, you know, an example is like Continuous Monitoring is not as priced as high.
Got it. I mean, if I look at this, can I, can I infer that I mean, it looks like it implies that just overall revenue per customer has gone down. Is that, is that not the case? Is it just mix issue or?
Well, overall, the average deal size we mentioned in the prepared remarks that it is up 7% year-over-year.
Okay. All right. Thank you very much.
Thank you. Our next question comes from Gordon Karpas with CIBC.
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 thresholds here is in competing in more traditional endpoint markets. Beyond that, what have you seen in terms of customer interest thus far?
No, there's a very big interest. 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, built into our agent, and that's what is coming up with Multi-Vector EDR, which give you the full solutions. The differentiation between our solution and other solution is that all endpoint solution today, they essentially have only information about the endpoint. Of course, because we have all that telemetry, we can look beyond the endpoint, and that is very important. Today, I think we have a solution that technically speaking has significantly more advantages eliminating false positive, allowing you to do threat hunting 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. I think we have a very good solution. Now, the big advantage we have here is that we have already a large usage of our Cloud Agent. For us to upgrade, you know, 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. That's essentially all that's needed, and it's pretty straightforward. Now you can try our Multi-Vector EDR. We call it Multi-Vector EDR because the attacks today are precisely multi-vector. It's not only just the endpoint. You need to know to what that device connects to because the device could be attacked from another part of the network.
That's why you need that full view, just have the view of the endpoint.
That's, that's helpful. Thank you. Joo Mi, maybe one for you, just kind of building on the last question. How should we think about products like EDR and SIEM, serving as an, as a lift, if you will, to the ASP or average deal size?
Yeah. This is something that we're very optimistic about. We believe that with the launch of VMDR, Qualys EDR, and Data Lake and SIEM coming out after, when our customers already have cloud agents installed at the endpoint, we really think that this will drive our ARPU higher, increase the dollar retention rate, and overall drive acceleration in revenue.
That's helpful. Thank you.
Thank you. Our next question is from Matt Hedberg with RBC Capital Markets. Please go ahead.
Oh, hey, guys. Thanks for taking my questions. Philippe, maybe I missed it, but could you comment on sort of some of the geographic trends domestically here and then overseas in terms of, you know, when economies start to reopen?
I think today we see, I think the U.S., as you know, is trying to reopen the forward 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. We have not seen really an economical impact, and the reason is very simple. The reason is very simple. 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. That network is essentially like the nervous system. You need to secure this network.
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, et cetera. That's what we see. We see of course some companies which are going to or are getting bankrupt or will go bankrupt. That's of course the dynamic. For us, instead of speaking in terms of a reduction, we try to essentially now change the debate in saying, "By the way, what about consolidating? You're spending so much amount of dollars maintaining these disparate 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. You don't have to worry about the infrastructure costs because of course this is a cloud-based solution. I think we're extremely well-positioned.
Got it. I know you've historically taken a very active role in sales, effectively running sales for several years. I believe you promoted Lori to EVP worldwide field ops last year. I as far as I can tell, I don't think she's with the company anymore. I wonder if you can comment on that and just sort of like just the overall sales initiative.
Well, as you know, we have the, you know, we have of course, you know, replaced Lori. In fact, this part, you know, as you know, not We have very long-term employees at Qualys, but not everybody stays forever, obviously. I think, no, we're very well-positioned here. We have in fact promoted, you know, somebody from within to take her role and who is doing very well. I think, again, as I mentioned earlier, we're looking at expanding our sales force, you know, today. I think we're well-positioned again there.
Got it. Thanks.
Our next question is from Sterling Auty with JPMorgan.
Yeah, 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&A, you mentioned linearity was the same as it was last quarter. 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 million-$88.6 million, and we actually reported a revenue of $88.8 million. It did come in higher than what we had expected. Is that what you meant, Sterling?
Yeah. 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. Coupled with the fact that, you know, 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 partnerships, we do have consumption-based scan on behalf of clients that do come in that could be factored into it. Overall, yes, we were expecting our revenue to be somewhere in the midpoint of a revenue guidance range, and actually it ended up coming in a little bit higher at $88.8.
Got it. One follow-up on the VMDR and EDR. Can you remind us, I think you have some different pricing models, especially with VMDR. How is the uptake under that pricing model, and what should we think about the revenue contribution looking like for this year?
The pricing model is different. As you know, we are now on asset-based model, which makes it very simpler, you know, much simpler, you know, for our customers to procure than going through the old system that we had, which was à la carte and then also IP-based. I'm not so sure that I understand exactly your question, in term of the impact on what?
On revenue for the year. Given a new product, so not knowing how much contribution you expect the total revenue, you know, for this year. Is it meaningful? Is it de minimis? Is it a slow ramp, a fast ramp? You know, those types of ideas.
No, no. VMDR is moving very well. I mean, we have a huge adoption of VMDR, as we have mentioned in the numbers. No, this is, everybody's working to VMDR. What we mentioned, again, in some cases, you know, either because for those customers which have adopted already multiple solutions, VMDR end up a little bit cheaper. For those who have not essentially deployed new solution, of course it becomes a little bit more expensive. All in all, I mean, it's a very healthy business. What it does, of course, we anticipate most of our customer base, you know, migrating to VMDR relatively quickly. We see that adoption accelerating. What it does, it populate the agent.
It makes us absolutely much more sticky because of course now you have all of these solutions totally integrated. We think this is a huge success. I mean, VMDR is a huge absolutely a huge success.
Thank you.
Thank you. I'm not showing any further questions in the queue. I would like to turn the call back to Philippe Courtot for his final remarks.
Okay. Thank you. You know, thank you all. Again, you know, this, as you know, we're very excited, you know, to see our new solution, you know, coming. VMDR has been a fantastic, as I mentioned earlier, solution. We're now bringing, you know, the Multi-Vector EDR. As you can see, we're now moving into detection and response, EDR. You know, VMDR, EDR, with more to come. Of course, you know, we're looking forward to launching our new incident response solution. With that, we'd like to thank you for your time. Again, thank you very much.
With that, ladies and gentlemen, we thank you for participating in today's program. You may now disconnect. Have a wonderful day.