Thank you for standing by, and welcome to Qualys First Quarter 2021 Investor Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference may be recorded. I would now like to hand the call over to your host, VP of Investor Relations and Corporate Development, Blair King. You may begin.
Thank you, Latif. Good afternoon, and welcome to Qualus' Q1 2021 earnings call. Joining me today to discuss our results are Sumeet Thakkar, Our CEO and Jomi Kim, our CFO. Before we get started, I would like to remind you that our remarks today will include forward looking statements that generally relate to future events or our future financial or operating performance. Actual results may differ materially from these statements.
Factors that could cause results to differ materially are set forth in today's press release and in our filings with the SEC, including our latest Form 10 ks and 10 Q. 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 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. And as a reminder, the press release, prepared remarks and investor presentation are all available on the Investor Relations section of our website.
So with that, I'd like to turn the call over to Suneet.
Thank you, Blair, and welcome, everyone, to our Q1 earnings call. We are pleased to report another quarter of healthy revenue growth and profitability, reflecting good progress on both our strategic and financial agendas. Since taking on the role of Interim CEO in February, I have been working closely with the Qualus team, our customers as well as our Board to ensure continued success As the newly appointed CEO, I'm very excited to have the opportunity to lead Qualus on this next phase of its journey. I would like to thank Philippe for his leadership, making Qualus a significant force in the cybersecurity space, and I'm confident we will take The company to the next level of its growth. I'm now squarely focused on platform innovation and enhancing our go to market motion.
We experienced another quarter of strong growth in our paid cloud agent subscription, which grew 58% year over year to 61,000,000 as well as continued momentum with VMDR with 34% of customers eligible for renewal in Q1 purchasing VMDR. Our multifunction lightweight cloud agent is a core engine that helps customers consolidate multiple agents with a single Qualys solution. One of my key priorities is to ensure we are providing innovative, comprehensive and integrated products to transform the where new and existing customers secure and protect their organization's IT infrastructure and applications with cloud based IT security and compliance solutions. We believe Qualus VMDR, which is vulnerability management detection and response, is setting the gold standard for vulnerability management With our single agent approach to speedy detection and response, attackers' rapid exploitation of vulnerabilities For malware and ransomware attacks continues to grow as witnessed with the recent high profile proxy log vulnerabilities impacting Microsoft Exchange servers. The threat actors raced to exploit large number of unpack servers in a matter of few days and installed the China Chopper web shell for further entry into organization's environment.
The Deer Cry ransomware hit soon after leveraging those same vulnerabilities. Qualus quickly released a 60 day free VMDR service to help organizations to not only quickly detect the vulnerabilities, but also patch it with single click and further detect the ransomware with multivector EDR and take response actions, all using the single Qualus agent. This showcases the power of VMDR to not only report on vulnerabilities Like other siloed point solutions, but also mitigate the risk immediately and was very well received by our We are able to match high profile vulnerabilities in a matter of hours with our tightly integrated patch management solution in a single app workflow And stay ahead of the threat actors. While still a small portion of overall bookings, we continue to see strong customer interest in our Patch Management solution, both in the mid market as well as with large new and existing customers. In fact, in Q1, a leading large multinational firm Using the limited bandwidth available on VPN gateways.
With our recent announcement of extension of patch management for Linux systems, Where very few enterprise patching solutions are available, we are looking forward to expanding the opportunity of upsell to customers who already have cloud agents on these systems. Further pressing our advantage with agent consolidation, we continue to see customer interest In adding our multi vector EDR to their VMDR and Patch Management deployment to reduce agent sprawl on their endpoints with Single solution for risk mitigation and threat response. Our recent announcement of adding real time anti malware protection capability to our multi vector EDR solution So it just solidifies our commitment to continuing to expand our addressable market opportunity. As an example, In Q1, a Fortune 500 company purchased our paid asset inventory module, the MDR, Hatch Management and EDR Together to standardize their endpoint security on a single agent solution over multiple best of endpoint solution agents. In terms of our newer paid solutions, we saw solid growth in the quarter with our container security solution led by Microsoft Azure In addition, we continue to see strong growth for our global ITSA Discovery and Inventory solution.
In the quarter, 2 leading financial institutions selected our asset inventory paid modules in order to gain visibility Of all of the known and unknown assets spanning multiple environments to identify the end of life of the installed software and synchronize with their ServiceNow Looking into the remainder of 2021, we have strong roadmap to expand our asset inventory, EBR, ICS, OP, cloud and container security solutions. We also plan to introduce our extended detection and response platform, XDR. XDR is a next generation security analytics and incident response solution, which natively integrates and correlates security telemetry across the This solution is currently in private beta with a few select design partner customers. With these continued innovations and others on our platform will expand our addressable market while opening exciting new growth opportunities for the business. In addition, we continue to build strong strategic partnerships towards enhancing our go to market with building in Qualys solutions with cloud providers like Microsoft Azure and GCP as well as displacing competing solutions with MSSP partners Like HCL, where QualusVMDR is now their default vulnerability management offer.
Another key area of my focus is our go to market strategy Sales execution. Pairing industry leading innovation with an amplified investment in our go to market initiatives underpin our confidence in driving profitable growth and long term value creation for our customers and shareholders. I'm with industry leading technology and a substantial new platforms From the successful following the successful launch of EMDR and multivector EDR last year, as well as the upcoming release of our XDR solution, We are planning to make appropriate go to market investments in our business. We believe that we are well positioned to maximize the return on incremental investments. So I have been spending majority of my time with the sales and marketing teams as well as product management to execute on this plan.
To that effect, one of my top priorities, as previously mentioned, was to look for a candidate for Chief Revenue Officer to drive growth of our business. Today, I'm pleased to announce that Alan Peters will be joining us as our new CRO starting next week. He will be responsible for all aspects of revenue performance with A focus on delivering sustainable customer value and business outcomes, the leadership of worldwide sales and partner organization and continuing Qualus' growth momentum. Alan has more than 20 years of executive sales experience building and scaling global teams in cybersecurity and SaaS companies, including previously serving as the CRO of Trustwave. We also recently appointed Klaus Moser to assume the role of Executive Vice President for Field Operations for America and General Manager of our SME and SMB business.
At the same time, we are also enhancing sales operations, digital marketing and other sales enablement functions in the company with a balanced approach to sustain future growth and profitability. In conclusion, as I stated on our prior call, Qualus continues to move well beyond vulnerability management and increase its competitive advantage with the addition of newer solutions, including our soon to be released XDR. Our strategic direction remains focused on leading with powerfully disruptive technologies. Paired with strong sales leadership and a focus and Growing global go to market initiative, we believe we are well positioned to drive long term value for both our customers and our shareholders. With that, I'll turn the call over to Jumi to further discuss our Q1 financial results and guidance for the Q2 and full year fiscal 2021.
Thanks, Jeanette, 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 comparison to the prior year period unless stated otherwise. We're pleased to report another strong quarter reflected in the following financial and operational highlights. Revenues for the Q1 of 2021 grew 12% to $96,800,000 Please note our Q1 2021 calculated current billings was negatively impacted by a large late renewal that closed after the end of the quarter as well as the timing and amount of prepaid multiyear subscription And shorter duration invoicing. In Q2, we expect this to reverse to have a positive impact on calculated current billings by a few percentage points.
Our average deal size increased 9%. And paid cloud agent subscriptions increased to $61,000,000 over the last 12 months, Upfront $56,000,000 for the 12 months ended in Q4 2020. And 34% of non strategic alliance customers with our loan Management Solutions, up for renewal in the quarter, purchased the EMDR, similar to 35% in Q4. AMDR contributed approximately 34% of total bookings over the last 12 months. Our scalable platform model continues to drive superior margins and generate significant cash flow.
Adjusted EBITDA for the Q1 of 2021 was $44,600,000 representing a 46% margin versus 44%. Non GAAP EPS for the Q1 of 2021 was $0.74 up from $0.65 last year And our free cash flow for the Q1 of 2021 increased 14% to $51,600,000 representing a 53% margin. In Q1, we continue to invest the cash we generated from operations Back into Qualus, including $6,300,000 on capital expenditures for operations and $31,000,000 to repurchase 200 and We remain confident in our business model driven by our foundation of nearly 100% recurring revenue We are delighted to be raising our full year 2021 guidance for both revenues and non GAAP EPS. We're raising the bottom and top end of our revenue guidance for the full year to now be in the range of $42,500,000 to $44,500,000 from the prior range of $3.99 to $4.2 million We are raising our full year non GAAP EPS guidance to now be in the range of 2.67 to 2.72 from the prior range of 2.60 to 2.65. And for the Q2, we expect revenue to be in the range of $98,600,000 to $99,200,000 which represents a growth rate of 11% to 12%.
We expect non GAAP EPS to be in the range of $0.67 to $0.69 Q2 capital expenditures are expected to be in the range of $6,000,000 to $7,000,000 We remain confident in our financial model Due to our strong competitive position and leading cloud platform. With that, Puneet and I are happy to answer any other questions.
Please standby while we compile the Q and A roster. Our first question comes from the line of Matt Hedberg of RBC Capital Markets. Your line is open.
Yes. Hey, it's Dan Bergstrom for Matt Hedberg. Thanks for taking our questions. Is there any additional color into that late renewal you could provide? You said it'd be a few percentage point benefit in the second quarter here.
Is that just the late renewal or does that take into account some of the prepaid timing and duration as well?
It's in combination. So when we have a large late renewal in the quarter, we usually call it out and it was meaningful enough to have a negative impact by a couple Percentage point as a whole, we expect that to reverse and this is consistent with how our current billings have been in the past. Now if you take a look at our current billings, Because we don't manage the quarterly billings, you'll see some fluctuation. So what we anticipate is the Q1 negative impact to More or less reverse in Q2, so we'll see a higher current billings in Q2 relative to the gain.
Great. That's helpful. And then maybe could you just talk to India? It's been in the headlines of COVID here. I know you've got over 900 employees there.
I think everyone's been working remotely already. I guess, Is that the case? Or is there any incremental action that's needed to happen here recently?
Yes. I think that's a very important To address it, we do have a large presence in India, and we have been doing quite well working remotely for all of our employees over the last year plus. So Our employees have been already used to that working remote environment and staying safe in their homes. And obviously, we, Qualus, are monitoring the situation, working with our employees, providing assistance where that's needed. But at this point, we I don't see any meaningful impact to what we are seeing in terms of output from our operation.
But our average go out to those were impacted pretty severely.
Thank you.
Thank you. Our next question comes from Yun Kim of Loop Capital Markets. Your line is open.
Thank you. Sumit and Jumi congrats on a solid start to the year. Just want to be very specific on one question here. First, To start off, VMDR upgrade rate or the renewal rate since upper renewals that is, seems to be stabilizing at 34% to 35 Is that consistent with what you are expecting? And perhaps, can this number start to downtick starting this quarter and in second half of the year As we anniversaryize the renewal cycle and start targeting customers who didn't renew last time.
Just overall, how should we think about the vMDR adoption rate in regard to your cloud agent adoption and the overall platform strategy? Thanks.
Yes, I can take that one. VMware, we released that last year, I think, around Q2, really, where it was when The initial push started. And I think the way we see the EMDR obviously is that it's a combination of many different capabilities that the customers need to adopt and they need to make that And so we are not being pushy with our customers. We're working with them to To ensure that they are able to consume VNVR to be fit them in terms of reduction in the amount of time it's taking them to respond to the attacks And I don't expect to go down because the way We're tracking the numbers are the number of customers that were converted to VMDR that were eligible for renewal in that quarter. So As you will see coming up in Q2, we will see additional incremental through the rest of the year, we'll The additional incremental conversions of customers as they get ready, maybe their budget allocation, their resources available to continue the MDR.
So we'll see our hope is to see that number keep going up.
Okay, great. And then second question From me is, can you just give us any qualitative sense on how much of your business is driven by Security by deployments on hyperscaler environments or securing deployments on hyperscaler environments like Scalar environments like AWS and Azure. And is that business primarily driven by your existing customers? Or Are you seeing a higher mix of new customers coming from those environments versus your traditional sales channels? Thanks.
Yes, I think it's a combination, right? A lot of our large customers today, we don't necessarily break it down that way, but a lot of our large customers today, They do have a hybrid infrastructure. So while they may have certain business units or certain environment We are very strong. We also they also have other devices within their environment that could be remote endpoints, which we're seeing in large numbers as well On other types of devices that are also part of their overall license. So we're not necessarily tracking it that way.
But then when you look at Customers who are migrating to the cloud environment, they clearly want to ensure that from their auditors' perspective that they are getting the same kind of high quality Reports, metrics, ability to fix these vulnerabilities in the cloud environment Just as they were getting from Qualus in their on prem environment. So we work with them to help them kind of have Qualus be part of their migration. And our architecture, Being a cloud based architecture really lends itself to have that very easy integration and we already have a lot of built in capabilities in multiple of these environments. And We have Qualus integrated well with Azure as well as GCP and in those environments Through this sort of embedded capability that we have, customers who are directly bringing Workloads to Azure may also be leveraging the Azure scanning that is provided by Azure and that is in the back end So there's also that additional way that we are embedded Into native cloud environments as well where the native cloud security solutions, in these cases, are leveraging Qualus in the back end to provide the Capabilities around scanning, configuration assessment, etcetera.
Okay, great. That's very helpful. Thank you so much.
Thank you. Our next question comes from Sterling Auty of JPMorgan. Your line is open.
Hi, this is Maya on for Sterling. I was hoping that you could just give a bit more color on what You are considering in the full year guidance. It just seems like it's implying a bit of a slowdown in the second half of the year, especially on the back of some new product development. So just hoping for what you're considering in that outlook?
Yes. So when we take a look at revenue trajectory, what we look at is the near term bookings as well as some of the Increase in return from the additional investments that we plan to make in the current year. So if you take a look at our annual revenue guidance, Last quarter, we have guided to $3.99 to $402 and we are raising it at the midpoint by 3% because of the Primarily because of the business momentum that we see right now, in Q1, we did outperform relative to the guidance. And taking a look at to the full year, Hiring the CRO additional initiatives that we have in place is kind of what we see that will land at around 11% year over year growth. With that said, what it doesn't include is a potential increase or meaningful uptick from the adoption of newer products such as, for example, EDR is still relatively new.
And we didn't take into consideration potential significant upsell from the VMDI that we don't currently see now. So there is definitely upside that we haven't included in the guidance.
Okay, great. Thank you.
Thank you. Our next question comes from Joe Fischen of Truist. Your line is open.
Hey, good afternoon. Thanks for taking the question. Smed, can you just give us a little bit more detail on some of the specifics around the go to market changes that you plan to be Focused on over the next couple of months to
Yes. I think one aspect of the focus really is about ensuring that we are creating all of these additional capabilities on the platform to expand our The TAM, so with IDINA VDR, XDR, so we're ensuring that from that perspective, we're Getting ready to have multiple capabilities that we can upsell to the customers that are coming on board. And we're already seeing that at some of the examples that I gave where Customers really see the value in saying, well, why do I need to get 4 different agents, 1 for ADR, another for patching, another for vulnerability I spent another 4 asset inventory. I can leverage Qualus as the one agent that is providing all of these capabilities in a single solution. And what we're now focusing on, we're obviously bringing Alan on board is to we've had a model that We're technical salespeople, work closely with our customer given that the SaaS service to ensure success of the customers in the products that they purchase initially And then work with them through the rest of the year to ensure that we find opportunities there to upsell so that they can consolidate other Solutions that they have in their environment and sometimes those solutions could be prepaid for a couple of years.
So Maybe it takes time for that opportunity to come up. But the with bringing on Allen, where we can focus really on I've been on additional business. We're going to focus on sales enablement. We're going to focus on digital marketing. So there's a few different areas that we're going to focus on.
So thinking really our model that we have, which our customers appreciate for the way we work with them and then helping ensure that our sellers We are getting additional help in terms of being able to be enabled for Selling these additional solutions that we are bringing out to the market, that's really the focus that I have and working closely with our product team as well as the sales In addition to sales and marketing directly, we've also been enhancing our product management organization to ensure that we can have product line Owners that can really be closely associated with the specific business, whether it's application security business or Whether it's threat detection business or whether it's our vulnerability detection business, so that they can drive the Sales aspect much more closely since our marketing aspect much more closely with the sales team.
Okay. And one follow-up, if I may. You called out on the call a large deal with a customer, I think, and I believe they, if I heard you right, took EDR, XDR and a lot of other products. Can you give us any color around that, the competitive dynamics around that and the pricing around that deal?
Yes. The customer had a couple of other solutions individual that they were leveraging and they were in the to look for vulnerability management solution as they started looking at different capabilities. They saw the EMDR, the ability to Mitigate the risk that the Velvege Reduction product was bringing, I think, was paramount found to them because As I gave that example today, the time between the vulnerability coming out and the speed at which those vulnerabilities are being weaponized is extremely short. And so Other point solutions that they are looking at as we see best of the 1 or 3 solutions are only giving you a report and that's what they wanted to kind of look at to say, can I get We're also able to provide response capabilities? And so once we work with them on the POC and our model always is to give the broader POC, have them leverage that They're free service, so that they can see the value of the overall platform.
They were quite intrigued with our ability to also give them other additional things with the Like end of life and then helping them essentially not have to install another separate EDR agent because that's the same agent that was doing Patching to mitigate the risk was also monitoring the system for threats and then responding to that. And so obviously, the that We put in place was a combination of the various modules that they would have otherwise purchased from Qualus, which is individual modules for paid asset inventory, Volume D management, Patch Management and AER. And we have obviously, we do volume based pricing. And based on that, we gave them a pricing that Effectively, they felt like from not just from a license perspective, so that one price on Qualus with a single agent relative to Four different software licensing from 4 different agents plus the cost of deploying those agents and their Platforms and then integrating all of them to get that single view, I think the customer felt that this was a lot more cost effective and Something that was much quicker to operationalize through multiple point solutions.
Thank you so much.
Thank you. Our next question comes from Hamzah Badawala of Morgan Stanley.
Hey, guys. Thank you for taking
my question. And, Sumit, congrats on your formal 5 minutes CEO.
Thank you. So I had a
question sort of following up on the last one around sort of the multi vector EDR and So the XDR solution that you're rolling out, can you maybe comment on your ability to be able to garner telemetry from a variety of different attack surfaces relative to some of your other competitors who are also coming at this market with next year approach? And then also What sort of technologies would you say you're displacing, right? Because you talked a lot about consolidating different parts of the security solutions. So I'm just curious, who do you often do going through these deals from a technology standpoint?
Yes. I think if you look at the way Qualus architecture is, that's certainly the biggest advantage we have is that We have sensors that are embedded across the entire infrastructure, no matter what type of infrastructure it is. We don't have a approach which is very agentless only or agent based only. Today, Qualus natively collects data from agents. We have non agent assets in the environment that are able to do very deep scans.
We have passive sensors that are able to look at network telemetry information passively collect additional information on the connections that are being made in that environment, cloud connectors that we have. We have container sensors that are collecting information and then So there are 7 scanners that are providing information about the applications as well. And all of the data comes into the centralized platform that we have. And that's really where we are correlating this information. And with the back end, as we have talked about previously, we have really gone through The platform will be making it highly scalable today with 8,000,000,000,000 data points being indexed in Elasticsearch.
So as that data comes in from Qualus' own sensors, We already have a lot of visibility into what is happening on that asset, whether it's related to collecting network Connections or processes or whether it's related to registry or files or file integrity monitoring alerts. So that's already being done. Obviously, and that kind of is covered by VMTR, ETR and those capabilities of the same agent. On the XDR side, What we are focusing on is in addition to all of the data that Qualus is collecting, right? For example, Qualus can collect data about a Printer in your environment that can be compromised, which a typical EDR cannot do because they need an agent on the actual device and you cannot put an agent on a printer.
But in addition to that, there are firewall logs, proxy logs and a few other log sources that add context to the potential attack that may be going on. And what our XDR solution now does is that it actually opens up our platform to take this additional telemetry data from multiple different Vendors that are providing this capability, so that this data can be ingested into the Qualus back end, correlated with the large amount of data we already collect Multiple sensors that we have and then provide a much more simplified visibility into that environment because Otherwise, the customer has to buy a SIM. The SIM does not come with any data collector, so they have to buy 10 different solutions and deploy those, integrate those And then start to see the value of the data that we are also providing response capabilities directly into the platform. So what that means is that the SOAR aspect that once we collect the data, we analyze that enriching third party sources, Our platform, our agent, our scanner, our appliance can start to take response actions so that customer doesn't have to go and deploy another set of solutions So in this process, we typically end up displacing your standard One of the management solutions that only but they don't do patching.
We may have a separate patching solution that we end up displacing. On the ETR side, customers are looking to get out of their standard endpoint protection capabilities that they have had for a while antivirus Solutions and then increasingly as our solutions becoming mature, we start to see that we will be competing more and more with the Other EDR players in the market that already have established solutions. And the goal there for us is to Provide the customer with broader visibility and not just EDR, right. The idea is that we actually will give you not just the threat part because EDR only gives you the threat. We also give you the risk mitigation all through the same solution, and that's sort of where we are looking to compete in that market instead of just feature to feature comparison on a specific EDR agent.
Maybe just a quick follow-up for that. From a go to market perspective, What are you doing to really gain traction within the MSSB ecosystem? That seems to be Very important channel in order to drive more adoption, some of the things you're talking about with XDR and sort of incident response capabilities. So can you talk a little bit about some of your go to market efforts there?
Sure. I mean, we've always been very well partnered with the MSSP partners and if you saw some of the recent I mean, you look at the trend that is happening with MSSP, they are looking Move towards more of a platform of 1st themselves, so they can put more resources on helping the customer with their security issues rather than Trying to deploy MSSPs have used QRadar or some SIEM and then they have to deploy multiple solutions. What Qualus brings to them, and this is what we're working with a few of them, is that a good chunk of what they need From a security perspective to provide customer the service is already on the Qualus platform. So whether it's high end security monitoring, whether it's container security, cloud security, A lot of those capabilities are already part of the Qualus platform. And now with XDR, the ability to bring in the data that Qualus does not collect natively is really going To be something that is very meaningful to them.
So we have early conversations with MSSB partners to start to leverage Qualus at even more strategic level. But if you look at Some of the recent partnerships that we have done, whether it's with Infosys or Armor or some of them who are already Looking at their platform, looking at ways that they can create more of an integrated Solution that they can leverage and then focus on providing the service to their customers. So I think that's where we are working with those MSSP partners who are sort of the new age MSSP partners who are looking to integrate our platform as the core of what they're doing And then provide the service on top of that. Got it. Thank you.
Our next question comes from Alex Henderson of Needham. Please go ahead.
Thanks. I was hoping you could explain the mechanics that occurred in the quarter that caused the Vmdr To go from 35% to 34% in 1Q, we certainly wouldn't have expected a decline in that number. I'm assuming that it has something to do with the seasonality, but if you could clarify the mechanics That caused that to happen, it would be very helpful. Thanks.
Yes. Alex, it's, so just to clarify, it's not a Hi. So what we take a look at is we look at a group of cohort customers that are up for renewal in the respective quarter. So for example, Q4 last quarter, Those customers who are up for renewal, it was the first time where they had a chance to really Upgrade to the EMDR from VM. So out of that board of customers, 35% ended up renewing into the EMDR.
In Q1, what happened was Last year, we launched the MDR in Q1. So it's our 1st year anniversary. And so last year, 6 percentage of them actually had already converted into the And out of the remaining customer base, obviously, now that the EMDR has been out for a while, we've been in discussions with them. And taking a look at the entire customers who renewed in Q1, those who had purchased vulnerability management solutions, 34% adopted the MDR. So if you think about it from that perspective, it really is customer specific in terms of what they need.
And this is why because it's the 1st year anniversary, we did share Percentage contribution to total booking, taking a look at the LTM bookings, that 34% Contribution is pretty significant if you take a look at it because that includes total bookings, including other solutions that we have out there. So we are very pleased with the adoption. We do anticipate that percentage contribution to bookings to continue to increase and we will continue to share that metric going forward.
So does this just mechanically does the 34%, is that additive with the 6% from the prior year to get a net Customers that have the opportunity?
No, no. That's
the quarter.
Okay. The second question I wanted to ask is you haven't really talked about your data in This call or actually in some of the recent calls, I'm wondering if you could give us an update on where you are in building out the data lake, where you are in terms of Satisfying yourself that the content that you're pulling up is the right content and delivers the proper degree of efficacy. And to what extent the timeline stable, improved or eroded relative to getting it To full maturity.
Yes. I think the when we initially started talking about it as a data, like as you've seen that as the feedback from our customers, We've essentially transformed that into our XDR solution because customers don't want just a data lake. We want that Qualys data already integrated into that data lake And bringing that additional information, so our focus really has been on our SDR solution that today is already imported and Deployed in our production environment as a private beta. So where we are today is that Qualus internally, we are already leveraging that to test it, make sure that it's working The way we anticipate, as you can imagine, this is what a huge undertaking from an engineering and platform perspective for us to go in this area. And there's a lot of learnings in there, building out a cloud based solution, the kind of EPS that we can ingest, how quickly we can ingest that, How the speed of this is working out.
So today, we have that already deployed as a private data where Qualus and a couple of other We are already engaged with us where we are pulling the data in, learning through that process, fixing any bugs that we may be coming across in that As we look at new sources and as we go through that and get additional insight, we'll bring on a few more beta customers over the next Couple of months and then once we have that release that we feel is good enough to open for a more public beta And we can start working on the GA time lines. I think we are today I feel like we're in a good place in terms of the road map and where we have So far on HDR and having that system already out there and then the plan that we have to ensure that we are working with our Customers to get it to the point where we can get it out at some point through this year. We just don't have an exact time line yet. Let me try it for the GM.
So when you say get it out this year, you're talking about getting it out to the A more public beta than what you've done so far as opposed to fully complete done, no issues whatsoever and it's In sustained mode at that point.
Both. Yes, both are. Our goal is to get the beta out in the next And then our goal is that by Q4, we also get this out as a product that customers can start purchasing.
And has the efficacy that of the data lake in terms of the outcomes that it's predicting Been proven out as reasonably high efficacy?
Yes. I think where we sit right now and Comparing with for our own internal environment, we are getting close to where we feel this is something that customers can really deploy and see the similar amount of We are seeing with the added advantage of not having to integrate additional solutions and buy multiple solutions. So we feel we're on the right track here in terms of where we are and when where we see the clarity of the road map on the various other additional functionality that we will be
So both SentinelOne and CrowdStrike have done acquisitions To bring in an ability to upload more compressed data from their endpoints And to even do searches on those on that data while it's still compressed Have you thought through or expect or do you expect to do something Similar in terms of trying to bring your data ingestion costs down?
Yes. I mean, we've always had a very bare metal strategy around leveraging Doppler Elastic for the last multiple years. And if you look at We're already indexing 8,000,000,000,000 data points in Elasticsearch. We have extremely high rights for 1,000,000 rights per second on Cassandra that we already So we feel pretty good about the scalability and the ability for the platform to ingest a large amount of data. Where we feel we differentiate ourselves is that from what we see right now, SentinelOne and CrowdStrike focused on the endpoint and collecting the data from the point and maybe additional data and selling into the platform.
Our XDR solution goes well beyond endpoint. So not only our EDR solution will be collecting the same kind of data The endpoint itself with the agent, but with the ability that we already have of collecting scan based information on devices that cannot have an agent like routers, switches, Printers, many other devices, plus passive devices to see what network telemetry we see from outside of devices that don't have an agent Collecting that and then bringing firewall log and proxy log type of data from all of the firewalls and Cisco ASA To enrich this information gives a much broader visibility into the infrastructure and then you add on top of that we already have Strong container security and cloud security solutions that the endpoint ADR solutions necessarily only focus on the threat aspect of it. So overall, bringing that and then adding the application context, right? So a lot of these solutions focus only on the infrastructure context, but then if you're running a web application that has a SQL injection Well, Liberty, that could be compromised or a WebShell can be put. Qualus brings that as well.
So we feel that what we are doing is a much broader scope because we're Collecting a lot of data that is outside of just the endpoint that your traditional endpoint solutions are looking at.
Okay. One last comment. Congratulations on bringing in Your new Chief Revenue Officer and from our perspective, there was nobody else that could possibly The right choice for the CEO and I'm glad the Board made the decision it did and congratulations on being the permanent CEO. It's Certainly well deserved. You've done most of the hard lifting on constructing this thing.
So, it's certainly Thank
you very much, Alex. Thank you for the
time
Thank you very much. The growth expectation for Q2, I think you said You expect it to accelerate a couple of points from Q1, so I see 8% growth in Q2. And Mike, please confirm that. And then secondly, what do you think is a reasonable Current billings growth rate in the second half and going forward, do you think we go back to double digits over the next several years?
Yes. So Shelby, just to clarify on the current billings, so because we don't manage to quarterly billings, we like to when we see some Meaningful fluctuations. So what we were guiding to is we don't guide to current billings growth rate per se. In terms of Q1, We had some unexpected like our couple of percent negative impact on current billings relative to bookings. Call that out and we expect that to reverse in Q2.
So means if you think about the current billings growth in Q1 is 6 Compared to actual bookings growth rate, it was lower. We expect that to reverse in Q2. So compared We expect billings to be higher. So that was the color that we were trying to give. And in terms of the business, this actually 4th, while we keep on pointing to the annual revenue guidance and the trajectory of that guidance and we're at the best proxy for business momentum Because our current bookings really inform our guidance.
So if you take a look at our revenue, annual revenue guidance, we have guided to $3.99 to $402 last quarter. We increased that at the midpoint by $3,000,000 So now the implied growth rate for the total year is 11%. So I would point to that in terms of You're kind of trying to determine the current business outlook for Qualus.
Okay. Thank you very much. And then I think you made the comment earlier that the Vmdr percentage of customers renewing with Vmdr is Going to start increasing now, even though it ticked down in Q1. Do you have an idea of what kind of target you expect over the next several Do you think it goes that metric goes over 50%, for example?
Yes. I mean, I think We certainly are working towards that. We don't I think the big part of really the deployment of VMDR started in Q2 of last year, even though Q1, we had a little bit of that. So I think as the 1st year anniversary of EMEA rolls out, which is So early stages. We expect to build additional EMDR conversion on top of what We're converted in Q2 of last year.
And so what that percentage is going to be, I think we don't No right now, but that is something that with the right go to market notion and with the changes that we are making, we're hoping in the next few quarters was To keep ticking off and create an opportunity for us to push more agents.
Okay. And lastly is The XDR SIM launch, you expect I think you made the comment you expect customers to be able to purchase it In fiscal Q4, does that mean it goes GA in Q4? Or is that just a public beta in Q4?
No, that's GA in Q4. Our plan for public beta is in Q3 and then our GA in Q4.
Got it. All right. Thanks a lot.
Thank you. At this time, I'd like to turn the call back over to CEO, Sumedh Sekhar for closing remarks.
All right. Thank you for attending our earnings call and for all of your questions. I couldn't be more honored to be leading this great company. Very excited. We're very well positioned in the marketplace with disruptive applications on our cloud platform, including EMDR, multi vector EMDR and the forthcoming XDR offering, As well as other solutions that will further flex our competitive position in the industry and expand our addressable market.
At the same time, we're ramping up our sales efforts and activities to capitalize on these developments while maintaining industry leading profitability and driving long term value creation for our shareholders. Lastly, this space of bringing new solutions to market would not be possible without the innovation and tireless efforts of our talented engineering team, We continue to work hard despite the difficult situation faced by many, especially in our India operation, given the current pandemic impact over there. I hope all of you and your family remain safe and healthy. Thank you very much.
This concludes today's conference call. Thank you for participating. You may now disconnect.