Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Qualys Inc (QLYS, Financial) reported an 8% revenue growth to $48.7 million in Q2 2024.
- International revenue growth outpaced domestic growth, with international revenues increasing by 14%.
- The company achieved double-digit new bookings growth for the fourth consecutive quarter.
- Adjusted EBITDA margin remained strong at 47%, reflecting a scalable and sustainable business model.
- Qualys Inc (QLYS) continues to innovate, introducing new capabilities like AI and ML-based security solutions and expanding its Total Cloud Synapse platform.
Negative Points
- Net dollar expansion rate declined to 102% from 104% last quarter, indicating challenges in upselling to existing customers.
- Calculated current billings were negatively impacted by the sunset of embedded solutions for Microsoft Defender, resulting in a 2% decline.
- The departure of the Chief Product Officer may create transitional challenges in product and marketing alignment.
- The company faced increased deal scrutiny and a challenging IT spending environment, leading to lower than expected bookings growth.
- Free cash flow margin decreased to 33% from 37% in the prior year, indicating a reduction in cash generation efficiency.
Q & A Highlights
Qualys Inc (QLYS) Q2 2024 Earnings Call Highlights
Q: Can you talk about what drove the international growth? And then maybe, Joo Mi, if you can talk about more specifics about some of the investments you're making in sales and marketing going forward?
A: The international growth was driven by stronger demand in that region relative to the US. The US growth rate was impacted by the Microsoft Defender headwind. In terms of sales and marketing investments, we are seeing a higher return on ROI from partner side initiatives. We are targeting and continuing to grow the sales and marketing headcount by double digits in 2024.
Q: Can you provide some more details on the overall breakdown of the contribution for different types of partners?
A: Our resellers are working closely with us, bringing many opportunities. We are seeing traction with service providers adding Patch Management as a Service. We have strong partnerships with OCI and AWS, which are showing good momentum.
Q: How are you monetizing the enterprise risk platform given the aggressive pricing in the core VM?
A: We are optimizing our data centers and leveraging fully depreciated assets to maintain high gross margins. Customers are focusing on remediation and risk reduction, which is why our patch management and risk elimination capabilities are crucial. This approach is helping us maintain strong margins despite competitive pricing pressures.
Q: Does the net dollar expansion rate of 102% indicate a bottom, or could it go lower?
A: We are facing scrutiny on additional spend from customers. The timing of upsell opportunities is uncertain, but we are optimistic about long-term growth. We are focusing on patch management, cloud security, and AI security to drive future upsells.
Q: Can you elaborate on the impact of the Microsoft Defender headwind and the execution issues you faced?
A: The Microsoft Defender headwind was due to the sunset of our embedded solutions. Customers using our scan-only solution are now looking for more comprehensive risk management solutions. We are focusing on helping these customers see the bigger picture of risk reduction.
Q: How are you balancing profitability and investments in the channel side?
A: Our investments in the channel have led to four straight quarters of double-digit growth in new business. We are focusing on improving upsell rates and continuing our investments in the federal sector, which has shown promising results.
Q: What are your expectations for customers impacted by the sunsetting of the Microsoft partnership?
A: The sunset happened recently, and we did not have direct access to those customers. We are not assuming any additional benefit from this opportunity in our guidance but will continue to monitor the situation.
Q: How should we think about the faster-growing large customer cohort versus smaller customers?
A: We are focusing more on the enterprise segment, which has shown more success. Larger customers spending $500,000 or more with us grew by 18%. We are seeing headwinds in the smaller customer segment.
Q: Can you provide more color on the economic backdrop and demand from enterprise and SMB customers?
A: The macro environment continues to be tough with flat budgets. We did not see any major difference between enterprise and SMB segments compared to previous quarters. We faced additional scrutiny on project continuations this quarter.
Q: What are your updated expectations for customers moving over to Qualys after the Microsoft partnership sunset?
A: We are not assuming any additional benefit from this opportunity in our guidance. We will continue to monitor the situation and see how many of these customers transition to Qualys solutions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
