“We expect this segment to gain momentum with the launch of the new product packages that Sumedh just mentioned.”

In context

“Joo Mi Kim (CFO): Thanks, Sumedh, 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. 2022 was another notable year of product innovation for Qualys as we continued our product leadership while growing revenues by 19%, maintaining our gross margin at 81% despite inflationary pressures, and generating an EBITDA margin of 45%. While our profit margin was well above our industry peers, 2022 was a year of investment for Qualys with both R&D and sales and marketing growing faster than revenues. In R&D, we invested in our security research and product management teams to further strengthen the value proposition of our products and assist in executing our go-to-market strategy. In sales and marketing, it was a mix of investments in headcount as well as trade shows and marketing campaigns. Having executed against our 2022 investment plan with over a 20% increase in sales and marketing headcount, we look forward to optimizing our investments in 2023 as we remain committed to driving long-term profitable growth. Now, let’s turn to fourth quarter results. Revenues in the fourth quarter grew 19% to $130.8 million, up from 16% in the year-ago period. This includes a de minimis add from the Blue Hexagon acquisition, which contributed a few hundred thousand dollars to Q4 revenues. Revenues from channel partners grew 22%, outpacing direct, which grew 17%. Our revenue contribution mix has shifted slightly over the last year with direct making up 58% of total revenues versus 59% a year ago. We expect a similar trend to continue in 2023. By geo, growth in the US of 19% was in line with our international business, which grew 20%. Looking ahead to 2023, we expect our US and international revenue mix to remain at roughly 60% and 40%, respectively. In Q4, we saw continued strength in customer dollar retention but lower performance in up-sell with our net dollar expansion rate on a constant currency basis at 109%, down from 111% last quarter but up from 108% last year. Where we saw room for improvement was primarily in smaller customers who spent less than $25,000 with us during the last year. We expect this segment to gain momentum with the launch of the new product packages that Sumedh just mentioned. In comparison, customers who spent $25,000 or more with us increased by approximately 20% both in count and revenue. In terms of new product contribution to bookings, we continued to see healthy demand for Patch Management and CyberSecurity Asset Management with the two combined making up 9% of LTM bookings and 15% of LTM new bookings in Q4. The increased adoption for these products resulted in 50% growth in Q4 on a combined basis. Adjusted EBITDA for the fourth quarter of 2022 was $55.1 million, representing a 42% margin compared to a 45% margin a year ago. Operating expenses in Q4 increased by 25% to $58.4 million, primarily driven by the growth in sales and marketing investments including higher headcount and related costs as well as spend on trade shows. EPS for the fourth quarter of 2022 was $1.01 and our free cash flow for the quarter of the fourth quarter of 2022 was $40.9 million representing a 31% margin compared to a 32% margin a year ago. In Q4, we continued to invest the cash we generated from operations back into Qualys including $3 million on capital expenditures and $104.5 million to repurchase $848,000 of our outstanding shares. At the end of the quarter, we had $154.5 million remaining in our share repurchase program. We are pleased to announce that our Board has authorized an additional $100 million share repurchase program bringing the total available amount for share repurchases to $254.5 million. Now let us turn to our 2023 guidance. Starting with revenues for the full year 2023, our revenue guidance is $553 million to $557 million, which represents a growth rate of 13% to 14%. For the first quarter of 2023, we expect revenues to be in the range of $130.2 million to $131 million representing a growth rate of 15% to 16%. This guidance is assuming no material revenue contribution from our newer products such as Context XDR and TotalCloud, and continued unfavorable market dynamics throughout 2023 similar to what we witnessed in the fourth quarter of 2022. Given the growth opportunities ahead of us, we will continue to invest in operations, people and systems while recognizing the importance of optimization. As a result, we expect full year 2023 EBITDA margin to be in the low 40s, roughly in line with the fourth quarter of 2022 margins. We expect full year EPS to be in the range of 4.10 to 4.18, and for the first quarter of 2023 in the range of 0.95 to 0.97. Our planned capital expenditures in 2023 are expected to be in the range of $18 million to $25 million, and for the first quarter of 2023 in the range of $4 million to $5 million. In 2023, we plan to align our product and marketing investments to focus on specific initiatives to drive more pipeline and support sales and respond to the current macro conditions while at the same time maintaining a disciplined approach to unit economics. Throughout 2022, we accelerated the pace of hiring and broadened great talent across all functions of the company increasing the total employee base by 18%, while growing sales and marketing headcount by 22%. While we plan to continue to invest in 2023, given the environment we are in, we're planning to prioritize increases in investment in sales and marketing as well as related support functions and systems while largely maintaining our level of investment in engineering. As we move to sharpen our execution by focusing on sales and marketing enablement and productivity, we believe we will be able to drive Qualys share and long-term returns while balancing growth and profitability. In conclusion in 2022, we delivered strong top-line growth and industry-leading profitability. We continue to lead with product innovation introducing Context XDR and TotalCloud and adding TruRisk to VMDR. With these achievements, we remain confident in our ability to deliver on our growth opportunities long-term, and we will continue to prioritize investments critical to advancing our platform and go-to-market scale, with a commitment to further elevate the areas of our business within our control and maximize shareholder value. With that, Sumedh and I would be happy to answer any of your questions.”