“For the full year 2023, we expect revenues to be in the range of $554 million to $555 million, representing a growth rate of 13%.”

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. Turning to third quarter results. Revenues grew 13% to $142 million, with growth from channel partners outpacing direct at 17% versus 10% growth from direct. Channel revenue contribution remained the same as last quarter at 43%. By geo, growth in the U.S. of 14% was ahead of our international business, which grew 11%. U.S. and international revenue mix remained the same as last quarter at 60% and 40%, respectively. In Q3, we started to see some indication of stabilization in the selling environment with customers confirming their prioritization of security within IT budgets, but we believe ongoing budget scrutiny will linger for the foreseeable future. Reflecting this sentiment, our gross retention rate has remained largely unchanged at approximately 90%, but our net dollar expansion rate came in lower at 106%, down from 108% last quarter. While there continues to be room for improvement from smaller customers, larger customers spending $25,000 or more with us grew 15%. In terms of new product contributions to bookings, cost management and cybersecurity asset management combined made up 11% of LTM bookings and 19% of LTM new bookings in Q3. In addition, we're pleased to share that we're seeing an increase in interest in our cloud security solution, TotalCloud CNAPP. Cloud Security Solutions made up 5% of LTM bookings in Q3, showing a return on the acquisition of TotalCloud and Blue Hexagon. Since 2021, we acquired TotalCloud, a cloud workflow management and no-code automation platform and Blue Hexagon, an AI ML innovator in cloud threat detection and response solutions to augment our cloud security solutions. It's exciting to see our continued innovation and investment in our platform is driving adoption and is starting to change the market perception of Qualys as a risk management platform that can help customers consolidate multiple security point solutions. We look forward to serving as a strategic partner to our customers as they evaluate their security vendor consolidation strategy. Now turning to profitability, reflecting our scalable and sustainable business model, adjusted EBITDA for the third quarter of 2023 was $58.8 million, representing a 48% margin compared to a 44% margin a year ago. We roughly maintained our operating expenses in Q3, only up by 2% to $55.1 million. Sales and marketing were up by 9%, the same growth as what we saw in Q2. While we believe some investments came in response to the business climate and the arrival of our new CRO in July, we achieved greater operational efficiency through focused efforts on optimizing investments. This led to EBITDA margin exceeding our expectations in Q3, further demonstrating our ability to maintain high operating leverage, remain capital efficient while continuing to innovate and invest in our long-term growth initiatives. With this strong performance, EPS for the third quarter of 2023 was $1.51, which came in higher than expected, partly due to the change in our tax estimates. In Q3, we recorded a 15% tax rate, but if the tax rate had remained unchanged at 24%, EPS would have been $1.37. Our tax rate guidance for both Q4 and the full year 2023 is 21%. Our free cash flow for the third quarter of 2023 was $98.6 million, representing a 64% margin in the quarter and 50% year-to-date. In Q3, we continued to invest the cash we generated from operations back into Qualys, including $1.8 million on capital expenditures and $38.9 million to repurchase $273,000 of our outstanding shares. As of the end of the quarter, we had $106.8 million remaining in our share repurchase program. With that, let's turn to guidance, starting with revenue. For the full year 2023, we expect revenues to be in the range of $554 million to $555 million, representing a growth rate of 13%. For the fourth quarter of 2023, we expect revenues to be in the range of $144.1 million to $145.1 million, representing a growth rate of 10% to 11%. With respect to margins, factoring in the better-than-expected profitability to date, we expect a full year 2023 EBITDA margin in the mid-40s and free cash flow margin in the mid-30s with full-year EPS in the range of $5.04 to $5.14, up from the prior range of $4.50 to $4.60. For the fourth quarter of 2023, we expect EPS in the range of $1.18 to $1.28. In Q4, we expect to spend $2 million to $3 million in capital expenditures, implying approximately $9 million to $10 million in total for the full year. We remain confident in our differentiated technology and ability to deliver on our growth opportunity long term while investing to maximize shareholder value. With that, Sumedh and I would be happy to answer any of your questions.”