“we anticipate that the selling environment in 2024 to remain stable with ongoing budget scrutiny being the new normal for many organizations.”

In context

“Joo Mi Kim (CFO): Thanks, Sumedh, and good afternoon. Before I start, I'd like to note that except revenue, all financial figures are non-GAAP and growth rates are based on comparisons to the prior year period unless stated otherwise. We're pleased to report a strong finish to the year, with Q4 revenues in line with expectations and strong earnings beat, delivering 13% revenue growth and a 47% adjusted EBITDA margin in 2023. The leverage we generated this year demonstrates the efficiency in our model and enables us to step up investments in new technologies, sales motion, targeted marketing programs, and people to accelerate long-term growth and further enhance our position in the market as a trusted security partner of choice. Now, let's turn to fourth quarter results. Revenues grew 10% to $144.6 million at the midpoint of our guidance. Growth from channel partners outpaced direct at 16% versus 6% growth from direct. With continued investment in our channel, our revenue contribution mix has shifted slightly over the past year, with the channel making up 44% of revenues in Q4 versus 42% a year ago. We expect a similar trend to continue in 2024. By geo, 13% growth outside of the US, was ahead of our domestic business, which grew 9%. Looking ahead to 2024, we expect our US and international revenue mix to remain roughly at 60% and 40% respectively. As for calculated current billings, although, we don't focus on or manage this metric, anticipating questions related to bridging this LTM calculated current billings growth to revenue growth guidance, we would like to note that our Q4 calculated current billings were positively impacted by the timing of invoicing of multi-year prepaid subscriptions and large early renewals. Normalized for this, LTM calculated current billings growth would have been approximately 12%. Turning to land-and-expand results. With customers confirming their prioritization of security within IT budgets, we anticipate that the selling environment in 2024 to remain stable with ongoing budget scrutiny being the new normal for many organizations. In Q4, we were pleased to see improvements in the new business although the upsell environment remained challenging with our net dollar expansion on a constant currency basis at 105%, down from 106% last quarter. While there continues to remain room for improvement from smaller customers, LTM revenues from customers spending $25,000 or more with us increased by 12%. In terms of product contribution to bookings, Patch Management and CyberSecurity Asset Management combined made up 12% of total bookings and 22% of new bookings in 2023. In 2023, the increased adoption of these products resulted in over 50% growth on a combined basis. Our Cloud Security solutions made up 5% of 2023 bookings, led by our natively integrated TotalCloud CNAPP offering. Turning to profitability. Adjusted EBITDA for the fourth quarter of 2023 was $65.8 million representing a 46% margin compared to a 42% margin a year ago. Although operating expenses in Q4 were largely unchanged, up only 2% to $59.5 million. Sales and Marketing expenses increased by 12% with us, closing out the year with 438 Sales and Marketing headcount, up 16% from last year. EPS for the fourth quarter of 2023 was $1.40, and our free cash flow was $32.3 million. Free cash flow for the full year 2023 was $235.8 million, representing a 43% margin compared to 37% in the prior year. In Q4, we continued to invest the cash we generated from operations back into Qualys including $1.5 million on capital expenditures and $23.1 million to repurchase 140,000 of our outstanding shares. As of the end of the quarter, we had $83.7 million remaining in our share repurchase program. We’re pleased to announce that our Board has authorized an additional $200 million share repurchase program, bringing the total available amount for share repurchases to $283.7 million. With that, let us turn to guidance, starting with revenues. For the full year 2024, our revenue guidance is $600 million to $610 million, which represents a growth rate of 8% to 10%. For the first quarter of 2024, we expect revenues to be in the range of $144.5 million to $146.5 million representing a growth rate of 11% to 12%. This guidance includes an estimated 1% reduction to revenue growth in 2024 from sunsetting our embedded solution for Microsoft Defender, effective May 1. Earlier this year, Microsoft Defender for Cloud users using Qualys solutions were notified that we will be retiring our integration on Microsoft Defender and transitioning to a BYOL model. With this change, these customers will be able to leverage Qualys TotalCloud CNAPP to effectively manage their security risk for cloud and container workloads. Although this strategic shift is estimated to result in a short-term negative impact to revenues, we believe it will be key to delivering long-term value to consumers. Normalized for this change, our revenue guidance for the full year 2024 would have been 9% to 11%. Shifting to profitability guidance. For the full year 2024, we expect EBITDA margin to be in the low 40s, implying approximately a 20% to 25% increase in operating expenses similar to increase in investments in 2022 and free cash flow margin in the mid-30s. We expect full year EPS to be in the range of $4.95 to $5.27. For the first quarter of 2024, we expect EPS to be in the range of $1.27 to $1.35. Our planned capital expenditures in 2024 are expected to be in the range of $15 million to $20 million, and for the first quarter of 2024, in the range of $3 million to $5 million. In 2024, we plan to align our product and marketing investments to focus on specific initiatives aimed at driving more pipeline, enhancing our partner program, expanding our federal vertical, and supporting sales while maintaining a disciplined approach to unit economics. As a percentage of revenue, we expect to prioritize an increase in investments in sales and marketing as well as related support functions, systems, and people with more modest increases in engineering and G&A. As we increase our focus on sales and marketing enablement, customer success, and productivity in response to a more stable selling environment, we believe we will be able to drive wallet share and long-term returns while balancing growth and profitability. In conclusion, in 2023, we delivered healthy top-line growth and industry-leading profitability in the wake of a challenging macroeconomic environment. We continue to lead with product innovation and announced an exciting new roadmap for the Qualys Enterprise TruRisk Platform. We are confident in our ability to deliver on our growth opportunity long-term and remain committed to maximizing shareholder value. With that, Sumedh and I would be happy to answer any of your questions.”