“With respect to operating expenses, in Q4 we expect to continue to prioritize an increase in investments in Sales & Marketing aimed at driving more pipeline, supporting sales, enhancing our partner program, and expanding our federal vertical with more modest increases in engineering and G&A.”

In context

“Joo Mi Kim (CFO): Thanks, Sumedh, and good afternoon. Before I start, I’d like to note that, except for revenues, 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 8% to $153.9 million with channel continuing to increase its contribution, making up 47% of total revenues compared to 43% a year ago. As a result of our continued commitment to leverage our partner ecosystem to drive growth, we were able to grow revenues from channel partners by 17%, outpacing direct, which grew 1%. By geo, 14% growth outside the U.S. was ahead of our domestic business, which grew 5%. U.S. and international revenue mix was 58% and 42%, respectively. In Q3, we saw some stabilization in the selling environment but believe ongoing budget scrutiny will persist for the foreseeable future. Reflecting this sentiment, our gross retention rate remained largely unchanged at approximately 90%, but with stronger upsell performance, our net dollar expansion rate came in higher at 103%, up from 102% last quarter. We continued to see a positive growth trend in new business, achieving a double-digit growth rate for the fifth consecutive quarter. In terms of product contribution to bookings, Patch Management and Cybersecurity Asset Management combined made up 15% of LTM bookings and 24% of LTM new bookings in Q3. Cloud Security solution, TotalCloud CNAPP, made up 4% of LTM bookings. The foundational theme underpinning these results is the power of our Enterprise TruRisk Platform to help customers consolidate cybersecurity at scale. Turning to profitability, reflecting our scalable and sustainable business model, adjusted EBITDA for the third quarter of 2024 was $69.7 million, representing a 45% margin, compared to a 48% margin a year ago. Operating expenses in Q3 increased by 12% to $61.8 million, primarily driven by an 18% increase in sales and marketing investments aimed at capturing the market opportunities in front of us. As we continue to increase our investment intensity and focus on sales and marketing enablement, customer success, and productivity, we believe we will be able to drive wallet share and long-term returns. EPS for the third quarter of 2024 was $1.56, and our free cash flow was $57.6 million, representing a 37% margin compared to 64% in the prior year. In Q3, we continued to invest the cash we generated from operations back into Qualys, including $3.4 million on capital expenditures and $44.9 million to repurchase 344,000 of our outstanding shares. As of the end of the quarter, we had $185.7 million remaining in our share repurchase program. With that, let us turn to guidance, starting with revenues. For the full year 2024, we are now expecting our revenues to be in the range of $602.9 million to $605.9 million, which represents a growth rate of 9%. This compares to revenue guidance of $597.5 million to $601.5 million last quarter. For the fourth quarter of 2024, we expect revenues to be in the range of $154.5 million to $157.5 million, representing a growth rate of 7% to 9%. This guidance assumes lighter new business this quarter based on current pipeline and continued deal scrutiny from existing customers with no meaningful change in our net dollar expansion rate in Q4. Shifting to profitability guidance. Factoring in the better-than-expected profitability to date, we expect full year 2024 EBITDA margin in the mid-40s and free cash flow margin in the mid-to-high 30s. We expect full year EPS to be in the range of $5.81 to $5.91, up from the prior range of $5.46 to $5.62. For the fourth quarter of 2024, we expect EPS to be in the range of $1.28 to $1.38. Our planned capital expenditures in 2024 are expected to be in the range of $12 million to $16 million; and, for the fourth quarter of 2024, in the range of $5.5 million to $9.5 million. Adding additional context, we are currently making certain investments in some of our data centers to achieve greater operational efficiencies and reduce medium-to-long-term marginal costs. These investments pressured gross margin in Q3 by approximately 1%, and we anticipate a similar contraction in Q4. With respect to operating expenses, in Q4 we expect to continue to prioritize an increase in investments in Sales & Marketing aimed at driving more pipeline, supporting sales, enhancing our partner program, and expanding our federal vertical with more modest increases in engineering and G&A. With that, Sumedh and I would be happy to answer any of your questions.”