Qualys Inc (QLYS) 2015 Q2 法說會逐字稿

Good day, everyone, and welcome to the Qualys second-quarter 2015 investor conference call. This call is being recorded.

(Operator Instructions)

I would now like to turn the call over to Don McCauley, CFO of Qualys. Please go ahead, sir.

Welcome to the Qualys second-quarter 2015 investor conference call. I'm Don McCauley, CFO. I'm here with Philippe Courtot, our Chairman, President and CEO on this call.

I would like to remind you that, during the call, we expect to make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events, or our future financial or operating performance. Forward-looking statements in this presentation include, but are not limited to, the following list:

Statements related to our business and financial performance, and expectations for future periods, including the rate of growth of our business; trends related to the diversification of our revenue base; our ability to sell additional solutions to our customer base, and the strength of demand for those solutions; our plans regarding the development of our technology and it's expected timing; our expectations regarding the capabilities of our platform and solutions; the anticipated needs of our customer; our strategy, the scalability of our strategy, our ability to execute our strategy and our expectations regarding our market position; the expansion of our platform and our delivery of new solutions; the expansion of our development operations and support teams in India; the expansion of our partnerships and the related benefits of those partnerships; our ability to effectively manage our costs; our plans to expand our sales force; our plans to explore strategic acquisitions; and finally, our expectations for the number of weighted average diluted shares outstanding, and effective GAAP and non-GAAP income tax rates for the third quarter and the full year 2015.

Our expectations and beliefs regarding these matters may not materialize. And, actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks includes those set forth in the press release that we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission, including our quarterly report on Form 10-Q, that we filed on May 7, 2015. The forward-looking statements in this presentation are based on information available to us, as of today, and we disclaim any obligation to update any forward-looking statements, except as required by law.

We also remind you that this call will include a discussion of GAAP and non-GAAP financial measures. The non-GAAP financial measures are not intended to be considered in isolation, or as a substitute for results prepared in accordance with GAAP. A discussion of why we present non-GAAP financial measures, and a reconciliation of the non-GAAP financial measures discussed in this call to the most directly comparable GAAP financial measures, are included in our earnings press release issued earlier today.

Now, to begin the discussion, Philippe will provide an overview of the Company's performance for the second quarter 2015. Then, I will cover our financial results and factors that drove the quarter in more detail, as well as our outlook for the third quarter and full year 2015. Then, we will open up the call for your questions. With that, I will now turn the call over to Philippe.

Thank you, Don, and welcome to all of you. The second quarter 2015 was an excellent quarter. It included a number of strategic product releases, as well as continued growth and success, across all aspects of our business. While Don will cover the financial details of our performance for the quarter, I will share with you why I think these are exciting times for Qualys, on both the growth and strategic perspective.

I will start off with an overview of key highlights that are driving the momentum in our business, and discuss in more details our new product releases. As I mentioned on last quarter's call, we launched our Qualys Cloud Agent platform, at the RSA conference in April. This is a disruptive extension of our cloud security device platform, as it expands our offerings to provide realtime, continued security compliance across all enterprise IT assets, ranging from on premise devices and mobile endpoints, to elastic cloud environments.

In addition, as these new technologies liberate customers from the many challenges they face with conventional scanning solutions. Such as, scan time Windows, production management and batch reporting, and allows them to be continuous monitoring programs more effectively. We have seen significant interest from our customers, and has an impressive number of [trials] and (inaudible). As a result, we anticipate a more rapid adoption than we have seen in the past, for other new offerings.

The product is now shipping for the Windows platform, and will be available on Mac and Linux this month. We will be adding additional capabilities in the near future, such as fraud integrity monitoring and indication of compromise detection capabilities. We're also making good progress with our new, other solutions currently under development, including the lock management and analytics backend, as well as the malware detection and prevention. Both of which, we expect to release at the end of this year.

Now, let me give you key highlights on the state of our Business. In the second quarter, we added a number of important new accounts, including AbbVie, Advanced Micro Devices; British American tobacco; EADS, now Airbus; CyberSecurity; Holland American Line; LifePoint Hospitals; the National Football League, NFL; Prudential Financial, Reed Elsevier Technology Services; Saudi Telecom, Thomas Cook Tractor Supply, and VeriFone Systems.

We continue to see approximately 50% growth in our newer services, which include Web Application Scanning, Policy Compliance, Continuous Monitoring and Web Application Firewall. We gained approximately 19% growth from our industry-leading service management solutions. And, this is despite some headwinds that we are seeing from currency fluctuations during the past six months.

An indication of our continuing success in diversifying our cloud platform offerings is that, 60% of our customers have now purchased more than one solution. This is another data point on our land and expand trend line, as the metrics, if you recall, stood that 30% at the end of 2013, and 54% at the end of 2014. It also underscores the success of our Cloud Platform, and its adoption.

We continue to see strong demand for our Private Cloud Platform, which allows customers to use our whole suite of security and compliance solutions, while keeping all the data on premise. Demand is particularly strong outside the US, due to the data sovereigncy of requirements from our partners and customers. Now, we can deliver the platform in a fully-virtualized manner, within elastic cloud environment.

Notably, during the quarter, we delivered our first deployment on the Amazon EC2 platform, for Amazon. We continued expanding our strategic alliance in Q2. We signed additional strategic partnerships with leading managed service providers, including AT&T and Solutionary; an NTT Group Security Company.

Now, for a review of our financial performance and our guidance, I will turn the call over to Don.

Thanks, Philippe. Again, as previously mentioned, our second quarter 2015 results were very good. Revenues grew in the second quarter to $39.9 million, which represents 23% growth over the second quarter of 2014. Our current deferred revenue balance is $87.4 million as of June 30, 2015. Which is 22% greater than the balance was one year ago.

A quick review of some other revenue metrics. For the second quarter, the US represented 70.5% of revenues, as compared to 70.0% a year ago. Also, we derived 79% of second-quarter revenues from subscriptions to our Vulnerability Management solution and, that compares to 82% in the second quarter of last year.

GAAP gross profit increased by 26%, to $31.7 million, in the second quarter of 2015, compared to $25.1 million in the prior year. GAAP gross margin was 79% for the second quarter of 2015, compared to 78% a year earlier. Non-GAAP gross margin was 80% for the second quarter of 2015, compared to 78% in the second quarter of last year. Adjusted EBITDA for the second quarter of 2015 increased by 81%,to $13.1 million, compared to $7.2 million a year earlier. Adjusted EBITDA, as a percentage of revenues, increased to 33% in the second quarter of 2015, compared with 22% in the same quarter of 2014.

Net cash from operations in the first six months of 2015 increased by 68%, to $25.6 million, compared to $15.2 million in the first six months of 2014. Free cash flow this year increased by 74%, to $15.0 million, compared to $8.7 million in the first six months of last year. In the second quarter of 2015, capital expenditures were $4.3 million, compared to $2.7 million in the second quarter last year. In the third quarter, we expect capital expenditures be in the range of $4.5 million to $5.5 million, as we expand our cloud infrastructure to support more customers and add more solutions and functionality to our platforms.

Moving on to earnings per share. For the second quarter of 2015, GAAP EPS was $0.09 per diluted share, versus $0.04 a year ago. Non-GAAP EPS was $0.16 per diluted share, in the second quarter of 2015, compared to $0.11 in the second quarter of 2014.

Now, turning to our guidance, starting with revenues. For the third quarter, we expect revenues to be in the range of $42 million to $42.5 million. At the midpoint, this represents 23% growth over third quarter 2014 revenues. For the full year 2015, our revenue guidance is unchanged, as we expect revenues to be in the range of $165 million to $166.5 million. At the midpoint, this represents 24% growth over 2014 revenues.

Now, on to earnings per share. We expect GAAP EPS for the third quarter of 2015 to be in the range of $0.04 to $0.06. And, non-GAAP EPS is expected to be in the range of $0.12 to $0.14. Our third-quarter EPS estimates are based on approximately 38.9 million weighted average diluted shares outstanding. For the full year 2015, we continue to expect GAAP EPS to be in the range of $0.22 to $0.27. And, non-GAAP EPS is expected to be in the range of $0.50 to $0.55. Our full-year EPS estimates are based on approximately 38.6 million weighted average diluted shares outstanding.

In summary, we remain very excited about the future of Qualys. We continue to work to drive growth within our current solutions and are seeing significant traction in interest with our new offerings, such as our Cloud Agent platform. Over time, we expect to continue to leverage the power of the Qualys Cloud Platform to further drive shareholder value.

Before we open up the call for Q&A, I'd just like to note for everyone that we will be holding our second Qualys Investor Day meeting on October 7. It will be held in Las Vegas on the afternoon before the Qualys security conference, which is our annual user conference. That conference is being held on October 8 and October 9. The investor meeting will include presentations from management, focusing on our current platform and products, as well as our exciting product pipeline for 2016 and beyond.

Investors are also invited to attend our user conference, which is a unique opportunity to connect with current and prospective customers and partners, along with our engineers, as well as industry experts.

With that, Philippe and I would be happy to answer any of your questions. Operator?

(Operator Instructions)

Sterling Auty, JPMorgan.

Hi, this is actually Ken filling in on for Sterling. Thank you for taking my question. I was wondering, is the rollout of the Continuous Monitoring product causing any pause in Vulnerability Management, as customers decide which product to go with?

Not at all. This is Philippe speaking. Not at all. In fact, the Continuous Monitoring is a natural extension of the Vulnerability Management solution. What it does? It allows, now, to have alerts, instead of just reports when you turn on the continuous security monitor module, which is another. What it does? It allows you to, essentially, to have alerts that you can directly integrate or plan to your incident response system. That's already complementary.

Okay. Just another one. I was wondering, I was looking at the 3Q guidance. The growth looks a little bit shy of where the street was. I was wondering if there is any FX in that estimate?

Like every software company, we've had FX headwinds this year. And, Q3 will be another quarter with such a large difference between the rate of the euro a year ago, and today. Yes, there are some headwinds in Q3.

Okay. Great. Thanks, guys.

Philip Winslow, Credit Suisse.

I wonder if you can give us some more color on what you're seeing in the VM market? On the last call, this was a big point of discussion. Anything you can point out this quarter, versus where you're head was 90 days ago? Also, as you look at some of the newer products, maybe you could give us some more color there, as well, now that we are halfway through the year, just the trends that you are seeing, versus the beginning of the year? Thanks.

On the VM side, we see it's still the same. At Qualys, we continue, essentially, expanding our market penetration on the VM space. And what we see is, is the fact that companies now are realizing more than ever that you have to really know the assets that you have. That you need to understand all of them, and as well of course, looking at the vulnerability. Today, I think this is the cornerstone of security. And, I think companies our understanding that very well.

So, what we see is that, with our Cloud Agent, we see in fact, further expansion of both our Vulnerability Management and as well as our Policy Compliance. Because now, we can go to the endpoint. One of the conditions of Qualys in the past was that we could not, effectively, address the security and compliance posture of the endpoint. Now, with these agents, we can do that very effectively. And, it is essentially a continuation of the Vulnerability Management application.

Got it. Thanks, guys.

Steve Ashley, Robert W. Baird.

I understand that you focus on trailing 12 months, current billings. If you were to look at the way that a lot of us folk out here look at quarterly billings, last quarter, that number was up 29%. I remember Don, you saying, you really didn't think that was representative of the trends in your business, that 29%. The comparable number this quarter is up 19% or 20%. And, I was wondering if you had any comment on whether you thought that was representative of the growth rate of your business?

Just to -- thanks, Steve -- remind everyone what the point we were talking about here is that, we felt that the opening deferred revenue balance at December 31 was on the light side. Because, we saw a lot of Q4 short-period up-sells from our customers, which we characterize as budget flush. That apparent one quarter bookings metric that you all calculate came out -- to my point -- it was overstated, the kind of quarter that we had. I think sometimes it understates a little bit, too. It's more in the ballpark, this time, Steve.

Okay. I was just wondering, in terms of sales reps and hiring in general, if you could update us on headcount, and how the hiring process went in the period?

In terms of hiring, we have done a few things. One, as you recall, we have a very highly-leveraged model, with the very strong partnership that we have. We added, as I mentioned earlier, AT&T and Solutionary. We continue expanding our partnerships extremely well. In fact, we've beefed-up our strategy alliance team.

In terms of our direct sales force, we are expanding our headcount. We have just, essentially by the way, hired a VP and General Manager for Europe. So, we're adding middle management, as well the VPs for our worldwide sales. And, we are absolutely actively recruiting and hiring. We have, in fact, quite a few offers which was extended. Typically, as you can see in the pattern of Qualys, we do most of our hiring in the second half of the year.

We anticipate to maintain the 20% to 25% additional headcount that we mentioned, I think in the last earnings call, that we were planning before the year's over. We continually expanding. And, with all the new services that we have really defined for us, to expand our sales force.

We always have been careful of not expanding the sales force too early. At the end of the day, you end up with people which you pay a lot of money, and they don't always deliver. So, we have always had a balanced approach between the channels and the direct sales force. And, you see that in the highly-scalable models that we're seeing.

Great. Thank you.

Rob Owens, Pacific Crest.

Don, I think you may have partially answered this. In and around the deferred revenue being down sequentially, I guess, given the new products that you have, given how security spending appears to be picking up, as we look at other companies results, can you speak to that? Is Q2 just -- I know, seasonally, this is always been a one-off quarter, where sometimes its flat from deferred revenue. Sometimes it's up a little bit. What are the trends you're seeing there? Is this the aberration that you saw, Q4 to Q1, playing out in Q2? Maybe help us understand that a little bit.

Q2 was a pretty normal quarter, Rob, in terms of the pace of the quarter and the composition of it. Last year, deferred revenues were up just slightly. I think the year before they were down just slightly, in Q2. Q2 is usually about a flat quarter on deferred revenues. Just the way it works out. So, nothing unusual. I think we're kind of seeing normal patterns in the business.

I think you answered Steve's 20%, this is more the normalized growth rate, if you will. Does that mean, once we get beyond expectations for this year, we should see some slowing, realizing you are not guiding to 2016 at that point. But, it does take a while for that to transition out in the model. If 29% was a little too hot and 20% is more like it, do we see things come down from the 23% to 24%-ish that you are looking for this year?

We don't want to get ahead of ourselves, guiding beyond this year, Rob. Our pipelines are really strong. Philippe was talking about the number of new products that are hitting this year. And so, we're real optimistic about the business, but we're not getting ahead of ourselves guiding for next year, yet.

Fair enough.

Yes, and something that I would add to what Don said here. Today's worker's, it's a very big incentive (inaudible) accounts. Timing is becoming, well not anymore, a business where the orders were coming $60,000, $100,000. We really do very significant up-sell and all that has a timing effect. That is the nature of our business.

But, what I can say is that, we have absolutely significant new businesses coming our way, as well as very big up-sell from markets in the days. As you can see, our platform is really, today, playing. So we are, in fact, not anymore that one, if you prefer, product company. We consolidate many applications. If you look through [that to] the end, [for it to comply], whether it's sufficient scanning, whether it's sufficient firewall.

We offer to introduce Vulnerability Monitoring. In addition to Compromise, that is six vendors essentially that Qualys can [faciligate]. Which, of course, creates significant value for our customers. Because, as you know, one of the challenges that you can see is that, there is [soft too many] vendors. Companies would really do prefer [lead] vendors. And, the fact that we have that Cloud Platform where everything is centrally managed, that's a very significant advantage.

Great. Last one, if I may. Did you give a customer count? Are you willing to give a customer account to close quarter?

We update that once a year, Rob, since it's not directly comparable for revenues. I will tell you, we are on the same kind of pace we were last year.

All right. Thanks, guys.

Matt Hedberg, RBC Capital Markets.

Yes, it's Dan Burks for Matt, Matt Hedberg. Following up on Phil's question, curious how pricing is holding up in the core VM, and then, emerging products.

Pricing is holding very well, in fact. We have, of course, a long-standing relationship with all of our customers. And, we are winning a lot of deals. I think there is -- our composition in fact, today, try, essentially, to compete with us on price and we holding it (inaudible).

Thanks. Any changes in up-sell trends this quarter? I know they are trending higher.

Same. Same. Our business is not, anymore, as uniform as it used to be, as I mentioned earlier. We do, sometimes, very, very big up-sells. I speak about $0.5 million, $1 million, of up-sales. So, of course it's changing. But up-sales are, generally speaking, extremely strong. We see an adoption of desires. If I look at the number of trial accounts that we have on our Policy Compliance, I (inaudible) for example. That is really big stuff.

Don, any large deals that came into the quarter much earlier or later than expected?

No. We still have normal patterns this quarter.

Thank you.

Michael Kim, Imperial Capital.

Can you talk a little about the MSP channel? Are you starting to see some acceleration contribution from some of these partnerships, and a little greater sales leverage? Do see this, going forward, as an area where you anticipate expanding your focus?

Yes. This has been a continuous trend. We have, today, quite a few MSSP partners. Today, we can see now, starting the engine of sources. The [HCL platform], we call (inaudible), to bring business to us. So, that's the kind of continuity. And again, we're adding a few more partners. Some are global, some are more local.

I think that the partnerships works very well. Because, what we provide to our partners is the ability to, essentially, be in business, without adding any expenses, really. Even if they can immediately be given the Vulnerability Management services, Policy Compliance services, web applications, and 3-D services. And, that's a very unique advantage that we have against the [polishing lamp] of product office solutions, where people have to [console beyond that much dependence]. So we still have a huge advantage here, and are a very natural fit for all these managed security service providers.

Great. Just on Private Cloud platform. Is this a deployment model that you're seeing preferred by the majority of the non-US customers, at this point? Are you seeing more demand in the US for Private Cloud?

We're seeing more demand for the US in Private Cloud, with a very large organization, with the banks. As we are now, starting to do more with them. We're also, at the same type, further virtualizing. I mentioned that we've been capable of totally virtualizing our platform, which we deliver on the EC2 platform for Amazon, themselves.

Now we're, essentially, putting more access. So, we could potentially distribute that platform, that Private Cloud platform, very easily. The Federal government is the natural customers for that, in the US, and very large companies. We also have, now, are a part of fully disconnected Private Cloud, which we mentioned last quarter, has now delivered, accepted by Siemens. It's operational. And, we're now focusing the synergy of now, onto the Federal government. Where, we are anticipating to be FedRAMP compliant this month.

And, as well as now, I think the disconnected Private Cloud happens to be in the marketplace for us. We are not gearing. In fact, we are actively looking for, literally, a Federal operations, which will report to our newly hired EVP of Global Sales Operations. So, we are counseling on the Private Cloud, as a beachhead, in Federal and in large organizations. Outside of the US, what it does is that, it really eliminates all the issues about the sovereigncy of the data. And that again, combined with the fact that we can enable it (inaudible), cyber security, the Airbus cyber defense, (inaudible), et cetera. Many, many companies in Australia, they can absolutely provide the sovereign cloud services to the marketplace. In that sense, we are in a very unique position.

Great. Thank you very much.

Rob Breza, Wunderlich Securities.

Quickly, as you think about the sales force and the capacity here, and moving further out with the new additional products, do you feel like you're on pace with the added capacity, given the dilution that comes from new products? The existing sales force has to learn those products? How do you balance that, relative to your growth projections? Thanks.

Could you repeat the question? I'm not so sure about the -- I'm not so sure that I understood the question.

The question is, given the new product growth, and how do you judge the capacity within the sales force, to absorb the existing new products, maintain their focus on core VM. And then, yet, drive 20%-plus type growth for the industry?

Okay. Very good question. What we're doing is -- First of all, what you have to understand is that, what is, again, very unique with our model is that, everything is centrally managed, Everything's set for dating. So, you have all the different solutions out of this same platform. This is what McAfee like to do with EPO's, that counted for central console, where everything comes at you [instantly]. That's what we have. And, our model allows us to do that extremely well. That's sort of platform, itself.

Of course, we have different modalities which are a big, common platform. So what we do, we approach that two ways. We have, what we call, a division architect. In fact, we have quite a few plans recently. We shall be experts on our modalities, and our helping our sales force to essentially learn, present these values, so that it sells we can treat it. We have that kind of service, patience if you prefer, which helps supporting the sales force in that effort, as well as the partners.

In terms of the sales force, we have divided our sales force into groups. We have the group that shapes the new business, which is slightly increasing our sales force, recently here in the US. And then, we have, of course, the farmers. It's much easier for the farmers to, essentially, present the new services to our customers. (inaudible) we also follow the same platform, and the customer can try.

Already, everything is enabled in our back end. And, this is what gives us, at the end of the day, the leverage that you see in our financial numbers. We eliminate a lot of costs, not only for ourselves, but also for our customers and partners. We have that highly-leveraged model and all of these applications that we can kick-off, already enabled in the platform and it's very easy for our customers, either the prospective customers, or the (technical difficulties).

Thank you.

Srini Nanduri, Summit Research Partners.

Thank you, Don and Philippe, for taking my call. I appreciate this. I have a couple of questions on the guidance. First and foremost thing, under FX headwind, seems to be pretty pronounced this quarter. Can you give us some color, how much of a constant-currency growth is for the next quarter?

The kind of headwinds we saw in the last quarter was about 1.7% on revenues, and about 2.8% on deferred revenues. In Q3, I think we expect a similar effect in Q3. And then, it should start to dissipate after that.

Okay. I'm starting to understand your modeling, for modeling purposes, on the AWS. You are assuming pretty much no revenue this year. Is that fair? It that -- looks like it's a little bit conservative.

What do you mean on the AWS?

You guys are assuming no revenues from the AWS platform this year. Is that where it is?

No. With AWS, we have -- Amazon is a Qualys customer. This is, of course, a big Qualys customer, for their own needs. On the AWS platform, we have, in fact, our customers are potentially, for those who are using AWS, we have virtual images that also provide the scanning and the Web Defense management and Web Application scanning.

We don't differentiate these revenues, that are essentially another, if you prefer, [scanner appliances] that our customer is using. It happens that they're all virtualized. And, it happens that they are certified to run on AWS. We're not using AWS as a platform for our services. We have [bind] our own back end.

I see. I see. Understood. Thank you so much for taking my call.

Mike Secos, Macquarie.

I don't know if I missed it in your earlier comments, regarding the sales reps. Typically, we get a number regarding how many new hires there have been, or what's the total capacity at this point. Did you guys give us an update regarding the number of sales reps you finished the quarter with?

No. We didn't give an update. We finished the quarter, I think, 139 people today. Overall.

Okay. And, with the new sales reps that you are hiring for, has anything changed with the process? Just, regarding selling back into the existing customer base? Where are the new hires going? Are they out hunting new customers? Or, are they going back to the existing base and trying to up-sell them with new solutions, at this point?

It's a combination of both. We're expanding both our new business team, as well as our existing customer team. Of course, we are getting more and more customers, and you need to service them. As I'm sure you realize, serving a customer, which is doing $1 million a year, or $2 million a year, you don't need two people. We have a significant leverage there with our renewal, as we call them, our renewal teams.

Okay. One more question, if I could. Regarding the, call it, $0.05 of upside delivered in the second quarter, I was just interested in the EPS guidance that you guys maintain for full year. Just wondering, where the incremental expenses will be coming in, in the second half?

It's essential the sales, we're expanding our sales force, and our core marketing teams and our marketing efforts. We are, essentially, going to be much more active, in terms of these new services. As in both emphasizing them and doing some re-chart contains. So, that's where the additional expenses are coming from.

Okay. Thank you.

(Operator Instructions)

John Lucia, JMP Securities.

First question. You noted 60% of new customers have purchased more than one solution by the end of Q2. That's good when you compare to the end of 2013, but that's only a 2% increased from 58% in Q1. A year ago, I think the increases were more like 6% to 7% each quarter. So, if you look at these metrics, it seems like cross-selling has slowed to a degree, over the last 6 to 9 months.

My question is, has the low hanging fruit been picked at this point, and now cross-selling has become a little more difficult? Or, are we just going deeper in with those existing customers? I'd just like to get more flavor on your expectations for cross-selling, going forward.

No. I don't think this is so weak. We see cross-selling still is very strong. And in fact, with all the new services that we are coming with, that will continue to increase. But, what is happening here, I believe, and that's something we may want to look into, in more detail, is because we have three businesses in Qualys. We have, essentially, the enterprise business, we have the mid market business with express, as we call it. Qualys enterprise, Qualys express.

And then, we have Qualys SMB, which is companies, very small companies. There's much less up-sell, if you prefer, in the SMB side of the market. But, there is a pulse in the large enterprise. We have, also, the phenomena here of the mix of customers. With larger customer base, it's more on the SMB side than we see on the enterprise. On the enterprise side, we see very strong demand for more services.

Okay. I have one follow-up. Last quarter, you guys talked about the VM business slowing to 19%. And, it sounds like the growth remained at that level in Q2. Can we think of 19% as the new normal? Or, would you expect the growth to decline or increase in these levels?

I personally believe that our VM business is going to, essentially, growing more. This is because, again as I mentioned earlier, with our cloud agents, we can now go to the endpoint. And, the endpoint is really where you have the volumes. This is where you have significantly more end points than you have servers. We [seeking that], both for the VM and Policy Compliance, a potential big lift in the Company's Cloud Agent. And again, that's been very well accepted by our customers. And, we see that these new services ramping up faster than we have ever seen any of these products.

Okay. Thank you.

I am showing no further questions at this time. I would like to turn the call back to Philippe Courtot for any further remarks.

Thank you, operator. Let me share with you another key milestone for Qualys. As I am in fact speaking with you today from Black Hat. I'm at the Black Hat conference in Las Vegas, where we are launching and showcasing a revolutionary new service that we call Asset View, that gives IT and security teams real-time visibility and actionable data across millions of IT assets in seconds.

Asset View is based on our Cloud Agent platform, which has been discussed, and we are provided it as a free service. With Asset View, IT and security teams can deploy our Cloud Agent at no cost, for doing asset inventory. And, to get a complete picture of their global IT assets, and query them in real time. In summary, with the launch of Asset View, IT and security can now answer the following questions, and on a global scale. Such as, how many assets do we have? What are their attributes? Who uses them? Who manages them? Where are they located?

And of course, with our Vulnerability Management, Policy Compliance, et cetera. And, how secure are they or have they been already compromised? It's all delivered from the single solution, where everything is centrally managed and central [dating] of Cloud Platform. And now, customers can also integrate the data from these new services with our Contribution Management, database tools, CNDBs and asset management solutions.

As you can see, with the expansion of our platform and the well-received launch of our new services, we continue to invest in the expense of sales and marketing efforts, growing our partnerships globally, accelerate the business of (inaudible) operations and support teams in India. Where we are, today, more than 100 people. I think we're, now, close to 120 people.

And, are actively looking for strategic acquisitions to further accelerate the enhancements of existing services. And, the deployment of new services, as well as to enter new adjacent markets. Thank you for attending our earnings call today. Should you have any follow-up questions, Don and I are available to you. We are looking forward to speaking with you at the next quarter, and hope you can make it to our user conference in Las Vegas in October. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program and you may all disconnect. Everyone, have a great day.