Qualys Inc
NASDAQ:QLYS
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Qualys Inc
Earnings Call Analysis
Q3-2023 Analysis
Qualys Inc
Qualys hosted its third quarter 2023 earnings call in a climate of steady financial growth and innovation. President and CEO Sumedh Thakar highlighted the continued strong financial performance, which has been a product of the company's commitment to rapid innovation and customer success. A significant marker of this success is the steady adoption of Vulnerability Management, Detection, and Response (VMDR), now deployed by over half of the customer base. The quarter witnessed notable wins, including a leading multinational conglomerate and a Fortune 100 biotech company, illustrating the growing trust in Qualys' integrated security solutions.
Qualys is capitalizing on the industry's need for consolidated, less complicated security environments. A Fortune 100 biotech company significantly upsold to Qualys' more comprehensive offerings by adopting additional solutions such as web application scanning and total cloud CNAP. This trend of customers consolidating security vendors is a testament to the strength and integration of Qualys' platform offerings, which, compared to siloed alternative solutions, offer a more unified, efficient method for managing security risks across diverse environments.
Thakar underlined Qualys' early victories in cloud and container security, areas that have become critically important in the modern IT landscape. With over 31 million agents supporting workloads in the cloud and advances in AI and machine learning technologies, Qualys is well-positioned to detect and remediate zero-day malware and risks in real-time. Its total cloud CNAP solution has been acknowledged for its strength in cloud security. Engagements with new customers, particularly in implementing cybersecurity asset management and patch management alongside VMDR, are indicative of the company’s forward trajectory.
Partnerships have played a crucial role in the expansion and deepening of Qualys' capabilities. Relationships with leading global managed service providers and cloud vendors not only affirm Qualys' platform's appeal but also increase its market reach. Ideally, these alliances complement the company's organic growth, helping Qualys to outshine competitors owing to ease of orchestration, integration, and a simplified operational approach.
Qualys looks to its future growth with a balance of confidence and pragmatism aided by industry recognition. The IDC study indicating a 403% ROI for customers using Qualys reaffirms the financial sensibility of adopting integrated platforms over multiple point solutions. The forthcoming Qualys Security Conference is positioned to potentially mark a milestone by unveiling a new platform that promises seamless integration of third-party security tools within Qualys' offerings.
CFO Joo Mi Kim presented a financial summary for the third quarter that saw a 13% increase in revenues to $142 million, also noting channel partners' growth (17%) outstripping that of direct sales (10%). The U.S. market, which forms the bulk of revenue, continued to be the growth leader. Although the selling environment is showing signs of stabilization, Qualys approaches future forecasts cautiously, mindful of protracted budget scrutiny in IT. Efforts to improve retention rates remain a focus, and the company sees a promising trend with larger customers spending $25,000 or more, growing 15%.
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Good day, and thank you for standing by. Welcome to the Qualys Third Quarter 2023 Investor Conference Call [Operator Instructions] Please be advised that today's conference is being recorded.And I would now like to hand the conference over to your speaker today, Mr. Blair King. Sir, please go ahead.
Thank you, Chris. Good afternoon, and welcome, everyone, to our Qualys Third Quarter 2023 Earnings Call. Joining me today to discuss our results are Sumedh Thakar, President and CEO; and Joo Mi Kim, our CFO.Before we get started, I would like to remind you that our remarks today will include forward-looking statements that generally relate to future events or future financial or operating performance. Actual results may differ materially from these statements. The factors that could cause results to differ materially are set forth in today's press release and our filings with the SEC, including our latest Form 10-Q and 10-K.Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release.And as a reminder, the press release, prepared remarks and investor presentation are all available on the Investor Relations section of our website.So with that, I'd like to turn the call now over to Sumedh.
Thank you, Blair, and welcome to our third quarter earnings call. In Q3, we continued to deliver strong financial results, reflecting our ongoing commitment to rapid innovation and customer success. We experienced another quarter of steady VMDR adoption, which is now deployed by 54% of our customers worldwide.Key competitive VMDR wins in Q3 include a leading multinational conglomerate, several global financial services, technology and manufacturing companies, a large government agency, and multiple new and other existing customers, both down market and in the Global 2000.Adding to these wins, I will take a moment to share a couple of examples of how our customers and partners are expanding their use of Qualys' capability to further consolidate their security stacks. On the customer front, a Fortune 100 biotech company was overwhelmed by the number of security tools it deployed and needed a solution to not only provide better security outcomes, but also consume fewer point products, agents and resources through a unified dashboard.In the mid 6-figure booking upsell, this customer, who already deployed Cybersecurity Asset Management with External Attack Surface Management and VMDR, expanded its use of VMDR with TruRisk to over 290,000 assets while adding our Web Application Scanning, Patch Management and TotalCloud CNAPP solutions. In doing so, this customer consolidated 3 competing vendors across on-prem, cloud and multi-cloud environments through an organically integrated platform. With our innovative technologies' unmatched platform effect and focus, reducing -- our focus on reducing risk and friction, this win underscores Qualys' ability to eclipse siloed solutions and advance our leadership in the industry.Specifically highlighting the momentum we're seeing with our TotalCloud CNAPP solution, in a highly strategic and competitive mid 6-figure booking cross-sell, a Forbes 200 existing VMDR and Patch Management customer selected TotalCloud to scale their container deployments in over 50,000 assets, monitoring millions of containers images daily.Through its evaluation of competing cloud security providers, this customer determined that alternative point solutions added complexity to their operations, lacked integration and missed detections, which hindered their ability to assess the risk and consolidate their security tools.Today, through a highly scalable, natively integrated CNAPP solution, the Qualys Cloud Platform provides complete visibility of this customer's attack surface with advanced AI/ML technologies to uniquely detect zero-day malware while prioritizing and remediating the risk at scale in real time. Our early wins in cloud and container environment are a testament to the extensibility of the Qualys Cloud Platform, its unified dashboard and our adaptive subscription model.Today, we have over 31 million agents already supporting workloads in the cloud. Qualys is well armed with an organically integrated TotalCloud CNAPP solution that unifies Cloud Workload Protection, Cloud Security Posture Management, CSPM, Cloud Detection and Response, Infrastructure as Code and Container Security. Powered by AI threat detection and insight, TotalCloud was recognized by Kupplinger Cole as a strong technology leader in cloud security, ahead of several competing modern cloud point solutions and next-gen platforms.I'm quite pleased by the early momentum we are experiencing in the market with our TotalCloud and increasingly encouraging customer feedback. Additionally, new customers continue to adopt Cybersecurity Asset Management with External Attack Surface Management and Patch Management alongside VMDR right out of the gate. We believe this further highlights Qualys' ability to help customers not only detect but also quantify, prioritize and remediate risk across all environments much faster than alternative siloed solutions.On the partner front, in Q3, we continued to advance our evolving ecosystem with 2 leading global managed service providers, which also expanded their offerings beyond VMDR to include our Cybersecurity Asset Management and Patch Management capabilities. These partners have indicated they chose Qualys over competing solutions due to the ease of orchestration, natively integrated platform and single agent approach to simplify their operations and significantly reduce remediation times for their customers.In addition, we expanded our relationship with another leading cloud provider, which is now taking the Qualys Cloud platform available in its marketplace. With wins such as this one I've shared today, customers spending $500,000 or more with us in Q3 grew 15% from a year ago to 174. With more and more customers beginning to perceive Qualys as a leading risk management platform that consolidates multiple security point solutions across all environments, we remain confident in our ability to drive long-term growth and gain market share, especially in light of the recent IDC study highlighting a 403% ROI for customers choosing to partner Qualys with a platform approach.As I have said before, a cornerstone of our strategy is engineering innovation. And with a customer-first product-led growth focus, we challenge ourselves every day to lead the industry. Executing against this agenda, we will unveil our new platform approach at our upcoming Qualys Security Conference in Orlando from November 6 to November 9. This new approach will seamlessly integrate any number of third-party security tools into Qualys Cloud platform.Regardless of the variety of vendors utilized within an organization's infrastructure, Qualys will soon harness automated insights into critical areas of risk spanning on-prem, cloud and multicloud assets to uniquely enable comprehensive remediation, while also risk posture assessment with new groundbreaking remediation capability.At this conference, our product and engineering teams will further showcase additional innovations on the cloud platform, including our advancements in delivering ML and AI-based predictive insights, first-party vulnerability and misconfiguration detection and response, the integration of software supply chain security into continuous integration and delivery, CI/CD, pipelines and more.Additionally, you can hear our customers speak first-hand about how our continuous innovation on the platform enables organizations to simultaneously reduce complexity and risk in their environment as they standardize on a trusted platform that delivers an immediate ROI and lower total cost of ownership relative to siloed traditional detection-only technologies. We have over 900 people registered to attend and look forward to seeing many of you there.In summary, we are delivering strong profitability and cash flow while building business momentum in both our core and cloud expansion markets as companies uniformly recognize security transformation is fundamental in combating today's heightened threat and regulatory environment. As a result, customers are increasingly looking to reduce their risk exposure through the adoption of a natively integrated risk management platform spanning all environment instead of deploying a collection of disparate point solutions for different environments and hiring more people to manage those.We believe that our organically integrated, cloud-native platform built to solve modern security challenges, Qualys is laying a foundation for future growth and well positioned to drive long-term shareholder value with a balanced approach to growth and profitability.With that, I will turn the call over to Joo Mi to further discuss our third quarter results and outlook for the fourth quarter and full-year 2023.
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 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 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 remain room for improvement from smaller customers, larger customers spending $25,000 or more with us grew 15%.In terms of new product contribution to bookings, Patch 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 Solution 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, AI/ML innovator of cloud threat detection and response solution, to augment our Cloud Security Solutions.It's exciting to see our continued innovation and investment in our platform is driving adoption and 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 $68.8 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 was up by 9%, same growth as what we saw in Q2.While we delayed some investments 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 and further demonstrates 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 16% 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 full-year 2023 is 21%. Our free cash flow for the third quarter of 2023 was $90.6 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 revenues. For the full-year 2023, we expect revenue 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 margin, factoring in the better-than-expected profitability to-date, we expect 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 $4.65. 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 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.
[Operator Instructions] And our first question will come from Mike Walkley of Canaccord Genuity.
Congrats on the strong profits. I guess with 54% of your customers now adopting VMDR, can you just help us think about net dollar retention trends going forward? I know it's early, but maybe you can share how some of your customers are reacting to your new solutions such as Context XDR and TotalCloud that could help drive net dollar in the future?
And as we talked about earlier, I think we're pretty excited about some of the things that we are releasing especially with cloud, et cetera. Of course, the environment continues to be challenging today. And so our customers that we are working with, they look at a platform approach, they look at their current optimization of what they are buying from different vendors, from Qualys.We continue to have great conversations. We continue to see opportunities. We continue to be happy with how CSAM Patch Management are becoming part of the bookings and including new bookings. And the opportunities that we see in the future with -- especially as everybody starts moving into the cloud and the opportunities for a truly natively built cloud platform to be an area where customers will continue to work with us to deploy our solutions to expand their VMDR offering.So VMDR customers as they move into the cloud with TotalCloud CNAPP capabilities get not only VMDR, but additional capabilities to really have one single pane of glass view for their entire cloud security. And this is the driving factor of many conversations that we are having now as they look forward to 2024 and looking into cloud security. And some of the early wins that we are seeing is encouraging. And so I think the customers adopting VMDR and that -- we were pleased to see that continue to tick up and get to 54%.And that, of course, gives us the ability to have our agents deployed in more environments. And those agents being deployed does give the opportunity for us to do additional upsells on CSAM Patch Management, EDR, et cetera. But also now with 31 million agents running in the public cloud environment, the opportunity for us to work with them on TotalCloud is something that we're excited about.
And just a follow-up question maybe on OpEx. Just with the new CRO, I know you paused as you revisit the go-to-market strategy. How should we think about with your strong margins, maybe starting to invest in sales capacity as we exit this year or into next year? I guess another way I'm trying to ask, balancing the macro backdrop with the opportunity to maybe add sales capacity?
With Dino on board, we are looking at all our investment opportunities for the remainder of this year as well as next year. We think that based on what we see today, our sales and marketing expense to be relatively in line in terms of the growth year-over-year in Q4 as in Q3. So you're looking at like 9%, 10%, around that kind of range ending the year. And then for next year, we are going through the planning cycle right now to understand, "Will we think that we should double down on investment and accelerate versus kind of put on hold?"But with that said, given the underinvestment that we had this year, based on the ROI that we estimated, we do expect an acceleration in sales and marketing investments next year.
Our next question will come from the line of Matt Hedberg of RBC Capital Markets.
This is Anushtha for Matt Hedberg. Maybe just to start with, can you talk about your high-level thoughts on 2024 and what do you think would be the building blocks there? And then could revenue growth potentially accelerate in '24, given easier comps and the investments you've been making over the past year?
I think it's a little early for us right now. We are going through the planning cycle. I think taking a look at what we know today, Q4 is a huge quarter for us. So what we're trying to do is understand the current dynamics and what it will translate to our Q4 bookings, and then we'll be able to share more color in 2024 in terms of where we think that we'll be able to land for revenue growth. And -- but right now, what we see is -- if you take a look at our trajectory and the growth, we do see that even though the environment has stabilized, the market appears to be challenging for us.So with our net dollar expansion rate at 106%, we do see room where that could pick up a few percentage points in the coming quarters. But it's a little too early.
Got it. And then can you talk about the federal vertical a little bit? I realize it's a small vertical for you, but it looks like you've been seeing traction with it over the past few quarters. So just given the federal year-end, how did that vertical perform in the quarter?
Yes. A great question. We do have increasing focus on our federal side of the business. As you said, it's not a big part of our business today. But what we're seeing is the federal agencies are also looking for a refresh or really looking for a new approach to managing their risk. Their having the same challenges there. Too many vulnerability findings coming their way. And so when they kind of look at the Qualys platform and the ability for us to showcase the inventory, vulnerability management, risk management and then remediation capabilities, those are really resonating well with them.And so as we recently got on a federal leader, we're getting through the process of getting out a FedRAMP high certification completed, which makes us one of the only FedRAMP high ready platforms for vulnerability and patch management. We do see over -- as we continue to make our investments in the federal go-to market, we do see a good opportunity for us in the next couple of years really to accelerate the growth for our federal business from where we are today.
The next question will come from Jonathan Ho of William Blair.
Can you hear me?
Yes, you're loud and clear.
Okay. Sorry. Just in terms of your channel partner progress, can you talk a little bit about what you're seeing there? And maybe what some of the lower-hanging fruit can be just given the hiring of your new CRO?
Look, we started down this sort of investment about a year -- a little bit over a year ago, taking a different approach really to how we're working with partners. So we're pleased with the early feedback we're getting. You see some of the mix of our business also changing a little bit to the partner side. And I think we do see that there is a good amount of opportunity for us to invest and increase how we work with our partners.So right now, as we look at the low-hanging fruit in terms of better deal registration, better incumbency protection that we have provided is showing some of the early impact of partners building their trust with us and working with us on some of these deals that we are working on. But then as we have Dino come on board and -- through the rest of the year, we look through what are the most specific opportunities for the short-term with certain partners to work on, investing with them so that we can get that benefit not only in the short-term, but then also sort of continue our focus on the partner strategy for the longer term as well.So this is definitely an area that Dino and I are very much in line with and looking forward to continuing our focus and investment on the partner side of the house.
Got it. And just as a follow-up. I guess I'm a little bit confused because in the prepared remarks, you talked a little bit about indications that more and more customers are taking on a platform view of Qualys and sort of buying into the broader vision. But then we're seeing sort of the net retention shrink a little bit. So is this sort of customers are buying in, but because of budget constraints, they're just sort of renewing what they have? Are they sort of reducing assets? I'm just trying to understand sort of how those 2 data points align?
A great question. And I think it continues to be challenging for our customers as well in terms of managing their spend and -- managing their security spend and optimizing that. And so today, we were -- we continue to be happy with our overall retention rate, which is healthy. And so the customers are really excited to continue to work with Qualys.And then there are definitely opportunities that we work with our customers in terms of maybe they want to optimize some of the spend on a certain area of the product and then bring on other Qualys products on a platform approach, while not maybe significantly increasing their spend in this year, but creating opportunity for -- in the future when those budgets open up to buy additional licenses of additional new capabilities that we deploy with them in the current deployment that they have.And so in some cases, they are adding additional, in some cases, they are leverage -- creating new opportunities for the newer products to be deployed right now in small quantities instead of maybe some of the existing products that they have. But the conversations are definitely more in the positive side of working towards bringing more Qualys solutions and then creating opportunities for us in the future as their budgets open up a little bit so that they can expand on those additional licenses as well.
Our next question will come from Brian Colley of Stephens.
Can you just talk about how the competitive environment and how win rates as well as pricing trended this quarter?
I don't think we saw much of a change from what we have seen in the last couple of quarters. I think we definitely continue to see the similar players that we've always seen in the core VM space. I think we see tremendous opportunity in the cloud security space where we are looking at -- and we talked a couple of examples, where we're displacing some cloud point solutions that are out there. So we see opportunities there as well.I think, overall, win rates have roughly about stayed the same from the last quarter. So we see opportunity as customer budgets open up. And our execution also continues to improve with Dino coming on board to be able to do better on that side as well. And I think we continue to see that similar discounting from competitors to try to get business.And that's where the opportunity for us to go back and instead of just driving the price down, bundle capabilities like Cybersecurity Asset Management, Patch Management that our competitors don't have is again creating us -- opportunities for us where -- which is reflected in a way in the LTM, 11% of overall bookings that already have vulnerability -- that already have CSAM and Patch Management. But also the fact that the new business -- the bookings that are coming from new business, LTM bookings there, about 19% of that is coming from these additional capabilities.So we are being able to take advantage of the broader platform play in competitive and discounting situation. So we can compete effectively.
Got it. And then, Joo Mi, maybe one for you. You had talked about billings kind of staying in a similar range as you saw last quarter, and obviously, you came in above that at 14% growth. I'm curious kind of where -- what areas kind of surprised you the most there? And then also, how should we think about billings growth in the fourth quarter?
Yes. Great billings. It does have a tendency to fluctuate and there are multiple different reasons why it might not exactly align with our bookings for business trajectory. But looking at it on an LTM basis, you're looking at -- it was 11% on an LTM basis growth last quarter, and it picked up to 12%. And I think it barely reflects what we're seeing in the market today in terms of our business. And for next quarter, we don't see a materially changing from that rate.
The next question will come from Yun Kim of Loop Capital Markets.One moment please, I will go to the question. The next question will come from Rudy Kessinger of D.A. Davidson.
Joo Mi, I just want to go back and clarify after your prepared remarks, you said free cash flow for the full-year in the mid-30% range. I just want to make sure that's accurate. That would implied breakeven cash flow to negative $15 million cash flow in Q4. Did you mean mid-30s for Q4?
No, it's about mid- to high 30s. So I'm expecting about only a few million in free cash flow for Q4. So you're looking at about like maybe $205 million range for the full-year, and that's primarily due to deferral of the tax payment to Q4.
And then just trying to understand the puts and takes of your Q4 revenue guide. I mean, with the Q3 guide prior full-year guide, you had implied a Q4 revenue guide before. You beat revenue by about $1 million on the quarter. You saw current calculated billings reaccelerated a few points to 14%. And then you effectively lowered the Q4 implied revenue guide by about $0.5 million. And so did -- just what drove the outperformance in Q3? And why isn't it reflected in a higher Q4 revenue guidance?
Yes. The outperformance in Q3 and yes, it's a small outperformance if you take a look at it from the bookings trajectory because I think our bookings performance is more clearly reflected by the LTM current billing growth. So you're looking at 11% to 12%. And that was better than what we had expected from basically on the new and that definitely helped with our current billings in terms of the 14% that we posted in Q3.With respect to revenue, it's not that much of a decline. If you take a look at the difference in terms of what was implied in Q4 versus the outperformance in Q3. And there's really nothing more to it than that.
The next question will come from Joshua Tilton of Wolfe Research.
I apologize if somebody has read this already, you kind of bounced around on a few tonight. But I remember last quarter, you kind of gave like some soft guardrails around what you thought 3Q current billings growth could be based off of what 2Q was. So I'm wondering if you can kind of give us some soft guardrails on what you think 4Q current billings could be based off the strong performance you saw in 3Q?
Yes. We think that is going to be more or less in line with Q3. So what we tend to look at is, I mean, current billings, we understand is a proxy for bookings performance. And there, it tends to be lumpy. So what you're looking at is -- as of Q2, LTM current billings growth was 11%. Q3 trended up a little bit higher than what we had expected and landing at 12%, and we expect it to be approximately that range ending the year in Q4 for the current billings growth for the full-year to be around that 12% range.
Sorry, just to confirm, you expect Q4 to land in a way that the LTM current billings growth is in the 12% range?
Right. So what that basically means is that Q4 around the same like maybe 13% to 14% current billings growth for Q4.
And then my second question is kind of a follow-up to this, but based off of what you just said, I feel like it's sort of already know the answer. It's been kind of a weird year. Deals have been delayed. Sales cycles are elongated, scrutiny, whatever you want to call it. How do we think about -- like, how do we think about the quarter's benefit from maybe some deals that slipped into -- from Q1 and Q2 driving some of the strong performance we saw? Or would you really characterize that 14% growth as true 3Q performance? Does that make sense?
Yes. So I think the current billings -- what's really true from a business performance perspective, because billings is also impacted by the timing of invoicing, I would point to the LTM growth rate and that fairly reflects it. So as of Q2, it was 11% and Q3 it was slightly better at 12%. And we think that fairly reflects what we're seeing in the market today. And we don't see any material improvement for Q4. It will be a large quarter for us. But based on what we see today, we expect continued challenging environment. And we'll wait to see how that plays out to better understand what we think that we'll be able to achieve in 2024.
And again, we have Yun Kim of Loop Capital Markets.One moment, please, let me move on to our next question. The next question will come from the line of Brian Essex of JPMorgan.
Hey, this is Doug on for Brian. Maybe just one from me. Any details that you can give on net new logo growth in the quarter?
Net new growth, it just come in better than what we had expected, but it still remains to be challenging. So our customer talent still is kind of flat. And so what we're trying to do -- instead of for the next year is to make sure that we leverage our channel partnerships to focus on the new business growth.
Our next question will come from Matt Saltzman of Morgan Stanley.
Sumedh, a quick one for you. It's a bit of a philosophical one. But when you think about the cloud security and CNAPP opportunity, there's a fair amount of debate among security practitioners around what's the best way to tackle the cloud security issue, whether it's agent base, whether it's agentless. I'm just curious if you can talk a little bit about the benefits you see from the agent-based approach that Qualys leads?
Firstly, that's the beauty that we are not taking one or the other. Actually, that's the part of what we have released with our TotalCloud CNAPP solution is this ability for us to do flex scan, which actually allows customers to use either an agent-based or an agentless approach. And so we don't get into this debate about what's better because I think if you look at the history of Qualys, we know cloud better than anybody given that we've actually been in the cloud for 20 years. And so we understand that really well.And we went from an agent-less scanning solution for many years to adding agent-based capabilities and not replacing the agent less scanning. And so today, if you're really being honest about what really is needed for security perspective, it is a combination of agent-based wherever you want to get a lot more details. And then agent less where it's an operational impact, where you want to reduce the operational impact in trading off by doing an agent-less assessment. But with our TotalCloud CNAPP solution, we give our customers the ability to pick whichever works the best for them.And firstly, look for the most important for our customers is to understand that nobody is a cloud-only company. Everybody has cloud. They have some on-prem, they have office environments, they have laptops. So focus for everybody is how do I get a single unified view of cloud, non-cloud or everything together? And for that, today's cloud solutions really need to be truly cloud-native and truly organically developed.And so instead of going out and acquiring multiple different cloud solutions, trying to switch them together and calling it cloud native. What we are focused on is really expand what we have done for all these years in the cloud platform, our own cloud platform and then expand that into a truly organically natively integrated solution that does both agent-based, agentless, snapshot, everything in a single platform so customers don't have to pick and choose and have this philosophical conversation every time.
And I'm seeing no further questions in the queue. That will conclude today's conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.