Good day everyone, and welcome to the Qualys third Quarter 2013 Investor Conference Call. This call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions for asking the questions will be given at that time. I would now like to turn the call over to Don McCauley, CFO of Qualys. Please go ahead sir.

Thank you and welcome to the Qualys third quarter 2013 investor conference call. I'm Don McCauley, CFO and I am here with Philippe Courtot, our Chairman and CEO. Before we get started, we would like to remind you that during this call management expects to make forward-looking-statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Forward-looking statements in this presentation include, but are not limited to statements related to our business and financial performance and expectations for future periods; our expectations regarding capital expenditures, including investments in our cloud infrastructure; our expectations regarding the introduction of new solutions and enhancements to existing solutions and our expectations regarding customer adoption of these solutions. 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 include 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 August 7, 2013. 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 that is available on our website. Now to begin the discussion, Philippe will provide an overview of the company's performance for the third quarter of 2013, then I will cover our financial results and factors that broke the quarter in more detail, as well as our outlook for the fourth quarter of 2013. Finally, we will open the call up for your questions. With that, I'd like to turn the call over to Philippe.

Thanks Don and welcome to all of you that are joining us today. The third quarter of 2013 was another solid quarter for Qualys, and we are pleased to discuss our results with you, as we continue to make substantial progress in all aspects of our business. Don will go into the details of the quarter and let me give you the highlights. Qualys generated revenues of $27.7 million in the third quarter 2013, which is above the top of the guidance range we provided to you last quarter and marked 19% growth out of the third quarter of last year. Our GAAP and non-GAAP earnings per share were also both above – about the top of our guidance ranges. In the quarter, we added many new important accounts, including American International Group (AIG); Barnes & Noble; Clorox; The City of Glendale, California; Humana; McGraw-Hill; Montana State University; Suncor Energy; VMware; Volkswagen of America; University Connecticut Health Center; and the University of Cincinnati. While our Vulnerability Management solution remains the largest components of our business, we continue to make meaningful progress diversifying our revenue base. We derived 84% of year-to-date revenues from subscriptions to our VM solution compared to 87% for the same period of last year. This continued diversification of our revenues is due to increased sales of our Web Application Scanning and Policy Compliance solutions, both of which continue to show strong growth. As most of you already know, we broadened our reach into enterprises and government agencies with the introduction of the QualysGuard Private Cloud Platform on the VCE Vblock, which we have successfully sold to large financial institutions, telecommunications companies and government agencies including Infosys, Wells Fargo, and others. At our User Conference in September, this last September, we hosted our 600 customers and partners in…

Thanks Philippe. Qualys continues to deliver on our key financial operating metrics and we're pleased with our continued momentum in the business as reflected in our third quarter 2013 results. As Philippe mentioned, revenues grew in the third quarter to $27.7 million which represented 19% growth over the same quarter last year. Four quarter bookings were 113.3 million at September 30, 2013 compared to 98.7 million at September 30, 2012. This increase of $14.6 million represented a year-over-year growth of 15%. You may recall that during 2012 there was an increase in our current deferred revenues related to a partner's conversion of a number of legacy subscriptions from monthly to annual billing. We reported on this to you in the last two quarters as well. If we were to subtract out this increase to normalize last year's fourth quarter bookings metrics then fourth quarter bookings a year ago would have only been 97.9 million and the integrated growth rate now would be 16%. There will be a similar normalization effect for the fourth quarter of 2013 of approximately four-tenths of 1% as well. Our deferred revenue balances also showed good growth at September 30, 2013; current deferred revenues are 19% greater than one year ago and total deferred revenues are 21% ahead of the comparable figure last year. GAAP gross profit increased to $21.3 million compared to $18.7 million for the third quarter last year. GAAP gross margin was 77% for the third quarter of 2013 compared to 80% in the same quarter last year. Non-GAAP gross profit increased to $21.4 million compared to $18.8 million in the same quarter last year, and non-GAAP gross margin was 77% also for the third quarter of 2013 compared to 80% in the same quarter last year. For both of the gross profit…

[Operator Instructions] Our first question comes from the line of Phil Winslow from Credit Suisse. Your line is open, and you may proceed. Sitikantha Panigrahi – Credit Suisse: This is Siti Panigrahi for Phil Winslow. So just wondering in terms of geography could you give us some color about the demand environment particularly in Europe what you are seeing? And also if you could touch upon on little bit on the competitive landscape what are you seeing here in IBM, the world versus the start-up private vendors as well? Thank you.

Let me answer the geography question and then I’ll segue and Philippe can touch on the competitive environment. We’re seeing strong activity really across our geographies including improved performance in Europe compared to what we saw a year ago. So I would say pretty much across the board we’re seeing good performance around the world.

So, on the competitive landscapes if we look essentially at our three key application today which are VM, web application scanning and policy compliance, we see ourselves continuing gaining market shares against enterprise security software solutions which are starting to really show in fact aging if I may say so. So this is where we are. As far as the bigger player like IBM and HP so they are very focused today much more on the SIEM side of the house with the acquisitions that they both did and one with QRadar and the other one with ArcSight. And we’re not really seeing them at all as competitor on the marketplace. What we see also on the competitive side is that we start to have a lot of these outsourcing companies whether they are Indian outsourcers or companies like Accenture adopting the Qualys cloud platform as they are migrating their users from an enterprise software if you prefer, a networking environment to a cloud oriented architecture consolidation of datacenter virtualizations moving application to the cloud. So Qualys is quite clearly a solution which has an architecture that fits that new model, so that's what we see is becoming much more clear in the marketplace now than it was a year ago.

Thank you, our next question comes from the line of Robert Breza from RBC Capital Markets, your line is open and you may proceed.

Philippe, I was wondering if you could just -- you talked about a lot of new products either going into beta release here late in Q4 with the continuous monitoring of the perimeter, you talked about the anti-mailer, the firewall product, how much do you -- I was wondering if you can talk to us about how much do you see those new products maybe contributing in 2015 and then how much does that really extend your kind of total addressable market.

It's a little bit premature to give some numbers, but what I can say today is that one, we're very-very happy of the progress we're making with the solutions, I think we're coming up with very strong products, very ground breaking in many cases so we do expect them to contribute to our revenues in 2015, it’s a little bit too early to model what that percentage of revenues would be, but definitely we are very-very happy with the progress we're making, it was a huge success at our user conference as I mentioned earlier, very well received by our customer base.

And then maybe as a follow-up, maybe Don I mean I would assume, as you think about your '14 numbers you're probably not going to be building in a whole lot from these products as it’s probably too early, is that fair to say?

Well you know our experience Rob is that it always takes a while, first of all security tends to be a relatively longer sales cycle business and it always takes a while but on the other hand the need in the market place is certainly out there, so it remains to be seen, for example we're seeing a quicker uptake in web application scanning than we saw for policy compliance, maybe partially due to the nature of what it is and the problem it solves versus the competitive offerings out there, so it remains to be seen on a product by product basis.

Maybe just kind of competitive product, I mean how would you compare, think about the advanced malware products focused on internet traffic comparing that and contrasting that to an on premise offering like a FireEye.

So you know what, we have again, this is a question of architecture at the end of the day so while building a similar solution than FireEye has, except that FireEye is currently today an enterprise architecture meaning that you've got to essentially install, manage, update that software. The Qualys model we’ve been capable very uniquely to deliver in fact, if you prefer a cloud version that could be installed on premise because we essentially remotely manage and update all of that the infrastructure that we need to put inside of the organization, therefore maintaining the big advantage that a cloud architecture offers you and that's what we did with our private cloud platform whereby we totally individualized our entire data center that we have now pre certified on the VCE Vblock and that can ship with the VCE Vblock, it be installed in the company in fact we've three going on this quarter and then of course totally remotely managed by Qualys in a very similar way that we manage all data centers. So that's what’s very unique about Qualys, we’re not an enterprise software solution, we don't have an enterprise architecture and therefore we've been able to deliver enterprise software capabilities while maintaining our pure cloud advantage.

Thank you, and your next question comes from the line of Ben McFadden from Pacific Crest Securities, your line is open and you may proceed.

Just I was wondering if you could give us an update of kind of how your sales headcount went, additions went during the quarter and then also kind of how you're thinking about that for Q4.

So sales headcount remained net constant in the quarter and we’re -- which is around 112, or 115 and we're looking to probably at maybe another 15 by the end of the year, we have a lot of fourth quarter hiring activity going on, so we remain on the same annual plans, probably triangulating to get to 125 or maybe even a little beyond that by the end of the year.

Okay and then also, I know that the Federal government hasn't really been a large portion of your business but I was just wondering if you can give us an update on kind of how that business has been tracking and whether it seems to be improving with the private cloud platform.

So this is again you know, so we have already quite a few very prestigious customers and very committed customers with the SEC, with the IRS with the Office of the Controller of the Currency, they were early adopters of our model and we see significant interest now from government agencies as we very well know the climate conditions today of the government is not very favorable to a lot of expenses but I think we’re very well positioned, so we see fundamentally growth in that sector in next year.

Thank you. Our next question comes from the line of Sterling Auty from JPMorgan. Your line is open and you may proceed.

So couple of questions, can you give a sense, so you gave us the full quarter bookings metric, the 113% is up about 15%, it’s a bit backwards looking so it's showing some of the deceleration still, can you characterize at least qualitatively in the quarter was bookings growth on acceleration outflow what we saw in June equal to what we saw in June or a bit behind what we saw in June?

Yes, I would say was in the same general range Sterling. One of the reasons, I highlighted which maybe actually a better indicator just looking at the current deferred revenue balance itself which is not backwards looking. You are right, the four quarter bookings looks back four quarters and then to get a comparative, you actually have go back to quarters five through eight back. So it gets a little complex and I mentioned what the current and total deferred revenue balances were sitting at which I think was 19% and 21%, and revenue growth for the quarter was 19%, so, those maybe more generally indicative without all the complications of full quarter bookings.

Got you and looking at the guidance for the next quarter, was there any timing as it comes to expenses obviously the margins were better than expected this quarter but as your point looking to add 10 to 15 heads, was there just maybe a difference in headcount and timing on hiring and that’s why the big EPS this quarter or next quarter at least relative to what we’re expecting is little like?

Yes, we had a relatively slow net hiring quarter in Q3 and we have a very busy one in Q4 not only sales but in engineering as well. So we have a lot of new folks coming aboard this quarter and we've taken that into account in our guidance. But we also by the way have expanded our Qualys user conferences now where we had one in Q3 in Las Vegas. As Philippe mentioned, we have several of them in Europe this quarter as well. So we continue to expand some of the marketing programs as well in the fourth quarter now has a lot of that activity too.

Okay and last question, there is in the press release some of the prepared remarks the talk of the new products that are going into beta here end of the year first part of next year, how should we think about the investment in R&D, now look at for a guidance for 2014 but just the terms of the trajectory of the spend in R&D to support the new product initiatives?

So R&D we’ve actually been seeing leverage on that line in the last couple of years. We know it peaked at 25% in 2011 and it went down to 22% at the end of 2012, and R&D on a year-to-date basis sitting at 19.9. One reason for that is a year ago; we began opening a center in India which we had not previously done. So lot of the increased headcount in R&D in last couple of quarters has actually been India as well where most companies would have done that a long time ago but we’re only enjoying that kind of operating advantage now. So a trend 25, 22 sitting at 20 year-to-date, so like most metrics I would look for something around where we are and maybe slight deceleration based on the trend there.

Thank you. Our next question comes from the line Steve Ashley from Robert W. Baird. Your line is open and you may proceed.

Great, maybe it comes with a housekeeping question, Don, historically you’ve actually given us the percentage of revenue that you’ve gotten from the Americas International, can you provide that for the third quarter, please?

We're sitting -- it’s actually -- it goes in the 10-Q which we're still putting the final ink on, it’s saying it’s sitting at 71% U.S.

And then Philippe I had a question about the new products you're offering, we've seen with Web Applications Scanning that it actually is addressing a new market in that there is with respect to being able to scan web apps versus client server apps, as we look at the new products that are queued up and coming out and embedded here in the coming year, which of those are addressing similar new market opportunities?

In fact, the way to look that it is a very interesting question, so we look at the market base today web -- you have the web application securities so our strategy has been here to try to essentially come bring all the business you need to ensure the security of your web application, so we can catalogue them now, we can scan them for vulnerabilities, we can identify if they have malware on them with our Web Application Firewall, all that goes hand in hand. We can now litigate those vulnerabilities and we’re coming up with a web application log analysis, which will allow us to do essentially forensic to try to find out if this application has been already compromised by looking at the logs and correlating that with the vulnerabilities that we see. And finally we're coming up with a web remediation/exploit console for the remediation. So by mid next year let's say we'll have all these applications totally integrated working together and we'll have completed our effort to bringing if you prefer security to web applications, it's very cost effective way and very high quality. Then we look at these other part of the markets where we can really extend our self very well. So when I look at our agent, this is a very powerful and totally ground breaking extension of agent technologies that will increase our policy compliance applications is a kind of an end protection -- endpoint protection solutions are also expanding to the mobile. So that's a very natural gain expansion. And finally with the other solution we're looking now that malware which is again leveraging our platform to add -- company cope with all these advance malwares and APTs and all these kind of targeted attack which is the marketplace where Fire Eye has pioneered in many ways. So here we’re coming but with that advantage of our cloud architecture again.

Great that was really helpful. And then just lastly, Don I don't know if you can comment, I know with your VCE Vblock you have three deployments, so it’s not huge. But I am just wondering how those deal sizes compare to what was the core historical SAS VM deal size. Thanks.

Well remember that what this is an additional subscription for us providing the infrastructure onsite and typically it's a fore runner of really large accounts. We have about a dozen of these around the world and they typically are in some of the larger accounts. Doesn't that mean they start at the largest accounts on the day we ship that thing but over a period of two or three years most of those will become our largest accounts. The item itself is comparable, it's an annual subscription itself and then on top of that customers buy subscriptions for vulnerability management policy compliance et cetera based on their size.

Thank you. Our next question comes from the line of Erik Suppiger from JMP Securities. Your line is open and you may proceed.

On the web app scanning and the policy compliance are they still sustaining growth rates north of 50%?

Yes we've made -- that's been pretty consistent for quite a while now.

Okay, I think you gave us the contribution from new versus vulnerability management products for the year to date. Can you tell us what it was for the quarter?

I don't have that in front of me, it's been moving three quarters of a basis point per quarter over the last couple of years, so depending on rounding this quarter it didn't move because of rounding, but it's got be within 1% of that one way or the other.

If we look at the other emerging products after those two, what should we think of this as the next new servicer or what can we think if it in terms of the biggest opportunity after that?

Again as I mentioned earlier, this is a little bit hard to predict because of course security as one component is that you need to have very high quality to really start to see growth picking up. The enemies of security are the false positive and false negative and Qualys is very good in fact doing that. That's what behind the success of our vulnerability management application as well as the web application scanning. We scale and we have very, very few false positive and false negative. So we need to bring that quality to all of the application. Now some applications we can bring that more quicker than others and so that will also -- it's a factor in their adoption. So it's a little bit hard but they are all big opportunities, the three of them I believe web applications securities is very -- is growing, it represents today the growth of security consulting companies, this is where they spend -- they get a lot of revenues, this is trying to cope with the problem of web application security, so that's a very big market. The malware, it's obviously another very big market and I think our agent is absolutely ground breaking I think it's hard to predict the revenues but this is -- this could but very big.

And then on the channel, one is the split still 40-60 and did you see any developments with any of your existing or new channel partners this quarter?

So first of all the math is still about the same, still about 40% coming through channel and maybe Philippe can give some color on what we're doing there.

Yes, [indiscernible] I mentioned in fact earlier the comment that I made, what we see today is now before outsources, we have now today essentially all the Indian outsourcers are not only Qualys customers but they are now partners. What we see is that we feel very well with these outsourcing vendors which are helping migrate their existing customers to this cloud architecture and Qualys is a very natural fit. Of course we lag behind so before pulling security into the migration you need to do the migration first so ideally we would like to have them doing that all at the same time. But the reality is that you start to do the migration of the datacenters, et cetera, and then you bring security that’s the way it goes. So we expect a huge demand, a pent up demand for that coming from all of these partners that we’ve now as customers as well as partners.

Thank you. Our next question comes from the line of Craig Nankervis from First Analysis. Your line is open, and you may proceed.

Thank you. I also have new product questions. I was wondering Philippe as we look to 2014, would your go-to-market strategy or your execution or your approach with the new products be any different than when you introduced earlier generations of new products like policy compliance and web application scanning. Have you learned anything about introducing new products or would you be doing anything different that might be worth noting?

That’s a very, very good question. In fact the answer to that is, yes. And as we speak or just looking at that go-to-market strategy I will give you a flavor for that for example. We believe our continuous monitoring of the perimeter which essentially totally changed the vulnerability management metaphor. With the traditional vulnerability management what you do is that you identify all the vulnerabilities on your network and on your devices and on your web application and then you create reports then security looks at these reports and give them to operation and said to operation here you go now and you need to fix all of that and you try to prioritize of course. With our continuous monitoring application we totally change the metaphor, now you will have security and operation sitting down together and deciding what they want to see and not to see on the network. So for example no HTP server on my network are allowed, these are the ports that should be opened and only these ports. And then Qualys instead of giving you’re a report will give you essentially an alert and that alert you receive that on your phone but you also integrate that with your SIM. So as you can see here we have -- we will have a double strategy of one, bringing all of that to our existing customers which is a very natural up-sell but also we're going to embark into to a major campaign to advertise to the world that now there is a much better way of doing vulnerability management at your perimeter specially that because of our cloud infrastructure the customers have absolutely nothing to install and can just try, so you’re going to see a major try and buy campaign as we bring that application to production.

Okay, that’s very interesting. And curious on the mobile solution that you referred to. Do you have any data customers at this point for the mobile solution and if you do is there any color you might share about them?

So we don’t have data customers, what we do have today we have design partners as we everything we do we start with on the perimeters, we started with Goldman Sachs and Visa. And so we always have design partners. We today, where we are with agents that the agent is complete the code so we have all that architecture done, we also have the backend. What we are now working on is getting the UI, the application if you prefer around that. And our goal today is to essentially be in data that UI will be completed et cetera and be in data in the early part of next year.

Thank you. Our next question comes from the line of Michael Kim from Imperial Capital. Your line is open, and you may proceed.

Good afternoon guys. First on [indiscernible] metrics side, are you seeing a shift towards continuous monitoring on the part of some of your existing customers and any metrics you can provide on scanning activity and pricing? Thanks.

So on the continuous monitoring there is a lot of talk about that the issue of continuous monitoring I think on the perimeter we have absolutely a wonderful solution. On the enterprise and we’re working of course of bringing that notion into the enterprise it’s a much more complex because you have the complexity of inside of the enterprise. The first order priority which Qualys is working out is the continuous monitoring of your assets because if you don’t know your assets what’s the purpose of monitoring so you have to identify and the assets in an enterprise are related and lack on the perimeter where they don’t change that much in the enterprise you have a lot of, lot of changes, so that's what we're working on, so that's to answer the technology part in term of pricing and the, there's nobody really who has a Continuous Monitoring Solution for the Perimeter, you have some principle, some talk about it but this again to do that inside of the enterprise is a huge undertaking and we don't see much pressure from customers yet because they have to solve the problem of addressing the identifying all of your assets in your enterprise and then of course you need to categorize them which is something that Qualys does today with our asset management and we're looking now at integrating that solutions that we have with CMDBs and travel to get in system and once we have that done and complete and of course we will be capable of addressing the notion of continuously monitoring the assets which is the cornerstone of any continuous security that you want to have.

Okay, great and then switching gears to the FNB channel can you provide an update on Qualys Guard Express Lite, how is that progressing and is that something that's primarily aimed at displacing some incumbent competitors like a Rapid 7 and some of those channels.

So it's going very well in fact we're absolutely delighted by the packaging that we did, so what it did essentially that we’re selling our current what we call the Express package to the lower end of the market place. But of course that was too big of an application in many ways so our Express Lite is very successful, as in fact now as we renew or replacing that these existing customers which are essentially companies which have less than 250 employees buy Express Lite and we're also getting new customers and the go to market strategy here's a little bit different with our express product line which address much more the mid-market when essentially the Express Lite addressed the much lower end and it's in much more velocity so here was planning to really put pressure on the Rapid 7, the GA5 and all of these companies which were addressing that low end of the market place and gaining a lot of deals, in fact against them.

(Operator Instructions) Our next question comes from the line of Sanjit Singh from Wedbush Securities, your line is open and you may proceed.

So quick question on Verizon and Accenture can you give us an update there in terms of the partnerships and whether you see any momentum with any of those two strategic partners.

You said on Verizon and on Accenture correct?

Exactly.

So these partnerships are doing very well, we're continuously expanding our relationship. There's quite a lot of deals in the making with them so we’ve happy with that relationship. Accenture is also now a Qualys customer, they have deployed Qualys in the infrastructure as well, which went very well, and also very-very solid partnerships and we’re expecting more from them.

And regarding, maybe on the timeline of data using web application scanning as kind of a guinea pig, I know that beta period for web allocation scanning was pretty extensive, is there any type of lessons learned or scalability that could perhaps shorten the length of betas as we launch these new products in 2014.

In fact you know what we learn is the opposite, is that in fact our web application scanning, we brought it to market a little bit too early and so when the application was not mature yet enough, was missing a few technologies etc., so we’ve learned our lessons, so we’re more prudent in the sense of bringing security applications to market, conversely once we've once we know the application has reached the maturity, the lesson we've learned here is that then we could really put the market investment behind and [indiscernible] to really advertise them and make the world aware because now we can leverage the huge advantage that we have is that everything that Qualys does is essentially try and buy, it's pretty easy to try and therefore if you are happy you buy, so you realize with a model like that the lesson we learned, don’t bring something too early because the try experience is not as good as it should be and so that's why we're prudent. So we take a bit more time but on the other hand we believe the adoption will be faster.

The final question is regarding kind of Q4 budget flash dynamics, have you historically experienced those type of year end enterprise spending in your business or is that something that doesn't necessarily apply and how that might relate to how you looked at coming with Q4 guidance.

I'd rather say it didn’t our Q4 guidance, kind of a bit of a hit and miss proposition, a couple of years ago we had some noticeable stuff that felt like budget flush. Last year I didn’t think there was any that they came to my attention. So we kind of just sit back and keep the doors open and the order book open and we'll see what happens. But no it didn’t take -- we did not take that into account in our guidance.

And at this time I am not showing any further questions. I would now like to turn the call back over to Philippe Courtot for any closing remarks.

Okay. So thank you all for joining us today. We are quite pleased with our strong performance and continued momentum in the marketplace. We believe that we are well positioned to deliver best of class security and compliance solutions to our customers and partners as we continue to expand our cloud platform and solutions with additional innovative product as I discussed earlier on. Should you have any follow-up questions Don and I are always available and we look forward to speaking with you next quarter. Thank you very much.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.