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Executives

Don McCauley - Chief Financial Officer

Philippe Courtot - Chairman and CEO

Analysts

Sterling Auty - JPMorgan

Phil Winslow - Credit Suisse

Robert Breza - RBC Capital Markets

Rob Owens - Pacific Crest

Steve Ashley - Robert W. Baird

Erik Suppiger - JMP Securities

Craig Nankervis - First Analysis

Joel Fishbein - Lazard Capital

Qualys, Inc. (QLYS) Q4 2012 Earnings Call February 11, 2013 5:00 PM ET

Operator

Good day, everyone, and welcome to the Qualys Fourth Quarter 2012 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 a question 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.

Don McCauley

Thank you. Welcome to the Qualys fourth quarter and full year 2012 investor conference call. I'm Don McCauley, the CFO of Qualys, and joining me today on the call Phillip 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 our 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 the growth of the market for security and vulnerability management solutions, our expectations regarding the introduction of new solutions and enhancements to existing solutions and our expectations regarding customer adoption of our solution.

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 we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission.

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 the 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 release that is available on our website.

To begin, Philippe will discuss the company's performance for the quarter and full year 2012. Then I will cover our performance and factors that drove the quarter and year in more detail and well as our outlook for the first quarter and full year 2013. Finally, we will open up the call up for your questions.

With that, I'd like to turn the call over to Philippe Courtot.

Philippe Courtot

Thanks, Don, and welcome to all of you who are joining us today. 2012 was a very exciting and successful year for Qualys, and we are pleased to share these results with you as we continue to make substantial progress in all aspect of our business.

In 2012, we added more than 600 new customers, bringing our total customer count to over 6,150 across more than 100 countries. New customers in 2012 included, Amazon, Citigroup, Colgate-Palmolive, Comcast, Hilton Worldwide, KPMG and Visa.

We now have as customers over 50% of both the Fortune and Forbes 100, as well as 39% of the Fortune 500 and 20% of the Forbes Global 2000. We are very proud of our continued ability to attract and win new accounts while customer retention remains high.

Don will go into the details shortly, but to give you the financial highlights, Qualys had revenues of $24.7 million in the fourth quarter of 2012, representing 19% growth over the same period last year.

For the full year, revenues reached a record $91.4 million or an increase of 20%. For the full year, the U.S. represented 68% of revenues compared to 67% in 2011. While we are very well positioned and executing well globally, the challenging economic environment in Europe and in particular in Germany, France and U.K. has slowed order flow of both new and (inaudible) business. As a result, our overall fourth quarter revenue growth decelerated to 19% from 20% we saw for the nine-month ended September 30. Had Europe performed to the levels we saw in the U.S. and the rest of the world, revenue growth for the fourth quarter would have been above 20%.

Turning now to our product mix, our Vulnerability Management Solutions continues to be the largest component of our business, comprising 87% of total revenues for 2012, compared to 90% in the prior year. This is the result of the strong growth we continue to see from our Web Application Scanning and Policy Compliance Solutions, both of which continued to show strong growth as we continue to successfully leverage our cloud platform and provide new enhancements and capabilities to these solutions to address the growing needs of our customers.

We are very excited about the prospects for penetration of new markets with our extensible virtualized private cloud platform, which we rolled out in Q3 of last year at Amazon. For those of you who don't know, these capabilities is something we have done for selected customers and partners for many years now, so this is a delivery method we are very well experienced with.

What is new here is our user virtualization, which now enables us to more efficiently deploy such a solution. Our virtualized private cloud solution allows partners and customers to host and operate security and compliance applications within their own network using the same code base and the date mechanism as on our (Serve) [ph] platform.

We believe this solution is particularly well suited to enable our penetration into the U.S. federal government sector which as you may know is the market that has been slow to adopt our SaaS our cloud model. In addition, there are numerous potential opportunities around the world to meet certain customers and partner requirements, to keep data within their own networks which could enable further deployment of our security and compliance solutions.

In Q4, we upgraded the first generation [product] [ph] platform installed at Apple, Fujitsu, Microsoft, NTT and Oracle to the new virtualized platform. We also signed a new agreement with du Telecom in Dubai to install our virtualized platform at their data centers, where du will offer managed, vulnerability and compliance services to their customers in the United Arab Emirates.

Our Web Application Firewall Solution, which we'll refer to as WAF, we completed the beta testing form the QualysGuard web engine and now are entering the final beta phase with implementation for Amazon, AWS and customers’ premises.

We enter full deployments of version 2.0 for our BrowserCheck service which allows individual and businesses to audit and track missing patches as well as browsers and plug-in updates for their [end products] [ph]. This free service would play a significant role in reaching out to new prospect and present the opportunity to introduce potential customers to our broad suite of solutions.

Our new service development while making significant progress on our secure web gateway, web applications log and mobile [agent] [ph] technology which we will be releasing for beta testing in the second half of 2013.

On the partnership side, one significant accomplishment that is worth mentioning is the partnership with Verizon, which we significantly expanded to leverage our full suite of cloud solutions for the consulting practices and managed services customers worldwide.

Lastly, we are pleased to report that we finished the year with our platform performing over 800 million scans fueled by customer growth and increased scanning across our entire customer base.

For more on how these strategies drove our strong fourth quarter and fiscal year results, I would like to turn the call over to Don.

Don McCauley

Thanks, Philippe. Qualys continues to deliver on our key financial and operating metrics and we are pleased with our fourth quarter and full year 2012 results. Dealing with the top line, we drove revenue growth in the fourth quarter to $24.7 million, which represented 19% growth over the same quarter last year.

For the full year 2012, revenues increased 20% year-over-year and finished at $91.4 million. Drilling down into the revenue growth, for the full year 2012, total revenues grew by $15.2 million. Revenues from customers existing at or prior to the beginning of 2011 or prior year, grew by $7.8 million in 2012 compared to $5.8 million in 2011 on the same basis. Revenues from new customers added in 2012 contributed $7.4 million to revenue growth compared to $5 million on the same basis in 2011.

Philippe already mentioned the effect of the European economy had on our revenues. As we had previously discussed, after solid a first quarter in Europe, we saw a slowing in bookings for the balance of 2012. This is incorporated into our outlook for the first quarter and fiscal year 2013, which I will discuss later.

As you know, four quarter bookings is one of our key metrics, because the vast majority of our businesses' annual subscriptions which is an amortized into revenue over the terms, we calculate this metric by adding revenues for the preceding four quarters to the change in current deferred revenues over the same period. At December 31, 2012, four quarter bookings were $101.2 million, which is an increase of 19% over the $85.1 million for the four quarter period ended December 31, 2011.

For the fourth quarter GAAP gross profit increased to $19.7 million, which was a 19% increase over the $16.5 million from the same period last year. For the full year, gross profit increased to $73 million or 16% increase over the $63 million in 2011.

For the fourth quarter, non-GAAP gross profit increased to $19.8 million, also a 19% increase over the $16.6 million for the same period last year.

For the full year non-GAAP gross profit increased to $73.3 million, a 16% increase over the $63.1 million for 2011. Non-GAAP gross margin was 80% for the fourth quarter of 2012, the same as the 80% we achieved during that same period last year.

Non-GAAP gross margin was 80% of the full year, and that compared to 83% in 2011. As we have discussed previously, this decrease in gross margin on a full year basis is related to the increased depreciation resulting from higher levels of capital expenditures in the second half of 2011 and for the full year 2012 to support new solutions we are developing and also the expansions of our data center in the U.S. and Europe.

Adjusted EBITDA for the fourth quarter doubled to $4.4 million from $2.2 million for the same period a year ago. For the full year, adjusted EBITA was $13.8 million, an increase of 32% over the $10.4 million in 2011.

As a percentage of revenues, adjusted EBITDA for the fourth quarter was 18%, compared to 11% during the same period last year. For the full year 2012, adjusted EBITDA was 15% of revenues compared to 14% in 2011. This was our seventh consecutive year of positive adjusted EBITDA with each year increasing sequentially.

Our last income statement item to review is earnings per share. For the fourth quarter, GAAP EPS was income of $0.03 per diluted share versus the loss $0.13 per diluted share in the fourth quarter last year. Full year 2012 GAAP EPS was $0.08 per diluted share, equal to the $0.08 per diluted share in 2011.

Shifting to non-GAAP earnings per share, fourth quarter non-GAAP EPS was $0.06 per diluted share compared to $0.00 in the same period last year, and full year non-GAAP EPS was $0.20 per diluted share versus $0.17 per diluted share in 2011.

One thing to note here is the issue around the different share counts used in these periods. For Q4, the number of fully diluted shares outstanding was 35.1 million, but for the full year 2012 the number of fully diluted shares outstanding was only 28.4 million, because the IPO shares were only outstanding since October 3rd.

When we get to 2013 guidance, you will see that while the share count for Q1 is similar to the Q4 share count, the full year 2013 share count will be significantly higher than the 28.1 million in 2012, because the IPO shares will be outstanding for the full year 2013.

In looking at our balance sheet, we have a strong cash position with the only debt being about $2 million of capitalized leases. Our cash and short-term investments position stood at $118 million at year end compared to $25 million at the end of 2011.

Of the $93 million increase, $87.5 million related to our IPO. In fact, even though we went public in our third quarter, the closing of our IPO occurred in the beginning of the fourth quarter. As a result, this is the first balance sheet we presented with the increased cash and short-term investments as well as revisions to the equity section which now reflects only common stock following the conversion of our preferred stock to common at the closing of the IPO.

In the fourth quarter, spending on capital expenditures was $3.1 million. CapEx for the full year was $11.2 million. And just to repeat our previously stated intention, we plan to spend about $3 million per quarter on capital expenditures over the next two years as we enhance our cloud infrastructure to support more customers and add more to our platform.

Now turning to our outlook for the first quarter and full year 2013, we expect revenues to be in the range of $24.4 million to $24.9 million for the first quarter of 2013, and in the range of 106 million to 108 million for the full year 2013.

GAAP EPS for the first quarter this year is expected to be in the range of $0.02 to a $0.04 loss, and non-GAAP EPS is expected to be in the range of $0.01 loss to $0.01 income.

The first quarter EPS estimates were based on approximately 35.5 million weighted average diluted shares outstanding. For the full year 2013, GAAP EPS, we would expect it to be in the range of $0.02 to $0.06 and non-GAAP EPS is expected to be in the range of $0.16 to $0.20, and these estimates are based on approximately 35.7 million weighted average diluted shares outstanding for the full year.

With that, Philippe and I’d be happy to answer any questions that you might have. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Sterling Auty from JPMorgan.

Sterling Auty - JPMorgan

Hi, guys. A couple of questions. First, touching upon the European issue can you just talk about linearity to the quarter, especially when it comes to Europe and where did you see the sluggishness? Is it more just a new customer selling the top of the funnel, or what was the renewal experience like?

Don McCauley

Sterling, by linearity, do you mean when deals come in in the quarter?

Sterling Auty - JPMorgan

Yes. Even though I know the subscription model doesn't impact revenue, just kind of curious what the buying behavior, what you saw in terms of demand and kind of how that started the New Year so far this quarter?

Don McCauley

Yes. So, as far as the past, we didn't see any change in the rhythm or timing of things. We just saw a general slowdown in Europe, decisions were taking longer. I don't think we feel like we are losing business, but our customers are taking a lot longer than we expected to get on with things and send us orders both on new business and up-sell.

The time has been about the same. Just to remind anyone on the call, we do - the rhythm of a quarter for bookings point of view is about 25-25-50 in terms of the spread of how we book orders and that's still the case in Europe. And as far as Q1 maybe Philippe will have some comment, but I'd just tell you I think we were very encouraged by the pickup we are seeing in our pipeline everywhere including Europe.

Philippe Courtot

Indeed.

Sterling Auty - JPMorgan

Did you see any change in terms of deal sizes? You talked about 7,500 initial for SMB customers, 75,000 enterprise. Do you changes in kind of the customer and deal size metrics this quarter?

Don McCauley

No. Didn't see any real change there.

Sterling Auty - JPMorgan

Okay. And last question, I'll jump back in the queue. When you look at how 2013 shapes up in terms of your investment in the operating expenses, how should we think about that layering through the year? Meaning, are you investing more heavily in new sales capacity and marketing and branding exercises early in the year or is it even throughout the year?

Don McCauley

I think it's fairly even throughout the year. Although, you should look to the past to see there is a rhythm to in our sales and marketing. Our Q1 is a heavy trade show period. That's one of the reasons we project a loss in Q1. That's when RSA is and some of the other really major marketing efforts that we make, so there is a seasonality to when trade shows occur. As far as hiring, I think that's spread pretty smoothly throughout the year.

Philippe Courtot

Yes. And let me add also, we made a significant enhancement to our BrowserCheck. These enhancements, two major one, one is the fact that we have now automated the process, so companies can push a very small agent which will automate the process of checking the browsers in their corporation. We are working to now put a lot of the marketing awareness behind that product, because it's a fantastic lead generation tool that we have at our disposition, is a fantastic product, so there won't be lot of visibility on Qualys pushing our brand and then from there that BrowserCheck also would become a very powerful distribution tool with support with that BrowserCheck Microsoft and MSI, which is the Microsoft solution which allows you to push agent, so that will allow us to push our secure web gateway agent and as well as other agents very, very naturally. So we have already quite a significant base of users of BrowserCheck and this is going to increase significantly.

Sterling Auty - JPMorgan

Okay. Thank you.

Operator

Thank you. Our next question comes from Phil Winslow from Credit Suisse.

Phil Winslow - Credit Suisse

Guys, I just have a question in terms of just the ton of business that you saw during the quarter between sort of cross-selling to existing customers versus newer customer acquisitions. Then as you look to the 2013 here, and build the guidance in terms of just revenue bookings, but also just to expense, how are you going to see balance between, call it, new versus existing business?

Don McCauley

As I mentioned in my remarks, so, we saw a pretty nice balance actually between revenues coming from existing customers and revenues from new and we continue to see a very balanced approach here.

Philippe Courtot

And what we see in terms of generating up-sell in both businesses is both our web applications, scanning and policy compliance which are really growing very nicely and this product have reached maturity and really is a game changer.

Phil Winslow - Credit Suisse

Yes. Philippe, just one follow-up to that; when you about the new products that you mentioned for the second half of 2013, I wonder if can just provide us with any sort of just early beta customer feedback on the web application firewalling for example?

Philippe Courtot

The web application firewall, we had very good results from that. What we did first of all is to check the quality of the engines, the rules and all the things that you need to essentially have to provide good firewall capabilities on your web applications. Now we are moving to the second phase of our beta with a very unique implementation to Amazon, which allows essentially us to provide not only, currently today we provide the ability to identify all new assets on the Amazon platform as well as identifying the vulnerabilities on those assets including the vulnerabilities on the web applications and what we will now going essentially regarding the soon going to beta is the web application firewall [ph] component, so you could really create an image on Amazon so that you can now firewall those applications and that's the kind of very big, unique product and then the other implementation of our web application firewall it's now private cloud platform, which we are selling to the extremely successful as I mentioned, not only we’ll replace all our first generation of private cloud now we can see a very big adoption of that platform that allows us to enter new markets that were very difficult to enter for us before, because of the sensitivity of the data, the fact some companies prefer to have their data in house as well as in some countries, so this is going very well.

As you know, security, our complex applications, so you're just going to turn the switch on immediately but we are very pleased with the progress that we have made, same thing for these other services that we are building, they all leverage the platform, which is quite significant.

Don McCauley

So, just to circle back on your initial question to reiterate in case folks didn't catch it when I said it the first time, revenues grew by $15.2 million last year, and so a lot of the $15.2 million, $7.8 million came from existing customers and$7.4million from new, so very, very balanced situation in terms of up-sell and cross-sell to existing customers and bringing on new customers.

Operator

Thank you. Our next question comes from Robert Breza from RBC Capital Markets.

Robert Breza - RBC Capital Markets

Hi. Thanks for taking the question. Don, I was just wondering if you could talk a little bit about some of the newer products that you talked about would be released in second half. Do you think that will contribute meaningfully to revenue this year or should we be thinking a little further out? Thanks.

Don McCauley

I think principally, Rob, we've been talking about web application firewall, which Philippe mentioned is entering its second beta phase. I think the good way to think about it is principally the more of the next year, I think maybe depending, we may see some stuff in the second half of the year, but that product won't be released until probably mid-year, and Philippe is going to add some color on that.

Philippe Courtot

Absolutely. The web application firewall, this is a heavy lifting. We have other products that we are bringing to market like our customizable questionnaires which are going to go GA eminently. These will generate revenues, additional revenues as other announcement that (inaudible) says well which will generate new revenues and the results our virtual private cloud platform which is really extremely successful. We had the experience of doing that but with the old - if we prefer architecture, now today we’re virtualized absolutely all of in fact our datacenters, so we can deliver a box in companies that we just did you know first at Amazon and then re-competed all these old racks if you prefer to get new box. It's all virtualized, it’s the same code base and this is very appealing for very large corporations, for partners around the world and that will generate additional revenues for sure.

Operator

Thank you. Our next question comes from Rob Owens from Pacific Crest.

Rob Owens - Pacific Crest

Afternoon. Along the lines the successors being with to the virtual box, should we see any impact on gross margin as a result?

Don McCauley

Well, eventually, Rob. I not on in the short-term, we are still digesting the increase in operating cost as we have expanded the platform and replicating our U.S. and European data center capacities and so forth.

We probably still got a little more digestion to go there, eventually there is less hardware involved, so this probably what you are getting at. So, in future years, I think yes. I think that’s definitely possible as we cycle out all of the old hardware versions and end up with principally software.

Rob Owens - Pacific Crest

All right, and then second, Don, maybe you could address just duration in the quarter? I think the shift of long-term deferred was probably little bit more than usual, little more than we were expecting. I understand some of the issues in Europe probably leading to a weaker short-term result in the quarter, but just for those existing customers either renewing and/or net new. Is there a change in buying behavior there that's the driving longer-term two and three-year deals?

Don McCauley

Yes, but as you may remember Rob, we saw that this is the second year in a row we've seen this. I think if you went back two years ago, our long-term deferred revenue was something like $1.7 million and it went up to like $4.5 million and now it's almost doubled to $8.-something million now.

So what we are seeing, especially we are seeing some new customers but especially customers on their first renewal. Once they think up to their budget, they've installed Qualys. Generally, we're different than other SaaS companies, because we are infrastructure and they created those infrastructures and they are really looking for budget certainly, so we don't push multi-year deal so on our customers, but we certainly react to them and they've been asking for the more and more.

Rob Owens - Pacific Crest

Okay. Then one more if I may, just with regard to the Q1 guidance and specifically the revenue guidance, I think you left the door open for the potential for revenue be down sequentially and some flat at the mid-point. What factors given a subscription basis of the model could drive that being down on a quarter-over-quarter basis? Thanks.

Don McCauley

So, Robbie, ask your question again. I don't want to answer the wrong question here, obviously noting that Q1 is down?

Rob Owens - Pacific Crest

You know its range Q1, Don, you left the door open for revenue to effectively be down sequentially and I think flat at the mid-point, so.

Don McCauley

Okay. Got it.

Philippe Courtot

What's the nature? Why that might occur?

Don McCauley

Okay. So, one interesting math, a mathematic stands out there, one of the unique things about Qualys compared to any of the security company is our subscription model, and so we recognize revenue on a daily basis and normally you would want to get into the details, but there are two fewer days in Q1 than there were in Q4. On an average we do $250,000 of recognized revenue per day.

And in Q1 this year, there was one fewer days than there was last year’s Q1, because last year was leap year. Now that's also kind of lame compared to normal analysis, but in our case it's pretty relevant, so it's because of the number of days, Rob. That's the case.

Operator

Thank you. Our next question comes from the Steve Ashley from Robert W. Baird.

Steve Ashley - Robert W. Baird

I'll just start with a housekeeping; can you give us what percentage of revenue came from the Americas in the fourth quarter this year and fourth quarter last year?

Don McCauley

I think it was 67 last year and 68 this year.

Steve Ashley - Robert W. Baird

And in terms of the trailing 12-month billings metric up 19%, but the third quarter was up 25% and you called it out last quarter that there had been that was a wind aided jump that there was some special extra revenue in there. Can you remind us of that and what that number might have been in a normalized or adjusted?

Don McCauley

Right. There was 2% or 3% of the, yes, that metric was inflated because of this was one of our resellers had convert a whole bunch of old monthly accounts to annual billing in beginning of last year, which was a great thing, but it threw a lot of deferred revenue that didn’t represent new revenues for the company and I told you all during the year that that would cycle out. Now it's cycled out, and so we are not boosted by that anymore.

Steve Ashley - Robert W. Baird

When you look at your 2013 guidance, can you qualitatively tell us what you are assuming about Europe?

Don McCauley

We are being cautious. We saw sluggish performance in the back half of the year, especially and we are optimistic that that will end sometime soon, but we are being cautious in our guidance that it's may continue for a while.

Operator

Thank you. Our next question comes from Erik Suppiger from JMP Securities.

Erik Suppiger - JMP Securities

Yes. Can you give us a breakout for the fourth quarters for the vulnerability management versus the newer services? I think you said that it 87% for the year, but what was it in the fourth quarter?

Don McCauley

I think it was pretty similar, Erik, pretty similar.

Erik Suppiger - JMP Securities

In terms of the weakness that you saw in Europe was that more pronounced on the newer services or was that with the traditional business?

Don McCauley

Yes. So, Europe is more predominantly a VM business for business for us at this stage. Newer services have tended to take off first in the Americans, so now the weakness in Europe is mostly felt in VM so far.

Erik Suppiger - JMP Securities

I would have expected, I think it was about 87% VM in Q3, doesn't sound like is some a shift towards the newer services though. Is that correct?

Don McCauley

Well, ex-Europe we did. The softness in Europe is what brings that, kept that VM the same.

Erik Suppiger - JMP Securities

Okay. Any discussions on how weaknesses was impacted between your SME business and your large enterprise business?

Don McCauley

It was pretty much across the continent and across both of our business segments.

Erik Suppiger - JMP Securities

Okay. Renewal rates. In the past you've been updates and what not, you've been around 100% sometimes over 100% any comment on what the renewal rate was for run for the fourth quarter?

Don McCauley

So, the calculation we Erik is on that full year basis looking at revenues from existing and new customers and I think on a full-year basis they went from 108% to 109%.

Erik Suppiger - JMP Securities

Any reason to think the fourth quarter would have been any different from the other three quarters either, If I had to guess, I'd say we we'd probably would look with European being softer, but that really an annual calculation that we do.

Erik Suppiger - JMP Securities

Okay. On the private cloud in private cloud product what kind of interest or activity do you have going on with government that that's presumably something that's going to get back going with when we start seeing the government contribution there materialize?

Philippe Courtot

As you very well know, it takes sometime especially these days in fact, with the sequester and some of the budgets of these on the federal side in the U.S. there is 90 cycles and currently today there is a lot of uncertainty. In fact, we are going to, we are establishing partnerships with very big integrators and one of the reason of this partnership is because of that private cloud. It's also because as you just so with du Telecom to start to essentially enter markets abroad much more easily with partners.

Erik Suppiger - JMP Securities

Might we expect your government contribution by the end of '13 to be in the low or mid single digits is that reasonable?

Don McCauley

For those who don't know, we currently get about 1% of our revenues of the federal government at Qualys, and the most security companies have a far greater percentage. I don't it will happened that faster. Remember, our revenue model revenues amortized in over time, so that maybe so there will be low single digits because we're in the low single digits now but we are looking for improvement. I hope we'll have improvements to announce this year, and they way our revenue model works and the revenue effects would be later in the year and mostly next year if that would occur.

Operator

Thank you. Our next question comes from Craig Nankervis from First Analysis.

Craig Nankervis - First Analysis

Philippe, on virtual private cloud, are new constraints along the way in terms of the pace at which you can deliver this form factor as this point or could you as you.

Philippe Courtot

I know this is a very good question. If fact there was two things we are doing here. One is that we are now established or establishing a new stock in India, so he one of the main reason you know there’s a reason one give the residency third being the place where we multi-manage all of these data centers including ours on other this is kind of a backup between prefer and on the other hand it's also because we anticipate being capable of shipping quite a few more of these products.

So, on the management side, we have made already or making the investment already to boost them more and now what we are doing in fact essentially putting the virtual cloud in the box and currently today we can ship at about one private cloud little less than three months and we expect to be capable of moving that to once a month. That's well recent and of course it will accelerate.

Craig Nankervis - First Analysis

And there will be once-a-month by what second half of the year or something like that?

Philippe Courtot

Probably. Yes. Yes. We're also working on a connected version also datacenter, which is that I told you up under military version and we are anticipating to be in data to disconnected version by the year end and that means that will try and do an entity to really do the managing, so we sold the old batteries and everything they need to do to update and manage these data centers where we would have to kind, but we are also working on that as well.

Craig Nankervis - First Analysis

Can you give feel for how I believe you are marketing the virtual private cloud form factor at this point also or is that you would expect later in the year?

Philippe Courtot

No. I think, we are staring to market and we'll start very careful, very cautious, but we are really not pushing it that much, because we have to ship [three], and now that everything is virtualized it makes it so much cost effective and easier management because we are very, very careful and now the opening of the floodgates as we have now really renewal during very well packaged that solution.

Craig Nankervis - First Analysis

Okay. That answer all my question. Thanks for your help.

Operator

Thank you. Our next question comes from Joel Fishbein from Lazard Capital.

Joel Fishbein - Lazard Capital

Just on the 2013 guidance. Based on what you've seen so far in terms of your fourth quarter billings, can you just go through with us what kind of visibility you have into that 106 to 108 number? It should be pretty strong, but I just want to hear it from your perspective.

Don McCauley

Okay. With our subscription model we have approximately 50% of our revenues for the full year are already on our balance sheet will just be amortized in over the year, and of the remaining 50%, 40% relates to existing customers and what they do renew, up-sell, et cetera, and only 10% relates to brand new customers that will come on during the year and remember we only for new customers in 2013, on average we'll only be recognizing a half years worth of revenue. So, compared to almost any of the company we have very good visibility into that Joel.

Operator

Thank you. (Operator Instructions). We have a follow-up question from Sterling Auty from JPMorgan.

Sterling Auty - JPMorgan

Yes. Thank you, just a couple of quick ones. Don, can you give us an update, how many customers did you finished the year with?

Don McCauley

Round number 6,150 and it's about 600 more than last year.

Sterling Auty - JPMorgan

Okay. When you look at that customer addition especially in the fourth quarter , the mix of the larger customer versus the smaller, how would you qualitatively described that and how would you describe as the quarter went along. Would you say that those numbers would have been higher out the year for Europe?

Don McCauley

Well, first of all, I think as far as to make up the mix and the demographics of it same no change there. And, sure, I think if Europe was not a sluggish, we certainly would have had few more customers.

Sterling Auty - JPMorgan

You mentioned the pickup in the multi-year, where you didn't give kind of percentage. Can you give us a sense of what percentage of the deals that you did in the quarter were multi-year versus just one-year?

Don McCauley

Percentage was probably about the same, but it added up during the year. When we model it, it's about the same percentage actually, but with our growing business it's have been affected and we only the deferred component of the balance sheet is a pretty good step up just because of the growth of the business generally, I wouldn't it was fully different.

Sterling Auty - JPMorgan

Okay. And last question area, sort of fourth quarter what was the - or looking at the business now, what's the direct versus indirect mix just to remind everybody and kind of where are you putting more emphasis to start 2013 in terms of your channel management?

Don McCauley

So, the direct, indirect mixes 60-40, 60 direct, 40 indirect, and I'll let Philippe comment on where we are putting our efforts.

Philippe Courtot

Yes. We expanded our, what we call, our strategic alliance group, so we are focusing more on the partners today, because again I think with a private cloud, I think we have really significant opportunity to generate new partnerships and global partnerships, so that's the focus of our business. Also, what we see is that channels to appreciate, the fact that we provide them with a very predictability and profitable business.

As you know the benefit of the recurring, but given the better contact with the customers and the recurrent models as well, so it's in the early days. The channel was very active when you speak to Qualys; I think today we see the channels coming away. We see our business growing with all of our partners.

Operator

Thank you. We have another follow-up question from Erik Suppiger from JMP Securities.

Erik Suppiger - JMP Securities

Yes. I just want to understand. I don’t think you gave four quarter bookings guidance for 2013. Conceptually, can you discuss if we're looking for a deceleration in revenues, in think mid-point of your guidance is maybe 17% or so. Does the billings decelerate faster, because you have a lagging effect on the revenues or should we think about the billings growth for this year rather?

Don McCauley

All right, so good question, Erik, so remember revenues like billings not the other around, so when we have a as I said we mentioned if Europe would slow especially in the back half of the year, that's now flowing through revenues and that affects our guidance on revenues.

We don't give guidance on four quarter bookings, but as I mentioned earlier we are encouraged by what we are seeing in our sales pipelines, including Europe. I mean, we are seeing good activity and improved activity in the first half of this year compared to the second half of last year. And, if that comes to pass, then we'll see improvement in those metrics.

Erik Suppiger - JMP Securities

A little bit about the timing. It seemed like it was Q4 that you saw the deceleration in the bookings or did you start seeing evidence of that in Q3?

Don McCauley

We talked about it on the Q3 call. We had seen it I Q3 and we actually had seen it in Q2 a little bit as well, but we talk about it on the Q3 call.

Erik Suppiger - JMP Securities

Okay.

Operator

Thank you. I would now like to hand the conference back over to Mr. Philippe Courtot.

Philippe Courtot

Thank you all for joining us today. We are very excited for our 2013 and believe that we are well positioned to deliver best of cloud security and compliance solutions to our customers and partners and continue to expand through our cloud platform and solution set.

So, should we have any follow-up question, Don and I are available. Otherwise, we are looking forward to speaking with you next quarter. Thank you very much.

Operator

Thank you. And once again, ladies and gentlemen, thank you for participating in today's conference call. This concludes our program. You may all disconnect and have a wonderful day

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