Q3 2019 Earnings Call
Good morning, welcome to six third quarter 2018 earnings Conference call. My name is Don and I will be your operators thing.
If you have a question. Please press the star and the number one key on your touched on telephone.
Joining us for today's presentation or the company's president and CEO JV back there.
CFO , David Frac, Fab, and vice President of marketing, Jeff <unk>.
Following their remarks, well open the call for your questions.
I would like to remind everyone that this call will be recorded and made available for replay he by holding in the Investor Relations section of the company's website.
Now I would like to try to come over to Jeff maybe sure. Please proceed.
Thank you Don good morning, everyone and thank you for joining our third quarter 2019 earnings call.
With me today, our CEO , Dave Wagner and the CFO , Dave Rockvam before the market open we issued a press release announcing our results for the third quarter ended September Thirtyth 2019 to copy which is available in the Investor Relations section ever website at Www Dot Zixcorp dotcom.
Please note that during the course of this call will make forward looking statements regarding future events in the future financial performance or the company.
These forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially from those in the forward looking statements.
It's important to note also that the company undertakes no obligation to update such statements. We caution you to consider risk factors that could cause actual results to differ materially from those in the forward looking statements contained in today's press release and in this conference call. The risk factor section in our most recent Form 10-K , and 10-Q filings with the FCC provides examples of those risks.
During the call will present, both GAAP and non-GAAP financial measures non-GAAP financial measures are on tend to be considered in isolation from a substitute for or superior to our GAAP results.
We encourage you to consider all measures when analyzing the company's performance.
A reconciliation of certain GAAP to non-GAAP measures is included in todays press release, which can be found in the <unk> Investor Relations section of our website now with that I would like to turn the call everyday Wagner for his opening remarks, Dave.
Thanks, Jeff Happy Halloween and thank you everyone for joining us. This morning, the third quarter was a continuation of the same strong operating performance we've been achieving since the acquisition of App revert back in February of this year, we delivered 15% organic revenue growth for the second consecutive quarter and we expand.
At our adjusted EBITDA margins to 24% with organic a our our growth of 18%.
Organically, we're delivering on the rule of 40 and Inorganically year over year total revenue for the third quarter was up 168% and adjusted EBITDA was up 116%.
The 18% organic year over year. They are our growth in the quarter means that we crossed the 200 million. They are on threshold, which is an important growth goal as we continue to achieve a greater scale that we believe will make us even stronger in the years to calm.
When we acquired out remember our strategic goal was to become the leading provider of cloud email security compliance and productivity solutions for companies of all sizes.
So as pleased as I am with the growth and profitability, we are delivering as larger company I'm, even more pleased with how our year to date 2019 results validate our progress towards our strategic goal.
There were a briefings, we believe leading into the acquisition Bleep number one businesses are moving mailboxes to the cloud and are looking for partners to help them without transition.
Validation point, along with our channel partners, we added over 54000 net new cloud mailboxes in Q3 alone.
Bleak number to cross selling opportunities between security compliance and productivity are strong.
Validation point number one the big sales team closed almost 4000 Officethree hundred 65, now boxes in Q3, which is up from less than 2000 in Q2.
Validation number two the zix sales team I passed our new products, 47% of new customer add on during the quarter.
Pollination, three App river customers and partners more than double or doubled the number of different grip and Pixar cock trials to more than 350 in Q3 from about 150 in Q2.
Belief number three two leading email security companies would be better together validation point number one two quarters in a row, we've exceeded the top end of our revenue guidance.
Living delivering organic they are our growth of 17% in Q2, and then 18% to Q3.
Validation number to achieving 24% adjusted EBITDA margins and just our second full quarter. After the acquisition and validation three the level of collaboration and the amount of product enhancement. We are delivering also demonstrates that were better together.
I look forward to spending more time sharing validating metrics from our Q3 results, but first I'd like to turn the call over to our CFO , Dave Rockvam to provide more details on the financial slick water Dave.
Thank you, Dave and good morning, everyone. As a result for the quarter clearly demonstrated we're firing on all cylinders and we're continuing to recognize meaningful financial benefits as well as operational and sales process efficiencies as we move forward in our ongoing integration with that forever.
Now, let's talk about the numbers in more detail at the end of the third quarter, our air our totaled $200.3 million up 167% from Q3 of last year and 18% on a purely organic basis.
On a combined basis cloud based air are now makes up over 80% of total air are.
The third quarter, we had just over 102% net dollar retention, which represents our renewals plus our new sales into the installed base divided by the renewals that were available at the beginning of the quarter.
Our strong gross dollar retention of over 90%.
Growth in new customers and continued success in cross selling drove yet another quarter of record air are [laughter] revenue for the third quarter increased 168% to $47.8 million from $17.9 million in the same quarter last year with $47.8 million of revenue we exceeded our guidance.
For the quarter.
Total organic revenue growth across Dixon App River was up 15% during the quarter, which once again it was at the high end of our implied growth guidance from the time of the App River acquisition.
Due to the movement of many of our Zixone customers, an MSP partners onto the App River platform Zix versus App River revenue and air are split is lost their integrity from an external reporting perspective, and therefore will no longer be disclosed the good news is that the App River platform is a much better place for these msps and small cut.
Summers and we anticipate better future retention and cross sell as a result of these changes.
Our adjusted gross profit for the quarter was $28.5 million or 59.6% of total revenue, which was an improvement on a dollar basis from $14.2 million or 79.6% of total revenue in the third quarter of 2018.
As expected and similar to last quarter, our adjusted gross profit margin percent for Q3 was down year over year as many of you know that have been following us and following our story. This is largely due to our distribution of Microsoft's productivity suite, which carries lower margins than our proprietary solutions the Microsoft Pro.
Activities, we provide zix Enap River a unique solution set for the market and is an excellent low cost lead generation tool for our higher margin security portfolio.
Our adjusted R&D expenses for the third quarter, 2019 were $4.8 million or 10% of total revenue compared to $2.6 million or 14.7% of total revenue in Q3 of last year.
The year over year dollar increase was primarily due to the inclusion of App River.
This increase was partially offset by the capitalization of internal use software of about $1.5 million in the quarter associated with new features and functions added to our hosted platforms across both zix and App River.
Our adjusted selling and marketing expenses for the quarter were $9.5 million or 19.9% of total revenue compared to $4.8 million or 27% or total revenue in Q3 of last year.
The increase in selling and marketing expenses on a dollar basis was largely due to the inclusion of App River.
For the third quarter 2019, our adjusted General and administrative expenses were $4.6 million or 9.6% of total revenue.
Compared to $2.3 million or 12.8% of total revenue reported in Q3 of last year.
We're pleased with the continued success, we're achieving with Microsoft Although these sales drive lower gross margins. They represent strong lead generation force, which contributes to a lower cost of sales as a result, this should balance out in our PNM has we attach higher gross margin proprietary solutions and with a significant scale, we're achieving without.
River, we anticipate adjusted operating expenses as a percentage of revenue to continue declining over the next couple of years.
On a GAAP basis, we reported a net loss attributable to common shareholders of $3.7 million or loss of seven cents per fully diluted share compared to a profit of $2.5 million or five cents per fully diluted share in Q3 of last year.
Our third quarter non-GAAP adjusted net income before deemed dividends and excluding deferred tax was $6.7 million or 13 cents per fully diluted share representing an increase of 43% from the nine cents fully diluted shares we reported in Q3 of last year.
And finally, our adjusted EBITDA for Q3, 2019 totaled $11.5 million, increasing 116% compared to the $5.3 million, we reported in Q3 of last year.
As a percentage of total revenue adjusted EBITDA for Q3, 2019 was 24% compared to 29.8% reported in Q3 of last year.
On a sequential basis, however, adjusted EBITDA margin increased 60 basis points from 23.4% in Q2 2019.
Cash flow from operations for the third quarter 2019 were $6.6 million up 284% from the second quarter.
At the end of Q3, we had $10.1 million in cash and our total debt was $178.3 million, reflecting the five year 175 million our term loan we enter entered into as part of the river acquisition and the $10 million delayed draw alone for the acquisition of delivery slip we completed in Q2.
We believe we have ample room to pay this pay down this debt, while still investing in the company's growth and executing on our long term vision.
This objective is supported by our strong cash flow generation ability projected adjusted EBITDA growth significant net operating loss carry forwards and the step up in depreciable tax basis, we received from the App River acquisition.
Capex another intangibles for the quarter were $3.3 million, which consisted primarily of normal business capital purchases and capitalized internal use software development, we now expect capex and other intangible to be approximately $10 million for the full year 2019.
The additional capex and other intangible that primarily for capitalized software related to App rivers cloud development and normal business capital purchases.
We expect adjusted depreciation and amortization to increased to approximately $6.4 million for the full year 2019.
Backlog at the end of the third quarter was $90.7 million up from $74 million at the end of Q3 last year.
For the third quarter 2019, total gross billings were up 117%, while total organic billings were up 4%.
It's important to note an organic billings growth was slowed this quarter, mainly due to changes over the last year in our OEM relations. We expect these differences to work their way through by the end of the year.
Now turning to our financial guidance for the fourth quarter and full year 2019.
We currently expect revenue for the fourth quarter 2019 to range between 49 million to $50 million.
Which is increasing the midpoint of our guidance our prior estimate of $48 million a $50 million.
We're also can continue to expect our adjusted EBITDA margin for the fourth quarter 2019 to be 25%.
Additionally, we are forecasting fully diluted GAAP earnings per share to be during the loss of three cents any loss of two cents and fully diluted non-GAAP adjusted earnings per share to be 14 cents.
As a reminder, our financial outlook includes a required GAAP adjustment on the deferred revenue acquired from App River.
Which has a negative impact on our Q4 revenue of approximately $700000.
In addition, we're tightening our target air our to approximately 205 million to $209 million at fiscal 2019 year end, increasing the midpoint to $207 million from the previous midpoint of $206.5 million.
This new range of 205 million to $209 million represents an organic growth rate of approximately 14% to 16% year over year.
For the full year 2019, we're increasing our revenue guidance to range between 172 million at $173 million, which represents an increase of between 144 and 145% compared to fiscal 2018.
On a pro forma organic basis, this would be between 14 and 15% growth for total Zixone App River.
As a reminder, our revenue guidance includes a required GAAP adjustment on the deferred revenue acquired from at River, which is a negative impact on our 2019 revenue guidance of over $4.6 million.
Our fully diluted GAAP earnings per share guidance is now expected to be a loss of between 25 cents and a loss of 23 cents and our fully diluted non-GAAP adjusted earnings per share to be between 44, and 45 cents for fiscal 2019.
This represents an increase of 30 between 33% to 36% compared to the 33 cents. We reported in 2018 again, showing the highly accretive nature of the App River acquisition.
In summary, our continued successful integration progress and enhance cross selling efforts drove another quarter of double digit organic revenue in air our growth.
With our first 2.5 quarters of solid execution, we're becoming more and more confident that we can maintain this level of growth combined with an investment level that would put us right on the rule of 40 metric, which we believe helps us drive higher shareholder value as well as achievement of our three to five year vision of profitably scaling the business.
This completes my financial summary for a more detailed analysis of our financial results. Please refer to today's earnings release as well as our current our quarterly report on Form 10-Q , which we plan to file by November eight.
Also visit our Investor Relations website to view more recent investor presentation, Dave.
Thank you for the financial overview, Dave I will now review, our progress executing our strategy to become the leading provider of cloud email security compliance and productivity solutions for companies of all sizes in the context of our three main growth drivers that I will provide an update.
Where we are.
The delivery slip integration before we open the call for questions. As a reminder, our three growth drivers are new orders to new customers sales to existing customers and increasing retention.
Our first growth driver is new orders to new customers during the third quarter, we saw demand for all of our solutions from customers and many industry and size profiles.
Notably one only one deal within healthcare and only one was in finance are traditionally strongest verticals. The other three or a homebuilder a charitable organization and a restaurant chain. What these latter three havent comment is that they are all enhancing their compliance posture to better protect the financial.
Our healthcare data in their capacity.
The largest when in the quarter was a mid six figure deal with one of the largest nonprofit health care systems in the you asked to provide encryption and outbound compliance filtering brings more than 100000 employees.
This customer left Zixone 2018, as a result of cost concerns associated with the migration to office 365.
18 months later, they move their cloud email G suite and re contracted with zix.
This win highlights both the value of the that solution for our customers and also the importance of supporting all male environment.
The new finance vertical wind during the quarter with a regional bank, who purchased three services encryption threat protection and Officethree hundred 65.
As I mentioned the other three top five wins in Q3 came from a variety of different industries as many of you know.
We are historically strong and compliance oriented verticals, so to see growing demand from a variety of other verticals is a positive sign for us.
Also notably it was the first time that Zix archive customer made the top five as a standalone offering demonstrating the traction that we're seeing that solution.
We're also continuing to see strong momentum with our MSP partners. We added approximately 1500 net new customers to the aggregate family in Q3, bringing our total number of App River end customers to more than 66000.
We also added 29 net new partners, bringing our total number of monthly transacting App River partners to 4251.
The at River MSP motion is to try and buy model, where we and our partners drive demand to our portal for the end customer started a 30 day free trial.
We again conducted more than 8000 trials for the third consecutive quarter and we have now conducted more than 27000 trial year to date, which is up 36% from the same period last year.
The other great thing about our try and buy model is that we enjoy extremely strong conversion rate of about 90%.
Now, let's take a closer look at our second growth driver, which is sales to existing customers.
Two of the top three add on came from the government vertical.
To bring healthcare and the final add on was in the finance vertical our top add on customer, which Wasnt healthcare purchased Officethree hundred 65, as well as encryption and advanced threat protection, our second largest add on where the county government.
That purchased archiving advanced threat and Officethree hundred 65 to augment our existing zix encryption solution.
One of the other top five add ons port was predicts archive and the last two add ons expanded their existing zixone quick deployments.
In total of the top five add on group.
The increase to an average of 2.2 solutions per customer demonstrating again, our success increasing attach rate.
Looking at our results for the third quarter by solution area productivity, our AR increased by 7% sequentially to $87.6 million, which represents an increase of 23% year over year.
Average revenue per user our ARPU of $103 was essentially unchanged from last quarter net upturn as I mentioned, we added more than 54000 mailboxes in the quarter.
Encryption EMR was essentially unchanged sequentially at 72.8 million and was up 6% year over year.
ARPU was down 2% sequentially to $17.96, primarily as the result of the volume price and granted to the largest new customer win.
Our encryption seats grew by 61000 again net of churn.
Advanced threat protection are actually decreased 2% or $300000.
To 22.8 million in the quarter.
This decrease was primarily the result of the price increase that I mentioned on last quarter's call.
Our ARPU was up 2% quarter over quarter, the $13.34 and was up 18% year over year.
Contributing to 26% total year over year growth in this solution category.
I think it's worth mentioning that approximately 220000 of the 1.7 million advanced threats seats are on the Roaring Penguin solution that app wherever acquired before we acquired them. We may experience excess churn of these feet as we migrate that mostly on premise customer base to the cloud over there.
Next four to five quarters.
Our emerging category grew 8% quarter over quarter 17.1 million of HR are driven by growth in both our archiving business and in total defense, our consumer endpoint business.
Moving on now to our third growth driver increasing retention.
As Dave mentioned, our total company gross retention was 102% up from 101% last quarter and was over 100% for the third consecutive quarter.
Increasing retention is one of the key drivers of our increasing overall revenue and a our growth. So we're really pleased with the success, we're having to date as a larger combined company.
As we continue the process of more tightly integrating the company we plan to continue to migrate more partners and customers to the at New App River based platform.
We had great success transitioning hundreds of customers last quarter, we will be transitioning hundreds more this quarter and then thousands in the first half of next year.
We believe the migration to the newer platform will ultimately result in higher retention and attach rates, but could cost.
Turn in the shorter term.
All in all we're really pleased with our improving customer attention and see it as another validation of our core strategy.
I'd like to focus my final remarks sharing more detail on why I see our Q3 results as validating our core investment thesis around Op River.
Of course, our success selling more than 54000 net productivity.
Seats, primarily through our MSP partner base, resulting in 7% sequential growth and 23% year over year growth and productivity supports our first core assumption that E mail boxes will continue to rotate to the cloud.
The second quarter assumption was our ability to cross sell as I mentioned earlier.
The number of Zix encryption zix are cut trials more than doubled quarter over quarter. That's nice early support of our cross sell opportunity.
The cross sell examples that I'd like to spend a little more time drilling into though are the officethree hundred 65 cross sell into the zix customer base.
In the third quarter, we closed 27, Officethree hundred 65 accounts through the VIX channel up from 13 in the second quarter.
Of the 27 Officethree hundred 65 accounts in the third quarter nine were net new accounts and 18 were sale into the installed base.
There are a couple of key points a validation in these wins first the number of wins was up more than 100% quarter over quarter, demonstrating that the market is responding to the packaging.
Second two thirds of the 27 wins were dark to cloud projects, meaning that prior to contracting with Zap River the customers still running an on premise exchange server. This validates our pre acquisition survey work showing that the majority of zix customer base is still on premise.
With our mail server and that they are looking for a trusted partner to support their transition to the cloud.
The third point of validation is around our partner first strategy in a third quarter. We added 10 existing zix partners to our community of partners that can resell the officethree hundred 65 bundles, including Zix IP.
We were not expecting this level of partner traction. This soon and we're also pleased with the support Microsoft is providing in our focus to expand our channel program.
The fourth point, a validation is the attach opportunity the average number of services for these officethree hundred 65 add on customers is 2.8 versus our oval all average of 1.2, clearly demonstrating the opportunity for us to continue to drive our attach rate higher.
The great results above are being achieved only as a result at the high level of collaboration and teamwork between all of my Zix, an App River colleagues I get to see every day, how well the zix out wherever team is executing to deliver phenomenal value for our partners and customers.
These results are little harder to demonstrate objectively, but I do think it's important that you hear about some of the major accomplishments. The team is driving that will come to market and 2020 .
As an example, I'd like to share more about delivery slip acquisition integration not only have we delivered strong retention rates for our existing customers with net customer revenue retention of 97%, but we're also beginning the cross selling motion of large file transfer earlier than.
Good with nine customers.
On the zix that the Zix go to market teen added in Q3.
We are getting really strong feedback from the zix customer and partner base about this added capability.
We completed the migration of that up the technology bully under Zix, Aperek control and into our Datacenters in Q3, and the road map has been forced out giving us confidence that we will deliver a six branded integrated large filed transported ability in Q1 with exciting further enhancements coming from the quarters ahead.
In conclusion that third quarter was another major step forward with many key milestones validating our strategic direction.
We are continuing to make great progress as one combined larger team and the combined efforts of our go to market team are driving increased sales activity across both go to market motions and increasingly across our complementary product offerings.
With our organic.
Our growth expanding to 18% last quarter, we have the visibility to increase our full year 2019 guidance and heading into the ended the year we expect.
To improve our profile of profitable growth through enhanced cross selling and increased attach rates. This success should allows us to continue revenue growth and profitability improvements into 2020 and beyond.
That concludes our prepared remarks, operator, we're ready to open the call for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press the star and and then another one key under such stone telephone. If your question is being answered arguably to move yourself from the Q. Please press the heskey.
No. What first question will come from Mike Malouf from Craig Hallum. Please proceed.
Thanks.
Really well done on non this integration so far.
With regards to that I'm wondering if you could.
Frame for us just a little bit of the opportunity.
With the zix selling of office through 65 that was always.
Sort of in your back pocket with regards to the ability to cross sell that direction.
I'm just wondering if you could go over.
Current thoughts about the size of that opportunity.
As as you've had a little bit of experience here.
And then if you could also tag onto that.
As you look into delivery slip and putting out a zix branded.
Large file transfer product out how.
Thats a good that could be for 2020 aside.
Thanks.
As a great questions Mike.
So as we framed the Officethree hundred 65 cross sell into the Zix install base, we rebuilt our our initial thoughts is looking at the 1.3 million encryption customers.
In accounts with less than 250.
Users and so that opportunity.
And slated to $20 million to $25 million of our our what we're seeing in the first.
Yes, whatever it is now 40 accounts sold is we're seeing an average mailbox size of closer to 150 on average so we're seeing that better traction into slightly larger customers than we would have originally expected. So we're still early in 40 trend.
The actions but.
It's looking like.
250 was lower than where we'll see good traction I would expect to see.
I would ask expects to the average coming down as we get into more and more count for the fact that were running an average well over 150 tells me that we can move up higher than than just the 250 and lower account that we originally modeled so that would to me indicate some upside over time.
In that area.
Moving onto the large file transfer question.
As I as I.
Talked about when we close that transaction the survey work prior to that acquisition.
Suggest there's an opportunity for really high attach rates.
For large file transfer existing.
The next offer and we are getting really good feedback as we introduce this capability to customers. It's we are the place where we that for the place would expect to get that functionality on pad meeting yesterday with a partner has really big roots since the title industry and she is going down.
Oh, no real appetite this and that.
Segment that of course is very subject to wire transfer broaden and need strong protection other information so.
That is a little bit ahead of schedule and I'm expecting good things from that as we head into the back half of next year.
Okay, great. Thanks, all appreciate that.
Thanks, Mike.
Our next question comes from China from Northland Securities.
Please proceed.
Thanks for taking my question.
When you talk about the trials.
Security selling back into the Apple River basis.
I will still all this free trials at this point or should we expect that to start showing up in billings.
And Twilight team or will we have to wait for 2020 for those that turn from trials too.
No no the trials turn to orders.
On the for the first day left there canceled our overall.
That rate of 90% conversion. So we're not at that 90% yet we've got a lot of partners trying at NAND.
And then.
You're backing out the conversion rate our strong so we're seeing early numbers, but encouraging to me.
Even though the absolute numbers are really big or even meaningful yet from.
Our our perspective, we are seeing the existing customers once they convert adding more and more users.
Building on a nice snowball effect. So we're on track with what we expected in terms of of cross out we're really honing our.
Our messaging and our marketing work as we come into the fall.
To accelerate those trials further, but I don't expect a material.
Our our impact and in this year and expect that to move and more materially next year.
Great Thats helpful. And then just higher level on the office 365 opportunity.
How penetrated you think.
Officethree hundred 65 mailboxes our within.
And the market.
More broadly than anything worth mentioning on.
Microsoft's strategy in terms of securing those with their own stuff.
Yes, it as both great.
Both great question, we had a pretty thorough survey into the zix based on prior to acquisition that I'm has that seeing 30% to 40% of our mailboxes to the cloud to the majority majority still on brand we don't have as tight as survey work empty.
Into that the smaller customer base to that the.
App River Msps, but the accelerating.
Mailbox add that we're seeing would indicate that were in the still on the early middle innings on the smaller businesses wells, we see a really strong.
Hi, appetite for this transition to the cloud as I mentioned in the script one of the things, it's becoming more and more clear to me the value that.
The App River implementation and support team provides to our partners and end customers as they make that transition.
And then customer's going to make that transition while smaller partner may make a mailbox migration once or twice a year and we are there with the black belts have done nearly a million mailbox migrations that really support them at kind of value.
In the overall, Microsoft ecosystem, and now having met nearly monthly with.
With the Microsoft.
Go to market leadership team we're now.
Understanding how well they see us bidding into very ecosystem is providing.
Its value as a hyperscaler would be there terminal hyperscaler into.
The SMB SNC in SMB space, so that all feels really good.
Microsoft is a great company executing great things and they'll continue to build.
Good products security will continue to be important to down and a focus but they understand and fully support a broad ecosystem of I ask these they always have to.
To help with specialized use cases, so most acutely our zix archive.
An archive slack and teams and link and channels that the Microsoft Archive doesn't support and in some cases pride will never support and so we're adding real value and compliance oriented use cases on top of the Microsoft solution and they see that has really beneficial to building out their ecosystem.
So we fit in a position where we support Microsoft on both sides of what they're trying to do on that FNB side we.
We enable this onboarding transition support and ongoing care of the customers, but they don't have coverage for and on the higher end, we provide a really strong.
Specialized use cases for security compliance that they don't need or want to build into their into their core system and if you think about.
Yes, finance protocol in the healthcare vertical there are lots and lots of medium sized businesses asked me that sun season, smbs that need that level of compliance and security as.
Yes, as regulations advanced cyber security concerns become more acute down market. So we really like our position and Microsoft that appears to like it as well.
That's helpful. Thank you.
Thank you.
Ladies and gentlemen, even have a question at this time. Please press the star and the number one key on your Touchstone telephone. If a question has been answered or you wish to move yourself from the Q. Please press the heskey.
Our next question will come from mechanical from Cowen and company. Please proceed.
Hey, guys. Thanks for taking my questions.
Could you comment on the international business and how you're thinking about the opportunity outside the US and then maybe where you are in terms of the build out in any additional near term investments you plan on making.
That's great question, Nick. Thank you. So international is still really early stages for US I mentioned on the last call that we had doubled our UK our are in the first half year and that team.
Not continues to execute.
Really well the doubling from 1 million for to my answer adding.
Half billion dollars per quarter. They are they remain on that trend.
We added.
Yes, I guess, a few people to that team late in the summer.
Building for.
2020 continued growth and so we feel good really good about that team, we feel really good about how our value proposition and platform.
Supports our customers.
Hi in Europe , and we see the European transition to the cloud being earlier and.
Earlier in the transition with more with the longer term, so we will be making measured investments.
To extend our international presence, but I would expect them to be measured investments.
In the coming.
In the coming year.
Okay. That's helpful and maybe just a quick follow up.
Dave You mentioned, a billings dragged from from OEM. Just wondering if you could provide any more details around that and when that should should normalize.
Yes, we would expect it to normalize early next year in 2018, and then the meaning of here 2019, we were.
Ramping down on the Cisco, Google and semantic in particular Oems as.
As we moved away from that as part of our strategy moving more towards the MSP model being the best model for the the go forward Zap River platform. So.
In the 2018 as we ramp those down we did see some incremental billings to kind of finished those off so we're kind of bumping up against those numbers as they were kind of done is more I guess, a larger onetime kind of billing and then this year those billings kind of came through a little more as these customers moved.
Our direct platform those come through a little bit more across the quarters, so that kind of clean up and then the semantic piece.
We've got a handshake.
On the having that cleaned up for the quarter. So we didnt end up doing any of the billings as we wrap that up it's going to end up in a good position, where this $1.5 million. There are that we have there will have for quite some time in the future with the way we're closing it off and it's finishing up almost exactly with where we plan to it.
In Q2, so feel good about that so we'll come through that by the Endears is those finish up and expected to guard start moving up better in the coming quarters from there.
Okay, great. Thank you.
Thank you.
At this time. This concludes my question and answer session I will now like to turn the call back over to Mr. Ragmen for his closing remarks.
I just like to thank everybody again for.
Joining us early this morning.
Which is great and productive day.
Thank you for joining us today six third quarter 2019 earnings call you may now disconnect.