Q2 2020 Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily again, thank you for your patience and please standby your conference call will begin momentarily.
Good evening welcome to Mimecast earnings calls for the fiscal second quarter of 2020 ended September Thirtyth 2019.
Hi, Robert Sanders Director of Investor Relations with me on the call Tonight, or Peter Bauer, Our co founder chairman and CEO and refreshing our CFO .
Tonight's conference call is being broadcast live.
A replay of this call will be available after the like call has ended.
We will make forward looking statements regarding future events and the future financial performance of the company.
These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements.
We caution you to consider the important risk factors that could cause actual results to differ from those in the forward looking statements contained in todays press release and on this conference call.
These risk factors are further defined in Mimecast. Most recent Form 10-Q filed with the Securities and Exchange Commission.
During this call will present, both GAAP and non-GAAP financial measures.
These non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results.
A reconciliation of GAAP to non-GAAP measures and the reasons for our representation of the non-GAAP measures are included in todays press release, which can be found in the Investor Relations section of our website.
The date of this call is November 7th 2019.
Any forward looking statements. We make today are based on assumptions that we believed to be reasonable as of this state.
We undertake no obligation to update these statements as a result of new information for future events.
Now I'd like to turn the call over to Peter Bauer, Peter Good evening I'd welcome to <unk> earnings call for the second quarter about fiscal 2020 .
Tonight's call I'll provide an overview of our second quarter results and discuss our progress in helping customers build greater cyber resilience as we gain market share.
Then I'll talk about our inaugural cyber resilience summit held just last week in Dallas and discuss the launch of email security Street or all strategy to help customers, who bowls and advance from perimeter email security to a much more powerful pervasive email security on all platforms.
I'll review recent partnerships and kabbah additions to our board on my leadership team.
Then finally as I've done in past calls I'll share with you. Some examples of the solutions, we're providing to customers in the reasons why mime costs unified platform of services continues to win favor with organizations of all sizes.
So the second quarter marked a big milestone for the company, achieving all first quarter, surpassing $100 million in revenue.
98% of which was recurring subscription revenue.
Our results exceeded our guidance for both revenue and adjusted EBITDA.
Revenue of 103.4 million U.S. dollars grew at 26% year over year as reported and 29% in constant currency over the prior years achievement.
Oh, we added 800 net new customers to our platform. So we now serve 36100 customers across 138 countries globally.
No trouble in the quarter was our continued success with larger recalls.
As we close to 30 transactions or the six figures.
Well, we believe the market opportunity for all services remains very large.
Well my cost recently published on Corky email security risk assessment report and found competing solutions from other cloud services providers and legacy on premises equipment vendors are not adequately protecting organizations.
While monitoring emails that had already been Scott by competitors, we found a dramatic increase in business email compromise whaling attacks.
Out of 260 million emails that passed through competing solutions.
Only 231 million were deemed safe by mine cost.
We found 28 million pieces of span.
60000, impersonation attacks and 28000 malware attachments.
So having slipped through competitive email security offerings.
Our ability to protect customers better is thanks to our unique cloud architecture and the advanced gauntlet of tests that were able to subject messages to before they are deemed safe for end users.
Our efficacy is enhanced and often unmatched thanks to embedded machine learning teams of experts located in several different countries. The vast telemetry and threat intelligence that we gathered from our networks as well as dozens of third party feeds and engines.
Email continuing to be the number one attack vector efficacy remains a significant buying requirement.
Our recently mine cost secure email gateway was recognized as a 29 keen gotten APEA insights customer choice.
For email security.
Well, we work hard to deliver customer success 24 hours a day every day and so this award carry special meaning for us I wouldnt affect all the mine cost is involved for their focus on delighting our customers.
Our last week.
Customers and partners gathered in Dallas, Texas from first ever cyber resilience summit and the summit was buzzing with energy as customers engaged with mine cost to share best practices and learn new skills.
At the summit, we focused on moving beyond perimeter only email defense models to a more pervasive email security strategy.
We launched a new initiative.
Email security Threed auto.
Now this refers to a three zone approach with layers of protection for each zone.
Third one is the traditional parameter.
Bad actors must not be allowed to deliver malware into any organizations and targeted threat protection provides superior protection at the perimeter and integrates seamlessly with other mine cost services like data lead prevention and archiving.
Oh, sorry, two is inside the perimeter.
Where internal threats, sometimes the result of compromised accounts can evade traditional perimeter scans and move laterally inside an organization.
I'm costs internal email protection and remediation guards against these threats.
Oh, we saw strong demand for zone to defenses this quarter with 700, new subscriptions to our internal email protect service.
Zone to also includes awareness training.
To strengthen the human firewall.
Oh zone three exists beyond the perimeter.
And represents threats like web site specific and domain impersonations that off frequently used to attack the customers have an organization by abusing the trust that is being built up over many years in there Brad.
Oh, we partnered with Sega SEC and Dimmock analyzer.
To further strengthen design three protection.
And larger organizations, a lucky to benefit most from all bolstered zone three defenses.
Well, we believe awareness and protection in all three zones is required to fully protect organizations the staff data and the reputations.
So the idea of pervasive email security.
How does these three zones.
As well as Leverages, our APC eyes to deliver increased value to customers Soc teams.
And there are other security investments.
Mine cost open a p. eyes and prebuilt integration.
When area of keen interest to customers at the summit.
Email this is such a rich attack surface and given the volume and quality of telemetry and threat intelligence. We gather we have made this value available as part of the pervasive email security strategy.
Other words, helping customers to leverage the value of the email security defenses to make the teams and the other security investments smarter.
We showcased integration concepts with Sims saw endpoint and threat intelligence providers, and we have an exciting roadmap of upcoming integrations too.
On the mine cost organizational side of things I'm very pleased to share with you that ultimate Doshi will join our board as an independent director and serve as a member of the compensation Committee.
Her extensive experience working as both a CIO on the buying side.
And supporting customers as an IP service provider.
Brings a wealth.
Of knowledge and insight to the mine cost board.
Secondly.
Has a benki joins mine cost as our SVP of customer success and operations.
In this newly created position.
On my leadership team.
His experience at Symantec will benefit our customers and our organization as a whole.
Then I'm very happy to announce that we're just back from the ribbon cutting ceremony at our new offices in Central London.
Unifill space that will support our growth.
Facilitate all employees best work their best team work and the greatest learning.
Now, let's look in more detail at some of the ways mime cost has helped our customers to become more fiber resilient in the second quarter.
So firstly, a UK based engineering firm with about 2500 employees experienced malicious you all roles and impersonation attacks penetrating the gateway, while running a legacy email security solution in front of office 306 five.
And they sought a more secure platform.
Additionally, this customer look to add protection from email downtime and provide a robust archive capable of processing E discovery and compliance requirements mimecasts ability to provide a complete solution from one platform with the highest levels of efficacy with central to the wood.
In total this customer purchase nine of our 10 services, including our web security and awareness training and represents a six figure engagement.
This example nicely illustrates the power of the mine cost platform to solve multiple customer problems, while simplifying I T.
Secondly, a U.S. based healthcare provider with about 8000 employees was preparing to me from G suite to office 306 five.
Now as email is mission critical for this organization. They wanted to ensure the migration was successful and they look to mine cost.
Additionally, security and regulatory concerns around email archiving required a comprehensive solution to solve both of these issues the customer evaluated the need to features of office 306, five and found mine cost solution to be highly complementary delivering additional security and resilience.
They needed.
It's really a global financial organization with headquarters in the U.S. and about 11000 employees.
So to replace a legacy on premise is email gateway that was effective at blocking today's threats.
I'm cost was evaluated in a proof of concept alongside other leading vendors and selected on merit.
Well initially an email security engagement during the sales process. They are underperforming legacy on premise email archiving came up.
Looking to leverage cloud services. This customer expanded the original RFP to include archiving and Mimecasts ability to offer if you see compliance supervision services for archiving and our in house data migration services helped us win this deal.
Ultimately this lengthy and rigorous evaluation concluded with a wonderful mine cost due to our superior efficacy an integrated suite of cloud services delivered through a unified administration console.
Then a U.S. based industrial supply company with the body 1100 employees using a suite of mine cost services increased the subscription to include two of our most recent offerings web security and awareness training. This customer who runs a relatively small ITM security stuff was able to further consolidate vendors and replace they stay.
And alone web gateways and their training sweet preparing an integrated solution from mine cost. This customers now subscribe to five mine cost services.
All of which are administrated from a single user interface, removing complexity, simplifying I T and bolstering cyber resilience.
Then a department within a U.S. state government purchased our service for 21000 employees prices selecting mine costs. They were running legacy equipment and we're not happy with the threats penetrating the organization. In addition to put a threat defense their incumbent provider offered a mixture of non integrated technologies.
Leaving two complexity and higher operating costs my cost was able to enhance cyber resilience and simplify I T delivering an integrated solution from a unified management console.
Then a university with 40000 employees and students was played by spear phishing and impersonation attacks getting through their legacy gateway.
This organization was operating in a hybrid configuration with mailboxes Oneexchange Officethree hundred 65 and G suite.
Costs mail routing capabilities enabled through our cloud native architecture, along with superior protection from advanced threats, one this competitive engagement.
Okay.
And finally, a leading global technology company with over 50000 stop using mine cost for email security sought a more effective cyber awareness training solution, one that could modify employee behavior and protect the organization better Mimecast competed against other leading vendors and rich.
Placed an incumbent solution that was found to be overly time consuming for employees and lacked engagement.
Mine cost catalog of training modules was found to be engaging in highly relevant to this customer. Additionally, they appreciated our continuously updated training modules offering new subject matter addressing the ever changing threat landscape.
And finally, our dynamic risk, scoring and our ability to proactively pinpoint risky users and deploy training to modify behavior is was seen as extremely compelling as you can see from the custom examples we continue to have success with larger accounts, while our platform has broad appeal to custom.
Most of all sizes.
So in summary, email security Threed auto extends mine cost beyond the permitted to more pervasive security posture.
We believe email security Threed auto is the next phase of evolution for our industry as it covers all three zones that an organization must defend.
While at the same time, making the value derived from this compelling attack surface.
Evasive across the rest of the customer security ecosystem.
Apiay integrations.
Our customer success and engagement remains a high priority for mine cost evidenced by a successful uses summit.
And our recognition has it gotten APEA insights customer choice for email security.
Im very pleased with the results that we're delivering today exceeding our guidance for both revenue and adjusted EBITDA.
Very much like to thank our customers our partners and of course are growing team of mine Costas for all their hard work and loyalty over this past quarter, we are achieving a lot together.
Now I'd like to turn the call over to Rafe Brown, our CFO to cover our financial results in greater detail.
Great.
Thank you Peter I'm pleased to report that for the second quarter of fiscal 2020, we exceeded the high end of our guidance for both revenue and adjusted EBITDA.
Despite currency headwinds in the second quarter, we generated revenue of $103.4 million, which represents growth of 25.8% over the prior year in absolute dollar terms adjusting for the $2.7 million of currency headwinds, we face our constant currency growth rate over the prior year stood at 29%.
For the quarter.
Note that since providing guidance last quarter foreign currency fluctuations negatively impacted our second quarter results by $400000.
Adjusted EBITDA for the second quarter totaled $20 million, representing an adjusted EBITDA margin of 19.3% compared to 12.3 million or 15% in the same quarter. The prior year as they will explain in a moment adjusted EBITDA was marginally higher than expected due to the upside in revenue as well as the time.
I mean, a certain expenditures on a net customer basis, we added 800 customers in the quarter Mimecast now serves 36100 customers worldwide, while our unified platform services continues to win favor with organizations of all sizes. We once again showed strong performance in our larger enterprise group.
I present, 17% of our revenues in the quarter, our from customers with greater than 5000 seats up from 16% in the second quarter last year.
Consistent with recent trends, we saw an increase in our average order value driven by both customers by multiple services from us and the mix shift whereby we are now selling to a blend of larger customers.
30 of our new engagements in the quarter, we're over six figures and currently the average order value of all customers stands at $11700 up approximately 14% in constant currency terms.
As we introduce new products, we continue to grow the total addressable market for existing customers, which helped drive our average services per customer across or base to 3.2 services per customer in the quarter up from three services last year. At this time are positive trends with customers using Microsoft Office 365 continued in the second.
Quarter with customers using office 365, purchasing a higher number of services per customer 3.5 services per customer compared to three services for customers not used in office 365.
Over 17500 or 48.6% of our customers are now using mimecast in conjunction with office 365 up from 38% in the second quarter 2019.
Our trailing 12 month revenue retention rates stood at 110% underpinned by solid upsell result, as our existing customers continued to renew their subscription and purchase additional services.
From a geographic perspective, North America was clearly the standout with revenue growth in the second quarter remaining above 30%, what we saw growth across EMEA region. It is clear that the EMEA economic environment has softened in particular business in the UK, which represents our largest market outside North America seems to be roughly.
Acting the uncertainty of its political and economic future.
This said as you will see in our guidance, we remain confident in our ability to achieve our full year performance targets.
Turning to gross margins for the second quarter.
We recognized a 76.2% non-GAAP gross margin up 200 basis points from Q2 of the prior year driven largely by efficiencies of scale in our platform.
Second quarter, non-GAAP operating expenses totaled $65.8 million compared to 54.9 million for the same period in the prior year, an increase of 20%.
non-GAAP R&D expenses stood at 16.1% of revenue in the second quarter compared to 15.3% for this same period in the prior year, demonstrating our commitment to innovation as we pursue what we continue to believe is a large market opportunity.
non-GAAP sales and marketing expenses totaled 36.4% of revenue down from 39.8% of revenue for the same period of the prior year in part. This decrease reflects a shifting of market resources from the second to the third quarter aligning with last week's cyber resilience summit.
non-GAAP DNA expense was 11.2% of revenue down 50 basis points from last year's 11.7% of revenue.
Our non-GAAP operating profit for the second quarter was $30 million or 12.6% of revenue up from 6.1 million or 7.4% of revenue in the prior year.
In bottom line terms, our second quarter GAAP net loss was $900000 or a loss of one cents per basic and diluted share based on 61.8 million weighted average shares outstanding.
Our GAAP results reflect a $2.4 million charge for the settlement the patent litigation within the quarter.
The total settlement amount of $5.9 million 3.7 has been expense in this or prior quarters.
The remaining 2.2 million of the settlement will be amortized over the next 42 months.
Our GAAP tax charges totaled approximately $120000 in the quarter, we expect full year GAAP tax charges to be approximately $2.2 million an improvement since our last project of $2.5 million due to the required timing. The majority of this tax charge will fall in the fourth quarter.
Our non-GAAP net income for the quarter was $8.5 million or 13 cents per diluted share based on 63.9 million fully diluted weighted average shares outstanding.
Our non-GAAP tax rate was 30.8% for the quarter, we continue to project a full year non-GAAP tax rate of approximately 31%.
Turning now to cash flows are operating cash flow results illustrate the efficiencies we are gaining in the business for the second quarter operating cash flows totaled $17.7 million or 17.1% of revenue.
190 basis point improvement over last year on year to date bases, we have now generated $46.2 million in operating cash flows versus 29.1 million in the same period for the prior year.
Recalling that Q2 reflects the first large payments for the Buildout of our new UK and South African offices, we still generated $4 million in free cash flow in the quarter compared to $4.2 million in the prior year.
With the UK build out just now completed last week, the South African project, well under way and including the impact of the patent litigation settlement mentioned above we expect Q3 capex charges to total approximately $22 million.
With this in mind in absolute dollar terms, even while now including the impact of the patent litigation settlement. We continue to expect that free cash flow will be in line with halfway 19 performance.
As of September Thirtyth, Mimecast had $199.2 million in cash and short term investments. Let me now turn to guidance for the third quarter 2020 revenues are expected to be in the range of $107.4 million to $108.5 million or 24% to 25% growth.
Note in constant currency terms.
Our guidance is based on exchange rates as of October 30, Onest 2019, and includes an estimated negative impact of $900000. As a result of the strengthening of the U.S. dollar compared to the prior year.
Adjusted EBITDA for the third quarter is expected to be in the range of 17.7 million to $18.7 million.
Full year 2020 revenue.
He is expected to be in the range of $420.8 million to $425.3 million or 26% to 28% growth in constant currency terms.
Foreign exchange rate fluctuations are negatively impacting this guidance by an estimated $9.2 million compared to the rates in effect in the prior year.
The prior guidance for fiscal year 2020 provided in August was $418.3 million at the midpoint, our overachievement in Q2, coupled with the strength were seen in our business is leading us to raise the midpoint of our full year guidance by $2.8 million in constant currency terms.
In addition, this raise of $2.8 million is being positively impacted by an additional $2 million a foreign exchange tailwinds that has arisen since the rates used in our August call, resulting in the midpoint of our full year guidance moving up by $4.8 million in absolute dollar terms from 418.3 million to four.
Hundred in $23.1 million.
Full year adjusted EBITDA expectations are being raised to a range of 72.9 million to $74.4 million, we're increasing our guidance by $1.1 million at the midpoint on an adjusted EBITDA basis.
In summary, I'm pleased to see them. The Mimecast team was able to once again deliver results that exceeded our expectations and then we're raising our full year guidance for revenue and adjusted EBITDA in both constant currency and absolute dollar terms.
Before I turn the call over to the operator for questions I'd like to announce we're hosting an analyst day on Monday, the 24th of February 2020 in San Francisco, a press release with additional details will be issued shortly and we hope you will join us with that I'd like to thank you for your time and open the line to your questions operator can you.
Please poll for the first question.
Certainly ladies and gentlemen ask the question he will lead to press Star then one on your telephone to withdraw your question press the pound key.
Please standby the compiled acuity roster.
Our first question comes from Saket Kalia with Barclays Capital Your line now open.
Hey, Peter Hey, Rick Thanks for taking my questions here.
Okay.
First let me maybe for you Peter.
The number certainly wouldn't indicate it but I'm just curious if you talk a little bit about the competitive environment.
Rental I think there's a view out there that other competitors were perhaps willing to get more aggressive.
If necessary.
It's like pricing I'm wondering if you could talk a little bit about just the overall competitive landscape and pricing at all from from what you saw in the quarter.
Yes, Great question I think our experience has been a very consistent competitive environment.
We haven't seen many changes probably the notable changes just being.
You know with us some AD tech acquisition by all pending some any acquisition by Broadcom.
There is concern amongst customers.
There is concern among partners.
What it comes commitments to email security maybe.
And so that is.
Potentially has some.
Some upcoming opportunity for us, which very excited about.
On the pricing point Bill.
Total examples of competitors being aggressive on pricing, we followed overall in aggregate the pricing environment as being.
Very consistent for us quarter over quarter.
Got it that's very helpful.
Maybe just for my follow up for you Rafe.
800 customer net new customers added in the quarter I think it was maybe slightly higher in the prior quarter Im just wondering if he can speak to obviously the ASV was a little.
Was nicely ahead.
I'm just wondering if you could talk about the profiled customer additions this quarter, it's sort of how you think about the pace of customer additions going forward.
Yes. Thank you.
We're quite pleased with with the pace here.
Customer acquisition I think one of the things that you're seeing is that of course is the net number that we experienced for the quarter and as we've talked about in a number of different ways. The company has started to shift somewhat higher in in terms of the customers that approaches I would say on the very low when we.
D. focused around those customers that were under 50 seats, many of whom are in the historic base.
And then as.
Peter cited a number of examples where we're actually resonating with lot of customers that are much higher level. So you know the rock customer number or the customer account number becomes a bit less important when that mix shift is going on.
Got it very helpful. Thanks, very much guys.
Okay.
Our next question comes from Matt Hedberg with RBC capital markets. Your line is now open.
Hi, guys. Thanks for taking my questions Congrats on the results.
Maybe Peter.
The secure the email security Threed I know initiatives sounds like something great sort of message and I'm wondering if from a go to market perspective.
How do you approach how do you have you have anything perhaps maybe bundles mystery curious how they gets brand because it seems like it's a compelling value prop for customers.
Yes.
Thanks, Matt.
So you got security.
Is a strategy.
The context that I think helps customers understand way.
There is offerings that we have fitted we haven't necessarily translated that into specific you bundle largely because we see it as being a strategy that appeals to slightly larger companies.
Your may not make that change all the single implementation of the strategy wanted one large go.
Looking at a more modular approach to implement take different technology that each one of those zones.
Obviously also.
Placed back into our existing customer base, the vast majority of which have made investments in zone. One of the perimeter there just emmett context to adopt.
Some of on newer offerings.
Each one of those zones. So it's more of a strategy and a positioning.
Textbook customers to adopt new offerings than it is a specific new school.
Bundled products.
Got it and then maybe as a follow up erase you talked about.
You mentioned the UK.
You know some of the some of the the political concerns there.
Just wondering if you put a little bit more color on that what exactly you're seeing there and I know last quarter, you mentioned South Africa as well you Didnt I don't think you brought that up curious maybe an update on that region as well.
You bet you know when we look across the geographies first as I noted the U.S. really turned in some nice numbers and you know very down into Q, we breakout the geographic revenue split and you can see the U.S. so growing it over 31%.
Rest of World still grew which was which was very good we.
I'd like to have seen particularly the UK growing a bit faster really what we're seeing is you know it's showing up in a bunch of the economic reports and whatnot, but.
But then there's this natural tendency for deals to perhaps extend a little bit and move slower and I think.
It's really things like that or trickling through the business.
It's still got good growth, but.
Not as quite as certainly not keeping up with their north American counterparts.
South Africa. The story continues there you know south Africa's relatively smaller market in North America and the UK.
They certainly are having some economic challenges that market, we have quite it quite a strong team there and they do a very good job. So again, you see growth, but it did not able to keep up with the pace that we're demonstrating in North America President.
Got it well done guys.
Thank you.
Our next question comes from Brent dealt with Jefferies. Your line is now open.
Hey, guys Joe on for Brian Thanks for the question.
Through M&A Inorganically, you guys have done a great job a broadening the product portfolio and in the breadth of Mimecast specific offerings, how should we think about the going forward. Specifically also in the context of email security 3.0, which I believe is mainly starting off by partnering with deep Mark and second Sac and then I guess.
Final part of that long question is how should we think about build versus buy versus partner as we move forward with your offerings.
Yes, good question Sir.
So in the in zone three email security.
You're right, we have two great partner offerings.
We're working with.
Have we have existing integrations into into both of those offerings today that joint customers all are able to benefit from.
I think in terms of the mix of both by partner we.
Keep all of those options on the table in terms of how we build off the portfolio I think what you what you'll know about us as the company is that.
Is that we've been extremely organic in our approach to building off this technology platform and that's had tremendous benefit in in terms of our ability to deliver a simplified solution fully integrated suite to customers.
And also particularly as we look at email security Threed auto and the importance of 80 eyes.
Customers to be able to integrate our platform with the rest of the security ecosystem.
Having a contiguous reading a contiguous acres.
Affords that integration in a very slick and straightforward way.
It's certainly important but as you know we have we have.
Yes, conservatively, but steadily.
Operator that some M&A into our strategy the awareness training product, which has really been successful for us has been part of.
By and integration and rebuild on our Mimo. This platform that has worked very well our web security offering also was capitalized originally through M&A.
And some of the other M&A activity that we've had has given us really strong componentry within our.
Within our platform to be able to do a lot of advanced security work as well. So we continue to use all of those one of those tools to be able to build out our product portfolio, but we do it in a very considered ways that we don't create.
Hodgepodge of solutions that customers have to deal with video.
To bring this altogether in a really cohesive continuous proposition.
That's good to hear and very helpful. Just as a follow up we were just that Microsoft ignite and I understand you probably don't speak to specific competitors, but they're really touting their enhancements and security. So I was just wondering if you've seen if at all in the email side have to customers said anything and I understand Microsoft customers I believe over 50% of your new business. So the purpose kind of in the numbers.
But even if the biggest kinda bear case has anything changed there.
Yeah, we continue to see strong demand from office Vsix five customers I think as you.
Mention and in the prepared remarks.
So most almost half of our customers now.
40, 849 said roughly.
Our customers using us in conjunction with.
Five.
So we think it's important that Microsoft continues to invest and security, but I think we're far from.
Turning that they will be able to solve the security problem in its entirety on their road and we feel is a really important place for.
Security resilience suites like what we offer to help customers be confident secure and resilience.
You know as they have.
Increased dependency on office, you six five and indeed.
As the.
Community of adversaries, there is really off at a pretty large scale homogenous attack surface to work with.
Becomes very important to be able to bring additional layers.
Oh security technology to that platform.
To to mitigate some of those risks.
Makes sense. Thanks.
Our next question comes from shall with Oppenheimer. Your line is now open.
Thank you good afternoon, gentlemen, congrats on a consistent execution and elevated outlook.
Peter or rate when you look at the new logos you've added during the quarter and indeed very very good clip on that front as well.
Is there any way to look at it more from a displacement versus a greenfield probably how to quantify that but any color you can share with us we'll be very helpful.
Yeah. That's that's an interesting why not I mean, I think when we wouldn't be looking at.
Straight email security, where we're always displacing some thing.
Unless they're an existing office 306, five customer where we may not be displacing we may be adding an additional layer on top of whatever their license for 365, but the email security market.
His displacement, but its frequently displacement with an upgrade.
So we may be displacing something that doesn't have.
An equivalent capability chart targeted threat protection offering and so we'll be going in replacing but then providing this extended functionality as well.
What we do see.
Is is greenfields opportunity in some of the zone two areas so those being.
Offering and our awareness training offering we customers don't have any defenses in place that yet.
So that is more greenfields.
Although the awesome displacement opportunities that we take advantage of there.
And then I think looking out as an industry that is a lot more greenfields.
Again.
And fresh market opportunity and then of course outside of the definition of email security suite of offerings. The breadth of all portfolio spanning into continuity archiving web security secure messaging and so on.
It was all those are once again combinations of displacement and net new.
Capabilities that are being purchased by customers.
Got it right that this is great color, Peter and as we think about why don't we.
And listening to your prepared remarks comments I will that be taking you into a more for implemented environment I'm also competitively.
I think that they are some slightly different types of competitors.
Markets.
Within that zone three space.
But I think some of those competitors are focused so so on the dimmock side.
A set of competitors that have.
Q2, both nice businesses around the Mark.
And we partnered with several of them.
And I think I'll focus on Dimmock analyze that we believe it is the best partner for us.
Gives us an opportunity to really compete.
The second in that space.
And be successful and then on the on the second sick.
Side.
There are various types of services that.
You know straight hunting in the while picked on activities.
We feel that second six proposition matches much more closely with what we do email and we see that email is is frequently the two it gets used.
Sure to perpetuate these types of.
As a nation look alike domain attacks as solar that's a really good fit but for us, but we do move into a slightly different.
A slightly different competitors set, but we feel very good that particularly when a customer is looking to us as as these aren't wanted to.
Email security provider that zone three available through mine cost.
You know is a no brainer for those customers as well.
Understood. Thank you for that good job congrats thank show.
Our next question comes from Sterling Auty with Jpmorgan. Your line is now open.
Hi, guys. This is Matt on for Sterling. Thanks for taking my question.
The first question is I know you guys talked about.
The shift in expenses next quarter I was wondering if you could give any additional commentary on on now what are some of the factors there driving that.
Yes. Thanks. This is ray you know there is a bit of is shifted they called out just between the second quarter in the back half a year.
I think would need to put it in context, let's first look at the midpoint of the full year EBITDA guidance, which implies.
About 150 basis points improvement over the prior year so.
There is some ongoing investment that will really manifest itself and in marketing spend these shows up in the back half of the year.
Continued R&D investment that there will be going on things of that nature that just werent, maybe the sequential mapped and follow exactly like you saw last year or really quite on course for where we had wanted to being consistent with some of our prior comments on the full year in terms of making sure. We're balancing that line between good growth on the topline.
And also building profitability.
Got it got it and then just a follow up.
Peter.
You know with Mr. Jenny's departure, you know can you review kind of who's going to be running sales and marketing from here.
Absolutely so.
So as you know we announced.
Yes.
A couple of several weeks back that it Jennings you'd be in our COO for about four years.
Is transitioning out of the business to going to pursue an opportunity that is.
His still exploring to be a.
Senior leader in another business at some point.
So are we.
We were fortunate to have some pretty good succession.
In place and so we've elevated.
Arena has run on North American business.
The posture and a half years, we've elevated him to a global head of sales role. So he will sit directly on my team and in fact, we've made these structural changes we implemented them.
From the first of October So just made a lot of sense for us to do them at the midpoint of office yes.
At the same time.
We just announced Heather Bentley here will be joining my team and in a couple of weeks time.
Which was another area that sat on the at Jennings.
And so she will run customer success and operations for us globally.
You can read a little bit more about that in the press release.
And then the marketing pieces and at that.
Now reporting into Kristina front Hoffman and she.
Run strategy product management, and corporate development for us So we have.
An integrated product management marketing.
And Biz Dev cooperative group under her.
So that's the way we have said offs.
The structure of the organization and we've been operating with that model for the Pos.
Well when a bit weeks, it's going extremely well.
Got it thanks for taking the questions. Thanks.
Thank you.
Our next question comes from Gray Powell with Deutsche Bank. Your line is now open.
Great. Thanks, Thanks for taking the question maybe a couple of quick ones.
I know you touched on it before but just how do you feel about the opportunity to gain incremental share from Symantec businesses that as part of Broadcom and then I saw that your we're running some some pretty targeted promotions at Symantec customers I think is back in September .
Could you could you talk about the traction that you're seeing there.
Yes, great. So naturally the broadcom semantic transaction close up a little later in this calendar year. So.
It's not it's not get underway. So we think that the benefits that we expect would come from it.
Maybe more into into next year, specifically, we have a long track record of.
Migrating.
Semantic.
Cloud email security customers onto our platform over the years, we've got several follow some of them.
Yes, and so we've really been highlighting that opportunity to semantic customers and partners as they started to get when the fact that there's some changes coming for them and that the priority of the Broadcom organization at least from our standpoint doesn't appear to be.
Email security.
And certainly doesn't appear to be particularly focused on the midmarket customers.
That that semantic has has historically had.
Yeah, we put these promotions offs.
Certainly driving a lot of interesting conversations.
In the mine cost platform.
Got it okay. Thank you.
Our next question comes from Keith Bachman with Bank of Montreal. Your line is now open.
Hi, Thank you I wanted to ask two questions in the first one is Peter for Peter rather and it's about market orientation.
It did come up.
Part a is it did come up that obviously UK and South Africa's slow.
And I just think about your geographic expansion in the first part is why not be more aggressive because you are subject to such so much more geographic concentration than most tech companies. There's many markets that are still uncovered.
Pick out Canada is an obvious one.
And if you plan. It seems now obviously it takes a while to Germany, but why not be more expansive in your geographic orientation.
In the second part of the orientation question is.
I heard the zone, one zone too soon three.
And the lens seems to be around E Mail and I'm guess just wondering is.
Rather than a lens around email if you think about security processes or should investors expect for the next couple of years with your Apiay strategy that you will largely be remaining around in email orientation that have a quick math follow up.
Yes. It was a great question. So let me start with the second question and then let's come back to two international expansion.
Strategy after that.
So.
So as you know we have we have a pretty broad portfolio of offerings as a company we talk a lot about cyber resilience.
Which is really about at best being able to avoid and impactful cyber incident and the worst with standards and we really think about cyber resilience as being.
This ability to avoid the disruptive impact.
Yeah.
That ceiba incidence may may bring and it's beyond just necessarily breaches of security. It may be disruptions that up the results of human error, well, maybe disruptions as a result of technological failures. So so we're a little bit more agnostic as to whether this is sort of specific security focus this.
Or whether this is a technology issue or.
We're skills issue the things that can cause disruptions, how do we help companies avoid those and that's that's sort of a broad positioning of the company and we have a broad suite of offerings to help deliver against that that promise.
What we have fall though.
That.
Well well companies really like that and we have had a lot of success in selling that.
The number one issue for many security teams today and for many organizations today continues to be email as an entry point.
Into their organizations.
That problem has grown and we expect will continue to grow and solar.
The sudden into the wage.
Yes, it's very important to communicate with the market and to communicate with our customers and prospects.
But we.
Our continue to innovate and have a strong strategic view on the email security market in particular.
This is really about doubling down on that.
And then looking at the rest of our portfolio and say.
We certainly have ample opportunity to sell more of those into that and now it doesn't actually comes at the time as we continue to increment up market.
As we look down market into our smaller customer base and prospects.
Certainly the messaging is slightly more nuance towards the broad suite will get a smaller organizations, but as we talk to larger organization email security suite on those.
You know is the focus of those those initial conversations.
Okay that makes it yet in the Geo.
Sorry.
So.
Actually you know, where we're pretty diversified from a from a.
An international selling perspective, obviously, north American business has grown tremendously and now represents a bit over 50% of all of our revenue.
Across UK, South Africa, Australia Central Europe .
Middle East in fact, I think we pulled up well over 100 countries that redoing, we have customers and today it is sort of fairly.
Oversupplied I think the rhythm and pace at which we look at international expansion is something that we'd be.
Reconsidered about so that we don't.
Run out of it sort of management bandwidth will spread ourselves to suddenly and you want to make sure that we have sufficient pounds per inch in terms of the force that we are applying to our our go to market of our customer service efforts in any market.
Our markets like.
Say, Canada that all compelling.
Adjacent markets, particularly to the the resources that we have in North America. So those.
So those would be those would be good ideas for us in terms of subsequent international expansion opportunity, absolutely and and we do have a few people up in Canada, right now that I've actually been quite successful so that certainly.
Opportunity that we've noted okay. If I could just sneak one in rough you. If you could just talk about your retention rate.
The 110, how should investors think about that going forward.
Because it's obviously slowing a little bit.
Where do you see the resistance point.
You know it.
Yes. Thank you for the question.
Actually when you look back over time, you know it has stayed fairly consistent in that 109 to 111 range.
And that's going back actually quite some time. So you know there is a little modulation in that and.
I think we would expect it to continue to stay in that zone for now okay. Great. Many thanks.
Our next question comes from Terry Tillman with Suntrust Robinson Humphrey. Your line is now open.
Hey, good afternoon, gentlemen, most all my questions have been answered but are not to worry I have a few extra ones. So first on the partnership side, particularly channel partners. As you guys are having success more and that kind of upper end of the middle market Midmarket and enterprise.
We've been hearing about greater and better engagement with some of these kind of key channel partners and Influencers, but I'd like to hear from you. All in terms of your All's perspective on how the level of engagements coming along with some of these key influencers on the channel side.
Yes, that's.
That's it that's a big focus for us.
Both in terms of the sales.
Commercial.
Side of of those channel organizations.
But importantly for us the technical but technology stakeholders within those channel partners. So solution architects sales engineers, that's been a really big focus.
For us over the last couple of quarters ramping up on our education and certification capabilities.
In fact at the cyber resilience summit last week, we had both customers and partners involved in it in learning about our latest technologies and getting trained and certified in those so yes that is that is a very important part of our sales motion, we expect to continue to invest it.
In building those technology influenza relationships within the channel.
Yeah, and my follow up question just Peter in terms of web security just trying to maybe maybe get a gauge on when this could start kind of really breaking out.
I know you've seen some success, we've actually heard about some attach rate without even in some larger customers, but I would love to just get your perspective.
In terms of kind of where do you think you are in kind of what needs to happen for this to really start to add up to something thank you.
Yes, Greg.
As you say, we launched our first version of our web security product.
On one year ago.
We continue to integrate on that product and matured and that capabilities. I think we're just on on version 1.4 NOL.
Weve.
We feel good about the progress that we making in that in that space again, I'll focus with this product was really to sell to customers that it already chosen us for.
Email security capabilities and to add this is an additional.
Oh functionality, so we've seen displacement opportunities around things like Cisco umbrella, we've seen greenfields opportunities, where perhaps the customer had some kind of you TM devices going into the network, but didn't have coverage for.
Users.
He or remote worker remote office situation. So we think it's a very large opportunity.
We're running all our place in that market.
We'll we'll keep you posted as we as we progress and continue to innovate there.
Sounds good thanks.
And our last question comes from Catharine Trebnick with Dougherty. Your line is now open Oh. Thank you for taking the question and this is for you raised I noticed your billings for Q2 came in shorter than the total revenue and that was the same with Q1 can you give us some underlying.
Fine dynamics, what might be driving that because you've had some decent billings numbers in growth rate.
Last year.
Yes. Thank you for the question you know wonder that things I think we've tried to consistently message the billings that number, which we don't give but where where people often try and calculate by backing into it can be highly variable really most significantly impacted by FX keep in mind.
You don't want to just like we have constant currency revenue numbers. Those same forces are a play with billings, but it's almost a little bit worse, because usually when calculated by looking at deferred revenue, which is the balance sheet AIDS. So you get these very big balance sheet swings. So that can be very deceptive, it's certainly when you're looking.
Got it I guess, the best thing I would refer you to is our guidance where.
Again, we raised our full year guidance by 100 basis points to 27% growth at the midpoint, that's really the best indicator of where we believe the underlying business fundamentals are taken this.
Alright, thank you.
And that concludes today's question and answer session I'd like to turn the call back to Mr. Bauer for closing remarks.
Great. Thanks, everybody for joining our call. This evening, we've enjoyed sharing our results with you and we look forward to speaking again in about one quarter's time. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you participating you may now disconnect.