Q4 2019 Earnings Call
You are currently holding for the proof 0.4th quarter 2019 Holdings results conference at this time, we're assembling audiences. Shortly we think for your patience and holding LLC. Please your minimum line.
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Please standby as we're about to begin.
Good day and welcome to the proof 0.4th quarter 2019 earnings results Conference call.
This conference is being recorded.
This time I would like to turn the call over to Jason Starr Vice President Investor Relations you may begin.
Thanks.
Good afternoon, Wallcover points fourth quarter 2019 earnings call today, we'll be discussing results for not only the fourth quarter, but also a full year 2019 as detailed in the press release, we issued after the market close this afternoon.
Which is available on the Investor Relations section of our website.
Joining me here on the call or Gary Steele, Proofpoints, Chief Executive Officer unsure about of the board at Hawesville Proofpoints, Chief Financial Officer [laughter] through the course of this call will make forward looking statements regarding future events in future financial performance of the company, which are subject material risks and uncertainties that could cause actual results to differ materially we call.
You need to consider the important risk factors contained in the press release add on this conference call.
These risk factors are also more fully detailed under the caption risk factors proof points filing with the FCC, including our most recent Form 10-Q .
These forward looking statements are based on assumptions, we believed to be reasonable just today's date January Thirtyth 2020, we undertake no obligation to update these statements as a result of new information or future events.
I've known you just put forth policy that neither reiterates nor jumped the financial guidance provided on todays call unless it was also down through a public disclosure such as a press release, what do the filing on form 8-K.
Additionally, we will present, both GAAP and non-GAAP financial measures on todays call. These non-GAAP measures exclude a number of items are set forth in our release <unk> non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results. We encourage you to consider all measures what allergan coupons performance.
A reconciliation of GAAP to non-GAAP measures analysts to the reasons why the company uses these non-GAAP measures are included in today's press release.
Finally in addition to read our press releases FCC filings. We encourage investors also monitor the investor section of our web site at investors don't Proofpoint Dotcom as we routinely post investor oriented information such as news and events financial filings Webcasts <unk> presentations and other relevant materials to it. So that's that's all I'll turn the call to Gary.
Thanks, Jason I like to thank everyone for joining us on the call today, we're very pleased with our fourth quarter results, which close out another great. Another year of great execution for proof point, both financially and strategically our overall business momentum remained strong driven by the continuing demand for next generation cloud security and compliance platform via.
I'm going migration to the cloud and our unique visibility into the rapidly evolving threat landscape.
Full year 2019, we beat our guidance on all metrics highlighted by our billings growth of 22% and our revenue growth of 24%.
Our results also demonstrated the compelling operating leverage intrinsic tour business model with our non-GAAP operating metrics such as gross margin that income and free cash flow all coming in ahead of our guidance.
The army strong financial results throughout the year, we continue to invest in expanding our product offerings, while scaling our organization infrastructure around the globe with an eye toward capturing a significant growth opportunity that lies ahead.
The competitive environment remains favorable and our people centric approach to cyber security and compliance is resonating with our customers and prospects alike as evidenced by our continued high win rates robust demand for our emerging products and our world class renewal rate, which remains nicely above 90%.
Yeah, I agree migration of enterprise applications and workloads to the cloud provides organizations with many well known benefits, but it also provides attackers with entirely new and often unprotected.
Factors that they can exploit to compromise into the individuals for financial gain.
To deal with these evolving challenge as companies need a comprehensive set of people centric cyber security and compliance capabilities do better safeguard their employees from threats and the sensitive data they interact with.
As attackers have moved away from targeting infrastructure and towards socially engineered attacks. The target people security leaders increasingly need the ability to understand not only through and their organization is being targeted but also the sensitivity of the information and the resources that those individuals can access.
As well as how likely they are to be tricked into say coming to an attack additional information such as the sophistication that'd be attackers for instance are there hacker or state sponsored threat actor or whether they attack as targeted or part of a broader campaign is important so the security teams can take appropriate steps to prioritize their secure.
32, their highest risk most privileged for most vulnerable users.
Reported is uniquely positioned to solve all of these challenges by combining our excellence and email security threat intelligence with our broadening reach across new threat factors, such as the cloud web and social media.
That's over 90% of attacks beginning with malicious email. This sector remains the most important entry point for enterprise to secure and given the rapidly changing threat landscape existing legacy solutions enable to provide enterprises with a sufficiently capable at a fast do their lack of focus and innovation.
Our ability to quickly release effective solutions to protect against business email compromise or B C through our email fraud defense as well as email account compromised or accounts be solutions solution are great. Examples of this agility.
Defending against the email attack vector has always been through price core capability and insights gained by filtering billions of emails daily provide extraordinary visibility into both the sources and destinations hobbies targeted attacks as well as a specific intense each malicious campaign. This unique vantage point not only serves as the.
Foundation of our exceptional ability protect customers for email threats, but also enables us to provide each customer what an actionable data regarding their most attacked employees and how fast to protect them.
Since the same attacks that the threat actors attempt to deliver through email are simply re purpose and delivered through these new o'clock cloud attack vectors all of the intelligence that we glean from our email filtering system is automatically apply to our broader set of people centric defensive.
One of the other people send vigorous that organizations face our threats from malicious Carol its or compromise insiders, it's actually as noted in the most recent rising data breach investigations report approximately one third of all breaches were due to insiders further highlighting the need for security and compliance teams to gain visibility into this critical defense point.
[noise] this important risk factor associated with the insight or activity served as a key driver behind the acquisition of observe it and their leidy and insider threat management platform.
And now such serves as an important investment in our ongoing mission to provide our customers with a single integrated comprehensive platform to protect their sensitive data from these types of people base RIS.
This ITM capabilities delivered through a lightweight sensor that is loaded onto the endpoint and empower security teams did attacked investigate and prevent potential insider threat incidents by delivering real time alerts and actionable insights into user activity.
Overall, we're making good progress in our integration efforts with the observe it and we're already seeing some early customer interest in this new capability across industries like financial services manufacturing and retail as noted in our press release announcing the acquisition observe a traditionally sold their technology as an on premise solution based on a per pad.
Through a licensee model, we're making an immediate transition Joe subscription based model as Paul will discuss later, we also expect to release a cloud based version of the insider threat management solution. Later, this year, which will further differentiate this offering.
Beyond the core insider threat management solution. We also see an attractive opportunity to further leverage that deserve it inpoint sensor technology and user behavior and risk analytics.
We plan to integrate these capabilities with our email data loss prevention and casualty solutions to create a unified DLP solution.
This cloud based service will leverage our unique combination of data classic vacation user activity inside and smart context to significantly improve upon legacy on premise DLP products that are based on outdated architectures and I'd suited for modern IP environments.
The core unified ERP surface will enable customers to have unprecedented unprecedented insights into data loss and user activity across email endpoint and cloud applications and is expected to be available later this year.
It was also had the option to extend these capabilities to data at rest VR, David discover product and I didn't sanctioned web applications VR isolation technology.
We believe this can be a potential game changer, when compared to other legacy on premise DLP solutions that are currently deployed in the market represents a significant expansion of our total addressable market. In fact, we estimate that both insider threat management and unified DLP will expand our addressable market by an incremental billion dollars.
This is yet another great example, up our proven ability to acquire innovative technology solutions and pair of them with existing per point solutions to enable us to create highly differentiated offerings that in many cases no other vendor in the industry can offer we believe that these solutions are unmatched in the marketplace and are increasingly critical is protecting.
Enterprises from threat actors now turning to some of our key operating results during the fourth quarter.
Really changing threat landscape and the ongoing transition to the cloud and the migration to Microsoft Office 365 in particular content do you continue to be the key secular can continue to be the key secular trends that are helping to drive proof points demand for proof points full suite of security compliance solutions as existing on premise.
Infrastructure by definition cannot meet the challenges of this new generation of cloud systems and infrastructure.
We also continue to effectively demonstrate the strength of reprice products when compared to the baseline security solutions provided by Microsoft as part of their Officethree hundred 65 bundles. In fact in Q4, we had a record quarter in terms of new annual recurring revenue driven by customers upgrading their security from Microsoft two proof point.
Examples of customers, who had moved off and 365 and subsequently decided to upgrade their security capabilities with Proofpoint. During the fourth quarter included a fortune 500 manufacturing company the purchase that piece there a bundle for 50000 users and software engineering from the purchase of either a bundle and he sat for 30000 users.
A European consulting firm that purchased protection and tap for 20000 users and the European payments company that purchase a teaser bundle and piece out for 10000 users.
We're also pleased with the success of our out on sales into our customer base, which contributed nicely to our growth. This quarter in particular, we're very encouraged by the ongoing strengthened demand for our emerging products, which yet again represented over one third of the total new went out on business closed during the quarter led by strong demand for proof.
Security awareness training or piece that email fraud defense or ft, and threat response as well we're quite pleased with the developing traction we're seeing the cap isolation launched in Q3, which seamlessly integrates our browser Iceland isolation technology into our tap advanced threat detection system in order to further enhance the protection are good.
Users.
We had several notable wins in the quarter, including one transaction in Europe that was in excess of $1 million in county recurring revenue.
We're also seeing good progress in the market with our Kathy service with several key wins in the quarter, including a 30000 seat deployment for a state government.
As we shared in prior calls we've seen a significant increase in a number of account takeovers of office, we 65 and other cloud based applications, putting organizations a significant risk risk from exfiltration of sensitive data within the accounts as well as internal attacks being launched by threat actors from these compromise accounts inside their own copper.
The main our casualty service can automatically detect signs a compromise alert security gains teens and help and take corrective actions to regain control of the account.
Overall, we're very encouraged by the ongoing strength and demand for our emerging products, which continue to meaningfully outpace the rest of our product portfolio and again contributed over one third of the total new and add on business closed during the quarter.
We're also pleased that at the end 2019, our emerging products represented over 25% or they are under contract at the end of 2019 up from 20% at the end of 2018.
A key initiative for our go to market. This year in support of these initiatives. These emerging products with the launch of our solutions bundles FY zero PD, one PD to be three.
We believe that these bundles to make it easier for customers consume our broad set of capabilities, eliminating the need for multiple sales cycles and greatly simplifying the sales process for our sales team and importantly for the channel customers have also cited our bundles ability to help them consolidate vendors and simplify security purchasing [noise].
While this effort it's still early bundled products again contributed nicely to your Q4 Q4 results, reflecting solid customer interest in this approach in fact, we closed over 200 deals with the entry level P. zero and PD one bundles. This quarter and also made further progress with our higher end T. Two and Petri bundles in total but.
Not solutions represented over 20% of the annual recurring revenue that was added in the fourth quarter examples of customers purchase bundles. During the fourth quarter included a fortune 500 financial services from the purchased a piece or a bundle and also privacy ft in isolation for 25000 users and a regional medical center that upgrade.
Thats your P. three bundle for 10000 users.
We also recorded another quarter of solid growth with our archiving solution as 2019 represented a breakout year for this product operate our pipeline continues to strengthen with several deals converting in the fourth quarter, including a fortune 500 financial services firm that added additional compliance services further 80000 users I think government.
Services Department that purchased archiving for 13000 users a fortune 100 retailer that added archiving for 11000 users and a large asset management from that purchase archiving and piece that for 4500 users.
We also remain excited about our technology ecosystem partnerships, which continued to drive our pipeline extend our market reach and increase overall value to customers.
Delivering an integrated framework across the family a best in class Security solutions.
No I recently integrations with October and cross strike are progressing quite well, resulting in several several recent wins that implemented these joint solution this past quarter.
We also continue to make progress towards further expansion abroad and are pleased with the quarterly results in our international business, which grew 30% year over year and represented 20% a total revenue overall, we believe that the operations outside the United States, we're executing well with no indications that macro weakness or headwinds from Brexit.
As highlighted by several notable international deals close during the quarter such as a global 2000 pharmaceutical firm that purchased protection time isolation that threat response for 140000 users a global 2000 financial services firm that purchased a key one bundled in isolation for 70000 users.
And a global 2000 retailer that purchased protection tap any a key for 60000 users.
As we announced last week, we were pleased to report that proof points protection tap and email data loss prevention solutions have officially achieved fed ramp authorize status, joining our archiving service, which achieved this status in 2017. This is expected to help bolster our opportunity to gain share in the federal market over the coming.
Years, particularly given the large number of agencies that still rely on legacy on premise solutions for their email security and archiving requirements. Finally, we continue to invest in our overall growth opportunity and we're very pleased to have added nearly 800 people to our team around the world over the course of the past year with our total headcount ending at approximate.
3400 at the end of 2018, we plan to continue and invest in scaling our team in 2020, particularly in markets overseas as we capitalize on the burgeoning demand for people centric security and compliance around the world.
So in summary, we're very pleased with our strong Q4 results and our market momentum as we enter 2020, our unique people centric approach to cyber security and compliance is clearly resonating with customers and prospects alike, and we believe we are well positioned to further execute on or plan to continue to gain share and drive attractive top and bottom line growth.
As we scale well beyond our billion dollar run rate, leading the industry as we define an entirely new and important category security and compliance in the years ahead with that let me turn it over to Paul Thanks, Gary.
We were quite pleased with our operating results. This quarter revenue totaled 243.4 million up 23% year over year and well above our guidance range of 237.5 to 239.5 million. We believe that these results are particularly compelling when considering that approximately 99% of this revenue is recurring which just this week.
Part of the leader on this metric across all publicly traded SaaS companies.
As expected at the time that we announced the acquisition observed contribute normally to these results to the tune of roughly 3.4 million in total based on the combination of both perpetual and time based licenses along with a contribution from legacy deferred revenue that was added to the balance sheet and recognized during the quarter.
Absent this impact we would have reported revenues of roughly 240 million or 21% growth still above the high end of our guidance range for the quarter and a very good result, when viewed in the context of the challenging comparison measured against the results that we recorded during the fourth quarter of 2018.
As we expected the year in calendar proved to be quite challenging with many companies marking their final working day of year on December 20, Threerd and in some cases even sooner.
That said, our sales and administrative teams executed an excellent form proactively working with each customer prospect to get their paperwork submitted before at our company close down for the holiday, enabling us to deliver billings during the fourth quarter of 347.2 billion, an increase of 29% year over year at above the high end of our guidance range of 303.
39 to 343 million.
Gary and I would like to take this opportunity. Thank all of our teams around the world for their extraordinarily long hours and hard work throughout the holiday season, and delivering this billings record for the company and for our shareholders.
That is expected our fourth quarter buildings represented nearly one third of total billings for the year, reflecting a quarter to quarter sequential increase of nearly 25% from the preceding quarter and further underscoring the increasing seasonality we are seeing and this metric.
As noted on prior calls under Esa AOCI six or six the derivation of our billings metric now requires adjustments to reflect unbilled accounts receivable activity during the quarter as well as any write a refund liability for Q4 the adjustment related to these two items have positive impact to billings of 1.4 million.
Our duration over the course of the year continued to underscore the high quality of our free cash flow generation as we operated within our historical range of 14% 20 months across the parts of the entire year fourth quarter was consistent with the duration that we recorded during the prior quarter as some of our larger customers chose to execute multiyear prepay transactions as part of.
To the purchase and deployment of larger bundles of Proofpoint solutions.
Turning to in terms of duration is further reflected in our deferred revenue balances, which ended the quarter at 784 million of 109 million sequentially with short term growing by 73 million and long term increasing by only 36 million note that this growth and long term deferred revenue only contributed to 33% of the overall sequential increase in to progress.
Revenue for the quarter down from 41% in Q3 of this year and it is also worth noting that our short term deferred revenue balance grew by 26% when measured year over year.
Before turning to expense and profitability metrics I'd like to provide some final commentary as it relates to our segment reporting as we've shared on prior calls our bundling initiative has become a key element in our strategy to drive further customer adoption of our growing portfolio of solutions as Gary noted over 20%.
It was added 2019 was driven by this new approach and we are encouraged with our early traction.
We expect to continue to drive adoption of these bundles in the years ahead, they will become an increasingly meaningful contributor to our revenue with the allocation of value of individual products, becoming increasingly subjective as a result.
With that in mind, and given our evolving operating structure as business, we will no longer provide segment reporting between our advanced threat and are a bit and our overall compliance oriented products. As we believed that it is not informative in terms of measuring the performance of the business nor does it reflect how we run the business in terms of reporting or operating structure.
Turning to expenses and profitability for the fourth quarter on a non-GAAP basis. Our total gross margin was 80% above our expectations driven primarily by our strong revenue performance.
During the fourth quarter total non-GAAP operating expenses increased 23% over the prior year period to 157.1 million, representing 65% of total revenue.
In terms of profitability for the quarter, we reported non-GAAP net income of 33.2 million above our guidance range of 30 to 32 million and note that phenomenal addition of revenues from observe it we're effectively offset by additional operating expenses contributed by their operations and as such as expected. The acquisition had no material impact on the net income recorded for the quarter.
Yes.
Moving on to EPS non-GAAP earnings per share for the quarter was 52 cents per fully diluted share above our guidance range of 47 at 50 cents based on 64.9 million shares EPS calculation applies the converted method to our newly issued convertible notes and as such as back 575000 to cash interest.
Associated with the convertible debt.
On a GAAP basis, we recorded a net loss for the fourth quarter totaling 28.7 million or 51 cents per share based on 56.5 million shares outstanding.
Cash flow, we generated 76.4 million in operating cash flow and invested 11.3 million capital expenditures, resulting in free cash flow for the quarter 65.1 million above our guidance range of 58.2 to 60.2 billion.
Turning to a quick summary, the results for the full year 2019 total revenue was 888 million an increase of 24% compared to 2018.
Billings for the full year were 1.072 billion up 722% year over year and above the high end of our final guidance for the year.
non-GAAP net income for the year was 106.7 million or $1.77 per share based on 60.7 million weighted average.
Diluted shares outstanding and above our guidance of 103.5, 205.5 billion or $1.72 to $1.75 per share EPS calculation applies the if convert method and as such as back 818000 cash interest associated with our convertible debt.
We generated 242.5 million operating cash flow and invested 35.2 million in capital expenditures, resulting in free cash flow to the year of 207.3 million.
Excluding the onetime payment of 8.4 million for the transfer of intellectual property associated with our acquisition embedded networks free cash flow would've been 215.7 million or 24% of revenue up from the 22% recorded in 2018, highlighting the company's ability to generate strong free cash flow growth.
At the same time, delivering compelling topline results and scale.
I'd like to take them over to provide everyone with an update regarding our annual customer statistics, which underscore the significant progress we've made it both expanding our customer base, while driving a sale of additional services over the past 12 months.
In terms of enterprise customer account.
We are up 31% over the past 12 months ending the year with approximately 7100 enterprise customers each of which contributes a minimum of $10000 in annual recurring revenue to our business.
As in past years. This metric continues to exclude the tens of thousands of smaller customers that are below this annually recurring revenue threshold, most of whom access our solutions through our SMB oriented you Central's platform.
As a reminder, proofpoint essentials is our cloud based multi tenant email security solution targeted at smaller businesses and what the same world class email security. This available with our per point protection and tap solutions, but don't need the dedicated infrastructure and other features provided as part of our enterprise platform.
This essential solution is primarily sold through MSP partners and has steadily gaining traction and market share in the market over the past several years in fact as of end of the fourth quarter. We're pleased to report W. essentially platform now provides services to over 100000 customers around the world through these partners and going forward, we believed that our starts.
Well solution is poised for continued growth in the years ahead.
Another important factor fueling our growth as our success in driving additional sales to our existing customers by leveraging our broadening product line, which now stands at 20 unique services and continues to represent an opportunity well over $1 billion annually recurring revenue. If we were to sell these products into our install base.
This expanding product portfolio is also important as many of these solutions such as Pisa insider threat management, Caspian digital risk create additional opportunities to engage prospects and land new customers beyond our traditional entry point leveraging protection and tap.
Overall, we continue to make great progress would add on sales with just over 60% of nor recorded in 2019 coming from add on and further exemplified by the fact that over the past 12 months the number of customers with three or more products has increased from 20 904000, an increase of 38% yet this statistic also highlights the.
Just over half of our customers still only have one or two products, providing substantial headroom to drive revenue growth through add on sales into our customer base.
We ended the year with approximately 540 enterprise customers to the Fortune 1000.
So just over half of that index, each of whom has at least one significant enterprise scale deployment with pro point.
It's important to note however that even with this ongoing success, we still have substantial opportunity to further grow our revenues with these customers through the add on sale of additional proofpoint capabilities. While also winning new customers in this category through our best in class security compliance solutions and as a point of reference a piece fortune 1000 customers roughly three quarters of.
Our per point protection customers, which means that many of these customers joined proof point through an initial purchase of a solution outside of our core email security product line, demonstrating yet another benefit of our broad product suite.
Internationally, we ended the year with 24% of the global 2000 further highlighting that the addressable market outside of the United States in both EMEA and Asia Pacific represents a compelling future growth opportunity for per point.
We're quite pleased with the progress we've made and expanding our global customer base and further penetrating it with our comprehensive portfolio of security compliance products. We plan to provide an even deeper dive regarding our traction with our goals add on sales and expanding our global customer base at our 2020 analyst day, which we expect to hold sometime during the second half.
This year.
With 29 team behind US, let's move on to guidance for 2020.
As we start the new year, we remain well positioned with a broad product line, a loyal customer base, a favorable competitive environment and a line of sight to generating revenues in excess of $1 billion. A milestone that has been achieved by only 5% public tech companies that were founded since the year 2000.
In terms of billings as we shared at our Q3 call in October after 32 consecutive quarters of consistently exceeding our billings guidance.
We have decided that we will no longer be provided guidance to this metric with our operational activities now evolving to carry more of an emphasis on the timing of cash flow rather than the timing of billings for those investors and analysts who choose to continue to model. This metric, we'd like to raider reiterate our previous commentary that billings growth will likely be equal to or.
Slightly less than revenue growth in 2020, depending on duration adult contracts, which we would expect to remain somewhere in our range of 14% 20 months and in terms of timing should follow a seasonal pattern similar to past years, given the timing of sales and customer renewal cycles with approximately 35% to 40% of billings invoiced in the first half a year.
And approximately one third being invoiced during the fourth quarter.
Please refer to the detailed commentary that we provided during our call in October for additional modeling commentary on this topic.
In terms of revenue guidance for 2020, we're increasing our original range of 1.05 to 1.06 to 5 billion to a new range of 1.06 to 1.067 billion, which raises the midpoint by just over 7 million and reflects an annual growth rate of 20%.
When factoring in our Q1 guidance that I will outline shortly of approximately 22% growth and adjusting for the 3.4 million in revenues contributed by service in Q4 19.
The high end of this annual guidance range suggest approximately 20% growth for each of the final three quarters of year 2020.
As Gary noted we are excited about our acquisition of observe it and then a world class inside of the truck platform and I'd like to take a moment to provide some additional marveling points on this topic.
As we noted in the November release announcing the acquisition. We are immediately moving their business from a model based on perpetual licenses to a model based on subscription licenses in order to directly aligned with the rest of our solutions under standard acquisition accounting with over the course of 2020, we will recognize the totaled 3.7 million a deferred revenue.
Associated with our legacy support maintenance contracts to be recognized as follows 1.2 million in Q1 $1.1 million in Q2 point 8 million in Q3 and point 6 million in Q4.
Beyond this limited deferred revenue benefit we are effectively starting from scratch in terms of the economic model of selling subscription based licenses on a go forward basis for the solution.
And with this measured against an annualized spend rate in the acquired business of roughly 40 million.
Or 10 million per quarter.
We expect full year 2020, non-GAAP gross margins to be approximately 79.5% modestly improved when compared to 2019 and above the high end of our long term range of 77% to 79%.
In terms of non-GAAP net income based on the details that we provided on our call in October our implied guide for net income for the full year was roughly 120 billion at the midpoint.
However, subsequent to that guidance in mid November we announced our acquisition of observe it.
Taking into account for $40 million of additional operating expense from this acquisition offset by the aforementioned 3.7 million contribution to revenues from acquired deferred revenue brings the midpoint of our initial guidance down to roughly 90 million when applying a C and D I tax rate of 17%.
With all that as background when taking these factors into account we are raising the midpoint of our initial guidance to 93 million with a range of 91 to 95 million or a $1.42 to $1.48 per share using 65.8 million shares outstanding.
In terms of a tax rate under Cmdr for 2020, we expect great consistent with 2019 of approximately 17%.
This guidance also assumes depreciation of roughly 36 to 38 million 11 million in net cash interest income and an income tax provision exclusive of potential discreet items of approximately 3.5 million.
Now turning to cash flow free cash flow in particular for the year as we added on our earnings call and shared in October our initial expectation for free cash flow. In 2020 was approximately 225 million, which included roughly 25 million in onetime net cash expenses associated with the buildout of our.
New corporate headquarters.
As with net income subsequent to this guidance, we announced our acquisition of observe it in November we indicated that Four Q2 020, we've been taking on annualized spending of roughly $40 million with an estimated offset from the legacy maintenance and support activities of roughly 5 million.
This impact alone would naturally just our original guidance of 225 million downwards and 190 million.
With that said with the acquisition complete we've decided to repatriate the intellectual property for company from Israel to the United States consistent with our tax strategies for both men and networks and firefighters. This onetime tax payment of roughly $20 million will be incurred here in Q1 of 2020, thus adjusting our initial cash flow guidance down further by an additional 20.
Million from 190 to 170 million.
With all that as a backdrop in taking all these factors into account we were effectively raising our free cash flow estimate here at the start of the year by $10 million from this adjusted baseline of 170 million to an updated range of approximately 178 to 182 million, which equates to a free cash flow margins of approximately 17%.
That said, if we adjust for the onetime effects. Just noted this would bring our adjusted free cash flow to approximately 260 million, which at 24% of revenue would be consistent with the 2020 model that we outlined at our analyst days in both 2016 in 2017.
Similar to past years, we expect the majority just cash flow to be delivered in the second half a year with roughly 65 million were 35% of total contributed in the first half.
Consistent with last quarter's commentary. This 2020 guidance assumes capital expenditures of 93.5 million, including approximately 43.5 billion capex associated with the build out of our new headquarters they'll partially offset by approximately 18.5 billion in the form.
Got a tenant allowance that we had negotiated with the landlord as a reminder, this offset will run through the operating cash line of cash flow statement as opposed to netting against capital expense.
Now, let's discuss our financial outlook for the first quarter in particular as noted we expect revenue.
To be in the range of 246 to 248 million, reflecting 22% spoke midpoint, we expect first quarter non-GAAP gross margin to be roughly 79% down slightly from Q4.
Expect first quarter non-GAAP net income to be 16 to 18 million or 25 to 29 cents per share.
This also assumes an income tax provision exclusive discreet items of approximately 1 million during the quarter net cash interest income of 3 million.
Ration of roughly 9 million and the share count of 65.1 million fully diluted shares outstanding.
We expect first quarter free cash flow to be 50 to 52 million, which includes capital expenditures of roughly 11 million no material spending under the campus. This guidance also includes before mentioned 20 million dollar cash payment associated with the observe it intellectual property transfer.
Before wrapping up I'd like to share a few reminders about seasonal trends that occur within our financial model first revenue growth tends to be lower sequentially from the fourth quarter to first quarter given that we employ a daily revenue recognition methodology with respect to releasing subscription revenues from our deferred revenue accounts.
More specifically given that Q1 has only 91 days or revenue recognized as compared to 92 in Q4 the results as a sequential decline in subscription revenue for our existing business of approximately 1%, which equates to roughly 2.5 million that our current size and scale.
Also on the cost side keep in mind that the first quarter is always a step backward in terms of profitability and cash flow for the company as our first quarter includes seasonal increases in costs associated with payroll taxes sales kick off initial sales and marketing investments for the year the timing of payment for the company's annual bonus program as well as accelerated commission payments for our top.
As performers at the end the year.
In conclusion, we continue to execute well delivering strong top and bottom line operating results in the fourth quarter and the full year 2019, and we remain well positioned competitively our target of 2020 investments are expected to expand this opportunity and we believe the per point remains well positioned to continue to drive disciplined growth with increasing.
Free cash flow margins in the years ahead built on our proven capability to defend enterprises against today's advanced security and compliance threats.
Well 2020 is clearly a bit of the investment here, given our new headquarters and the integration of observe it we do expect these to be absorbed into our operating framework as we exit 2020.
In terms of one final thought as we execute on our guidance of exceeding 1 billion in revenue here in 2020 from this vantage point, we see a much larger opportunity in the years ahead, given or many investments over the years paired with what we believed to be very favorable trends in the market. So with that said we are now turning our focus to our next major milestone where.
We intend to double the business to 2 billion in annualized revenues in the 2023 2024 timeframe, while continuing to execute on our ongoing commitment of delivering a rule 40 score in the mid Fortys built on the combination of attractive revenue growth and free cash flow margins.
Before turning it over to the operator for questions I would like to request that everyone limit themselves to just one question to help reduce the duration of our call and to ensure that everyone has a chance to be included in todays discussion.
Thank you very much for taking the time to join us on our call today and with that we'd be happy to take your questions now.
Operator.
Thank you.
A question please signal by pressing star one on your telephone keypad and if you're using.
Please make sure you me assumption is turned off like a signal threeq our equipment again press star one to ask a question.
Hello, everyone and office.
Her question.
And we'll go first to drop of Piper Safra Corporation.
Great. Thank you guys are taking my question Gary in your prepared remarks, you did talk about email remaining a top attack vector and you talked about your unique vantage point of billions of emails daily and how that helps feed the entire system and also pointed out that the new air are from Microsoft to proof point hitting record levels, but.
You know if you just strategically look at where Microsoft ecosystem. There also seeing even more emails daily and so I guess over the long run what keeps you had to them and where is the competitive mode. We havent they've been able to catch up in your opinion at this point.
Well I think that.
The one advantage that we have as this is what we do for a living this is what we wake up and thinking about every single day.
And what is critical in this world is to have a high level of agility and as I noted in our.
Prepared remarks, as we've seen the threat landscape move we've responded with capabilities and better protect their customers and I think it into the day agility as be absolutely critical element here that that ultimately creates that competitive mode.
And if you look at the history, Microsoft in this market for a long time. They originally thought front bridge and the four or five timeframe to turn into ERP ERP as they've been a core part of every single bundle.
That they've had when it was on Prem and then when it was in the cloud.
And that and Thats still over that 14 year period 15 year period. There is still haven't been able to respond with the agility required and then they introduced ATP advanced threat protection in 2015 in June it's been out almost five years and we just haven't seeing the agility required to keep up with the change in that threat landscape and the threat actors and because this is all we do.
We've been able to continue to stay well ahead of what microseismic up to deliver.
Thanks.
And our next question.
From Walter Pritchard City.
Hi, Thanks.
A question for you Gary I think certain German is the first product you have a really a substantial footprint on the endpoint and I know you mentioned, it's kind of a minimal agent.
But it will sort of thought as I'm a whole host.
The host product how do you think about the built your ambitions on the endpoint further building that out and is that something that should inevitable. If you sort of expand your the sort of ambition or what your companies trying to do around people centric security.
Yeah, no great question so.
We viewed have you didnt have any quite presence as critical as we bring together all the capabilities required for a unified DLP offering any particular what are the key used cases that you can only identified through having an endpoint would be to say for example be able to identify.
User who downloads information from Salesforce, and then wants to take that information and put it out.
Thanks, and web App wide Dropbox. So those are critical use cases, where we see an endpoint is super strategic in our overall product portfolio now the other part of your question do we see ourselves moving that endpoint agent in DDR, we do not see that so we do not have intention of going out and compete.
And again, the endpoint security vendors like a crowd strike or others and we continue to see our partnership having great benefit there we want to be able to use is important strategically from a DLP perspective.
Okay. Thank you.
And moving on will go to a question there are headwinds Macquarie.
Oh, great. Thank you guys go much for taking my question.
Okay.
We would view.
Really very much and looking forward to sub brands third place seeing it come through I believe last week on top.
And our core email, but obviously really good news. So there's no massive amounts of migration federal government over to both often.
Five imaginary Wow.
I'm wondering how you're thinking about war planes.
Not that yes, we do have had ramp certification today and how large is an opportunity you think you could do.
Yes. Good question. So we're very excited about the opportunity.
Within the federal government.
Noted in our prepared remarks, we've had said rent certification for our archiving solutions as 2017 and now with the certification of our core protection and tap solution, we think that Theres, a great opportunity there as the broader federal government moves from.
A widely on prem environment to increasingly a cloud environment with office 365, or even Google G suite. So we're super excited about that enable that that we've been focused on is building out our go to market capabilities with a robot with a larger and more robust sales team that's been happening over the course of last year.
And so that team is wrapping and we feel very good about this opportunity if you look today across our business.
All government has been roughly.
5% to 7% total adds up year to break that federal out, which we haven't got in the past it some smaller percentage of that so if you think where could that be over time could that double overtime sure and so while we don't necessarily anticipate a massive.
Federal year in 2020, why we ramp our team we do see that as a really important getting really interesting investment opportunity for proofpoint, and we think theres a tremendous amount of opportunity as the broader federal government Lisa Clive.
Oh, Thank you very much appreciate about.
And our next question comes from Johnson Rice.
W. Baird.
Yeah, good afternoon guys.
So regarding be the bundle and issued the bundling initiative I think you talked about smaller organization to moving from P., there ought to be one, but I'm more interested in what you're seeing about enterprise adoption, what your expectations I for enterprise adoption as we move to 2020 and you had to start an expert.
Patient around what the uplift to the HCV could look like on renewal what did that set of customers.
Yeah, I'll start and I'll, let Paul dive in here. So the one motion that we see Jonathan is customers that have our core capabilities. So they're either with Appeaser up Q1, so they have protection tap and a threat response solution.
We see a lot of interest today in movie and adding to that our casualty solution. For example, so that would be a natural move.
To a p. two or potentially even if he three and over the course at both Q3 add Q4, we so a number of really good examples where its customers do exactly that so we think that through the course of 2020, we'll see a lot more motion that way and I think frankly, our sales team is getting more effective and promoting event.
If that have that move I'll, let Paul talk a little bit about that.
The pricing opportunity there and the value that can be delivered through that yeah. Thanks, Gary I think one thing that I'm, particularly pleased with quite frankly is all of you know, we first launched bundles and getting the 2019 and so it first quarter things really just getting rolling so the fact that over the course of 2019 over 20% of our.
Our air are that we added during the year came from bundles I thought was actually quite process really pleased with that and if you step back and you think about things that we talked about in terms of examples on both the third quarter calls was a fourth quarter call. We have some fairly large customers buying bundles, some of which were brand new to the company and buying.
Large bundle not just a piece or okay, one, but a P to P. Three for the first time as well as upgrade so I think that always we look at 2020, I'd say that we have modest expectations built into the current plan in terms of how our install base might upgrade to these larger bundles, but obviously many of our salespeople, especially the ones in the enterprise.
Side of the business had been now already working for many months in discussions with customers around the idea of starting with whatever platform. They currently have with proofpoint and upgrading to to a larger bundle. So in theory interesting in the first half a year to see how it plays out, but there's quite a bit of potential there and something that you know what I mentioned that.
He is the statistics around the number of customers that have one two and three products.
Even the customers that have three or more products are so great candidates to upgrade to a p. two or petri bundle. So there is well over $1 billion of add on business that we can generate recurring revenue just selling into our install base and so I I think that given the fact that 60% of our new would add on recurring revenue. This year came from add on I think that statistic could continue to.
To move upward over the next few years as bundles really take hold but again, we'll we'll see the next few quarters should be interesting.
That's great. Thanks, guys.
And one thing I will go to a question from Alex Henderson of Needham.
Great. Thank you very much.
Just wanted to see if you could talk a little bit about how often you are running and.
No before.
Pretty impressed with their growth rate they talk about it being a very large market in the training space, obviously, you're doing well with it but I just wanted to think through a little bit.
To what extent you run into them when you win when you don't win.
Do you see them in your accounts, where your platform is a.
Dominant or do you just run into them into account little bit of detail around that would be very helpful. Thank you.
Yes, so no before clearly it's a competitor in the security, whereas some training business. Our strategy has been pretty simple is to demonstrate the value of the integration between our security weren't as training in this broader people centric framework and so simple things better that.
The high value to customers for example, when a user reports of fish, we can automate that whole process from front end to back in and we can demonstrate the economic argument to the customer a why that integration has tremendous value. So for example in the second half of 19, we moved a customer over or they had six people doing now that.
Work manually and we replaced all that with the automation.
This capability, it's known as clear we've referenced said in previous.
Earnings call so.
And then you combine that with all the threat Intel that we have where we can.
Basically use that threat Intel to help identify who are the users that ultimately need training, so where someone is a high has a high click rate. We can then put people into training automatically and create a more integrated experience across this whole thing. So what we're encouraged by broadly is this is a very big market. It gets moving fast I think.
The reference Alex that you made around no before its growth I think it's this demonstrates is a fast moving market and so we're extremely enthusiastic about how this plays a role with our broader offering and yes, no before is definitely competitor out there, but we view this market to be large we viewed to be international and there's frankly not a lot of players there so feel really good about the Africa.
Good.
Our next question, we're going ahead.
Matt Hedberg of RBC capital markets.
Okay, Great Hey, guys. Thanks for taking my question.
In regards to observe it you know it really seems like you guys had to get opportunity to disrupt really the legacy deal market deal people are going to having a lot of innovation over the years, but I guess for Paul a point of clarification. If it sounds to me like you might start to generate some revenue.
Later in 2020 from the acquisition, but just wanted to confirm your initial guide.
3.7 million of D.R. that will convert to revenue you aren't assuming any other contribution from acquisitions here in other words, if you do get some later in the or should that be considered upside to the guide.
Yeah, you know as we look at it and I outlined it a little bit of the in the transcript we're doing a complete reset on their business model by shutting down their perpetual licensing so other than this legacy deferred revenue that we're bringing over and the opportunity to reduce some of the existing contracts, which total about 5 million as I as I referred to.
We're starting all over again in terms of driving pipeline around a subscription oriented license now we'll continue to solve the ITM. The insider threat management platform. We think it's great platform with tremendous potential, but as Gary talked about Theres also this emphasis on integrating a fully with the rest of our DLP capabilities and rolling out an enterprise deal.
Product. So there's some amount of contribution one would expect from going out and driving the subscription business around that and so it was I think about our new an add on recurring revenue model and our sales team up selling the products.
Certainly part of what I expect to deliver over the course, the year will be around that legacy ITM platform, but converted over to a subscription model, but it's one of 20 products. So it's up we view it really is a.
Kind of starting from scratch sales effort that we have to go out next you don't hear now starting in January .
Got it thanks.
Our next question comes from Andrew.
David.
Great. Thank you and congrats on a great quarter. So on the call you touched on many different catalyst for growth this year.
Including the increasing adoption of officers 65.
So the ramping it up for high end bundles.
The add on opportunities sell some of your new solutions like observe IP.
And so I'm just wondering if you could possibly rank order how we should think about those catalyst in other words, you know heading into 2020, and which ones will have perhaps the most impact on revenue and potential upside to your guidance. Thanks.
Yeah, that's an interesting question and quite frankly, I wouldn't say, we necessarily spent a lot of time. It is next executive team trying to rank order them. We more focus on these broad categories, and then run marketing and go to market campaigns around all of them. So obviously, there's still a large number of enterprise customers that havent moved to office for 65.
So what I think about our net new customer acquisition vector most of its driven by.
By that still although as we talked about in the fortune 1000 accounts.
Over 25% of them, we got knocked through our kind of classic protection and tap play, but through selling different products as an initial starting point. So anyway I think our net new account acquisition for the next year, we'll probably still the preponderance will still come from our classic protection capital market, but as I think that about business coming from the add on plays.
It's hard to handicap, one versus another as being the primary drivers I think we look at bundling is a great strategy, we look at.
Individual products, whether it's in the cast be space, whether its piece that for example, though is we look across all those different products to great opportunity and of course, one of the things that we touched on as well as we're quite pleased with international growth rate, which we recently recorded a 30% year over year. So we have very small.
Current penetration globally, but with tremendous opportunity and of course last but not least the trains finally, leading the station if you will and archiving and we've talked about some really nice wins here in 2019, I would expect that 2020 will likely be another year of Ah interesting archiving opportunities that helped drive our topline and our cash flow and bottom.
As long as well so.
I know thats, a more generic have something you might have been looking forward, but it's hard for us to actually rack. These one by one because at this stage in the air it's hard to say exactly which ones will be boasts a compelling catalyst for growth it's easier to look at it in retrospect, but what I like is that there are many companies even at this scale and Billy dollar company that have so many.
Different levers to help drive growth and so I really like are set up not only going into 2020, but again as we look to the 20 324 time frame, where we're running at a $2 billion randomized run rate, we have lots of levers to go make that happen.
Understood you, what's a good work as.
Thanks. Thanks.
Well hear next from Phil Winslow of Wells Fargo.
Yeah. Thank you guys were taking my question growth rate close the year. It just didn't want to focusing on.
Whenever it's obviously you called out some of the growth there but.
Walk us through the for somebody to do you have four 420 20 to 2030 changes versus 29.
You know across the markets. Thanks.
Yes, I think bill.
So I think that in main thing is we made investments in 19, where we began to get good presence in newer markets, So, Spain, Italy Middle East Nordics wherever we traditionally go back to 18, we didn't have anybody there and so leadership is very got very much focused now how do we.
We.
Deepen pipeline drive productivity in these new markets, which were super enthusiastic about we just came off of our sales kick off which went phenomenally well I have actually never seem to team. So charged up and I think in particular I think the international team feels incredibly optimistic because we did underrepresented in a lot of these markets.
So it's really about blocking and tackling in new spaces, where we traditionally haven't had people and we are super enthusiastic about it.
Our next question from.
People.
Great. Thank for taking my question with observed that can you walk us through the thoughts here around migrated beyond particularly the cloud you talked about a potential hybrid architecture going forward. So ideally it would be hybrid on a on a go forward basis in some parts and they get the cloud and supporting an appliance framework.
Able future.
Sure. So at a very simple level today the way solution works. There's this inpoint sensor that runs on and end users laptop or desktop that today communicates to it back in server that collects all the alerts that come from the endpoints.
The future looks like you can take that back in server you can move that entire platform to the cloud and so the agents that speak directly to the cloud with all of that user activity and information about west and end user is doing dropped inflows of the cloud. So that's that most.
Basic move and then you can also run in an environment, where that server still stay the on premise server sits in the environment, but didn't communicate to the cloud as well so you'll have.
A variety of configurations than what we're excited about is that backing and cloud platform.
We will be our Bakken investigated platform that brings together our unified DLP solution. So think about that endpoint sensor and all that information coming from that information from our caz, Avi and information from our email environment all within a single environment in seen all those alerts and advance in a single cloud based environment.
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Does that help her helpful. Thank you.
Yes. Thank you.
[noise] question comes from Johnson William Blair.
Hi, good afternoon.
Like you executed well in for Q around sort of that challenging calendar timeframe or were there any deals that you may be on flipped out into one Q or anything that was worth noting on but when you already outside of sort of things working out as you expected.
Yeah, I mean, there's always a few deals to push out and Q4 was no exception, particularly given the fact that again most customers went incommunicado on the 2030 December some even sooner.
But.
Those things obviously have now been picked up and completed and dealt with we often have room to give the customer handful as pays a grace period, if they don't quite get there paperwork and on time, but there was no meaningful push out I think it's because we were very very focused on the fact that we knew this was going to be very complicated last couple of weeks the quarter.
And so you know quite frankly combination sales in the administrative teams were just all over the details. So it's not only getting all the rentals down on time, but also working with customers looking to find your add on business and making sure. They were clear on the timing of what were their calendars when were they know what you're going to be available and with that in mind. You know we're here through 12 31 at midnight, but.
What Tutting works for you in order to get this paper with them. So.
That was a it was complicated a quarter end as we had expected, but we were really pleased with how everybody executed as we worked our way through that.
Great. Thank you.
Our next question.
Melissa Frank Morgan Stanley .
Great. Thanks for taking my question I wanted to follow up and Paul on your guidance for 2 billion in 2023 2024, that's adding an additional billion dollars in revenue and I'm wondering if you could help us parse out where that billion is going to come from across the.
Legacy email security market, just given there's a lot is on a lot as I legacy deployments to displays.
And or the then you had on solutions and particularly as you're executing T.D. people centric strategy. Thanks.
No. That's good question I mean, right now the Tam across all of our products is roughly 15 dog.
And it's actually higher if you include these new enterprise DLP capabilities that will look to deliver later in the air and so we're real only talking about picking up another six or seven points a share of that overall Pam over the next several years in order to go make that happen.
So with that in mind as we look at it I do think.
It will probably see an increasing amount of of the recurring revenue growth from here come from the existing customer base not dramatically, but you know as we saw in 2019. It was about 60% I think as we drive more bundles and drive lots of these products into our installed base.
Becoming more and more strategic of these accounts you will see more growth come from there, but that said as I touched on earlier international is a huge untapped opportunity.
And I think we'll we'll execute I believe it quite well on that and I do think that you know with 540 of the Fortune 1000, well, we'll never probably get a 100% chair that doesn't happen in most markets I think there's still room for us to add meaningful number those customers to the fold, even if not with email security to sell them other products and as I've mentioned.
35% of that Fortune 1000 customer base that 540 are currently per point protection or top customer. So we could easily see relationships with these fortune 1000 accounts, where maybe there Kathy and enterprise DLP and may not use our email security solution in the near term that's perfectly fine this significant revenue all parts.
Henry significant in terms of.
Gross margin and capital contribution. So you know we're not only overly focused on necessarily driving additional growth in email security market share per se as part of driving this path from 1 billion to 2 billion over the next several years.
Our next question comes from.
Okay One company.
Great. Thank you Bob Hope so hopeful third party research firms out there are increasingly talking about the importance of scale internal emailed in communications. So just curious to hear how you're thinking about that opportunity and it if you've seen elevated interest from customers.
So today. So today Proofpoint offers a solution called internal mail defense that allows us to apply all of our threat detection capabilities as well as our compliance oriented policy oriented.
Scanning to internally now so that's something that we've had available for.
I think it's roughly two years.
And it's done quite well as more organizations to worry about malicious content ready to get you have a compromise accounts and so frankly, we've seen more interest in this because of the ramp is on compromise account that happened Officethree hundred 65, These days and we're finding more and more.
Threat actors focused on in filtering Officethree hundred 65, taking over an account and then launching campaigns within Officethree hundred 65 expensive Barry it's a very REO and real concern for companies today and that's why we launch this solution two years ago.
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Okay.
We made a lot from on the.
And the Q when you try to get it back in but what was going to our next question.
Okay. Thank you.
And we'll hear next from a steep kaneka Wedbush Securities.
Hey, guys.
Looking at Cheltenham out those reports that they put out.
Recently their data so proof point was one of the top three fastest growing absent any time, it's probably not seen app usage was up over 100% for their data.
And interestingly as well the top three will all user focused security apps.
So I'm kind of curious.
And as you talk to customers and a coupon goes to market in the field are those conversations.
All the people simply particularly in the extent portfolio.
Particularly around but I suppose in Cosby, maybe insider threat or are they probably give you. One. These products are you how much do you happen to educate them how does this deferral add on versus new customer sales.
Bundled power, they help and and the unified DLP like how will this helped this whole motion so kind of how how.
People centric.
Security.
How is that being reflected in your conversations what's the tone of goes.
Yeah, I know, it's really interesting so with existing customers customers are really loving that because we're getting that visibility insight based they never had and then they can take more proactively about what are those additional controls they want it put in place to impact fees I'm highly targeted users so that within the customer base.
We're starting to see more and more dialogue today and I am amazed at the number of.
Csos, what we're doing their board decks for them, because we have such great visibility and insight and it's very easy to digest that information for.
Board members, except for so Thats really working when we talk to new prospects people that haven't been exposed to the people centric model what they understand fundamentally though is that their risk.
Security perspective comes from why didn't need user may do and where it needs to get it Guinea targeted so what we're finding and 70 more sophisticated organizations, they're doing their own version a threat modeling.
I'd use or risk modeling and so we provide basically all of that from an automated automated fashion. So.
It's really worked well for us and I think that as we broaden their product line. We extend to for example into insider threat. That's another key thing that these companies are thinking about.
It really plays into this broader model and I think.
That all culminates as Csos think about how do they reduce the number of vendors that they're dealing with and we're constantly hearing about the opportunity to wants to buy more from proofpoint. It consolidates band around our broader platform.
So I think it's really it's been super encouraging as we closed out 19, and we spent a lot of time with decent today and I think we see the opportunity to bring a broad people centric platform to bear across these large customers.
And we'll go next to Gregg Moskowitz with Mizuho.
I'd like to him because time.
We can.
Terrific. Thank you for circling back so.
Gary I'm, just wondering if he began to benefit from disruption associated with Broadcom for Mantech and email security and are archiving, where would you say, it's still too early at this stage.
Yeah No. Good question just as a reminder.
Hi, being solution that was enterprise both under Symantec went to bear tops Broadcom does it only archiving solution there.
What we've seen is a fair amount it discussion in dialogue.
From those broadcom email customers because no specific statement has been made about their commitment to email and so those customers are trying to figure out what they're going to do what are the things we learn from our experience. It mcafee as the customers typically move in there at the time when their subscription is up with their existing supplier. So we suspect that the operates.
Okay for us comes not in the next quarter, but frankly over the next three years with all those description that had been with Symantec due for renewal and we're obviously working very hard and aggressively to ensure that customers rethink what their platform is as as the subscription.
To exploration.
Great. Thank you.
And well go next to cause closing Guggenheim partners.
Hey, guys tend to take my question I look I forget you only get billings number I get a strong billings feed this quarter was any contribution from absorb I think the little bit acts number.
Yes, good question and I should have just added a blurb in a in prepared remarks. It was a it was a few million.
As I talked about there was a bit of perpetual license, there's a little bit of recurring we invoiced into several with them and then we had that right onto the balance sheet of there is acquired deferred revenue, which was another piece so.
So maybe after the other question that's inferred we would've beating the high end of our range with or without observe it.
Thank you.
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And we'll consider doing a bargain from bank of America.
Hey, guys. Thanks for taking the question I just had two on on competition I'm curious if the office 365 customers that come back you guys. If he incentive are they using both Microsoft and you and a lot of cases or the turning off any Microsoft security and then switching to you.
And then just curious if you're seeing mimecast, a little bit more as they might be moving up market to larger enterprises. Thanks.
Yep.
It's obviously 65, what we typically see as customers were probably spend sending money either on each side or on specifically on ATP and if they go to frequently typically don't run both they typically just run us because they don't want incurring the cost twice and then with respect to mine, we really haven't seen any changes competitively I think.
As we talked about I think aspiration and they buy can do about we just don't see them much in our customer base, we run into from time to dine, but it's not something that happens much.
And our last question comes from Catharine Trebnick I've been working.
Oh, Thanks for taking my question.
Are you there.
And I thought it no I thought I hung up on the Okay. Yeah mine has to do with your remarks on the essential package. You had said you had over 100000 customers now on that and who are you gaining share from in that market isn't it some of them mimecast customers. They see customers there could or could you fill smart.
Formation on that thank you.
I think it's a smattering of all those so I think it's it's obviously 65, it's a little bit of mine with little bit of Barracuda, so little bit of random smaller players that were.
Maybe legacy players that we don't do you don't you never talk about so obviously being sold today it as Paul referenced in his prepared remarks be sold through NSF fees and so its whoever those MSS piece. It did on previously a that they moved them over.
And I would now like to turn the call back to Gary Steele for closing remarks.
Great. Thanks, let's take a moment to thank everyone for joining us on the call today, we're very pleased with our Q4 results and excited about the continued progress with their people centric approach to cyber security. We believe we're well positioned to drive attractive returns for our shareholders. We look forward to talking to you on our next call and to see many of you on the Congress Conference Circuit this quarter. Thanks.
I'm not sure joining us today.
Okay and that does conclude the call we would like to thank you for your participation you may now disconnect.
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