Q1 2020 Earnings Call
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Thank you bye bye.
He brings 2020 rocky.
Okay.
At this time, all participants I really cannot even after the speakers presentation, you'll get question answer session. Jack the person doing it does seem to make a fresh start one like yourselves.
Please be like today's conference is being recorded.
If you ever if you're Crazy partnership is please press star zero I wouldn't like to have the conference over to your hosts for todays call. The Neil Shah VP of Investor Relations, Sir you may begin.
Thank you operator, and good afternoon, everyone.
We appreciate you joining us today to discuss rapid Sevens first quarter 2020 financial and operating results. In addition to our financial outlook for the second quarter and full fiscal year 2020.
With me on the call today, our Corey Thomas our CEO and Jeff Koloski our CFO.
We've distributed our earnings press release over the wire and it has now posted on our web site at investors Dot Rep, seven dot com, along with the updated company presentation and financial metrics file.
This call is being broadcast live via webcast and following the call an audio replay will be available at investors don't Rapidseven Dot com until May 15 2020.
During this call we may make statements related to our business that are forward looking under federal Securities laws.
These statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and include statements related to our 2020 goals the company's positioning our financial guidance for the second quarter and full year 2020, the assumptions underlying such guidance, including anticipated impact of cobot 19 on or financial.
Guidance business financial condition results of operations and renewals and our assumptions on the timing for economic recovery in the global economy, and the impact of the DB cloud acquisition on our future results of operations and product strategy.
These forward looking statements are based on our current expectations and beliefs and on information currently available to us.
Actual outcomes and results may differ materially from the expectations contained at these statements due to a number of risks and uncertainties included including those contained in our most recent annual report on form 10-K. The current report on form 8-K, we filed with the FCC on April 28, and the subsequent reports that we filed with the FCC.
Including our form 10-Q for the quarter ended March 31 2020.
The information provided on this call should be considered in light of such risks.
Actual results and the timing of certain events may differ materially from the results for timing predicted or implied by such forward looking statements and reported results should not be considered as an indication of future performance.
Rapidseven does not assume any obligation to update the information presented on this conference call except to the extent required by applicable law.
Our commentary today will be primarily in non-GAAP terms and reconciliations between historical GAAP to non-GAAP results can be found in today's earnings press release.
At times in our prepared remarks or in response to your questions. We may offer incremental metrics to provide greater insight into the dynamics of our business or quarterly results.
Please be advised that this additional detail maybe onetime in nature, and we may or may not provide an update in the future on these metrics.
With that I'd like to turn the call over to our CEO Cory Thomas Cory.
Thank you for Neil and good afternoon, everyone. Thank you all for joining us today on our first quarter 2020 earnings call.
Before we dive into results I would like to spend a moment on the current environment.
The rapidly evolving situation with cobot 19 has created uncertainty for individuals and organizations across the globe, We had no exception.
As we adjusted this environment our remarks, our priorities remain the health and wellbeing of our employees and surrounding communities.
While remaining responsive to the evolving security needs of our customers and prospects.
So this in.
We have actively monitor guidance from public health organizations, and we quickly successfully transitioned to a remote working model in mid March.
We currently expect to remain in its mode until at least soon and are closely tracking regional guidance and regulations as we plan here.
As we navigate this uncertain environment, we'll do our best domain thoughtful and transparent and shared as much as we care about what we're seeing in our business.
Finally from everyone here Rapidseven all at the sharp banks in gratitude to all the medical professionals and first responders, who worked tirelessly to cheer for our communities going these extraordinary types.
Now moving on to our Q1 results.
We are pleased once again that we exceeded our guidance both revenue and non-GAAP operating loss for the quarter.
Rapidseven delivered Q1 total revenue growth of 29% year over year led by strong products revenue growth of 33%.
Our quarter Indeed, there are.
$351 million was up 31% over the prior year driven by continued customer demand for insight platform.
We had a solid start to one as we exited 2019 will sustain momentum in IDR in mid market demand that we began to see modest impact from cobot 19 related purchase delays late in the quarter.
Our customer base grew 14% year over year in the first quarter as we experienced continued wallet share gains is air our per customer increased to $38900 year over year, increasing 15%.
We have also been pleased with our strong retention rate so far this year.
Even in this uncertainty these results reflect our longstanding commitment to innovation as we have built multiple market leading products on the integrated platform.
We remain bullish on our long term opportunity to deliver enhanced value and outcomes to our customers both im sustained organic innovation and be a strategic additions such as our recently announced acquisition of Democrat.
I'd also like the Holly that while we along with many others in the market faced a period of uncertain economic trends in the near term I'm confident in the resilience of our reference 17.
Strong balance sheet stable subscription revenue model and secular growth market and security position us to weather the storm.
Let me now shift some context on how.
Our engaging with our customers and how that is influencing our current views.
Entering the quarter, we saw sustained growth momentum in our IDR Midmarket International segment.
This positive business momentum continued until late in the quarter, we'll be glad to see a more to shift in decision, making processes, particularly in Europe as customers to assess the impact of the escalating cobot 19 situation.
Our diversified product strategy provides a number of unique opportunities to manage cobot 19 related risks.
Focus on areas different bought the best opportunities for growth.
We are optimizing around customer needs and aligning our focus to the most active product areas and customer segments.
We continue to have a broad industry diversification with our largest vertical represented approximately 15% of our air are.
In terms of customer segmentation over 50% of our air argue they come from enterprise customers defined as organizations with over $1 billion in revenue.
Then further accounted for a mid market customers defined as organizations with greater than $100 million revenue. This total makes rose to approximately 80% of our air or <unk>.
This frames a high level durability.
We see in our business as we navigate the current environment.
We have included further detail on this in our investor deck today, but I would note that based on our thing with hasten less than 10% of our air or if it's supposed to SMB segment.
Defined as organizations were less than $10 million of revenue and less than 100 employees.
Across all segments as digital initiatives accelerate customers continue to prioritize security.
We have seen healthy pipeline growth start the year, but the timing of this pipe is increasingly uncertain as organizations just midstream.
The result is a wider range of outcomes as we look ahead to Q2 and beyond.
Which is reflected in our revised guidance range on which Jeff will provide more detail shortly.
Customers and prospects have voiced the critical nature of their security programs, while acknowledging they are subject to shipping budgetary constraints around him at the same time these customers place unprecedented security challenges and organizations adjusts to fully remote workforce is they must contend with increased asset exposure and D.
Police visibility.
Rapidseven is enabling our customers to it just quickly with our new Flex program.
Next offers the ability for customers. It took really expanded asset coverage at no charge in an effort to help maintain the security posture as they adjust to the ongoing work from home dynamic.
I'm pleased to say that customers are leveraging flex across her insight platform products, helping them more effectively manage risk to deliver improved security outcomes. This enablement as reflection of our commitment to help close the security achievement gap on behalf of our customers.
As we navigate this unique peer yet with our customers one being remains constant security professionals are challenged to keep up with the increasing complexity I Miss escalating risk and more acute resource constraints.
Our visit a rapid seven is to build a leading cloud based secours platform to address this need across our core platform pillars.
We do this by helping customers lower the cost of visibility and time to value and accelerate the remediation capabilities.
We will maintain a leadership position in vulnerability management for sometime.
And the two one that we saw further validation of our vision is rapidseven, who was named a leader in the Gartner Magic quadrant for security information in a bit manageable.
Ever Rapidseven is the only full stack be EMM vendor to be recognizing Gartner recently released a magic quadrant for application security testing and was the highest rated vendor for dynamic application security testing.
These achievements are also further validation of our best simply platform strategy built through a combination of both organic and inorganic investment our recent acquisition to be clout fits squarely into this strategy.
As Kotick celebrates security teams must grapple with new and emerging threat vectors security must further account for the greater influence Dev ops teams bring to the process Divvy Kraut sits at the intersection security and Devops solving the security stakeholders need to manage risk compliance and governance, while meeting the Dev ops team.
And where they are in the cloud allowed them to accelerate innovation securely.
The acquisition of Debbie clout will extend the cloud security capabilities, a rapid separate insight platform accelerating our ability to address foundational elements of customers crop programs by helping them secure their crop assets.
With the combination of Divvy clout insight and second T cell rapidseven will be positioned to offer a leading set of solutions in the fragmented clout and application security space.
Now, let's turn to some updated perspective on our 2020 goals.
Rapidseven remains focused on delivering sustained topline growth optimizing customer economics, and driving leverage in our business. As we look ahead with that backdrop I would like to take a moment. So we frame our 2020 goals within the context of our business priorities today.
Our first goal is to Reoriented, our focus around customer needs tied to the cloud and a more distributed workforce.
It is clear that both the near term and long term trends supporting broader and more accelerated shift to the cloud our ability to address customers needs. In this area will be a key driver of our opportunity to deliver sustained top line growth as we look forward.
Our second goal is to accelerate our platform distribution is an important momentum about leveraging our unique best of breed technology platform advantage. This will enable us to drive improving customer economics overtime.
Our third goal, it's a rationalize around but demand environment. The strong expense controls that optimize for high ROI investments minimize near term free cash flow loss and deliver sustained organic leverage in the business.
Our commitment to profitable growth remains top of mind and our guidance anticipates that we will return to operating income profitability in the fourth quarter. This year after absorbing the additional expense divvied cloud in the third quarter.
Additionally, while it remains early in our planning cycle for next year I will note that we currently expect to deliver free cash flow positive for full year 2021.
In conclusion, Rapidseven is adjusting to our customers need and the current environment and we will remain well positioned to help solve the cyber security challenges facing resource constraint organization as they accelerate into the cloud.
With that let me turn the call over to our CFO, Jeff coffee.
Yeah.
Thanks, Corey and good afternoon, everyone.
We're pleased to report healthy performance for the first quarter of 2020 with revenue and profit results exceeding our guidance amidst a shifting economic landscape.
Before I begin a few reminders.
Except for revenue all financial results will discuss today, our non-GAAP financial measures unless otherwise stated.
Reconciliations between GAAP and non-GAAP results can be found in today's earnings press release.
Also as we discussed on last call going forward, we'll be reporting products and maintenance and support revenue together under products revenue as we believe this in some more useful way to look at our business.
Turning to results total air our into the first quarter of 2020 at $350.9 million.
Growth of 31% year over year.
First quarter total revenue of $94.3 million exceeded the high end of guidance growing 29% over the prior year.
The strength was driven by solid year over year products revenue growth of 33%, which benefited from strong renewal trends in the core.
Recurring revenue constituted 90% of total revenue compared to 85% a year ago.
A quarter end customer count over 9000 increased 14% year over year. It was approximately flat sequentially.
The sequential result was driven by continued healthy growth in our platform customer base, which grew by over 200 customer sequentially offset by fewer Medis boy and Nexpose transactional deals like a sweet net for end of life churn and a slower pace of new customer additions late in the quarter due to impacts of cobot.
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[noise] air our per customer increased to approximately 38900 up 15% year over year.
Looking at the business geographically North America grew first quarter revenue by 27% year over year, representing approximately 83% of total revenue.
Rest of World saw continued strong growth of 40% year over year, representing approximately 17% of total revenue.
Turning to margins recall last quarter, we spoke about frontloading of certain onetime expenses in Q1, such as our global kickoff event, which will impact year over year comparisons for certain expense wants the first quarter.
Total non-GAAP gross margin was 73% in the quarter down from 75% last year, driven by lower professional services margin versus the prior year period as well as continued increase in the mix of our insights platform products.
Sales and marketing expenses were 47% of revenue in Q1, 2020 up compared to 45% of Q1 2019 as a result in increased headcount costs and allocation of previously mentioned onetime expenses.
R&D expenses were 21% of revenue within our expected range and up slightly compared to 20% in Q1 2019 also due to allocation of onetime expenses.
Genie expenses in the first quarter were 10% of revenue consistent with the prior year period.
We reported a non-GAAP operating loss of $3.9 billion in the first quarter better than our guidance range driven by Overachievement on revenue T. any savings and timing of marketing program spend.
Adjusted EBITDA for the first quarter was a loss of <unk> point $8 million and non-GAAP net loss per share was nine cents also ahead of guidance.
We ended Q1 with cash cash equivalents and investments of $253.6 million. This is before approximately $131 billion paid at closing for the acquisition of Divvy cloud does not reflect net proceeds of approximately $196 million related to our convertible notes offering and cap.
Call, which we completed last week.
Taking into consideration the acquisition activity cloud and the convertible offering only our current cash levels exceed $300 million.
[noise] average contract lengths for Q1, 2020 was 16 months inline with last quarter.
Operating cash flow for the quarter was negative $70.2 million, an improvement over negative $13.6 million in the prior year period.
Now turning to guidance. Please note that our revised guidance includes the impact of two of the duty caught acquisition for the second quarter and full year 2020.
As we shared last week, we have spent considerable time over the past months speaking with customers and working to understand Kogan 19 related impacts to our business at the industry and micro vertical leveled.
It constructing our revised guidance, we have performed both bottom up and top down analyses looking at financial stress and spend durability across sub industry segments that we are exposed.
Our analysis leverage both internal and third party data to frame risk across our customer base as it relates to both new business and churn it contemplated various economic recovery scenarios.
This includes the U shape recovery as well as L shaped and V shape scenarios that account for a best estimates of the coded 19 related impact by sub industries.
The revised guidance range reflects our best assumptions across these scenarios with a baseline U shaped recovery at the midpoint and assumes that one there are no do a recurrent shocks to global economy to Q2 will see the highest negative impact of economic growth and three it has a long at steady.
He wrote to economic recovery over a 12 to 24 month period.
These assumptions are based on what we are experiencing today, which we are approaching as a moderate but sustained recession through the balance of the year.
We do not controlled the primary set of drivers, which would be how long the economy remains closed and at what pace. It recovers when it reopens.
We updated our guidance on April 20, Eightth with this framework in mind.
For the full year 2020, we lowered and widened our air our guidance range now anticipate error in the range of $387 million to $407 million or 14% to 20% growth.
We now anticipate revenue for the full year 2020, being the range of 308 million to $388 million to $395 million growth of 19% to 21% and non-GAAP loss from operations to be in the range of a loss of $3 million to a loss of $1 billion.
This anticipates the impact of the acquisition of Divvy cloud and note that we will be required to record a fair value adjustment to be class deferred revenue, which will reduce revenue recognized in 2020.
We anticipate non-GAAP net loss per share to being a range of the loss of 15 cents because here to losses 19 cents per share. This is based on 51 million basic weighted average shares outstanding who your 2020, given our projected non-GAAP net loss.
We now expect cash flow from operations for the full year 2020, the loss of approximately $25 billion.
This reduction in cash flow relative to prior expectation for positive $10 million contemplates the lower beliefs associated with reduced air our estimates the year absorption of the beauty club business and slightly higher soon pace that we don't see any through the current economic barn.
Our full year guidance anticipates that are visibility in the fourth quarter is particularly low and anticipates lower renewal rate trends, despite solid trends to date.
As Corey shirt earlier, and I will reiterate with our major facilities expansion behind us and a sustained focus on driving leverage in the business as we look ahead.
Assuming a U shaped recovery. We currently expect that we can deliver positive free cash flow for the full year 2021.
Moving now to quarterly guidance as recorded on April 28, we anticipate total revenue for the second quarter of 2020 to being the range of $94.6 million $96.2 million growth of 20% to 22%.
We anticipate non-GAAP operating income for the second quarter to be in the range of $1 billion $2 million non-GAAP net income per share to be the range. The loss of two cents to breakeven for the second quarter, which is based on an anticipated 50.7 million basic weighted average shares outstanding given our projected non-GAAP net loss.
In conclusion, Rapidseven remains focused on innovation and execution, while continuing to help our customers and prospects Hoover positive security outcomes through these uncertain coupons.
With that we appreciate your time support who will now open the call for any questions operator.
As a reminder into asked the question you meet your Questar pipeline I guess all the time.
That's all your question please.
Please standby, we can talk to anybody out there.
Your first question comes from Michael Cherny with Raymond James Sir You May Cookie.
Hey, guys good evening.
So a Korean Jeff first can you, perhaps part for us the major factors behind the revenue in a our reduction and in particular.
Whether it's a.
Retention churn.
Reduction in.
Our per customer.
Sector, particularly sector impacts anything you can do to parse the biggest the smallest factories and maybe tell us.
Why they are reduction which is more of leading indicator is so much steeper than revenue.
Yes.
Right.
Michael that you're right. It is at least there so personally I highlight is that the.
Though our though in Q1, we're fairly strong letting job of indicated that retention, whether it be over into the range, which as you remember is 80, 90% and we had a very strong start or and we felt the impact of Koby 19 late in the quarter. The second thing I'll say is that.
Our April very solid start it's still very early in the overall year not to get your question with those factors why you reduction they are evident by the.
The first is that if you think about the macro environment.
You know, we anticipate sort of like the economy severely impacted in both Q2 and using and so if you just take out of the impacted both regions and impacted industry. You just see a slowdown in spending that typically occurs when did uncertainty about the overall macroeconomic environment.
So what you find is that we anticipate so more impact in both Q2 in Q3, and we attack sort of like more visibility. So therefore, the you know.
And that effect. So the overall environment every aspect of our customer base, even the ones that have helped by the way that people are trying to figure out what's going on and we hear that from even I hope you customer that by the way our high end have bolt there I would say buying with some anxiety in combination because we're trying to figure out how effective business overall.
Second thing is that we actually factored in.
Yeah.
That's helpful. And then maybe it's a follow up regarding your air Our guide I think the midpoint going on organic basis is close to the mid teens I'm. Just curious if you can remind us how quickly you think the V.M. market is growing and you know if in fact her outpacing that girls would be helpful.
Yeah, I I would make a comedy yeah. This is in principle the data.
That one I think at you while we continued next year in the overall market we were on well the second the office doesn't we've C.B. of a still enjoyable girls driver as we go for it now and this pandemic environment I think all rose for most things is that and so we looked at B.M. as the mid teens close sort of like before.
And this current environment again would do believe the work it out environment at some point our expectation is that that comes down to the 5% to 10% range. You know I would say also we have the benefit and we think that in that environment, we're still going faster than the overall vulnerability management market and we're still picking share on apples to apples basis. The other benefit that we do.
Have is an ability to actually make ourselves sports fishing in this environment because we do have areas that are in high demand and we think that that they that benefits to our ability to navigate the currently mark.
<unk>.
Thank you very much.
Yeah I can.
<unk>, <unk>, <unk>, which I claim.
Do you make picky.
Okay, Great Hey, guys. Thanks for taking my questions or how are Ya.
Yeah, well, but not much.
Hey, Hey, Hey, Cory maybe first for you.
We just take a little bit into how you're handling the net for it.
Customer base right now both as a stand alone base and just as importantly, as part of insight I.D.R. and and what I mean by that is I guess, how much did that end of life, they're sort of impact the customer count this quarter and you know so much strategically how how is this going to sort of enhance the value for your inside.
<unk> well does that make sense.
Yeah.
Remind people that a little over a year ago required airport Ah network visibility went to the court detection capability that allow us to actually move more into the enterprise market Oh, what I would say that first and foremost you see that we actually got moved to the leader in the garden amounts of quadrant early in the year we've.
Great demand I.D.R., and especially are done first data collection mechanism. The I.D.R. aren't area, that's providing solve the man even in this environment. Because we are one of the few solutions that natively out of the box collect in point data no matter, where people are staff in the world that allowed to begin with ability we have a network data collection. So in.
This case once you have with the net for technology <unk> into our network detection capability that allows us to actually one yeah, a additional data feed into the overall environment and most importantly, do a higher level of forensics for our customers and this is especially important as our teams move more and more.
Oriented in Iraq, right now I think we just launched it so far the interest that we've seen from the initial customers has been very good debated customers were our teams are starting to actually fell it we're very optimistic about it but it's a cheap part of our strategy to continue to grow and expand in that category and we're seeing great demand or.
As far as the impact of customers. It was expected. So I would say it was modest in fact it all the all expected because again, we acquired net for not for the customer base. It. They actually had we require them to actually be inexpensive our core insight platform and that's what we're just starting to turn you know.
[noise] got the next all the sense, maybe it's my full up yeah sure maybe it's my fault for you Jeff you know on that net retention feels like you've got a couple sort of puts and takes I think we talked about 80% you know a number in terms of the A.R. that's coming from you know the larger sorta.
Non S.N.D. base, but then we also talked about sort of a prudent assumption of maybe increase turn to the rest of the year and of course, you're the variable there in there was cross <unk> can you just sort of talk you know kind of qualitatively about how you're thinking about that net revenue retention number and how that could trend in in in the coming quarters.
Yeah. So in in Q. on you know was 106% we had a little headwind from our our lawn platform customers. This quarter. If you look at our <unk> platform customers higher than 106%, we expect it to go down in our you know in our estimates based on higher.
<unk> race in lower you know less cross selling ourselves less renewals from those that that portion of the base. We expected to go down with of course of the.
Got a very helpful. Thanks, guys.
Thank you.
Yeah.
And there next question Kinda talking about <unk> type is handling.
Chrissie.
Great. Thanks for taking my question was good afternoon, guys Court could you talk a little bit about a inside already are the string you're sitting there and I guess you know was it's parties is shifted at this point in time.
Hopeless to understand why this is highlighted this environment number one number to just one of <unk> implementation looks like Oh hands on it has to be and what a cycle my dealer. Thanks.
Yeah that you Robert it's a great question so.
The stress I think that were sitting inside yards really I think considered on two factors one as people rely more on technology, you think about what covert stored in many ways. If you are contemplating a digital strategy that's accelerated.
And in a world, where you know hackers are furloughed you have to actually take security into account and so for its I.D.R. what people typically looking for a how do I make sure they're not protecting my technology bomb into high mock no farther read that we think that inside here I got more more favorable or from a competitive position.
This environment is that people now are acutely sensitive to the need to integrate data from distributed in points all over the world Oh, what's that the native capability of insight IDR. The second they adding wrap your question about like what it.
It looks like but it varies based on the side of complexity of the technology by but what I would say first and foremost <unk> one of the you leading client base Sims for detection response, and the category and what's that mean that people have to spend a lot less time doing the court infrastructure ended up and running in December.
Hermit, where people can't go into office, having to copy it set up as a huge huge advantage and stuff from my perspective, the fact that as a copy them as black that it. It. The fact that it actually has native agents built into the core platform out of the box that communicate directly to the clout all give any time to value in productivity horses.
Skated environment that sort of like as we highly optimistic and we actually see the momentum overall you know the laughing that say is that it take about the expectations of a.
A little bit more transparent at a time frame is this in the area that we do see the opportunity to continue to grow and then hyper go afraid about 40% as we go forward through out the best of the year.
<unk>.
Great men seconds, you mentioned in your prepared remarks, but could you expand a little bit on your flux program. How many customers actually took advantage of that too is that led into a a backlog and she kind of looked down the road and say might start monetizing those in criminal aspects that are being monitored.
Yeah. It's a great question, it's too early for the count in fact, I just don't have any part of me right. Now we are having a good customer uptake and not just discussing the construction. Upon it you know route we did the program to actually make sure that we were there for our customers. When when you that was the primary focus of the program overall without actually say.
That'd be good will that it's actually generated and the feedback that we hear from customers.
Does actually give us some optimism that as our customers make profit their preference for rabbit seven is increasing and so that's the hoping aspiration, we definitely being that from some of our customers, but that's not the primary reason that we actually put these program.
Alright, thank you.
Thank you very much.
<unk>.
Okay. Okay with people you May proceed.
Hey, great. Thanks for taking my question Cory I I wanted to ask first what you're sitting in terms of your conversations around at SEC, It's something you're clearly investing in especially here what they'd be club and I think more importantly person to listen to pair to mark but as customers are migrating more we're close to the cloud. It seems like this would be a pretty important area. So maybe you could get some color and what you're saying out there are these.
<unk>.
<unk> another question right.
To cloud as a broader optic.
Okay have access to general yeah. So it's it's it's interesting so what I would say so.
Overtime and this product we that we we we are very I just optimistic we have a high believe it of course strategy around the visibility analytics and action based automation is because people's desire to actually get to handle unskilled their <unk> their technology from a substrate perspective is increasing.
And that's going to continue to increase when I would say is that for the period that we're in right now and the shoot period that we're in right now.
Almost every and my way I think this is independent of production, but its security to everyone's. After the question is what's the most essentially what must I do right now and where do I need to expand my focus what are these with ran the coverage and so I would say in general people are trying to actually get a better understanding of their technology environment General.
But right now people are acutely aware about like what are the risk areas that I mean, it's more and what we see a support assets that people are focused in on in this period of time is really <unk> asset and manage any more distributed and Brian.
I think that that will change and that will go back to the steady pace that people were on where they were trying to in general expand their visibility in their understanding about the asset and the risk and exposures any overall environment on a more general basis for right. Now I think there are highly highly focused on the beings that referred to the most the rest of the business.
[noise] [noise]. That's that's helpful. And then Jeff would be one for you court touched on this an apparent remarks.
With the notion of being free cash flow positive in 2021, maybe you could walk into the inputs and where the confidence threshold for that you know for that sort of initial outlook comes from.
Yeah, <unk> I'll say that we have strong sense controls and we can.
Manager expenses in light of you know changing you know changing revenue conditions.
They don't want to give any specific times on 2021 error on revenue targets I think if you look at.
You look harder on her implied growth rates in a <unk> quarter, you could look at that as an idea how we would let her off yeah, but it's still too early to really give you any specifics on what the air our growth rates would be in revenue growth based would be for 2021, you know practices by also saying that.
It would be based on you shape recession, and you know looking at that you for exit racist we come out of it.
What's up with thank you.
But you.
And our next question.
Kind of sound fine, Okay with Goldman Sachs, you make tricky.
I get Afghan and thank you could take take on the question I guess, you know, except maybe we can start with you a little bit you know as as they look at the guidance and you know where are you progressed, so far and one q. in terms of profitability you know <unk>.
When we when we look at kind of where we need to get in <unk> too. It seems as though that implies kind of break even performance for the last few quarters. So back half of the year, Here's what how do you think about spending in in that.
Over over the course of those two quarters, what lovers do you have for better profitability and how do you balance spending for you know growth versus profitability, just kind of getting it trying to get an understanding of you know changes you might make in this macro environment, while still maintaining or focus on growth.
Right you're correct in that you know we still.
We we are going to show a profit in the fourth quarter. So you're right about the layer into the second half the year was Oh profiting choose who we are increasing expenses expenses each quarter normally we've adjusted are.
Discretionary spending like see any we are still hiring and making high R.Y. investments and critical areas, where we we have to hire people, but we you know we've adjusted the overall expenses in line with our you know <unk>.
The only thing I would actually add to that if you you look at how I mean, what we just take the minutes of long term view. So I think it just is that we're going to pay extra the year at a positive about the second thing is I would just keep in mind.
That we have curtailed expenses, but Debbie which is strategic it has high demand we see around it does put us into a loss for the third quarter it right back to that yeah.
<unk> next quarter were sort of like addressing Debbie and the fourth quarter things turn around <unk> I think that's a reasonable track right now the also give of competence as we go into a model next year, both profitability and for the castle.
Got it that's super helpful and maybe just to follow up I guess I used for either courtier Justice have you spend on sales and marketing obviously, you know that spend it accelerated over the past you know past 12 months or so what is sales productivity like what position is the sales sports then to become fully productive and how do you think about spend.
<unk> as we kind of you know walk through the choppy environment keeping in mind that you know seems is the last year, you're more focused on you know logo as this this year, perhaps more kind of expansion within customers.
Yeah, I I don't know if you'll just how we're approaching it more than any more than anything else, which probably my best God is that the approach that we actually have is that really.
It has to be sustainable so what I mean by that it really focus on the <unk> before expected productivity and before that you want someone just talks about the good expensive control that we actually have in place.
Sure that we actually Masti expenses.
<unk> the sort of like the incoming air are what we're going to actually make that determination really based on the exit rate of this year and as we go out and next year not based on the massive uncertainty now and the reason for that again is that we've had something more positive than we would expect it. So we have made a knee jerk reaction it would've been over spot.
<unk> only calculated in the near term and we're really I'm surprised at our motto around both the exit rate and most importantly, what that empires from both next year and if we had an extra.
Got a very helpful. Thank you.
And you.
You know next question <unk> <unk> <unk> <unk> you make chrissie.
Hi, everyone that afternoon. This is Calvin Nonporous, Sarah Thank you for taking our questions.
So I was wondering if you could kind of comment a little bit on seasonality and potential up shift.
Area, you see that as we started open backup.
Employees structure return back into the office.
Yeah, I mean, so that's why they're probably I I'm not going to copy because I don't have any special knowledge. There is that you know look we are model will come to you sent recovery and the 12 to 24 my time frames and the one thing that we actually just don't know it sort of like.
You know is it going to immediately as sort of like opened up the <unk> is that going to meet you three oh. So if you look at the midpoint of our motto, we you assume sort of like at the midpoint, but that's what would give a wider range.
I mean out sometimes at the end of the choose demanding starting to pick back up or what are you that is something that we just don't know that's much more sort of back and macroeconomic and help question and so what we're looking at it sort of like how do we actually managed through it environment, where we don't control either the health or that macroeconomic and how do we actually <unk>.
Our our any expenses and how do we exit the U.S.
Way instead of well for the next year and that's what we actually get in the range that we need.
Right. Thank you. Thank you for that you know as as a follow up.
We were kind of wondering what do you really see or as kind of the largest driver or just something larger term and longer term.
<unk> from getting you know you're close 40 k. per customer what kind of going.
Beyond that into the 45 50 ranch is it is it just customer shift into into the large enterprise or is it came close there's a heart into portfolio, that's really going to drop that.
No. It's it's a good question I'm well look at in two different lives in the first if you step back into thinking <unk>. One we're celebrating both digital transformation the cloud, but mostly we're becoming more technology in the world. So that's the first connect the second context is that we're from how many more technology dependent world and then.
World, where security is a priority. So that's the second thing and the third thing is that we have successfully built but I think about it they leading best to reap platform for managing security operation Indian and that puts us in a good long term dynamic you don't find many platforms, where you're not just half.
Leading probably can one category and a bunch of mediocre products, we have leading products across multiple categories on a trend to actually be the top you know one of the top players every category that we participate in in that combination plus <unk> is the thing that actually still has our team conduct ourselves see my other <unk> excited about what the law.
Future Hall outside of the corporate World.
Perfect. Thank you so much.
<unk>.
And our next question.
Kind of time, Johnson tell which were again and Blair.
Please <unk>.
Hi, This is John <unk> work for Jon since you're taking a question.
You talked about controlling costs and <unk> I I I'm I'm wondering coming with respect to the web.
Environment to the <unk> <unk> from your perspective.
<unk> International experiments you did yeah.
But.
Actually at the same pace well do you think that would be.
How how would you characterize <unk>, there's two elements but.
It's it's covered or to be an extended environment like <unk> seven months three or more.
Rubber compare that to what you had been doing prior to that.
It is a is that there's an element of I went to your products, but that probably had been in your pipeline.
Probably because it already at that pass code was a time could you talk about in general new product.
<unk> International expansion in the Cold War [noise].
You know on this I want but of course on what the specific into like new of itself.
Well it is at first and foremost the pillars that we have with the pillars that we're actually still coming into the that hasn't actually change if you think about or product strategy, but that hasn't changed.
The the second thing that actually point out is that low when the world changes you have to make adjustments you have to be thoughtful jumped to make adjustments quickly under uncertainty and then you have to respond to the feedback the trucks to get in in in the market because of that we are prioritizing our spend that are invested in certain ways in a certain I don't think that there's.
So the <unk>, where we allocated dolls and investment at a sort of a higher level, if you'd think about where our focus is it is helping people managed to distribute it complex environments technology.
In fact, all of our product, but all of our products are also focused on managing that challenge to simplify that challenge for our customers.
Some people accelerate to the cloud because people acts are having to move to the crowd and deliver do platform and new services faster and it took on a helping our customers augment and improved their operational efficiency. All of these were things that were sort of like in the hopper before but we're putting specific emphasis although the area.
Because those are the areas that are the most meaningful to our customers and if we act quickly and decisively to provide our customers and we actually they've got set up a bit long term dynamic.
Okay. That's okay. Thank you.
Hmm.
But that's still a very nation nascent arena.
Could could has that been pushed off into.
Background by customers <unk> because of the current environment or could I have a t. and such.
Elements that there are involved there and or were being more remote because that could that <unk> more of an opportunity in the medium term and kind of what was that a little forward as a result of the current environment.
So you know I I <unk>, we will focus at some point in time and deliver on the <unk> I would say that it is not a urgent priority for customers right. Now if you think about like if you look at all any survey when you're talking to customers are urging priorities around managing a complex distributed workforce and about how to make celebrates macleod.
It's not that Oh, yeah, there's lots of areas that customers are not focused on right now it does not mean won't do it at some point, it's just they're focused right. There on pressing items that are strategic incredible they're just going in there.
[noise] excellent. Thank you very much of a code for sure [noise].
[noise] [noise] <unk> conference and they'll have to tackle of activities.
<unk>.
Thank you all so much and I withdraw health and safety during this time.
<unk>.
Yeah.
<unk> and he might have a great thing.
[music].