Q1 2020 Earnings Call
[music].
Good afternoon, and welcome to VIX first quarter 2020 earnings conference call.
My name if they are and I'll be your operator today.
Joining us for today's presentation or the company's president and CEO, David Wagner CFO, David Rock band and Vice President of marketing death Baby.
I would like to remind everyone that this call will be recorded and made available for replay via link in the Investor Relations section of the company's website.
Now I would like to turn the call over the death Baby Sir. Please proceed.
Thank you operator, good afternoon, everyone and thank you for joining our first quarter 2020 earnings conference call.
On the call today, we ever CEO, Dave Wagner CFO, Dave Rockvam.
After the market close today, we issued a press release announcing our results for the first quarter ended March 31st 2020.
A copy of which is available in the Investor Relations section of our website at Www Dot Dot com.
Please note that during the course of this call will make forward looking statements regarding future events in the future financial performance of the company.
These forward looking statements are subject to risks uncertainties that could cause actual results to differ materially from those in the forward looking statements.
It's important to note also that the company undertakes no obligation to update such statements.
Gosh, you to consider risk factors that could cause actual results to differ materially from those into forward looking statements contained in todays press release and this conference call.
The risk factor section or most recent form 10-K, and thank you filings with the FCC, including the 10-Q, we expect if I may 11, 2020 provide examples of those risks.
It's more fully described in our quarterly reports on form 10-Q for the quarter ended March 31st 2020.
The company has been actively monitoring the coven 19 situation as impact on both the company and the world in which we operate.
The impact of covered 19 and unprecedented measures to prevent spread are affecting our business in various ways. This is causing volatility in demand for our products changes in customer behavior, including their spending and payment patterns disruptions in the operations of our third party suppliers and business partners and limitations that our employees ability to work in travel.
We expect the ultimate significance of the impacts on our financial and operational results will be dictated by the length of time that these circumstances continue which would depend on the currently unknowable extent and duration of the covert 19 pandemic and the government and public actions taken in response.
These factors will also make it more challenging for management to estimate the future performance of our business, particularly over the near term.
During the call, we'll present, both GAAP and non-GAAP financial measures non-GAAP financial measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results I encourage you to consider all measures when analyzing the company's performance.
Reconciliations of certain GAAP to non-GAAP measures is included in todays press release, which can be found the investor Relations section of our website now with that let's turn the call everyday Wagner for his opening remarks, Dave.
Thanks, Jeff Good afternoon. Thank you everyone for joining us today, what an extraordinary time, we are living through the koby crisis requires remarkable efforts from people communities organizations and governments to safeguard our health and safety and is impacting people all over the world.
Our thoughts go out to all those affected and our sincere appreciation to all frontline workers from all sectors of the economy, and especially our healthcare workers many of whom are also our customers.
As many more workers on now working remotely Xenapp River operate way for companies to establish a secure modern workplace online.
The demands of remote work require businesses to digitally transfer even more sensitive information both through email as well as a plethora of new channels.
It's an even more challenging world for information technology teams and malicious actors are seizing the opportunity.
We provide tools to make our customers more productive by making them more secure and by safeguarding are sensitive information.
We've spent a lot of time over the last several weeks executing plans that allowed our business to continue while also ensuring employee safety. Fortunately our business continuity plans and IP infrastructure were effective and flexible and allowed us to continue helping our customers and partners meet the.
Challenges of today's remote work environment.
Zix was founded on the ideal of enabling people to communicate securely for years, our customers and partners have trusted us to manage the most sensitive information and communications. We're honored to have earned this trial and are working to pay it forward.
In addition to supporting our customers with our industry, leading solutions and phenomenal care, we made several complimentary educational resources and security tools available to new and existing customers.
As one of North America's leading providers of productivity and security solutions, we have a unique ability to share best practices and help organizations whether this storm.
For instance, our solutions are supporting remote telemedicine and remote mental health benefits and our secure network transmitted some of the earliest covert test data from lab hospitals in the New York Metro area.
The journey toward digital transformation and cloud migration requires time energy resources and expertise. The pandemic has exacerbated issues around security compliance and productivity as the world's Cif two are primarily remote workforce Gartner recently noted that the buyer.
Just as appearance sped up the cycle of workplace modernization by at least seven years, leading many businesses unsure of where to begin when it comes to balancing security with productivity.
This is where we come in the resources businesses need to be effective in this environment of precisely the ones that mix at river together with our partners provide.
The Zixone App River teams have worked tirelessly over the last year integrate the two companies and our respective solutions to help businesses achieved their vision of a secure modern workplace on April 15th we successfully launched secure cloud, which is the combination of our integration efforts delivering a new.
To secure modern workplace platform to empower our customers and partners to deliver business value in the digital workplace.
As I mentioned, a moment ago, we're focused on employee safety and our team is delivering on our value proposition to partners and customers like never before I am incredibly impressed by our teams resilience and productivity and is uncertain times, our stable financial performance and uninterrupted operational execution.
In the first quarter as a testament to their commitment.
However, we do recognize that we're not immune from the ongoing uncertainty caused by cobot 19, and its effect on business and the economy in April we implemented a cost savings plan to reduce our non-GAAP operating expense forecast by approximately $6 million in twentytwenty.
Compared to our pre cobot forecast and $9 million on an annualized basis. The goal of our cost reduction program is to maintain our market momentum while also increasing our margin to deal with the potential economic impact of coded on some of our partners and customers.
These actions are largely complete and strike a balance between temporary expense reductions on travel marketing executive pay and deferred salary increases with structural changes like early retirement terminations and datacenter cost savings to be clear, we are confident in our business and remain committed.
To our long term strategy. However, we believe that these actions are prudent in the face of the uncertainty in the current economic outlook. The leadership team and I have navigated through turbulent markets and recessionary times before we believe zix will emerge even stronger now I turn the call over to our CFO Dave Rockvam.
And to provide details on the financials for the quarter before I will return to discuss Q1 and our growth drivers in more detail, Dave. Thank you, Dave and good afternoon, everyone.
At a high level, we delivered on our revenue and EPS guidance for the quarter, demonstrating the resiliency of our business model and our commitment to reliably delivering profitable adjusted EBITDA growth on an absolute basis.
Now, let's talk about the numbers in more detail at the end of the first quarter, our AMR totaled $214.3 million up 15% organically from Q1 of last year.
On a combined company basis cloud based air are now comprises 83% of totally our are an increase of 24% from Q1 of last year.
New customers totaled over 5200 and were up 27, 21% from last year, representing the highest level, we achieved as a combined company.
For the first quarter, we had just over 100% net dollar retention, which represents our renewal plus new sales into the installed base divided by the renewals that were available at the beginning of the quarter. Our strong gross dollar retention of over 90% growth in new customers and continued success in cross selling drove.
Yet another quarter of record air are.
Revenue for the first quarter increased 79% to $52.4 million from $29.3 million in the same quarter last year, the $52.4 million of revenue was at the midpoint of our guidance range and reflects 15% organic growth across Zixone App River.
Our adjusted gross profit for the quarter was $29.2 million or 55.7% of total revenue, which was an improvement on a dollar basis from $18.2 million or 64.8% of total revenue in the first quarter of last year.
As expected our adjusted gross profit margin percent for Q1 was down from the prior and year ago periods. Those of you that have been following our story noted this compression is largely due to our increased sales associated with Microsoft productivity suite, which carry lower margins than sales of our proprietary solutions, we believe the migration of.
I'll boxes to the cloud provides us with a highly effective low cost lead generation source for our higher margin security portfolio.
As such we are focused on growing gross margin dollars from both our high margins security solutions as well as our office 365 distribution.
We believe this next we'll provide ample flow through to the bottom line to meet our EBITDA dollar growth goals.
Our adjusted R&D expenses for the first quarter 2020 were $4.9 million or 9.3% in total revenue.
Compared to $3.5 million or 11.8% of total revenue in Q1 of last year.
The year over year dollar increase for the quarter was primarily due to the inclusion of App River in our results.
Our adjusted and selling and marketing expenses for the quarter were $10.6 million or 20.3% of total revenue compared to $7.5 million or 25.5% of total revenue in Q1 of last year.
This lowered percent of revenue in selling and marketing shows our lower cost of customer acquisition from our high velocity sales model and the success. We are happy in winning new customers and wallet share gains from our nearly 4400 MSP partners.
This was our record low CAC cost to acquire customers in the quarter of just $2000 per customer that combined with strong new customer wins and solid retention positions us well to look deliver on our high velocity lower cost sales model.
For the first quarter 2020, our adjusted General and administrative expenses were $4.6 million or 8.7% of total revenue compared to $3.2 million or 10.8% of total revenue reported in Q1 of last year.
On a GAAP basis, we reported a net loss attributable to common shareholders of $3.1 million or a loss of six cents per fully diluted share.
This compares to net loss attributable to common shareholders of $8.7 million or a loss of 17 cents per fully diluted share in Q1 of last year.
Our first quarter non-GAAP adjusted net income before deemed dividends and excluding deferred tax was $6.7 million or 12 cents per fully diluted share, which was inline with our guidance.
This compares to $3.8 million or seven cents per fully diluted share that we reported in Q1 of last year.
And finally, our adjusted EBITDA for Q1, 2020 totaled $11.1 million, an increase from $5.8 million reported in Q1 of last year.
As a percentage of total revenue adjusted EBITDA for Q1, 2020 was 21.1% compared to 19.8% in Q1 of last year as we mentioned on our Q4 2019 earnings call in February we would be investing in sales and other areas in Q1, which would push certain expenses up in the first quarter.
As January February we're off to a solid started the year, we were strategically investing early in the quarter to drive organic growth opportunities to capture more mailboxes.
But curtailed that investment with the onset of covert 19 impacts in early March.
These strategic investments coupled with some unexpected cobot 19 related expenses resulted in our adjusted EBITDA margin coming in slightly lower than our plan for the quarter.
Cash flow from operations for the first quarter 2020 was $4.4 million, an increase of $4.8 million over Q1 2019.
We ended the quarter to stop it sounded liquidity position was 16.3 million in cash and $17 million available through our revolving credit facility.
In terms of capital structure and debt metrics, we had $169.7 million of net debt on our balance sheet at the end of the quarter the $9 million annualized cost. We recently took out of our business along with our strong free cash flow generation and are unchanged adjusted EBITDA outlook of 51 million to 53 million.
$1 for the year provide us with ample cushion our leverage ratio to meet our debt obligations to better illustrate this using the midpoint of our adjusted EBITDA guidance of $52 million, we're projecting our leverage ratio at the end of Q4 2020 to be about 2.9, which is well below our maximum permitted leverage.
The ratio of 4.75 for year end 2020.
Capex and other intangibles for the first quarter 2020 were $5 million, which consisted primarily of normal business capital purchases and capitalized internal use software development.
We expect Capex and other intangibles, the approximately $13 million to $15 million for the full year 2020.
We also expect adjusted depreciation and amortization to be approximately $10 million for the full year 2020.
Our backlog at March 30, Onest, 2020 was $88.5 million, which was up 2% from $87.1 million at the end of Q1 last year.
For the first quarter of 2020 total gross billings were up 96% to $55.8 million from $28.5 million in Q1 of last year and up 22% on an organic basis. When you include all Evaporators Q1 2019 billing.
Now turning to our financial guidance for the second quarter 2020, which is based on current market conditions and expectations.
In Q2, we currently expect revenue to range between $52 million and $53 million, which implies a 10% to 12% organic growth rate compared to the same year ago quarter.
Fully diluted GAAP loss per share attributable to common shareholders is expected to be in a range of a loss of seven and a loss of six cents.
We are forecasting fully diluted non-GAAP adjusted earnings per share attributable to common stockholders before deemed dividends and excluding deferred tax expense to be in the range of 12 and 14 cents.
We expect adjusted EBITDA to be approximately 23% to 25% of total revenue.
Per share guidance figures are based on an approximate basic share count of 53.7 million for Q2 2020.
Based on our current visibility we have updated our revenue range for the full fiscal year 2020 to reflect the anticipated impacted the cobot 19 pandemic on our operations.
For the full year, we're currently forecasting revenue to range between $210 million and $217 million, representing an increase in between 21, 25% compared to 2019, and 29 and 13% on an organic basis.
We expect fully diluted GAAP loss per share attributable to common stockholders range between a loss of 13 and a loss of nine cents for the year.
On a non-GAAP basis adjusted earnings per share attributable to common stockholders are expected to be 56 cents to 58 cents.
Adjusted EBITDA is forecast to be in a range of $51 million to $53 million or approximately 23% to 25% of total revenue for 2020, and a year over year increase of between 29 in 34% compared to fiscal year 2019.
The per share figures are based on an approximate basic share count of 54 million for 2020.
We are withdrawing our air our guidance for the full year 2020, due to the current market conditions and uncertainties related to cope with 19.
Based on our current outlook, we expect to generate continued strong free cash flow in 2020.
We are forecasting approximately $11.5 million in interest expense on our loan.
We're pleased that even in these uncertain times surrounding koeppen 19, we are still position to deliver our initial 2020, adjusted EBITDA guidance of $51 million, a $53 million, even at a potentially lower revenue number that we had initially planned for in 2020.
This completes my financial summary for a more detailed analysis of our financial results. Please refer to todays earnings release as well as our 10-Q, which we plan to file by May 11.
Also visit our Investor Relations website, the view, our most recent investor presentation.
Dave.
Thanks, Dave I'd now like to review, our first quarter execution in the context of our three primary growth drivers during which I will provide some april color before I transition to my closing remarks as it relates to our first growth driver, which is new orders to new customers.
We recorded some notable wins in the first quarter on the Zix side, one of our top five wins was in Fintech two were in finance and two were in healthcare our largest new customer win in the quarter was a six figure deal with a healthcare provider to purchase productivity encryption and advanced threat protection.
We displaced the competitive solution because the customer with dissatisfied with the functionality of our competitors encryption and threats solution and was also looking for better support.
Another noteworthy new logo in Q1 with a six figure win for productivity and Threesix solutions encryption advanced threat protection and information archive. They were also attracted does expire phenomenal customer support phenomenal tear isn't just a nice add on for zix, It's a real driver to which we can attack.
Our organic higher margin products, our top five new customer transactions in the quarter averaged three solutions per customer again, demonstrating our success selling bundled solutions.
On the MSP partner side, we added 55 net new transacting partners during Q1, bringing our total to 4393 at quarter end.
In Q1, we continued to add approximately 200 net new customers per week and the new customer acquisition rate in April remained on that trend companies migrating to the cloud are looking for partners to facilitate that transition.
Our ability to attract new partners and new customers supports this thesis and our growth opportunity.
Europe continues to lead the way on new partner acquisition, where our value proposition, although new to the market continues to resonate well.
We're also seeing good success displacing existing ATP solutions in many of these European partners.
At the end user level again, the MSP side sales to existing customers accounted for 59% of the M.R.R. increases in the quarter.
With respect to new business trial trends, we began the year with increasing sales momentum on both the direct and indirect side of our business. Our App River trial activity was tracking at record levels in January and February However, in March trial momentum tapered off of the economic.
Impacts of Cobot 19 that in and many of our partners pivoted to fundamental work from home enablement tasks. Then beginning in April we've seen trial activity picked backup and in April we began to see an increase in the rate of new orders to new customers of about 20% as partners.
Finished up work from home preparation and Reaccelerated cloud migrations.
Shifting to our second growth driver, which is sales to existing customers.
Four of the top five add ons in the quarter weren't health care and one was in finance three of the fiber encryption only add ons one was for archiving as a third solution to a customer who already purchased encryption and preparation and the fab was a five solution cross sell adding officethree hundred 65 advanced threat.
Your file transfer and archiving to their existing encryption solution.
Interestingly the average contract term of the top five add ons was 29 months representative of some of the success, we're having moving larger customers to longer term agreements.
Partially offsetting our declining overall contract duration as many customers move to monthly billing.
On the MSP side sales to existing customers accounted for 41% of the MRO increases in the quarter and offset all of the turn resulting in a net renewal rate of just over 100%.
In March we saw a deceleration of orders from existing customers as existing customers began decreasing users and downgrading office 365, Skus, while we believe that flexible consumption based month to month billing is the future of cloud services and.
A differentiator in attracting new customers in the Pep economy. It does offer customers the flexibility to elastic Lee decreased users and license entitlement as they further workers.
In April existing customer AMR decreases offset nearly all of the M.R. increases in existing customers for the month.
We're also seeing an acceleration of the migration from hosted exchange to office 365, driven by work from home demands that are better served in the clad and by Microsoft's customer incentive for teams adoption.
Looking at our results for the first quarter by solution area and please be reminded that we do not manage our business by solution category and increasingly our sales are made at bundled solutions that means that we must use judgment estimate the value allocated to eat solution area with that context pro.
Activity, our AR increased 7% sequentially and 32% year over year to $102.5 million.
Average revenue per user or ARPU of $101.01 was down 57 cents from last quarter. The primary reason for the ARPU decrease is the rotation to lower cost skews caused by co heads that I mentioned earlier in the call.
Net of churn, we added more than 66000 mailboxes in the quarter down from 83000 last quarter.
April with positive by approximately 9000 mailboxes, reflecting the trends noted earlier of higher net new slightly higher churn and a flattening of additional licenses to existing customers.
Encryption EMR was 71.7 million down, 1% sequentially, but up 2% year over year.
The decline was largely due to an accounting change for air our of our acquired Dms product ARPU. It down nine cents to 17, 96 hour encryption seats decline by less than 1% or about 36000 seats from Q4, largely due to the continued erosion of the Oems.
Advanced threat protection, EMR was $24.1 million, which was up 3% sequentially and 10% year over year, our ARPU was $13.38, which was down 2% from $13.65 in Q4, but up 8% from $13.
In 14 cents in Q1 of last year.
And finally.
Our in our emerging category was down 11% quarter over quarter to 16.1 million again accounting changes for our of our acquired total defense product drove the majority of the air our decline.
However, with the end of life of Zixone, one scheduled for October Twentytwenty, we expect emerging to remain flat or slightly decline through the rest of Twentytwenty. Our ARPU was $30.31, which compares to 30 or 33 point 58 last quarter.
Moving to our third growth driver increasing retention our total company net dollar retention remained at a solid level just north of 100%.
Representing a slight decline sequentially. This minor rig ration was primarily due to lower sales into the installed base beginning in March as I mentioned earlier cores that had a very strong retention quarter and as noted above we continue to have a success extending our larger customers to longer term.
Agreements.
In April Zix core retention remains strong on a small sample size and App river retention depth about 400 basis points due to the economic impact of coated.
I provided a lot of April business trend commentary in my remarks. This.
This is obviously preliminary contemporaneous data that's being provide without the benefit of a more robust reviews controls associated with our normally reported quarterly results in summary, we anticipate that total company our AR increased modestly in April from March.
Moving onto my closing remarks.
In the mix of the cobot induced market disruption our team successfully launched secure cloud right on schedule on April 15th.
Secure cloud as our consolidated platform with a suite of productivity security and compliance applications to deliver a secure modern workplace.
The reaction from our partners customers pressed and analyst has been universally positive.
Our customers and partners, let us know that the re imagined re architected enhanced platform and solutions are exactly what they were looking for.
The ability to easily add and manage our suite of services from the newly modernized single pane of glass, coupled with flexible billing allows partners to meet the rapidly changing demands of their customers.
We actually from the media has been equally rewarding with channel publications from CRN to channel pro demonstrating their understanding and appreciation for the power of secure modern workplace. This platform enables our partners to build powerfully differentiated offerings across a wide spectrum of customer needs.
They can offer the new customers and onramp to the cloud and taken to enhance the customer security with advanced features like attachment quarantining and Sandboxing.
And superior encryption and file transfer solutions.
Our part is existing customers are also better off now they can audit the health of the customers Officethree hundred 65 tenants with the security audit and then immediately remediate through our suite of solutions.
In addition, we've enabled partners and customers to archive the explosion of corporate information that's being created in newer channels like slack teams Facebook and let Dan.
With secure modern workplace launched were even more enthusiastic about our long term growth prospects and our ability to deliver on our vision of becoming the leading provider of cloud email productivity security and compliance for businesses of all sizes.
Despite all this good news, we know that we're not immune to the current market dynamic many of our customers, especially our smaller customers are struggling with decreased demand and are decreasing users as they furlough workers as a result, we're focused on balancing profitability as we capitalized on the positive market momentum.
Digital transformation.
We believe that we have a durable liquidity position with more than 16 million in cash and 17 million available for our revolving credit facility. We believe that the 9 million dollar of annualized cost that we recently took out of our business coupled with our strong free cash flow generation give us the ability to grow the business and meet our data.
Negations, and we believe we have the right strategic plan in place and that our industry, leading solutions and world class team will enable us to capitalize on the digital transformation opportunity that is accelerating.
In closing I have never been more proud of our team and their commitment to deliver phenomenal outcomes for our partners and customers. We don't like recessions, but we know that our success today will better position zix in a post cobot 19 environment and enable the realization of our vision to be a leading provider of cloud email security coming.
Clients and productivity solutions for companies of all sizes.
That concludes our prepared remarks, operator, we're ready to open the call for questions.
Operator.
Thank you.
Asked the question you will need to press Star then one on your telephone to lift all your question. Please press the pound key again that is star then one if you will like to ask your question.
Our first question comes on the line of Chad Bennett with Craig Hallum. Your line is now open.
Great. Thanks for taking my questions. So just in terms of of the guide that you guys just gave for the year.
How should we think about the trends that you saw in particular in the App River business.
In late March into the month of April Howard those.
In the guide in terms of how should we think about you noted the retention rate there and the net new business rate there, how you're thinking about that for the year. Thanks.
Yes. So that is obviously is top of mind, there with all the great things going on comp paying the recent slow relates to secure cloud positioning there you all that fantastic, but the reality of.
Of the economic environments effect in particular are smaller customers and we started to see those trends.
Early mid March and it's been pretty confessed bent.
Coming into April, especially seeing the new customer flow being strong are perhaps actually 20% up.
From quite prior quarters in terms of new business implausible really pleased by that that makes I think sense Isaac think about the work from home.
Environment that churn has hasn't gone up my kicked up a little bit.
But the big change is an existing customers who.
Previously were counting for quite a big amount the increase this 41% in Q1 and that that increase has really drop.
It's still an increase both dropped dramatically.
In the last seven weeks as existing customers, both furlough workers and do some adjustment.
With especially with the Microsoft skews to save some money and so those are the trends that we looked at most heavily when we put together.
The guide.
For the quarter.
And for the year in and out we're looking at as.
And just taken as best factor, we can incorporate them into into the guide got it no. That's great color I appreciate it and then shifting to the zix business have youre.
Expect it sounds like retention there its has been signed in obviously year and.
All the.
Regulated industries that are afraid to key and you're dependent or they are dependent upon you for mission critical data and applications. I guess have you changed anything either from a retention or existing base or net new on on the zix business for the year, yes on the VIX based on the large.
Our cost of ours across both brands and the larger customers. They are at the immune but not as as acute there what we've seen imply recessions is.
Retention holds quite well and those compliance oriented buyers and so.
We're not expecting.
Our increase in charge it becomes a little harder to do to do.
We're not large projects, but a little harder to make changes so we'd be incorporating a modest.
Decrease in our new business on the Zix side again, all package up into that.
The full guide for the year got it okay. Thanks, that's it for me nice job on the quarter and managing the business going forward. Thanks. Thanks Chad.
Thank you.
Next question comes from the line as Nick Yes, well with Cowen and company. Your line is now open.
Hey, guys. Thanks for taking my questions are thing I'd end.
On Sunday with the launch of secure cloud and I know, it's early but just curious is the plan is to lead with the zix secure suite with new customers going forward and then just any color on how secure suite is priced maybe relative to the Alec heart pricing.
So that's a great question. Thank you.
We've been leaning toward secure cloud with the packaging them Officethree hundred 65, beginning.
Really in Q4, and I've been a bigger way and as you saw in the top five.
Deals this quarter were getting really good success with that backs. We approach when we put the full suite to gather as it gets to be three solutions are more there is that.
Roughly a 20% desktop built into the bundled skews, which encourages.
Both the partners to position that way and then customers when we talk to the end customers to.
To go for the sweet approach and for that.
Thats working well for us the secure cloud launch of course, just happened here in April and Thats the flow that the sellers will be able to get into in.
Later in the quarter and increasingly using the same try and buy a methodology and.
We're really excited about what that's going to bring to the sales motion.
Before you have a back half of this quarter and to the rest of the year.
Okay, Great. That's helpful. And then and then then one on.
Okay. Okay.
So on the restructuring program.
The bulk of that behind you and then just any additional color in terms of where some of those costs were.
It would be helpful. Thank you.
Hey, guys to the restructuring program analyst day, but that chime in a bit too, but we tried to balance get in terms of.
Things that we recall temporarily on marketing program or Daxing travel reductions of course.
Executive compensation decreases deferred salary those are things that we would intend to put back into the business as.
The economy recovers and which of course, we hope to be as soon as later this year.
Net orders were more deeply structural.
Early retirements, which were voluntary which caused.
Changes in some unexpected places in the organization.
We did end up 200, involuntary terminations, which.
Of course, there more control over and then datacenter cost savings knows our structural and would be would be persistent in total we were focusing on keeping the company positioned really strong we do see very strong trends for us and digital transformation.
The new customer are still onboarding it at a great rate to want to make sure that we're prepared to continue to provide phenomenal care.
And we'll continue that finished up again 31 works, we've tried to protect the product organization as much as possible.
Got it.
In that in terms of the PNM line changes yet I would just add that about 95% of those changes are made as of now and we will carry seven and a half to almost eight months worth of savings some of the datacenter stuff finishes up by the ended the quarter, but we expect almost all of that.
To be done by the end of the quarter and most of the people changes the marketing program changes all those things have been implemented.
To save seven to eight months worth on on the year and as Dave said, you'll hear we win it costs kind of different parts of the organization I.
I would say, where we tried to make sure. We held up was on the sales front and made sure that were there and have the sales team aligned to take advantage of the opportunity that's there so.
We continue to see that the strong opportunity out there for us and what the sales team out there being able to push the secure cloud.
And then just to reiterate any employees who are affected have been notified we do have a few that are on.
Especially early retirement through our working for several months to transition their work.
Okay helpful color. Thanks, guys.
Thank you in it.
Thank you.
Next question comes on the line of now capturing with Northland Capital markets. Your line is now open.
Thank you and congratulations on the hitting our guidance topline guidance within what was.
Incredibly tough environment, that's really amazing.
Thank you.
Yes, absolutely.
Okay.
As cause and question as a first I did the lightweight.
So for the new over in Zionts at the low and do a range that implies that you get the flat Q1 Q4 Q3 in Q4.
And then if we look at the midpoint, it's implying a rise of about $1 million each quarter into Q3 in Q4.
So.
Let's take the midpoint and.
Why should we expect improvement and the correlates trajectory, whereas your Q2 guidance implies is going to be flat to acute and.
The answer I'm looking for us may be can parsonage two parts. One is your macro assumptions for Q2 versus a back half and then the fundamental parts of the business that you've been talking about.
Okay. Good those are great question.
Of course, we gave a lot of detail on the trend for April.
So that we can share as wells again with the analyst and investors.
What we're seeing in the business.
I am not the economic expert.
The SMB impact.
When we're looking at it we think we'll be more acute in in this quarter that we're in.
So we were up modestly in air our through the month April which we we take as a good sign.
Yes, it's hard to delivering the air our growth that we really want to see.
This year, but we were looking as we're thinking about it as that May and June could be that pop as part of the of the outlook.
On the second saw year generally.
Secure cloud, we're super proud of that we think the positioning.
It's really good, particularly in tough economic times, where we offer organizations will relatively large and small the ability to have a very.
Elastic user count opportunity, where fair uncertain about.
Their year and why it looks like they can adjust our users.
Monthly and go up and down what we think is a really big competitive advantage of in a tough in a tough market and so our new business pipeline in new business.
On our across the business the pipeline is actually quite strong and so we're not.
Giving up on the upturn had a really good year in and 2021, we just felt that with.
The level of uncertainty that's in the macro environment that we were more prudent to make adjustments early.
And then wait.
Getting against given on one certainly we see in the market.
Okay, Great and then you mentioned that.
Essentially you think that.
May and June maybe the worse for the SMB.
So.
What percent of your A.R. is actually expose to these SMB customers today.
And while I would need to find value.
Fine SMB as well what size customer do you consider SMB.
So yes that.
50 users and down would be what other gets consider SMB and thats approximately.
The breakout of the MSP side the business those channel partners. They do have some larger customers both primarily the legacy App River business that we.
We think about when we think about the SMB exposure the and when we look at that what we've talked about is.
About you are less than 10% of the.
Really hit hard hit verticals and small medium business our customers.
The the travel agencies that travel industry, the restaurants, those kind of things so we.
We look at that part as being the most impacted and right now as Dave said, we're just looking at me in June I think.
We thought that there'd be kind of a quite a bit of seeing the small medium business come forth and asking for extended terms and.
Those kind of things and not paying we're seeing receivables Ron just on par with where they were before us we haven't seen a drop off on that and we've seen just a couple of hundred thousand dollars worth of requests for kind of extended payment terms, which I think it's a pretty small number given the environment that we're in right now so I think as we look at looked at the guidance.
Of April as Dave said was up in air are so that was good and the to 14.3. So just up over that is what we were saying.
The guidance predicates, just what what were looking for for May and June as we just don't know at this point is no windows.
Okay, Great and then finally.
Can you put a rhyme and reason to why you saw more or less.
Often end in March and and the resumption April.
Yes, and I put that into a scrap what we heard from the partners that we spoke wet as they were just busied out many of that that's smaller businesses around the country weren't well prepared for work in homes, but they were busy now.
Putting NBP, adding and getting workstations ready to work.
Work remotely and for the they may just couldn't work on the other demand men.
None of that flips around by the end of the month. They had they had their end customers able to work from home and then they went back to our cloud might migration, which we're actually seeing an acceleration of as result of that.
The benefits of.
Of.
Officethree hundred 65 in teams and secure amount of work life.
In the Workman environment.
Great. Thank you.
Thank you as a reminder to ask the question you will need to press Star then one on your telephone.
Our next question comes from the line of Daniel Ives Wedbush Securities. Your line is now open.
Thanks.
Well so let me maybe you can you talk about.
The management team in this environment, where you guys you missed two in day to day, that's different entered in navigating the channel customers, maybe walk through how thats changed from.
From an all hands on deck.
No Thats a great great question that I could add more proud of the team and the way that they're working on and every part of the company that phenomenal care. The agents are working from home there they're standing up in the morning standing up again, working just tremendously well.
Remotely the development team continued to deliver really meaningful products and they're going to great job, but I would point primarily to they add to the sales team stand up in the morning stand up at night really drive in rigor in their process positioning and that and repositioning with clients.
The benefits secure modern workplace and that the benefits that were bringing them into that market and so yes spending a lot of time with partners a lot of time.
Also with news prospects, yes, the pipeline is good and Matt.
I don't think take where the grain salt, but you have to be a little more careful that pipeline.
These days qualify more carefully I make sure that the deals are progressing in so I'd say the diligence in this in the sales front end is that really a heightened not there wasn't dollar devry quite has now more than ever.
Okay and then.
In terms is guidance for two Q are going forward do you service June what you're seeing in April continues towards putting more of a discount.
On the shrink to the when you look at that Q2 guide in particular.
We were allowing for a little bit worse manager and we just can't we just do not know bite.
Allowing for a little bit worse, assuming that may be PPP allowed some funds the flow through and people pay the for the and melt.
Don't make some adjustments yet in May and June.
But that's more just allowing for.
For uncertainty than anything we're seeing the trends that we're seeing.
As we disclosed were up and add up in April driven by more new churns, just a little bit higher churn and in that again that decrease from existing customers not not buying more or are there more buying more is offset by customers who are furloughing workers.
Great.
Thanks.
Thanks, let them.
Thank you.
At this time this concludes our question and answer session.
I'd like to turn the call back all with a day Wagner for closing remarks.
Well. Thank you all for joining us on our on our call. This afternoon and for your support.
Zixone, where look forward to navigating this this next quarter and speaking with you all again at the end of July. Thank you very much.
Thank you for joining us today for the next first quarter 2020 earnings call you may now disconnect.
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