Q4 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Dynatronics fiscal fourth quarter 2020 earnings Conference call.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. Please be advised the today's conference is being recorded if you acquire any further assistance. Please press star zero.
Thank you and I like to handle conference over to your speaker for today, Michael with Investor Relations. Please go ahead.
Thank you operator, good morning, and thank you for joining us today to review Donna traces fourth quarter in fiscal year 2020 financial results with me on the call today or John Vinh, Cyclin, Chief Executive Officer, Kevin Burns Chief Financial Officer.
Prepared remarks, well open up the coal for a question answer session before we start I'd like to draw your attention to the Safe Harbor statement.
Please press release during this call will make statements related to our business that maybe considered forward looking within the meaning of section 27 eight.
Securities Exchange Act is 1933 as amended and section 20 of the Securities Exchange Act of 1934 as amended.
All statements other than statements of historical fact forward looking statements, including statements regarding management's expectations of future financial and operational performance.
Ratio expenditures expected growth and business outlook, including our financial guidance for the first fiscal quarter in fiscal year 2021 forward looking statements reflect our views only as of today and except as required by law. We undertake no obligation to update or revise these forward looking statements. Please refer to the cautionary language in today's press release into our latest round.
10-Q, which was filed with the FCC on January 31st 2020, and our other FCC filings for discussion of the risks and uncertainties that could cause actual results to differ materially from expectations.
During the course of today's call will refer to certain non-GAAP financial measures as defined by regulation G. GAAP financial measure most directly comparable to each non-GAAP financial measure used or discuss in a reconciliation of the differences between each non-GAAP financial measure and a comparable GAAP financial measure can be found within our fourth quarter interest.
Who your 2020 earnings press release in the Investor Relations section of our website Dynatronics dotcom with that I'd like to turn the call over to our Chief Executive Officer, John and second John.
Good morning, everyone and thank you for joining us on our Q4 and year end fiscal 20 earnings call.
Since late January when we last broadcaster Dynatronics earnings call Cobot, 19, pandemic has dramatically impacted families communities and businesses around the world in a way that we never thought possible.
It is our hope that everyone is staying healthy unsafe and that those who have become you know have a speedy recovery.
And of course, our Hearts go out to those who have suffered the tragic loss I've loved ones.
Sudden shift to remote work has caused applications and the cloud say run on the becoming even more central way to provide services drive revenue engage customers and collaborate of 'em teams.
We continue to work closely with our customers to help them respond to their rapidly changing workloads and requirements, enabling faster innovation.
Easier collaboration and greater efficiency without wasted motion.
Despite these challenging times I believe our strong platform differentiation.
Balanced business model and World class team continue to provide us with a durable growth business.
I'd like to reinforce three points this morning.
First the success with which diner trace has responded to cope with 19, and what we're seeing across our customer base and market at large.
Second as this marks our fourth earnings call and the end of our fiscal 2020.
I'd like to update you on the tremendous progress you've made in both our customer conversion and subscription business model transitions.
And third.
As our platform becomes increasingly robust across all modules and automation and AI become critical success factors for dynamic multi cloud observe ability.
I'd like to update you on some of the platform advances. We recently made at the success of our cross selling motion of emerging products.
This will be an important growth area for us as we look ahead.
First.
I could not be more proud of how the dignitaries team responded to the challenge is a cobot 19.
The modern SAS platform and agile workforce, we transitioned to work from home almost overnight and did not Miss a beat.
We made sure we kept writing so our customers could keep right.
Not only where we essential to assuring the rapid shift to work from home was successful for our customers around the world.
We also provided essential situational awareness to ensure business continuity of run the business applications services and workloads for banks healthcare companies logistics companies government portals and more.
So despite what was essentially a two week pause during mid March has a shock of the global pandemic took hold and many of our customers were focused on the health and safety of their employees and establishing their work from home programs.
We closed a solid Q4 with Aer are up 42% year on year and subscription and services revenue up 37% year on year.
Linearity and close rates were generally in line with prior Q4's.
New logos were up year on year.
And our net expansion rate was above 120%, but.
For the eighth consecutive quarter.
We believe the strength of our results is largely a reflection of this mission critical nature of our software intelligence platform.
Software eating the world has been a powerful multiyear trend that is still in the early innings and the rapid move to online commerce and work from home initiatives.
Made the uptime and performance of the underlying software applications and infrastructure more important than ever.
The industry's platform addresses these pain points and it is faster deployment scale with rapid time to value.
We believe and our customer share the sentiment.
At this place is dying to trace near the top of the strategic I T priority list.
The strong majority of our a are roughly 80% to 85%.
He is outside of industries more challenged by Koby 19.
We also have strengthened surging markets, such as health care, He learning communications and government.
Our customer base is highly diversified and we focus on the top 15000 largest enterprises around the world.
This said.
We do estimate that approximately 15% to 20% of our air our is with enterprise customers that we considered to be in industries that are facing headwinds due to the health pandemic.
Such as travel hospitality retail and automotive.
It is prudent to expect and new demand from these industries will be impacted somewhat in the near term.
However at the same time within these industries, we are typically working with some of the largest and financially healthy companies and our solution is near the top of their priority list.
What we've seen over the past eight weeks has shown us that essential applications and transformation projects continue to move forward, even within industries experiencing headwinds.
For example, we did a sizable expansion deal in Italy in late March This energy company wanted to assure continuous high quality service throughout the country and if issues arose.
Actively address them before service was impacted.
In the past reacting after a failure occurred in service was already disrupted was not unusual.
You can imagine with coal bed and mandatory shelter at home.
Hi quality energy service was an imperative.
I know traces rapid automatic rollout.
Unified AI ops approach to identifying service impacting issues at time of degradation.
With Precyse actionable answers for rapid remediation made the dying to trace expansion decision straightforward.
Another customer example was an oil company a new logo to Dynatronics.
In the midst of maybe the greatest disruption to the oil business in history. This company determined it was essential to revamp and modernize its commodity trading applications and the technology stack was running on a shift to cloud for agility and efficiency for a set of revenue driving applications and services.
They chose dying to trace because of simplicity advanced automation and rapid time to value.
It's too early to tell what to specific net impact of cobot 19 will be across our overall customer base and target market.
But with a solid Q4 close and fast start to our June quarter with April bookings a bit stronger than a year ago. We are encouraged that we can generate solid growth even with an assumption that we will continue to operate within a challenging macro economic backdrop.
Shifting now to our progress converting our customer base and transitioning our business model.
Slide 20 was a fantastic year.
We are where we hoped.
Head of schedule, we now have 92% of our eight our are on the Dynatronics platform with only 8% left on our classic product side.
We added over 1000, new customers to the Dynatronics platform this past year.
Now over 2300 customers with the majority continuing to be new logos.
As we said before nearly all these customers use dying to trace were observing and optimizing cloud workloads.
These clouds maybe public.
They may be hybrid.
Well, what we see more and more often now.
They are multi cloud.
Multi public with hybrid backends.
Were critical systems of record and many run the business applications. So reside.
More often than not.
Burnett eases used for container orchestration.
And more and more look the multiple double ops teams utilizing the latest cloud native techniques to rapidly build deploy advantage applications and workloads at scale.
With this combination of complexity dynamism and frequency of change only an automatic AI assisted observe ability platform that can handle the most complex public and hybrid environments will work.
I'm very pleased our customers have chosen to modernize with us and it's exciting to know that we are now part of their current and future digital transformation initiatives.
Regarding our business transition to a more predictable subscription model.
In Q4, 98% of revenue was subscription or services.
Our transition from a classic license business to a subscription business is virtually complete.
We've done this while increasing gross margin to 83% overhaul and 88% for subscription.
With over 90% of our customers on a release no more than 30 days old.
Our operations and support teams are extremely efficient, giving us more time to drive adoption and success across the Dynatronics space.
With the customer conversion and subscription business transitions now behind us.
We look forward to driving the more streamlined.
One platform SaaS business in the years ahead.
We will be even more focused.
We will drive more value.
And we will remain resilient and durable.
Now to our platform.
Simply put we have never been in a stronger position.
As a response to koby 19, as highlighted applications need to work perfectly at all times to drive employee productivity.
Sure optimal customer interaction guaranteed business and transactional continuity and so on.
Work locations May change workloads may shift, but applications must run flawlessly.
Applications or the high ground.
It's where the business meets IP.
Over the past month, the industry's leading analysts from Gartner.
Simultaneously released their annual ATM Magic quadrant.
NAPM critical capabilities guide.
For the 10th consecutive year dying to trace is considered a leader and once again, we were given the higher Sparks among all competition provision.
In the critical capabilities guide our platform differentiation compared to competition is even more clear.
Dynatronics, leading in five or six categories.
To achieve the separation requires a radically different approach to the challenges of modern cloud observe ability.
We've made the bold decisions, but reinventing ATM was just a piece of the puzzle.
In Q4, we announced expanded capabilities for both our infrastructure only module and our digital experience module.
Over the past year, we've gone from approximately 15% of our customers buying three or more modules from us to over 25%.
And that's on a rapidly growing customer base.
Our cross selling muscles are getting stronger.
Digital experience has been a popular module extension for us for a few years now, but recently, we've seen a surge in demand mobile monitoring.
Part of this is that we have made it easier than ever to instrument native mobile applications.
And we believe Carter. This is a renewed appreciation for needing to assure that the full stack of cloud services, a complex layering a virtual services and processes actually deliver the value to the end user that is expected.
One of our banking customers recently saw surge in mobile traffic as their customer base went to shelter in place.
They quickly added licenses the cover the surge.
Another bank told me they did not expect to see their surge in mobile traffic reduce much if any most cope it.
They said cobot is done more to train their customer base on the power and ease of home banking then into campaign they ever Rad.
With higher degrees of online mobile use likely to be a major outcome of the new normal our early investments and outstanding functionality in digital experience, especially for mobile should continue to pay off for us.
Our infrastructure only module is newer for us.
It's now maturing as we expand coverage for ADW S.
Youre and Google Cloud platform services.
Unlike alternatives and only place metrics on dashboards.
Our unique platform capabilities like AI assistance and automation at scale strengthen this module significantly.
So early in the adoption ramp we're very encouraged by the uptake of infrastructure only now use by 29% of our customer base.
And they love the flexibility to toggle up or down on their own between our deep full stack KPM mode.
The lighter they'll broader coverage of infrastructure only mode at a lower cost.
I should point out.
For those who are new to our story.
Our full stack ATM module includes both infrastructure monitoring and AI ops fully unified.
And our infrastructure only module includes log monitoring network monitoring and the Iops.
Also fully unified.
We packaged differently than our competition.
Rather than fragments, our offering into a list of tools, we take a more holistic approach and solved by use case.
Going after a larger problem sad to drive greater simplicity efficiency and value for our customers.
Let me summarize I know I've covered a lot.
First our business has performed very well in the face of unprecedented macro challenges.
There were few of our end markets may face greater near term headwinds we've been very encouraged by overall business trends during April.
We believe dine trace is well positioned to continue generating strong growth in an uncertain economic environment due to the fact that we have a differentiated leadership position in a category that is considered near the top of the strategic priority list.
In addition, we are now one platform subscription business.
We made tremendous progress this past year converting our base to the new Dynatronics platform.
And completing our transition away from our classic license business.
This renewed focus streamlined our go to market.
And builds a more predictable and durable growth business for the long term.
With that let me turn it over to Kevin for deeper look into our financials and guide into Q1, and our full year fiscal 2021.
Evan.
Thank you John and good morning, everyone before I start I would like to express my sympathy to all those have been impacted by this health crisis and a huge thank you to all the amazing people, who have been working tirelessly to help the world deal with the crisis, especially everyone on the friend lines.
Pandemic, we cries change an adaptation and we are no exception.
Our main objective during this time has been to support our employees as well as our customers and their mission critical applications.
As John indicated we seamlessly moved to working remotely and our employees have adapted nicely from a customer standpoint, we're pleased that our net retention rate remains robust and this environment.
In the fourth quarter, we were modestly impacted on the new bookings side during the second half of March but overall the fundamentals of our business remain very solid.
We had a strong performance in Q4 and have been very pleased with the progress we've made over last four quarters as a public company, including exceeding the high end of our quarterly and annual guidance.
We continue to operate the business with a healthy combination of growth and profitability.
Trend, we believe we can continue to deliver on for quite some time, given the increasing importance of cloud software and the strength of the Dine Trust platform and the expanding addressable market we operate in.
As a result, despite some headwinds associated with the current environment. We are comfortable establishing full year guidance that calls for a combination of strong growth in subscription revenue, coupled with meaningful profitability and cash flow.
So let me start with a quick review of the fourth quarter and fiscal year highlights and then move to fiscal 21.
Our key financial metric focused on business momentum is annual recurring revenue as John said, Hey are grew 42% year over year to $572.8 million, an increase of $169 million compared to the year ago period.
This was 44% growth on a constant currency basis and throughout the year are a are faced currency headwinds and the range of two to 300 basis points per quarter.
The dining trees platform continues to increase as a percentage of total error and was approximately $528 million at the end of March or 92% of our total error.
The remaining 8% of our air relates to our classic offering.
We are extremely pleased with the success of our conversion program and now that the classic base is down to a single digit percentage of total air and shrinking each quarter. We feel there is no longer they need to break out these components moving forward so no longer be doing so.
The two drivers of air growth, our new logo customers and our Dynatronics net expansion rate. If we quickly break down. These two growth drivers during the quarter. We added 165, net new dynatronics customers ending the quarter with 2373 Dynatronics customers.
Consistent with recent quarters, new customers very healthy balance of adding new logos to the franchise as well as classic customers moving to the dietary platform.
Over the last 12 months about 60% of our dining traced customer count growth has been the result of new logos to the company.
As our conversion program winds down the volume of new customer adds to the Dynatronics platform is likely to decline on a quarterly basis, while obviously the ratio of new logos will increase.
In addition to a steady flow of new logos are dynatronics net expansion rate remain at or above the 120% threshold for the eighth consecutive quarter.
As of year end, the demonstration expansion rate was 123%.
In fiscal 21, we'll continue to focus on the Dynatronics net expansion rate, but we will no longer exclude the impact from expansion at the time of conversion as we do not expected to have a significant impact now that's a dynatronics platform is over 90% of our total business and growing.
Our dining trace air per customer continues to trend up and is over $220000. We continue to believe that there's a large opportunity for further expansion in our existing customer base. The majority of applications at our customers still lack instrumentation, we continue to expand our value proposition.
These cases, and our enterprise customers continue to expand their portfolio cloud based applications as they digitally transform their businesses.
Moving to revenue total revenue for the fourth quarter was $150.6 million $2.6 million above the high end of our guidance an increase of 30% on a year over year basis, and 31% in constant currency.
The acceleration in total revenue growth is being driven by the strong growth in subscription and services revenue, which was $148.3 million in the fourth quarter, an increase of 37% year over year and 38% in constant currency.
The quarter classic license revenue declined to $2.3 million and represented less than 2% of our quarterly revenue.
As John said, our non-GAAP gross margin was 83% for the fourth quarter and increased from 80% in the fourth quarter fiscal 19.
We continue to see a healthy increase in our subscription gross margin percentage now at 80%.
As we realize the benefits of winding down the classic product staff.
Its world class margins are a result of the highly reliable platform and autonomous SAS operation.
Using Danny trace on diabetes is a unique advantage for us.
Our non-GAAP operating income for the fourth quarter was $36 million above the high end of our guidance of 34, and a half million dollars, primarily due to the combination of revenue and associate gross margin upside.
This led to a non-GAAP operating margin of 24% up from 22% in the fourth quarter of 19.
Non-GAAP net income was $29.8 million or 11 cents per share.
I was above our guidance of eight cents per share.
Turning to a quick summary of the financial results for the full year total revenue was $545.8 million up 27% year over year and up 29% in constant currency.
Total revenue growth is being driven by the growth in subscription revenue, which was $487.8 million.
An increase of 39% year over year and 42% in constant currency.
Classic license revenue declined by $27.7 million to $12.7 million in fiscal 2000.
Overall, we believe our two year model transition to a subscription business has now virtually complete.
Non-GAAP operating income for the year was $130 million with non-GAAP operating margin of 24% up from 18% in fiscal 19, a very healthy year over year improvement in line with our internal expectations.
Turning to the balance sheet as of March 31st we had $213 million of cash and our long term debt was $510 million after taking into account a $30 million principal payment in January.
In the fourth quarter, we repriced, our long term debt LIBOR, plus 225 basis points down 50 basis points.
We're not anticipating any additional debt principal payments in the near term as we want to grow our cash balance to maintain financial flexibility.
We think this is prudent given current market conditions.
During fiscal 20, we consistently decreased our leverage ratio, which ended the fiscal year 2.1 times, our trailing 12 month adjusted EBITDA of about $140 million.
This is down over one turn in eight months from our post IPO leverage ratio of 3.3 times EBITDA.
Unlevered free cash flow for Q4 was $63.3 million and it was $149.5 million or 27.4% of revenue for fiscal 2000.
We experienced two headwinds to this number there was about one percentage point due to lower classic perpetual bookings and about two percentage points due to higher DSL in Q4, resulting from a macro environment uncertainty.
We continue to evaluate our air position and have not made any additional provisions for collectability outside of normal parameters.
The last financial measure that I would like to discuss as our remaining performance obligation, which at the ended the quarter was approximately $860 million an increase of 56% over Q4 of last year.
The current portion of our PEO, which we expect to recognize as revenue over the next 12 months was $495 million, an increase of 52% year over year.
Our healthy RPL expansion has benefited from the move to a subscription business combined with an increase in the duration of our new subscription agreements over the course of fiscal 2000.
Now, let me move to guidance.
Embedded in our guidance are few underlying assumptions that I think are noteworthy. So you can understand our view of the environment and our opportunity as we move forward and fiscal 21.
First our assumption is that we are going to be operating in a difficult economic environment for the full fiscal year.
We expect the greatest cobot headwinds on bookings and renewals in Q1, Doozy global economic shutdown with the headwinds gradually declining over the course of the fiscal year.
Second we expect a little over two points of currency headwinds to continue throughout the year.
From a customer standpoint, as John mentioned, our exposure to highly affected verticals, such as travel automotive and hospitality represent 15% to 20% of our hair. However.
Based on the enterprise size of our base and conversations with many of these customers.
View, the Dynatronics platform as a mission critical platform and as a result, we expect only a modest negative impact on our renewal rates within this portion of our customer base.
As an aside we have closed new business with customers and some of these verticals. So far in the first quarter, which is further support for our expectation maybe modest negative impact.
From a profitability and cash flow perspective. There are also few key points to highlight first we expect to modestly grow head count in Q1.
As we initially moderated the timing of investments as we evaluated the impact of the health crisis on our business.
We have increased the pace of hiring and plan to Reaccelerate, our commercial and innovation investments later in the fiscal year. If the demand environment is playing out as we expect or better.
As a result from a piano standpoint, you should expect to see higher operating income in the first part of the year and then normalizing out as we go into the back half.
Finally, with respect to cash in working capital, we believe it as prudent to expect that some customers may request modified billing terms, which does not impact revenue, but would serve as a headwind to our unlevered free cash flow throughout the year.
With that as a backdrop for the first quarter, we expect total revenue to be in the range of $148 million to $150 million representing year over year adjusted currency growth of 20, 425%.
We expect first quarter non-GAAP operating income to be in the range of $38 million to $40 million, 25% to 27% of revenue and non-GAAP EPS of nine or 10 cents per share.
For the full here, a our guidance is $680 million to $692 million, 19% to 21% growth.
We expect total revenue to be in the range of $630 million to $643 million representing year over year growth of 15% to 18%.
And 17% to 20% growth adjusted for currency.
Looking at the components of revenue, we assume that classic license revenue declines from about 13 million in fiscal 22 under $1 million than fiscal 21.
Based on the current guidance, we expect services revenue to be down year over year basis, and the 10% range given that we have moved almost all of our customers to the dying to trace platform, where the product is automated and need to lets services combined with our ESI partners doing more surfaces work.
[music].
As a onetime guidance disclosure, we believe subscription revenue will be in the range of $591 million to $601 million, which is 21% to 23% growth and 23% to 25% growth on a currency adjusted basis.
I would like to also quickly highlight our fiscal 21 expectations with respect to our Dynatronics net expansion rate as John highlighted earlier and we noted in our earnings release today, we have achieved eight quarters at or above 120%.
It continues to be a strong part of our business. However, based on the current revenue guidance. We anticipate we would experience a modest decline in our net expansion rate throughout fiscal 2001, resulting in a net expansion rate above 115% for the year.
We feel great about the fundamentals of the business and feel confident we have a good balance between both customer and that expansion and new logo growth.
Moving to the rest of the PNM all non-GAAP operating income for fiscal 21 is expected to be in the range of $146 million to $156 million, which is 23% to 24% of revenue non-GAAP EPS of 39 to 42 cents per share.
From a cash flow perspective.
In addition to the aren't working capital headwind I discussed our effective cash tax rate is expected to go from 8% of non-GAAP pre tax income to approximately 10%, resulting in incremental cash tax expenses of about $5 million.
Despite the our cash tax headwinds, we believe we can increase unlevered free cash flow as a percent of revenue from 27% last year to a range of 29% to 30%.
Which is $180 million to $190 million.
Based on the midpoint of this range Unlevered free cash flow, what increased 24% on year over year basis.
In summary, we're very pleased with our fourth quarter and full year performance and with a market leading position. We remain confident dining trace is well positioned for the long term.
Most important for our shareholders is that we continue to show a financial profile that we believe is durable and unique including meaningful scale strong growth healthy profitability and cash flow.
With that we'll open the call for questions.
Certainly at this time, if you'd like to ask your question. Please press star one on your telephone keypad.
Matt Hedberg with RBC capital markets. Your line is open.
Hey, guys. Thanks for taking my questions Im glad you are well and thoughts go okay everybody.
It will decoded.
John a lot of good commentary on how you're helping customers navigate the still difficult situation really in a world post cold that we're CIO slip.
Last call you grew faster than before do you think this ultimately accelerates.
The importance of cloud based monitoring and perhaps could it help you even address your tam faster than before.
Matt I appreciate the question.
We do we also believe that not only will will this.
New normal sort of really highlight and focus lens on on cloud it'll also focus Len.
Patients themselves.
As the high ground for where business mutes IP. So I think we're in a really strong position.
From that standpoint.
I also feel that the automation and the AI and we built into our platform on the ground up we'll also be sort of essential care about or you know IP as they move forward.
Because it's really going to be about how do I take my existing team by limited resources.
And do more with that.
How do I moved faster at all I get to more applications, how do I innovate more effectively and these characteristics of our platform.
That our customers are currently enjoying we hope many customers additional customers ahead of will be a job enjoying in future.
That's great and then the other thing that really stood out to me I think you noted 25 customers are now bought three or more your products, which is great. I'm wondering can you talk about that trend within new customers in other words or new customers now landing.
The higher cadence of new products, and say, let's say a year ago.
They are but I don't have all the at the cost.
To that but anecdotally yes.
Yes, so look to add the infrastructure piece and extend the infrastructure environment, along with their full stack mm.
Because I think it about laying down a broader cloud platform.
Others look to the ATM and extended first with the digital experience piece, because they want to complete view of the allocation Soc.
From the outside in so they need either from the edge on in through all all the virtual cloud layers to make sure the performance.
And capability that they're expecting to de lever is actually delivered.
To that mobile device dry ice et cetera.
So those are the two primary that will go together, depending on the point of view of the customer are pretty quick to add a third and go keep going from there.
That's great.
Congrats again on the results really strong.
Thank you thanks.
Sterling Auty with JP Morgan Your line is open.
Hi, guys. This is Matt on for Sterling. Thanks for taking my question.
First question was just curious to see or did you guys see customers' needs shifting Oh, I'm guessing more of the activity in terms of B.
Uptake was more focused on the cloud versus on Prem.
But just wanted to get some more color on that front.
So first.
All of our customers are nearly every one of.
It's focused on cloud and cloud workloads, whether they deploy our platform have us hosted or whether they hosted behind their firewall sell the same SaaS platform.
Actually the same code it so from that standpoint.
We really haven't seen that much of a shift at this point of view, although we do expect to see a little bit more leading to an dining trace hosted environments.
Yes that said, what we what we have seen.
Our that customers are are shifting shifted their focus to work from home or probably four weeks.
Actually there is still doing a little bit more here and there but.
Those are things, where they focused on making sure that employee productivity.
We've optimized.
Sort of leaned into some of our hybrid extensions like Citrix monitoring.
Some of our third party cloud monitoring capabilities. So they could assure sales force Microsoft 360, Fives Ooma. Some of these other third party cloud that they ended all you actually perform as advertised to keep their workforce productive.
What we're seeing now is a leading back toward.
Mastercard faster to the future.
Investments back into into digital transformation.
We think that will characterize sort of that so the post coded world here as we enter Q2 and beyond a year.
Great. That's very helpful and I'm, just one follow up maybe for Kevin So long term deferred declined sequentially.
I was just trying to understand if that was oh from cost.
That have you know that are.
Doing shorter contracts or if there was something else there that we should be aware of.
[noise], so generally over half of our customers are signing three year agreements. So please keep in mind that art, our payment terms, our annual and to answer that does not necessarily and that does not impact our long term deferred which are actually seen is that earn down the perpetual licenses that we saw.
All primary rate.
Two years ago, and a little bit last fiscal year as you may recall, we recognize those licenses over three years and as we're bringing that down that's going to have an impact on our long term deferred and as you can imagine that also put some pressure on unlevered free cash flow for this year fiscal climbing in it.
We'll put a little bit of pressure continued pressure in 20 fiscal 21, and then alleviate thereafter, primarily so we sold perpetual licenses two to three years ago us pretty healthy plant that is essentially honored zero at this point and it's just so working down of that perpetual license in long term deferred.
Okay that makes sense. Thanks, thanks, guys for taking my questions.
Has there been any with Goldman Sachs. Your line is open.
Great. Thank you so much guys for taking the question John really helpful. Opening remarks. So so thank you so much for for them and how detailed they were.
A couple of questions could you mentioned that new logos are up I was wondering if you could mentioned maybe how the size of the new land maybe being impacted have have you noticed anything in terms of the size of those given what's going on and even particular what might be more helpful. Just in Q1, if there's any difference.
And then thank you for the for the commentary on any yard to 123% you gave and even the color about next year, but just wondering was the 123 and I know this is the first time, you've actually given the exact number was that.
At all from what you saw in a in the prior quarter and then I just have a follow up sorry. Thank you.
Yes, let me let me start.
With the new logos. So we actually have seen the new logo land in that in 90 to $100000 range now four corners on and so.
It's very consistent range, so nothing really to note plus or minus there.
If anything it's taking up slightly but I think that's a result, the sales organization I'd be more effective at selling at least a second modulates not three modules at once when they actually you don't land a new customer.
But it's not material.
But it has not because thats not drops if that were sort of like that part of part of the question and I think it's a healthy place to land I mean, we're not really.
Some some folks out there may think we're a big deal company and Everything's you know a multimillion dollar deal.
We're actually a much higher volume transaction company, where we really focus on land and expand.
Where we landed a 100 can we expand gradual.
With our customers as they extend their footprints as they add more applications and now more than ever as they add additional modules.
So where we like where we are we think it's the right place to be at an enterprise as an enterprise focused company.
Focused on the global 15000.
And.
So so I like where we are and I think we're going to maintain that you're not going throughout the next several years Kevin.
Yes, Hi, Heather.
The dining tracing that net expansion rate. It was it was a modest decline from from the prior or less than 1%.
From prior quarter, so relatively flat Q3 Q4.
To put a little bit more color in terms of where the thing we're excited that future based on what we view as prudent guidance on the topline.
And a combination of what we think will be healthy new logos mathematically, obviously that net expansion rate dropped out from that 120, Gardein onefifteen with that said, we're optimistic John talked about a lot of expansion opportunities in our customer base, that's a low point and hopefully drive cost per year.
We will oil maintaining much healthier net expansion rate I think one final thing is dining chains that expansion rate had a couple carve outs and Ed if you looked at our total company expansion rate over the last four quarters.
It's been higher than the Dynatronics net expansion rate because we are again backing out some some expansion at time of conversions. So overall, we're very pleased with the retention, we're very pleased with our customers expanding our footprint. It used cases and as John was talking about earlier more modules overtime as well.
And then one one just quick follow up on it to the last question that was related to long term deferred so based on your comments should we expect I think it went from 80 to 60 off the top of my head, but should we expect that team to continue so when you look out over 12 18 months that should be okay, a much smaller number than where we defended.
That's right do you want to face, maybe maybe six to eight quarters in that and that will be wrapped up most of the most of it and how they're in the next exporters in terms of the long term deferred wind down.
Okay, and just wrapping up and it works well, we will always have some level.
But that's a timeframe.
Thank you.
Yes.
But on three with William Blair and company. Your line is open.
Hey, guys. Thanks, taking my question got everyone's doing now.
Good well congrats on the quarter a couple of quick question for me one just on the top of the from I know you've talked about the exposure to some of the effect and industries.
And from your expectations around sales hiring ramp, but love to has done what you've seen in the top of the funnel you know in this environment feels like the digital experience pin should be really picking up.
It feels like infrastructure multi cloud interesting, but about piece can be seems really interesting as well some of the I've led to pieces.
You know you said april's after good start, but just left or is that what you're seeing it on top of funnel in terms of what's driving some of those deals coming in today.
And ER and sort of how do you think that plays out.
Going forward say for the next.
Two three quarters, which is overtime permanent post coated.
Do you think like logic as it might be an acceleration of the business just love trying understand how you think about that coming out of Cobra too.
Yes move on.
Thank you thanks for the question.
So overall, we're not seeing huge shift in sort of the character characteristics, we did see that.
Four weeks, if where we kind of shift to work from home and people leaning into different aspects of our product line or employee productivity.
But the bulk of our business is really focused on run the business applications members and Ron you know in modern cloud environments are more and more that multi cloud environment that I articulated combination of multiple public cloud hybrid back ends and back end by.
Hey continues to be you know more prevalent.
ER and accelerating.
People are really getting sort of the hang of how to manage these large complex kubernetes orchestrated environments. They understand how difficult. Some challenging they are we have a very unique highly automatic solution.
We've built in a high to help them manage these environments and extend them more quickly than ever.
Without the blind spots associated with sort of the do it yourself or bagger tools kind of approach.
That's sort of the.
The alternative that we see most often out there.
So.
Coming out of this sort of our Cobiz 19 sort of situation and into a new normal I really do believe that our automation in AI will become sort of primary drivers for differentiation rather than sort of interesting nice to have you know kind.
Characteristics the way they might be in certain sales cycles, we've had an pass so I like our differentiation I like where we said and I think we're very well positioned for for a new normal at a faster to cloud with limited resources.
Gotcha Gotcha, Okay, and then one quick one sort of on the well the competitive environment and really around pricing. So so you obviously talked about the lab at 100 Grand.
You are a premium offering when you think about it compared to say on new relic or days dog and others and I guess, the premium offering what sort of the price point you know not a viral sale was not use a credit card et cetera.
Oh, well above that they have no relative did that present any challenge that all my first Bob you know four weeks or are you seeing any pressure from or changes the pricing remember the competitive environment love to and sense of what if there wasn't any impact at all.
Yeah, well first of all you need to understand that our sales organization for the most heart works remotely anyway.
They don't sit at offices they work from home, they're all very familiar resume at our platform as a SaaS platform.
So that anything you can do sort of on site you can do remotely.
So whether its demonstrations proof of concepts, helping customers sort of manage environments.
Taking share that they adopt the latest techniques all done remotely.
So there's no Miss a beat.
In a in a shift from sort of from office to work from home.
So that's I think the first you know key thing the second thing as I mentioned, we package our product different different labor bonds.
It's much more around use cases, our series of use cases right rather than.
Slices of tools.
And we believe that that's a more effective more efficient higher value way to support customers.
The enterprise level.
So we include multiple things when we talk about.
You know platform, we're including infrastructure monitoring where including a ops.
Other companies have to sell three or four products do what we do you wouldn't want.
Same thing with infrastructure only includes log monitoring includes network monitoring because that's what you need to solve the all.
Infrastructure challenges you don't sell by three products.
So I think that as our customers become familiar with how that works I really appreciate the fact that its unified offering we're all gluing of all the pieces together already done for you rather than you have to throw bodies at that and then maintain it over time.
So our customers, who get to know us and why we expand as well as we do on our base.
I understand that we're sort of the value leader you, even if they pay a little bit more or the combination of unified software we provide.
Got it.
Helpful. Thank you guys.
[noise], we'd like to remind everyone. Please ask one question to allow everyone an opportunity.
Cash rain with Bank of America. Your line is open.
Hi, Thank you very much congrats on the quarter I'm looking at your forward looking trends here month of April it's actually stronger than a then the amongst your earlier that especially as it continues to be very solid it's like a front end of the pipeline is also pretty solid from a demand generation standpoint, and the into sales.
Ah execution also that enabled through zoo, a virtuous selling yet what I struggled to reconcile all that with all the field work that we've done it also by the way your ARPU up very strong and one would reconcile that with your guidance.
There is extremely extremely extreme conservatism.
Although it is prudent to have conservatism. It. It's just a very extreme just wondering if you have a.
Probably assume given draconian because if I just take the negative net expansion rate.
And the fact that 80, 85% for your business within healthy verticals.
It doesn't quite how to what you're guiding to some just trying to understand how critically conservative you have been with your guidance. Thank you so much.
Yes. There are there are certainly a lot of positives that we've seen throughout the course official 20, and leading indicators into the first quarter 21, and I highlighted as well some of the things that when we think about 21 that are important I, we had 80% coverage on our on our <unk> number from the subscription standpoint in backlog.
Sure Yeah, so with that in my John and I spent some time thinking about that business and overall our approach as we want to be very prudent we want to set the bar that we feel extremely comfortable with and hopefully we advocate sort of beat and raise strategies right of course CDRH as our program.
So we're very optimistic about the opportunity sales organization.
It is in action they are doing well our renewal rates are very healthy.
But given a little bit of the uncertainty we just thought to be very prudent to said really solid foundation gosh.
Thank you. Thank you so much Kevin and John.
[noise] Raimo lunch time with Barclays. Your line is open.
Hey, Thank you question on the infrastructure monitoring like you you mentioned to you were kind of more comprehensive there and you can do a lot more stuff, but if you look at the adoption at the moment a lot of people just kinda <unk> no kind of asked to go to the cloud just need like in the early.
Quick solution doing so how do you see that playing out like people I'm not spending and then you can deliver a lot more so you will be kind of to secondary guy adopted as kind of people realize they actually need more what do you see that already like in the first phase kind of playing out just to understand like how how that momentum is playing out there.
Thank you.
Sure no good question or what we see both dynamics we see.
The dynamic when we come in when workloads started hitting the cloud in volume.
And.
Customer I understand said all we have as an infrastructure you don't have the application view and the application teams need more visibility across sort of what's happening with these workloads in dynamically orchestrated environment and realize that nothing really provides.
Even if you're able to wholesome traces off you don't have them a distributed tracing capability that really gives you value in that application.
That application layer, which is why we talk about entering your many of our opportunities through assortment ATM lens and landing and expanding from there.
We do see customers at the time, they make the decision to expand their cloud investments.
To actually understand that they need more than gas infrastructure, all we monitoring and they go out and they look for the full stack observe ability platform.
And then that then we ensure earlier even before the volume of workloads I've been but you know placed on their cloud and bar.
So we do have a combination of both but I'd say it means right now more heavily to the I'm expanding the workloads on the cloud I have lots of blind spots I need to fix this I can't do this with a bunch of tools I knew something more comprehensive.
That's that's our primary but the other one is starting to grow more and more often coming up off of sort of the a good hygiene approach as as customers get more familiar with.
The right models to expand clouds effectively.
Okay, and hopefully that agency.
Yeah that makes sense.
They say well done.
Thank you hearings with Canaccord your line is open.
Hey, Thanks, guys. Congrats on the results John just in terms of the expansion opportunity can you just remind us where the average customer is in terms of what percent of ops or stack, that's being monitored and then maybe where some of your best customers yet.
Sure well so.
Many companies are still in that 5% to 10% of their application range. The cloud is driving and need to adopt much higher than some of the old Gartner you know stats and said hey, 25% to 30%, we're seeing customers in the 50, 60% range or they're running the business applications and associate.
And workloads around it.
We have.
Customers in that 30% to 40% range you want to continue to go up.
But that's the minority.
The vast majority are really in that 505 or 10% range says a lot of room Jackson DSL.
Let alone the cross sell which as I said, we're getting much stronger it I.
You take a look at our are landing zone, which is in that 90 to 100, Kate at 200000 dollar range and then you look at our average eight our our for customer which is now a little over $220000.
There's a lot of room to continue growing that average air our customer.
Toward a million dollar a our per customer, which we believe you know any globe Global 15000 company.
Billion dollar company.
We'd be willing to invest to assure that their applications that run the business applications run flawlessly all the time.
Okay perfect. That's helpful. Thanks, guys.
And the work Okay. When one more question I think.
Our final question comes from the line of Walter Pritchard with Citi. Your line is open.
Hi, Thanks, just a clarification on the on the hiring sounds like you did slow it you've resumed it can you talk about sales hiring and how we should think about sales capacity build in a in fiscal 21 in and out of that any slowing in hiring is impacting the growth rate you're looking for in 2000.
Wanted and then sort of what you're looking for specifically in sales in order to reaccelerate the hiring thanks.
Yes, so we haven't we haven't stopped the hiring of sales folks.
We did slow it down a little bit, but that's what we're still on the gas.
And we then.
Re accelerating as were building more and more confidence in this year and you know they sort of be the current you know uncertainty becomes a little bit less uncertain.
So you should expect us to bring our investments back to where they were a year ago, which were healthy investments in sales expansion also R&D innovation expansion and customer success expansion. Those are the three vectors for us we're leaning into all of those currently.
Great. Thanks.
Okay.
Alright.
Thank you very much everyone. Appreciate the time this morning.
You can tell we're bullish on the business.
Q4, good Startek Q1, I, we're going to continue to run a balanced business, which I know, a which which Kevin and I stay focused on a gross profit.
And scale.
And I were excited about the future. We we look forward to this year and catching up again in.
In 90 days and talking about how we did in our fiscal Q1.
Here is everyone stay helping.
This concludes the dining trace fiscal fourth quarter 2020 earnings conference call. We thank you for your participation you may now disconnect.