Q1 2020 Earnings Call

After the speaker presentation, there will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.

Please be advised that today's conference is being recorded if you're acquiring any further assistance. Please press star then zero I'd now like to have a conference over to your speaker today Mr. AJ Lubitsch director of IR. Thank you. Please go ahead.

Thank you give me good afternoon. Thank you for joining US today three week review data dogs first quarter 2020 financial results, which we announced our press release issued after the close of market today, joining me on the call today are Libbey April no better docs co founder and CEO, David Oakes located on Seattle is our first time conducting our earnings call from separate locations. So we appreciate your understanding.

If we encounter any technical questions.

During this call will make statements related to our business that are forward looking under federal Securities laws are made pursuant to the safe Harbor provisions. The private Securities Litigation Reform Act 1995, including statements related to our future financial performance, including our outlook for the second quarter for the full year 2020, our strategy that central benefits of our products the potential contribution of customers with annual run rate.

There are $100000, a greater R&D and go to market investments expected capital expenditures anticipated hiring the size of our market opportunity as well as the impact of cobot, 19th and make our customers their usage of our products are market and our business an operating results.

As anticipated we continue estimate expect intend real and similar expressions are intended to identify forward looking statements or similar indications of future expectations. These statements reflect our views only as of today and not as with any subsequent date. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a discussion of material risks and other important factors that could affect our actual results. Please refer to our annual report on form 10-K for the year ended December 31st 2019 filed with the FCC on February 26, 2020, and the current report on form 8-K filed with the FCC on May 11 2020.

Additional information will be made available in our quarterly report on form 10-Q for the quarterly period ended March 31st 2020, <unk> other filings and reports that we may file from time to time with the FCC.

Our filings with the FCC you are available on the Investor Relations section of our website. A replay of this call will also be available there for a limited time additional information may also be made available.

In our other filings and reports that we may file from time to time with the FCC. Additionally, non-GAAP financial measures will be discussed on this conference call. Please refer to the table in our earnings release, which you can find on the Investor Relations portion of our web site for a reconciliation of these matters to the most directly comparable GAAP financial measures.

With that like the current turn the call over to alleviate.

Thank you Gerry and thank you all for joining us today.

Before reviewing the quarter at Lucky takes some time to address the situation with old facings of course, they make any particular aren't in response to the crazy and ways in which depending make into secondary business.

But also some of the data we see it in March and April as when it all stands for the your perspective on the future.

So starting with a response, we communicated three objectives internally.

First to keep our employee so they'll see insane second to be good citizens and members of our communities and contribute to walk collecting the health and it could any success.

And last but not need to serve customers hold on innovation.

The best that we do Retenanting time, but a good.

In keeping with objective we haven't been Dade work from home since March 12.

In addition to that how to look at it a grant to each of our employees to support their productivity and safety.

Not yet these Christian employees could elect to the nice old for a portion of the grant to charity that helps us because it really.

I'm very proud to say this program has already resulted in a million dollars at the nation's along please.

Reflect that University and commitment to go through these crises together with a communities, which we operate.

I also have to say that had been extremely impressed by the employees, but then again.

You'd productivity and innovation.

Sorry.

Oh success in people looking to <unk>, mostly does demonstrate the advantage of being a digital first got based business.

Regarding the way, depending make me ethic data dog.

A few important structural points to understand about our business.

First we have very diverse customer base.

We estimate that less than 10% of away our come some cuts degrees, mostly get you'd be impacted by Kuwait, the Chad hospitality and travel airlines any person entertainment.

And your they hand, we also had exposure to get you can read that have experienced an increase in traffic, which has truly media gaining food delivery E commerce and collaboration.

Second we also had a great diversity of consumer side you're.

Well look concentrator and netbook seem at least 75% about our comes from customers that see $100000 or more.

Well, so less than 50% of already are comes from a long tail of small businesses.

Third we price according to a customer footprint and not per seat. So a part use age he's not directly affected by reductions in workforce.

For our.

Our business model is low friction men and expand and okay. That's what we set up to the bottom up.

We also Atlanta fast and small as until probably speaking decorative migration.

Then we frictionlessly expense from their mobile close move to develop.

This next wholesale different less dependent physical meetings and mix on little extremely efficient and less reliant on that's it from deal.

Lastly, we are pure SaaS and require no professional service fees on handling keep wasn't going to station.

Now turning to what we've seen in March and April 1st of all the Koby discoloration happened late enough in the fourth quarter to not materially affect <unk> financial results.

Throughout the quarter, we feel consumption continue to increase across the platform and growth at the number of hosts containers metrics tricky to look for example have you been consistent with historical trends.

We started to see some negative effect impacted industries, such as travel hospitality and airline.

Also seen substantially increased use that from other categories such as to any media gaining today to be in collaboration at these customers kept up their operation to be some binding.

We also saw a surge of U.S matching set an accountant marching responsibility, we expect would be more she didn't read nature and been normalize over time.

In terms of new deal. We did have a strong ended the quarter limited impact from coffee.

I Trust you just due to go.

Pipeline is robust and relatively consistent with prior quarters, but do you still too early to know that you've got koby could have done it though.

Because of that and given the macro uncertainty it's prudent to expect.

Delay or some new cloud migration project as well that some impact from churn.

Maybe it will discuss the effect of coffee has been incorporating all guidance.

To close in the Cobiz endemic let's step back and look at all stands for the rest of the year and perspective on the future.

Well there is a lot more certainty across the industry and the brought I couldn't be very near term we.

We believe it is more important than ever for businesses to up right online and that the trend of digital transformation and cotton. My question remains very much impact over the long term and may even be accelerated or amplified.

We believe we are well positioned to be a primary been if you show up these trends and continue to win in the market.

We also believe that the efficiency of our business I know it seems like you need to go to me well balance sheet right ability to innovate would be another advantage in a difficult market.

As such our plans remain clear.

Investing across the board, we're investing in the development of existing and new products, including aggressive argue recruiting target and taking advantage of the opportunity to.

To attract habit that would otherwise not you on the market.

Well investing the growth of our go to market team across segments and geographies.

We're investing in our relationship with customers some of them go through difficult times than it is more important neighbor for them to a threat digitally.

We're investing you know everything employees to keep in safe in saying that he is quite good.

To conclude on this point I would say that while I called probably well macro reasons and we'll see the same incredibly fast return on these investments as we have historically.

I'm very confident seem to me lumped them up with Treaty point of no strategic plans to live up to it.

Now onto Q1.

Well I'm very pleased with outperformance in the quarter.

There's that's well once again driven by broad based strength across new logos and expansion has been it's across customer segments and test channels.

To summarize Q1.

Revenue was $131 billion, an increase of 87% year over year.

We ended the quarter with 960 customers, we scale art art over 100000, little more which is an increase of 89% from last year.

These customers generate approximately 75% of already are.

We also continued to be kept an efficient with free cash flow of $19 million.

And it got payback that he's still around a year or less.

We ended the quarter with about 11500 customers, which is about 40% growth from 8200 last year.

Which means we added about 1000 net new customers in the quarter, which was twice the number we ended last year.

And as in past quarters or dollar base net retention rate was over 130%.

Get somebody increased usage and attitude on your products.

From an R&D perspective, we continue the rapid pace of innovation.

We recently announced the general activity I've been ability of our security monitoring product unified visibility across security they have enough team.

As is oil product is available in the same integrity simple to use that platform.

We are pleased with the initial restaurants. These product it has been the most demanding they tie in company history.

I remind you that we are just beginning of the journey to break decidedly between security Devon up and we plan for PGT Novation These category.

Additionally, we recently crossed 400 out of the Bucks integration.

And im on the number of new and improved electrical lot tenable messa via more carbon black, which support anew security use cases.

Looking at product usage, well platform strategy continues to resonate with customers.

And at the end of Q1, 63% or customers were getting to a more product that's <unk> from 58% in Q4 is 32% last year.

In Q1, approximately seven 575% sorry.

Although new logos led to a more product.

And our success in both lending and cross selling off platform has resulted in a number of customers into a more product nearly tripling year over year.

Well I'm very pleased with just continued adoption of a platform which include strong initial uptake of on U.S. products from us monitoring and reduce the monitoring.

And as I mentioned earlier, we do continue to be have a significant opportunity to further extend of product portfolio and grow our addressable market.

Now, let's move on to the go to market.

Have you personally very impressed that continued productivity across teams or anything.

It's a process seems in particular.

Seven companies wanting to talk to employees at successfully adapted to setting by floating deal.

And as you know.

Trade shows and marketing events have been canceled Oakland virtual.

Having redeploying those investments into online advertising, where dinners and other activities.

Oh and user conference Dash is going to mutual likely to agree.

Oh, Let's review some about Kiwis before.

First we had an exciting 17, when you look a win from a fortune 100 pharmaceutical company and bucking on my question to a container based hybrid cloud.

Currently tool didn't keep up with that you that any stock and that is not going to look for mass adoption across Dev ops and <unk> for a single acceptability platform that all team can use every day.

Next we signed a six figure you look a deal to provide monitoring for large health insurance company embarking on a multi cloud migration.

What's really interesting about these deal is that we're going through a new partnership with one of the world's largest system integrators.

This is a great example, a success after we announced that it up one and it won't be generally do of course, it's too early days for channel and then I insist go to market.

But do it both at the new logo deals I just mentioned were closed at the very end of March.

Next we had a sizable upsale to meet market on demand, but you see company, which no spent more of the million dollar euro without.

This company has been a customer sees that doesn't mean 18 study was insufficient monitoring and ended up to both APPM and look management in 2019.

Today, He's got some very little using synthetics and T M and security monitoring.

What's really interesting in this case is that these customer funded with a better security products.

And how quickly found value, it's getting logs to detect security Chris.

It's also worth noting that these logistics company has experienced dramatically increase demand was cooking.

It has successfully get leverage the Parisian hotels, but from a tissue and enable all disingenuous to collaborate mostly all with support from data dog.

Lastly, I know a large six figure upsells to what are the world's largest global financial institutions.

These customer plans to migrate thousands of applications over the coming years, it ended up being to standard across multiple public and protocols.

This is an interesting customers single out for both its extremely stringent security requirements and its adoption of our civil less might treat community.

With that I would like to turn nickel over to our Chief Financial Officer ultimately they did.

Thanks Olivier.

As mentioned, we were very pleased with our first quarter results.

I will now review Q1 results in detail.

Revenue was 131.2 million.

87% year over year.

Quarter strength was broad based driven by new and existing customers success across segments and sales channels.

As well as driven by continued platform adoption.

Provides some more contacts first in Q1, we saw strong new law low new logo additions with contributions across sales channels and regions.

Additionally, we saw strong continued expansion of existing customers.

In the first quarter, our dollar based net retention rate was above 130% would the 11th consecutive quarter.

A robust retention rate is driven primarily by increase you should have existing products.

Well, that's cross selling to newer products.

Olivier mentioned, we're pleased with the initial uptake of our newest solutions MPM and Rob. However, I would note that these newest products were immaterial to the results of the first quarter.

Lastly, we saw strength across segments with similar growth rates across enterprise mid market an SMB.

We were encouraged to see this broad base rent.

Including many large enterprise deals which closed in March.

As well as strength from our SMB customer base.

In the quarter, we saw continued robust dollar rate net and gross retention in each of these segments.

Now turning to billing.

Which was 137.9 million and up 55% year over year.

There are two dynamics here I'd like to call out.

First.

While we saw.

Billings duration come in a bit.

And some of our renewals and Upsells and the corner.

As some of our clients move to quarterly or semi annually annual payment terms from prior annual terms.

I want to know that this did not result in reduced duration of contract Len.

Merely the payment terms.

This was due to customers cashflow planning, a mid coded and and NR accommodation to their billing preferences.

The impact of shorter duration on the quarter was approximately $10 million to billing.

Given our very efficient land and expand model. However, we're still not dependent on large upfront payments for multiyear deals.

No.

There was a smaller impact from the invoice timing of a sizable existing customer.

With import voice $4 million in Q1 last year.

And then due to growth in voice a second time in 2019, but was not invoiced in Q1 this year.

Normalizing for these two impacts calculated billings growth would have been approximately 7% year over year.

In addition, as of the end of Q1.

Remaining performance obligations for RPL.

It was 256 million.

And grew 82% you every year.

RPL metrics commitments rather than billing terms.

The higher growth RPL indicates increases in longer term commitments, even when billing terms may be altered.

As discussed previously we discouraged to use a billing at the gauge of our momentum.

As it does not accurately portray the growth of our business.

Revenue is a better indicator of growth given that our revenue is directly tied to consumption.

And due to the tight relationship between revenue and they are.

Now, let's review the income statement in more detail.

As a reminder, unless otherwise noted.

All metrics are non gap.

We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release.

Gross profit in the quarter was $105.2 million, representing a gross margin of 80%.

This compares to a gross margin of 78% last quarter and 73% in the year ago period.

Improvement in great right and in gross margin was driven by efficient use of our cloud hosting.

As we said before our gross margins may fluctuate quarter to go quarter within an acceptable range as we prioritize product development innovation as well as the build out of cloud data centers and newer geography.

R&D expense was 35 million or 27% of revenue compared to 31% in the year ago quarter.

We have continued to a best invest significantly in R&D, including high growth engineering headcount.

However, the growth of revenue has outpaced even our substantial investment.

We continued to see meaningful opportunity to innovate and expand our platform and therefore plan to continue making meaningful investments in R&D.

Sales and marketing expense was $42.1 billion or 32% of revenues compared to 42% in the year ago Appirio.

Similar to R&D, we continued to make substantial investments in sales and marketing, but the pace of revenue growth has also up pace. This investment.

While we have experienced cancellation of marketing events you to Cogan, we have successfully redeployed much of the events budget to advertising and other lead generation activities, but not quite on a one for one basis.

Do you Gonna expense was 12 million in the quarter or 9% of revenues slightly lower than 10% in the year ago period.

Operating income was 16.1 billion with a 12% operating margin compared to an operating loss of $7 million or negative 10% margin in the year ago period.

Beyond the improvement in gross margin and the other factors discussed.

Above I'd also like I also note that reduction in kidney and facilities overhead related to Tobin contributed slightly to the operating margin improvement.

Net income in the quarter was $18.8 million or six cents per share based on 328 million weighted average diluted shares.

We have a highly efficient business model haven't experienced a high return on our investments in sales and marketing and R&D.

While we have delivered three consecutive quarters, a breakeven to positive operating income we note that our priority remains topline growth.

And we intend to continue aggressive investments in R&D and go to market.

We've been very successfully interviewing hired me and on boarding remote.

As a result, our plans for Harvey and investing remain largely the same as before the correct for the <unk> the current outbreak.

We are investing across the board and believe we are well positioned to execute on her plans of growth.

Turning to the balance sheet and cash flow, we ended the quarter with $799 million of cash cash equivalents restricted cash and marketable securities.

Cash flow from operations was a positive $24.3 million in the quarter.

After taking into consideration capital expenditures and capitalized software free cash flow was a positive Nike point threemillion in the quarter for free cash flow margin of 15%.

I would now like deterrent to our outlook for the second quarter and the full year 2020.

Given our recurring revenue model.

We have not yet felt the effect of covered 19 on our topline results.

It is early in the quarter and we expect that we will see some deal slippage, particularly in new logos.

We also expect that despite a relatively high retention rate, we may see some downward pressure in the in in net retention rate in the next two quarters.

As Olivier mentioned the usage of some clients surged in March and have adjusted somewhat in April but remain above pre cobot levels.

It is too soon to know how usage will trend for the remainder of the quarter.

Therefore, we believe it is prudent to expect some impact from the above affects most likely in Q2, and Q3 and potentially throughout the rest of the year given our ratable model.

And as a result, we have incorporated this into our guide.

Beginning with our second quarter guidance, we expect revenue to be in the range of $134 million to $136 million.

Which represents a year over year growth of 62% at the midpoint.

Non-GAAP operating income is expected to be in the range of a loss of $1 billion to income of $1 million.

Non-GAAP net income per share is expected to be breakeven to one cent positive per share based on approximately 329 million weighted average diluted shares.

Turning to the full year.

Given our first quarter sprint and the drivers of our business, we feel comfortable raising our guidance for 2020 based on what we know today about phobic 19, and the macroeconomic environment.

For the full year 2020 weak revenue is expected to be in the range of 525 to 565, sorry, 555 to 565, which represents a 54% year over year growth at the midpoint.

Non-GAAP operating income is expected to be in the range of breakeven to 10 million positive.

Non-GAAP net income per share is expected to be in the range of two cents positive to six cents positive for share based on 330 million weighted average shares outstanding.

A few things to take into account in our guidance, while we do not guide to billings and continue to discourage this as a key metric.

When putting together your models, we would note at the shorter.

Building duration impact we talked about in Q1 is likely continue its likely to continue for the next couple of quarters as customers plan for cash flow a mid cobot 19.

Related to cost drivers, while we see continued improvement in our gross margins, we are running towards the top of our long term target.

As we prioritize product development and diversifying our cloud hosting vendors and regions. Our gross margins may fluctuate within a range of acceptability.

Next our intention is to invest meaningfully.

And continued to do so in R&D and sales and marketing as noted we had been successful in hiring and Onboarding during Kelvin.

In Q2, we expect an approximately $5.5 million noncash.

Tax adjustment related to the expiration of a payroll tax liability.

Similar to Q2 2019, this will be a benefit to GAAP operating income, but we intend to normalize for it in our non-GAAP non-GAAP results and therefore, it is neutral to non-GAAP operating income.

Since some notes below operating income.

We expect approximately $2 million of interest income per quarter throughout 2020 based on our cash and investments.

Next we do not expect to be a federal taxpayer, but have a tax provision related to our international entity.

For the full year, we expect the tax provision of of a range of 700000 to $1.5 million.

Note that are share forecast for Q2, and the full year our diluted.

Given that we expect to be at non-GAAP net income profitable company for both periods.

Lastly, while we're not giving guidance cashflow, a few things to note.

Related to our employee stock purchase program.

We realized an inflow of about $3 million in cash flow from operations in both Q4 and Q1.

As the first program includes there is a change in geography, where by cash flow from operations would declined by $6 million and cash flow from financing activities will increase by $6 million, resulting in no net cash effect.

In addition, our new S. P. P will produce $2 million to $3 million of new positive cash from operations in Q2.

Lastly, we expect pressure on billings duration and potentially on dsos related to coded which may cause lower cash generation and they're in the near term.

Given our efficient model proven cash flow generation and meaningful cash on the balance sheet. This will have no impact on our liquidity.

To summarize we were very pleased with the business performance in the first quarter.

We continue to deliver growth at scale you can match.

And have demonstrated efficiency in our model.

While we recognize the challenges that cobot 19, and the macro environment may present.

We continue to believe that we are well positioned for the long term.

And plan for continued investments to capitalize on the large opportunity ahead of us.

With that we will now open the call for questions operator, let's begin the queuing it.

Thank you as a reminder to asking question you will need to press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key in the interests of time, we ask that you keep your questions to one question and one follow up question before rejoining the queue.

And that Star then one to ask a question.

Sam bio we compile the culinary roster.

My first question comes from Sanjit Singh with Morgan Stanley. Your line is now open.

Thank you for taking the questions and congratulations on a strong Q1 and hope everyone. In the New York headquarters is doing well the in place you're doing well I'm just given all the Oh the challenges that we think going through over the last couple of months. So it's great to see a great to see the Q1 results well my two questions one more the short term.

Shorter term question and one over the longer term question for Olivier to start with the short term question I guess, what we're trying to understand is.

From what you guys have seen in March and through April and now in early may the what's the sort of the net impact slips in terms of what you're seeing the business from the customers that are more impacted the sort of you know less than 10% or they are a customer the spending trends and those customers that are less than.

10% of they are versus some of the increased spending you're seeing and some of the other verticals that does that sort of net out too.

Neutral in terms of your business plans for the year, where is it are you seeing a net positive effect.

So it's one of them to that.

So so far what we see you know in the in March April is that we see growth. If we actually is a robust month.

And we.

Well you need some customers are impacted not going slower or some customers I think scaling up there's some questions on our end as we discussed in the coal on which parts, which most of it kill upside going to normalize the future Oh since we've seen some customers. That's crumbled you know lacygne in Q1 and they didn't in April to organize it operations.

And then may normalize after that I would say, it's too early to tell everything that's out there I would think.

And we see more investment going on that side. So that's that's the story so far.

You know when we look at the product portfolio. It seems like you guys have continued to maintain a rapid pace of innovation in terms of coverage. It seems like a cross security across the I guess now four pillars.

All the products in place that as the drive really healthy growth for a long time I'm trying to understand like what the next sort of keep buying criteria is gonna be so as we go for the observe abilities are going to be an element of.

You know taking action right and it's not beyond just monitoring and alerting to do you have the gate or the products when could be a place where you can start where customers can start taking prescriptive action in terms of their environments, where or maybe even sitting more simply where do you see what do you see the product portfolio going as we get.

Pasta pass code.

Yeah. So we look we what did you have to lock in the hands rights Sue.

I think shooting adjust we said the fact that or.

More recent products like ATM and long sign hyper growth.

To put expedited after that like synthetic for example, like growing very fast.

And there's still lots of investment that goes into all of these products, including or core a cause for monitoring product.

So we feel has a lot. So we're doing there when it comes to security. We're still very very early we have is a first product we happy at it isn't GA, we're happy that he's getting traction, but it's still very early and it has a very long road map and there's a lot more that we intend to build around it.

So now too we're going to configure is a product you mentioned like differently, some things that aren't interesting to us in there and we do have some internal developments and number of various at Coca.

Exactly when you know that he's going to be.

Presented to customers and and you know.

We'll do you have a lot going on.

Fair enough I'll leave it there.

That's my feeling.

Thank you.

Thank you and our next question comes from Chris Merwin with Goldman Sachs. Your line is now open.

Okay, great. Thank so much for taking the questions and congratulations on a phenomenal results. Its really prepared remarks, you talked about some impact from the delaying projects, but I guess, it's the same time, there's an opportunity for the taste it digital transformations actually accelerated or in a recovery and perhaps that's particularly true for customers that were unprepared for are about workforce.

So can you talk a bit about your customer conversations on that particular topic and how you think about you know these how these trends could impact out of dog post covered and a recovery.

Yeah. So I mean look we see what's happening with or customers that house in the one switching the junior world and once we can be Oh, we said she's equal brick and motor work.

There.

Investing heavily in digital part D. C D Sparks knows killing like Crazy right. Now so that is not going to slow down and that is actually going to we think.

Accelerate.

Due to transformation for the broader industry.

No at the same time to seize happening it is difficult for companies that to transform and modernize make big investments or new investments at the time, where many of them are in trouble and you have.

Please turn constraints on cash and.

I have to make some very hard choices in the short term.

So do you see this is not you. Many other companies have discussed that before over the past few weeks.

But I think what we're trying to balance here he the uncertainty going to short term.

These companies Oh.

Did you could go past there or.

Urgent transformation.

So if I go mode and.

The the fact that the underlying trend that underpin our success of.

Usually comes formation and moved to the cloud or just doing to accelerate and and become more preventing once the what was cost recovery.

So the balancing act he's a he's would end up into guidance, we've given basically.

I guess as it related question.

I think what are the themes we've seen in the space is convergence and that was actually true before cobot, so, particularly as customers go through a time when they got to think about perhaps consolidating some of the tools that that they have are you seeing it actually any benefit from that I mean could there be a tailwind to the cross selling motion for specific products. It just curious.

Well, we then.

Do you see this is definitely like this this was appealing to customers before <unk>.

He said it as it even if not more to customers now.

Some customers might might look in two ways of rationalizing costs in the short term into it. So that you don't want opportunities at this point none of these we wouldn't have bid on any of these could be to tell you whether it's great to be a because that's where I'm not going for the rest of the or.

But it would be still strategy. They can't we've been building towards that so well usually do long term we believe in it.

Great. Thanks, so much.

Thank you and our next question comes from Sterling Auty with JP Morgan. Your line is now open.

Yes, Thanks, Hi, guys I'm curious in terms of the net new era or that you added in the quarter. How would you characterize how much of that is coming from kind of high levels CIO large complex transactions versus maybe some more kind of day to day orders that you get a divisional or departmental.

Level.

Well the way we sell in general you always thought them up even he loves enterprises, Eva and when we started the crew position that this year you level. When we ended this year level the adoption of the product is bought them up.

And we start small or even when we land you know I mentioned already on the call that some.

CECO Sevenci Glenview, even though we will end those deals.

To a small fraction of would be total opportunity looks like at these customers and these are present bottom up adoption and some people that are going to grow significantly over time.

That's the way it used to work that's still the way it's working.

As far as we can tell you too.

That makes sense and then can you give us maybe some qualitative color on the mix of business in terms of you gave us the 75% you know that landed with two or more products, but just give us some color in terms of the strength of infrastructure versus ATM versus logging in the quarter.

Well I mean, there look they're all growing Mexico in five of show alone would be one of the best companies around.

Indiana logs, so if we.

Singled out those products and look we don't really like to do that because if we'd like to said is clearly the punch they'd be fungibility between the different products and would you attribute to one you could actually to another.

But the Ddos product, sorry, hyper growth, they're doing a lot faster and better though used to grow when we're at a scalable product and that's still the case that hasn't slowed down.

Synthetic.

He is still growing much faster than we thought it would and he's a.

Great product for us.

We're pleased with diesel uptick of NPM, but do you still not material to our results.

We mentioned it earlier, but it's supported has.

The higher friction and synthetic for example to get adopted but it has a very long runway.

So we're investing in that product.

We've seen some adoption of run we started charging a in March for some portion of it. So we started charging forward as part of it didnt.

Have a Christmas contrary, he's committed as opposed to being used as treatment. So we see also not material to a two Q1, but we should too we should see more of it in Q2.

And Ah, yes, the a security product we haven't started charging for yet in Q1 started in Q2. So we don't have anything to say about it yet.

Sterling about I think the trends have really continue the net retentions were very consistent in Q1.

To what they had been and also the contribution from usage and new products and cross sell so much of what we've been saying the last.

Two quarters has continued in Q1 with really strong contribution to net retention from both those effects of usage and cross sell.

Makes sense. Thank you.

Thank you and our next question comes from Lima Lunch Shah with Barclays. Your line is now open hey, Thank you.

The if you you talk to you talked about the net retention and the assumptions that you are making this the crisis kind of continues.

Can you remind us if there's going to be more churn and then it's probably going to be more on the SMB space can you talk a little bit about the your exposure there and what you're seeing so far. It's my first question and then on the billing side can you remind those the David like in terms of whats monthly or annual the versus where you know the quarterly by annually.

You talked about this together not here about the mix. Thank you.

Yes, Okay got it shouldn't be that maybe David can talk about the bidding mix.

So, we we actually or a ARYMO ER.

You know because before it's about split evenly between enterprise mean bucket and SMB, but even if we didn't SMB. We most of the of that revenue comes from companies that onto larger side and on very.

Good to team.

Potentially some of them up, but nobody traveling and somebody could trade and tend to be closer to the a dozen employee limit there.

We mentioned on the cool that are.

Less than 50 person to her revenue came from companies that are on a smaller side, which is less than 100 employees.

We if you look at our thing because some errors they're very diverse.

And we're actually less exposed on the SNB side to some of the higher risk could get degrees run coated.

And.

So far we haven't seen it'd be changing the in trends I mean, we did see a tiny of keeping churn smbs.

But it's actually consistently levels, we seen just a few quarters ago. So there's nothing out of your Uri and at the same time, we saw an increase of net retention for that simple would've. Its indeed, so it is nothing conclusive there, but we don't see anything that we didn't see before now when we.

Try to guide for the future we have to try and guess what our exposure is going to be and what can be weaker we'd have to get that the smbs are going to feel more pain and now going to be where we'll see more churn out and so that's what we've we've incorporated in your guidance.

Maybe you want to take the.

The beating me.

Yeah, and billing two thirds of our Oh.

They are is associated with annual commitments for or greater and three quarters. When you add in the usage relate it to that so three quarters of our billings are associated with.

Annual commitments or longer.

What we said before was our average length of commitment went out slightly in the quarter resulted in an acceleration of RPL and our average period of billing duration came in a little bit more resulting in the billings discussion.

But about three quarters are related to annual commitments or more.

Hello.

Thank you. Our next question comes or Brad Zelnick with Credit Suisse. Your line is now open.

Great. Thanks, so much congratulations on a strong start to the year and.

As well hope everybody has stayed at dog and everyone listening is doing okay. These days.

My first question I wanted to follow up on what Sangita is asked and I think rhinos is alluding to is well just trying to understand the impact on the business from Covitz, specifically, if I hear your comments about the potential for deal slippage <unk>, obviously with more pressure on new logo business and the downward pressure that you might.

See I net expansion.

To what extent are you seeing it coming versus just preparing for it and maybe if you could perhaps can you compare and contrast consumption trends versus pipeline progression and the conversions on that pipeline that you're seeing you know in marching into into April.

You want it up or down you know.

Yes, yes, so so yes little pizza.

The most part is we were getting a because you know it's too early in the quarter to actually have a good sense of what makes sleep on.

At the end of Q1, we did have a few deals.

That slips and that what mark.

The reason for sleep Edgewood uncertainty around covina.

And several of them up close right after.

And I would say you know it's not the like every quarter. It is there are few deals that sleep and the number of deals that slipped in Q1 was actually not you know you had your eight compared to a two previous quarters.

So we don't have really anything to quantify the you fix we might see but we do anticipate that we will see itself.

When it comes to usage.

Again, you feel so there will be more difficult to to compare because there to come to you. This patent that changed a little bit has companies that's kind of both reorganized so there's a little bit less predictability in their she's also why we are we're baking that into our into some of our guidance.

Uh Huh, so overall look we.

We do anticipate some uncertainty and some pressure on some from in Q2 in Q3 or he would be weird if that didn't happen.

But we we don't have anything that makes a particularly.

Concerned you know, it's one of us right now.

They do you want to.

At anything yet.

I agree our pipeline remains consistent we don't know its Ali said is what is the the harvesting percentage, what's going to happen. This quarter. So we think that our motto given our model of land and expand and usage that were less dependent then then.

Then other models on going to land than a large three year deal, but we don't know and new logos, particularly what's going to happen at the quarter for grass is the main request. We've gotten so far has been you know some some modest can you chunk our builds up a little bit that's been prop.

What we've seen a little more but again it hasn't been a significant percentage of our air are either at this point.

Thanks, very much that that's both very helpful. If I can follow up just a quick housekeeping question for you David our PEO up 82% in the period I think is strong by just about anyway, you look at it but just put a finer point can you give us a duration adjusted our PEO growth or even occurrence.

Appeal growth.

We don't release that were just making comments on the fact that it was higher than the pro forma billing due to long or contract commitment duration in two and three year deals, but we haven't really you know commented and broken that out publicly.

Okay. Thanks for taking my questions guys Yep.

You're welcome.

Thank you. Our next question comes from Matt Hedberg with RBC capital markets. Your line is now open.

Oh, Hey, guys. Thanks for taking my questions I'll Echo the strong results this quarter.

You know your ability to sell two or more products is obviously impressive I'm wondering if you can share maybe some some examples of how some of your largest G. Two k. customers are adopting ATM and logging and in particular when they do are you seeing these customers migrate off of you know other vendors ATM and logging solutions are they often running.

Parallel for awhile.

So we do have a number of JFK customers that are adopting European and <unk>.

In all of those cases, when we start.

We don't actually replace whatever word you were using on print because there's still using I think there the on premise royalties.

Fifth separate from their their cloud world when it which is the net new which is what we called it.

So we typically learned usually we.

To a more products and would grow in knowing that footprints and they've gotten we're still in most of these casey its very early in that book because those customers are very old and they'll have listened to their plan, which is where we so do you feel footprint and we basically.

To set ourselves up to later much later ofer centralization of downhole tool set on us as the majority of their footprints ends up being on the cloud, but we're still not there with most of these customers.

That's helpful. And then I just wanted to make sure I understood churn a little bit better Ali you noted earlier that you're not being impacted by workforce reductions.

But when we think of higher level churns embedded in your guidance is that assumption that some customers may go to business on the smaller side or might we see some seat based contraction inside of you know existing customers at some point.

So we don't we don't sell capacity. So we don't there there's no there's no use a bid user driven.

These are count driven.

Component to a billing.

So that part doesn't affect us how quickly.

Well, we might see.

Some effect from all customers contract keeping their infrastructure.

But in most cases, all customers actually have to keep that infrastructure up to serve their own customers and does it will give the limit to the can contract there.

So that's not enough that we seen so far I think we don't exactly nowhere to June is going to come from if you'd come.

It's a fair assumption that a number of small business he's going to disappear.

We also see some medium and large businesses that are affected and we'll need some form of the of help will be a lot to survive.

All aware of that.

So did some of that might happen, we we wont to be cautious we want to become even of the fact that if the economy as a whole was affected some of it is going to equal to Oh, considering the fact that we have very broad base customer base.

And then the today at <unk>, Yeah, We said as we said in the comments that we do have some new logo accumulation and some lower retention rates implied in the guidance. We said, we haven't really seen that materially yet, but we're trying to.

To be prudent relative to what might happen in the world.

Well done thanks, guys.

Thank you are next question comes from Brent Thill with Jefferies. Your line is now open.

Thanks, John realize security few is its brand name, but just giving you just give us any color on initially you know back from the field and I'm just a quick follow up after that.

Well, we're actually very happy with the uptick there you know it's a we've had no other <unk> feeling better we had some customers that want to buy.

And the good bye.

And some customers that ought to get up to the product at scale. So that's that's very good.

No. It was still Super early book in terms of the.

The what's inside the product it looked to feature said the integration than anything else. We're also very early in the way we make us in MISO go to market for it. So we will fall now we should assume that there's going to be a lot more investment and it's going to take us a lot more time to get these these released products to Ah interesting scale.

And then just a quick follow up are you changing any of your hiring plans or product plans for their given you know everything that's gone on or are you still.

Still tracking to kind of original plan going into the air.

We're striking most mostly to original plan, we met a few adjustment for every as we didn't make sense to hire and for example, you know.

Ah things around organizing.

Local marketing events or.

Or your office management of usually that's not that's led to the topic. When we don't have enough piece and you.

The company people in real life.

But for everything else, we seek to decline and we have ambitious plan and we think it's actually a great time to be hiring and a quick time to be a building up 14.

The thing I warned about India. The call earlier was that it might take a bit longer for those investments to pay off you know because the market might you be softer undercut on their customers that you might get more uncertainty.

But we're we think for us it's an opportunity to.

Stand on the on the ground of our strong platform and you can see a little business.

Great. Thanks.

Thank you want to next question comes from Brad Reback with Stifel. Your line is open.

Great. Thanks, very much David when a customer comes to you and asks as you said to chunk of payment up in smaller bite size.

Amounts do you ask for anything in return like a longer contracts or anything along those lines.

Yeah, Yeah. We tried we have a discussion with the contract with a with a customer and we try to extend contract or.

You know do something around products. So we do that but you know we're also here to grow with our clients and we care about given what we've seen this is.

Keeping our clients and having them grow with those over time. So we have a discussion, but we try to extend contract or get something else, yeah, and I can comment on that we're doing it on the case by case basis really and but we do it this period of partnership we go to customers.

And that's what I've mentioned in nickel to look we quit investing not only not product no team well so investing in all customers. We investing your relationship we know some of them ugly very difficult time.

And you know we think there's there there are some some to where partnerships to be built on that.

Excellent thanks very much.

Thank you and our next question comes from Robert Magic with Raymond James Your line is now open.

Hi, Thanks, Congrats on the strong results can you break out the vertical exposure of your customer base and perhaps more specifically what the contribution from some of the more macro sensitive sectors, including travel and entertainment and one follow up question.

Yes, let me let me pull up my number is cool that you know so yeah. Let me let me while doing that you want me to go or Georgia, but.

Yeah, We said, we have 10% or less that are subject to that are in the most expose which are trouble hospitality dining and those types. So about a 10% exposure and we have exposures on the other side too so.

Some of the work from home a collaboration.

And <unk> and two deliveries and others. So we're pretty diversified Bobby said, where we have a diversified customer base and our concentration is not very is not above 10% in those impacted industries.

Thanks, Ron just perhaps one more you touched on earlier in prior questions, but can you just give us some work a qualitative insight into your conversations with new potential customers and the willingness of these customers to pursue new modeling deployments in an uncertain macroeconomic environment.

Yeah, so actually I can speak to that so so far this congratulations on another into different you know obviously they aren't dairy some scrutiny on.

On spending and and their cash outlays in particular, everybody is call is careful about cash in the physical since it's a certainty.

Which is why would you discuss do you know through some.

In some cases are different payment terms with some customers.

But the question so far this and we actually see an interesting if that were some customer there's in very affected industries will reach out now because the.

We actually have time to into that because of future because they're less.

They have less to operate from the day to day they do.

We've seen some of that happened is on a go you know there's not we don't tell that any of that is actually going to come to fruition before the wolf covering but we see some of that happening.

In general we're still early in the cycle deal.

That we don't really know you know if they're going to be <unk> is the impact will be really felt in Q2 in two three or or not but we would be careful into where we said guidance.

Thanks, a lot appreciate it.

Thank you and our next question comes from Beavan, sorry, with William Blair. Your line is open.

Hey, guys can you hear me okay sorry.

Yeah interest sensitive during this remote Fisher. Thank you Tom Congratulations for a great quarter, I guess I wanted to touch quickly on some of the product stuff.

You, obviously talked a little bit about the new security monitoring product last quarter. It's fairly early days for the product <unk> you want charging for the time, but love to understand that became generally available towards airpatrol.

The traction interest.

How is that playing out securities big part given remote access given everything else happening.

With Cobot love to see how that's going.

So far so good.

We do have customers that have been part of debate are are using it and some of them how to actually turning to page customers away. Some of these they use it up 22 paying customers already.

We are happy was attraction.

But again to there's a lot more than needs to happen there. The one thing that's interesting to us.

That we've seen adoption from to both side, we were trying to bring together with an adoption from they have enough and one side, but also from some security folks on the other side. So that's very interesting and that's what we're shooting for but again, particularly loved is going to happen to eat I'm sure. We'll we'll talk about it again in a in future calls.

Okay and then one quick question on the pricing.

No dig document.

Entrees, others out there right cetera, you just kind of the most attractive price point out there.

Often we see pricing important driver of the conversation, especially in this environment like our people our customers really think about pricing right now and is that somebody comes up as a decision point right now would love to understand sort of what the sales guys are seeing these conversations.

Yeah. So in general we.

The do it would differentiate and through the integrated platform in the outcomes, we used to a product less so.

I think do we have we do have a pricing model that he's aggregates had an element so that our customers can align it need to reprise they pay we the with the if you dig actually especially when he comes to mention did end logs and things like that.

I would say.

The.

We haven't seen any changes in that environment.

The one thing that we think is the might be an advantage is that we eat we also.

We operate bye.

Signing small and growing moves our customers on literally not predicated on a very large multiyear ups from deal well and that's something that lucky to get somebody, especially in an environment, where they're trying to manage cash.

Yeah, obviously, that's an issue given given cash constrained, but you off mall SMB suppose you're talking about say essentially you haven't seen those conversations but appreciate the color. Thank you.

Thank you and our next question comes from Pat Walravens with JMP Securities. Your line is now open.

Oh, great. Thank you very much and congratulations on running such a types. It over there. So all you've been doing this for for 20 years, a little more I would love to hear your thoughts on how you think.

This recession it is different and maybe similar to 2008 2000 line.

Wow, that's a that's a hard question well I think the one thing I've remembered from the previous ones that you don't really know where they're going [laughter] until they're older.

So that's where we're prudent.

The thing that we wanted to communicate equities coal is that we recall business is very healthy we see growth. We we from everything we can tell the driver that met a successful so far are still there and everything is working.

At the same time, we've been we've been growing 80, 85% 87 person now.

Year over year and for that to work you pretty much.

Pretty much needed every try on everything that single Hullender everything needs to come together and it almost guaranteed that not everything will come together and yen he.

But at the World is impacted by clearly and we're trying to be companies like on that.

Of that.

Great and then add David if I can ask one you know RPL growth has been sort of in the same ballpark is revenue the last couple of quarters, 3% licensing four or 5% yeah.

Is that it is that are reasonable way for us to think about going forward or should that died merge.

Well as I mentioned, we've had we've had.

Extension of average contract we've had a number of companies, who we develop long term partnerships with and they wanted to and together Oh come out to the two or three years. So I think that's going to depend much like on billings as to.

The timing of those contract renewals and I think you'll see in some period that happened in other periods and not mainly because of individual contracts that are up for renewal during that period or extension.

Okay, great. Thank you very much [laughter].

Thank you and our last question comes from Jack Andrews with Needham. Your line is now open.

Great. Thanks for squeezing means to call and congratulations on the results, but just wanted to ask about what trends you're seeing in terms of network performance monitoring in real user monitoring do you see these is more a displacement opportunities or are these greenfield markets and I was also wondering if you how big do you think that the market opportunities around this given perhaps a different.

Casing point thing your core infrastructure and IPM products.

Yes, so so decided you during the same I've read the requisite products, which she we stopped from combining which tend to be new in most cases on customers on using a lot product in some cases, they did a but they're not divest majority of the cases net new in cloud environments.

And you know the way we charge for for those products. He goes to align with the rest of world pressing Philadelphia, which he he talked for usage, while giving the controlled back to their customers. So they can align the depressed depends on ticket.

Got it okay. Thanks. This is a quick follow up.

Are there any a international trends that are no. We're.

<unk> worth.

Worthwhile, noting in terms of just a.

Specific regions of pockets of areas of strength or just other changes that you're thinking about in terms of aligning resources in particular international regions.

No I mean at this point, we see a success.

Some success in all regions and even though some some after already recent or even when you think of impacts of coated we've had ended up everywhere, but we don't have any.

Would.

We don't have anything that makes us think that and you read he's going to be had very differently from the other at this point you I give you. An example, we even close some some new logo to use is much different as you can easily.

It was a whole country was completely look down so there's no.

There's really no new data point to a delicate anything is going to be different any part of the world today.

Got it thanks very much.

Thank you and I like to turn the call over to Olivia <unk> closing remarks.

All right well thank you.

In closing I'd like to repeat that were very pleased we've always looked for Q1, we continue to invest no long term opportunity and we believe we're very well positioned for it.

And would have been an unprecedented time for all of a.

I want to think that it doesn't employees for their dedication and resilient.

And of course, I want to think all customers for their trust supporting their businesses through a challenging time.

Thank you will.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your programming you may now disconnect.

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