Q2 2020 Zix Corp Earnings Call
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Good afternoon, Washington's next second quarter 2020 earnings Conference call. My name is Michelle and I'll be your operators today.
Joining us for today's presentation of the company's President and CEO, Dave Wagner.
CFO David Raso.
Vice President of marketing Geoff Bibby.
Following their remarks, well open the call for your question.
Oh, let's remind everyone that this call will be recorded and made available for replay the only in the Investor Relations section of the company's website.
Now I'd like turn call over to Geoff Bibby.
Please proceed.
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Thank you operator, good afternoon, everyone and thank you for joining our second quarter 2020 earnings conference call on the call today, we ever CEO, Dave Wagner CFO, Dave Rockvam.
After the market growth today, we issued a press release announcing our results for the second quarter ended June Thirtyth 2020, a copy of which is available in the Investor Relations section of our web site.
Www Dot Zixcorp dot com.
Please note that during the course of this call will make forward looking statements regarding future events in the future financial performance of the company. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements.
It's important to note also that the company undertakes no obligation to update such statements. We caution you to consider risk factors that could cause actual results to differ materially from those in the forward looking statements contained in today's press release and in this conference call.
The risk factor section of our most recent form 10-K, and 10-Q filings with the FCC provides examples of those risks.
As more fully described in our quarterly report from a form 10-Q on the quarter ended June Thirtyth 2020. The company has been actively monitoring the covered 19 situation as impact on both the company and the world in which we operate the impact of cover 19, the unprecedent measures to prevent it spread are affecting our business in various ways, such as causing volatility in demand for our.
Products changes in customer behavior.
Putting their spending and payment patterns disruptions in the operations of our third party suppliers and business partners and limitations on our employees ability to work in travel we expect the ultimate significance of the impact on our financial and operational results will be dictated by the length of time to these circumstances continue.
Which will depend on the currently unknowable extend and duration of the covert 19 pandemic and the government and public actions taken in response.
These factors also make it more challenging for management to estimate the future performance of our business, particularly over the near term.
During the call it a present, both GAAP and non-GAAP financial measures non-GAAP financial measures are not intended to be considered in isolation from a substitute for our superior to our GAAP results. We encourage you consider all measures when analyzing the company's performance.
A reconciliation of certain GAAP to non-GAAP measures is included in todays press release, which can be found in the Investor Relations section of our site now with that I mean to turn the call over to Dave Wagner for his opening remarks, Dave.
Thanks, Jeff Good afternoon, and thank you everyone for joining us today in the second quarter, we continued to drive profitable growth and I'm proud to report that in these volatile times, we exceeded all of our financial objectives for the quarter, the abrupt and dramatic shift to remote work during Q2 enabled us to supply.
For our customers and partners more assertively than ever before.
Under the strain of the global pandemic, we are becoming an even more essential component of our customers work lives further supporting the resiliency of our operating model and the importance of our secure cloud platform to provide comprehensive digital security and compliance solutions for businesses of all sizes.
On a macro level zix continues to benefit permits advantageous strategic positioning empowering our partners and customers with the technology tools and service to drive cloud adoption and digital transformation.
This journey requires time energy resources and expertise.
The pandemic has exacerbated I T issues around security compliance and productivity. It has dramatically compressed the timeline of our customers digital transformation journey.
The abrupt shift to remote work necessitated emergency tree arash measures.
Our partners are the digital first responders so to speak in the face of a tsunami of demand placed on down to support remote work and ensure business continuity as remote work matures, we expect increased focus on security and compliance areas, where our solutions can add even more value.
In short Zixone secure cloud platform empowers, our customers and partners to deliver business value in the new secure modern workplace.
Ill now turn the call over to our CFO, Dave Rockvam to provide details on our financials. After his remarks I will return to discuss our core growth drivers and outlook Dave.
Thank you, Dave and good afternoon, everyone.
Echoing Dave's remarks during the second quarter, we delivered on our financial guidance as well as our commitment to consistently generating profitable adjusted EBITDA growth on an absolute basis.
Both of which have us on strong putting as we head into the back half of the year.
Now, let's talk about our numbers in more detail.
At the end of the second quarter, our air our totaled $215.9 million up 11% from Q2 of last year.
Our continued growth in air our continues to be driven by our customers move to the secure modern workplace.
Puts a heavy emphasis on cloud adoption.
We are pleased that our cloud based our air our grew 20% over Q2 of last year and now comprises 84% of total aerostar.
New customers in the quarter totaled 4500 up 3% from Q2 of last year.
For the second quarter, we had just over 96% net dollar retention, which represents our renewals plus new sales in the installed base divided by the renewals they were available at the beginning of the quarter as expected the 96% is down from our prior run rate of just over 100% last quarter and Dave will touch on this later on today's call.
Okay.
We are pleased that in this unprecedented environment, we were able to grow our air are at a double digit rate and maintain good retention rates with our customers, which we believe demonstrates the mission critical role that our solutions, Phil with our customers.
Revenue for the second quarter increased 16% to $53.3 million from $45.9 million in the same quarter last year.
The $53.3 million of revenue exceeded our guidance range for the second quarter.
From a solutions perspective, I want to remind everyone that we don't manage our business by solution category and increasingly our sales are made as bundled solutions. This means that we must use our judgment to estimate the value allocated to each solution area.
This has become even more compounded with the launch of secure cloud.
To that point the data is no longer able to be compiled in a way that is meaningful so that information will no longer be available.
With that in mind secure cloud is the platform of the future for Zixuns partners and customers and we think this transition from our legacy platforms to secure cloud, who will provide great value not only for them.
Ultimately our shareholders as well.
In Q2 with the launch of secure cloud the majority of App river customers removed onto the platform.
All the new customers on that side of the business came onto the new platform.
The historic Zix side, we saw a 56% of all new customers onboard onto a secure cloud and in July that number is already up to 87%.
In Q2, those new Zix secure cloud customers averaged 1.6 services for mailbox well above the 1.1 average we currently have across the company.
We think this bodes well for our strategy of providing a strong user friendly platform that makes it easy to add more zix solutions, ultimately, making us more valuable and stickier to our partners and customers.
Shifting back to the BNL, our adjusted gross profit for the quarter was $29.2 million or 54.7% in total revenue, which was an improvement on a dollar basis from $27.9 million or 60.8% of total revenue in the second quarter of last year.
Gross margin dollars were down very slightly from Q1 2020.
This flattening was primarily the impact of customers lowering their licenses due to the furloughing or termination of employees, mainly due to co bid.
This was mainly attributable to hosted exchange and on premise encryption customers.
The revenue and air our increase in Q2 came mainly from additional seats of Officethree hundred 65.
Which combined for higher revenue.
Slightly lower gross margin dollars.
Going forward, we think the launch of secure cloud and the increased emphasis we are putting on zix intellectual property sales with our partners will help balance our gross margin dollar growth.
Gross margins on a GAAP basis were down from $26.4 million in Q2 of last year to $25.1 million in Q2 of this year, mainly due to severance expenses and higher stock based compensation in the quarter.
Our adjusted R&D expenses for the second quarter, 2020 were $5.2 million or 9.8% of total revenue compared to $4.8 million or 10.5% total revenue in Q2 of last year.
The year over year dollar increase for the quarter was primarily due to certain development projects. The company completed during the quarter.
We expect our adjusted R&D expense to be slightly lower in Q3 due to the expense actions. We took in Q2 and a little bit higher capitalization of R&D software expenses based on the nature of our Q3 projects.
Our adjusted selling and marketing expenses for the quarter were $10.2 million or 19.1% of total revenue.
Improved to $9.8 million were 21.3% and total revenue in Q2 of last year.
This lowered percent of revenue in selling and marketing expense showed our lower cost of customer acquisition from our high velocity sales model and the success, we're having winning new customers and wallet share gains from our over 4450 MSP partners.
Validating our model and go to market strategy as our continued low cost to acquire customers or CAC in the quarter, which was $2172 per customer.
For the second quarter 2020, our adjusted General and administrative expenses were $3.5 million or 6.6% and total revenue, which was down from $4.5 million or 9.7% of total revenue reported in Q2 of last year.
On a GAAP basis, we recorded a net loss attributable to common shareholders of a loss of $4.1 million or a loss of eight cents per fully diluted share.
The eight cents loss for the quarter compares to a net loss attributable to common shareholders of a loss of $7.1 million or 13 cents per fully diluted share in Q2 of last year.
Our second quarter non-GAAP, adjusted net income before deemed dividends and excluding deferred tax was $8 million or 15 cents per fully diluted share, which was a penny above our guidance. This compares to $5.8 million or 11 cents per fully diluted share that we reported in Q2 of last year.
And finally, our adjusted EBITDA for Q2, 2020 totaled $12.7 million, an increase from $10.7 million, we reported in Q2 of last year.
As a percentage of total revenue adjusted EBITDA for Q2, 2020 was 23.8% compared to 23.4% in Q2 of last year.
Cash flow from operations for the second quarter 2020 was $4.7 million, an increase of $3 million over Q2 2019.
Turning to our balance sheet, we ended the quarter with $14.1 million in cash in $17 million available for borrowing through our revolving credit facility.
This year, we have repurchased approximately $2.6 million of our own shares as part of our employee equity Awards program.
This does use our cash but also helps to limit dilution.
In terms of capital structure and debt metrics, we had $185.8 million of net debt on our balance sheet at the end of the quarter the $9 million of annualized cost we took out of our business in April coupled with our strong predictable free cash flow generation and adjusted EBITDA outlook of 51 million.
$1 to $53 million for the full year 2020 positions us favorably against our debt obligations.
Our adjusted EBITDA guidance of 51 million to $53 million implies a leverage ratio of approximately 2.9 at the end of Q4, putting us well below our maximum permitted leverage ratio of 4.75 before year end 2020.
Capex and other intangibles for the second quarter of 2020 were $4.3 million, which consisted primarily of normal business purchases and capitalized internal use software development.
We expect Capex and other intangibles to be approximately $13 million to $15 million for the full year 2020 net of cap software amortization.
We also expect adjusted depreciation and amortization to be approximately $10 million for the full year 2020.
Our backlog at June Thirtyth, 2020 was $85 million, which was a decrease of 7% from $91.4 million at the end of Q2 last year.
As we mentioned previously backlog is not a strong metric of which to judge our Prost progress as our customers are moving more and more to a monthly model.
Which in turn delivers a lower backlog.
We prefer to look at billings as a better metric for the health and growth of our business.
For the second quarter 2020, total gross billings were up 13% to $52.1 million from $46.3 million in Q2 last year.
Now turning to our financial guidance for the third quarter 2020.
Which is based on current market conditions and expectations.
In Q3, we currently expect revenue to range between $53.5 million and $54 million, which implies a 12% to 13% growth rate compared to the same year ago quarter.
Fully diluted GAAP loss per share attributable to common stockholders is expected to be in a range of a loss of two cents in loss of one cents.
We are forecasting fully diluted non-GAAP adjusted earnings per share attributable to common stockholders before deemed dividends and excluding deferred tax expense to be in the range of 15 and 16 cents.
We expect adjusted EBITDA to be approximately 24% to 25% of total revenue.
The per share guidance figures are based on an approximate basic share count of 55.3 million for Q3 2020.
Based on our current visibility we have increased our revenue range for the full fiscal year 2020, we're currently forecasting revenue to range between $211 million in $217 million, representing an increase of between 21% and 25% compared to 2019 and 9%.
To 13% on an organic basis.
We expect fully diluted GAAP loss per share attributable to common stockholders to range between a loss of 13 cents and loss of nine cents for the year.
On a non-GAAP basis adjusted earnings per share attributable to common stockholders, we expected to be in a range between 58 cents to 60 cents.
Adjusted EBITDA is forecasted to be entered the range of $51 million to $53 million or approximately 23% to 25% of total revenue for 2020, and a year over year increase in between 29, and 34% compared to fiscal year 2019.
The per share figures are based on an approximate basic share count of 54.8 million for 2020.
Based on our current outlook, we expect to generate continued strong free cash flow in 2020, we are forecasting approximately $9.5 million and interest expense on our bank credit facility, which is down from earlier estimates due to lower interest rates.
This completes my financial summary for a more detailed analysis of our financial results. Please refer to todays earnings release as well as our 10-Q, which we plan to file by August 10th.
Also visit our Investor Relations website to view, our most recent investor presentation Dave.
Thanks, Dave I will now review our execution of strategy in the context of our three primary growth drivers.
Our first growth driver is new customer acquisition.
We had some noteworthy wins in the quarter on both the Zix Enap River sides of the business first on the direct far side, our top five wins in the quarter. We're in a diverse set of industries, including two in healthcare, one and legal wanting construction and one in manufacturing.
Two of our top five wins included archiving and both of these wins included data migration as a service, which has proven to be a game changer from new customers.
Our largest new customer wins in Q2 with a six figure deal and construction that included productivity encryption and advanced threat protection.
This customer is looking for our proven advanced threats solution selling a malware attack experienced in March that took their network down for a week.
Another major winning Q2 was with a healthcare provider that was attracted to decks because our phenomenal customer support.
We again averaged three products per new customer in our top five new customer wins.
On the MSP side, we added 60 net new transacting partners in Q2, which was up from the 55, we added in Q1 and brings our total over 4450 at quarter end.
In Q2, we added approximately 160 net new customers per week, bringing our total customer count on the legacy at Riverside the business to more than 73000.
Late in Q2, we began seeing increasing sales momentum both on the direct and indirect side of our business and across our full suite of products in June we achieved a monthly record 4300 trials exceeding the prior record of just under 4200.
Trials established in February.
The record trials were driven primarily by continuing increases in encryption archive and advanced threat protection by our MSP partners.
We also launched our new enhanced advanced threat product localized for the UK market in June which also contributed to the increased IP trial activity.
IP trials in June were 28% of total trials.
In terms of overall business trends across our large partner base, we've seen a substantial stabilization since the March April timeframe.
If you recall from our Q2 earnings call in May we reported that in April we were seeing an uptick of approximately 20% and new customers a slight increase in churn and a real drop off in additional business from existing customers.
As we move through Q2, both the new customer increase and the increase in churn moderated and more importantly, the business to existing customers began to recover.
In total for the second quarter business to existing customers was off almost 50% from Q2 2019.
However by the time, we hit June and now July the net increase in business to existing customers has largely recovered to pre coded levels.
We remain guarded in our view of the macro environment, but we are pleased with the opportunities we're seeing to help our customers and partners work remotely and digitally transform their businesses and the resulting recovery we are seeing in June and July.
That overall backdrop is a good segue to our second growth driver, which as sales to existing customers.
In Q2 four of the top five add ons through our bar and direct sales teams were in healthcare and one was in government. All five were encryption only add ons.
Cross selling into the base remains a focus and we lived loved to have more success in the top accounts, but the fact that we're seeing strong up sell in our core encryption business is a healthy sign.
The average contract term of the top five add ons was approximately 20 months consistent with prior periods, which we also think is a healthy sign.
On the MSP side sales to existing customers accounted for only 22% that the EMR increase in the quarter.
This compares to 44% in Q2 2019, as we previewed on our May call, we experienced a deceleration of orders from existing customers in March and April as we hope Bell our flexible consumption based month to month billing model allowed our partners and customers to recover quickly for the month.
In July 48% of our increase in EMR was from existing customers.
In the existing customer base. We're also seeing a continued migration from hosted exchange to office 360 by driven by work from home demands that are better served in the cloud and by Microsoft's customer incentive for teams adoption.
We've always anticipated migration, but co bid and work from home has accelerated in.
Moving to our third growth driver increasing retention, our total company net dollar retention was 96% to Q2 compared to 100% in the prior quarter.
This is primarily due to reduced sales to existing customers that I just reviewed.
In addition, we lost a meaningful OEM encryption customer that was moderate in terms of air are but very large in terms of number of seats.
Turn is that modestly in both hosted exchange and our on premise encryption business as co bid has clearly accelerated trends toward the cloud and secure remote work. We are encouraged that for the month of July total company net retention was back over 100%.
The successful launch of secure cloud and the positive initial acceptance by our customer base makes us even more enthusiastic about our long term growth prospects.
Before closing I would like to highlight an accomplishment that the board the leadership team and I are really proud out.
Building upon our foundation of values and our focus on compliance in the past 12 months, we have doubled down on environmental societal and governance programs or he asked geotech drilling.
During Q2 Zix received a prime status rating incorporate E.S.G. performance from ISS.
This recognition speaks to the quality of the framework, we have established for ESG best practices that guides, our decision, making on a daily basis.
We are proud of this rating that places us in the top decile of publicly traded companies with respect SG, which we think bodes well for all of our stakeholders and we continue to grow.
Looking forward, we are encouraged by our progress in Q2 any initial positive indicators in July the uptick we're experiencing and customer engagement in overall business development activities has ignited our teams energy and enthusiasm providing momentum as we continue into the third quarter. However, we.
We remain cognizant of the challenges in the macro environment. Some of our smaller customers are struggling and our healthcare system is dealing with unprecedented challenges. We are excited by the opportunities. We have to help these customers successfully transitioned to the cloud and digitally transform their businesses.
Our results in Q2 and July demonstrate that we're now in a much more planful state than we beer back in April. We're also encouraged by our strong financial Foundation, we are generating significant free cash flow. We are reiterating our strong adjusted EBITDA outlook for the year and we have over $30 million.
Cash and available credit facilities further our secure cloud strategy is right on digital transformation is continuing to accelerate and we are well positioned to capitalize on the remote work trends as evidenced by our continued efficient rate of new customer acquisition together with our partners we provide the solution.
Ones and resources businesses need to be effective in this environment, helping them achieve a secure modern workplace, we remain confident in our ability to deliver on our vision of becoming a leading provider of cloud email security productivity and compliance for businesses of all sizes.
That concludes our prepared remarks, operator, we're ready to open the call for questions.
Ladies and gentlemen ask a question you need to press Star then one and your telephone.
To answer your question that's down key please stand by by the composite two and a lot.
Now My first question, we'll conclude Chad Bennett of Craig Hallum. Please proceed.
Great. Thanks for taking my questions guys.
Yes.
I hope everybody is safe and healthy on your guys is that so.
Yes, just I mean interesting.
Qualitative and quantitative commentary on the rebound into June and then the first month of July.
I guess.
Are you I mean, the net expansion it sounds like is now back over 100%.
It seems like the adoption of secure cloud has been phenomenal.
To this point.
It is it.
Too early.
I don't want to get over our skis, but too early to think about.
You know, whether it's just existing or net new add ons, where you talked about the attach rates of 1.5 to 1.1 I think.
Yes.
Where we can actually see re acceleration so to speak in kind of those some of the metrics that we look at obviously, we're in a unique environment I know, but.
Just seems like things are back to normal a lot quicker than anybody would have thought.
Yes. Thanks for those comments, we are really pleased with Don with secure cloud we are really phase for recovery as we had talked about in April that monthly nature of our bailing.
You had things draw down relatively quickly and then they have rebounded quickly and thats exactly what we're seeing that trial activity that we talked about the June records, that's really being driven.
By the advanced threat solution in the archive and the encryption so we're laying in.
We're seeing really good new customer adoption that the new channel partners added net 60 up from net 55. So our trends are good and the environment is not great, but our trends are good and the team is really really dig in and to drive that attach metrics Chad.
And then maybe one follow up just on on your commentary on on the churn you saw in the quarter I think you talked about.
Ken on premise encryption.
Churn and then maybe.
And the exchange hosted churn.
I guess can you give any type insight again, maybe its viewpoint sort of back to normal but Kennedy.
Percentage of the business today that that represents or kind of what the risk is there. Thanks.
Okay, Great I'll, let Dave give that number.
The numbers, but there's a really good news is positioned well on the cloud side, so our even though the.
The net churn was down from 196 that customer and revenue churn was.
Tens of basis points, not hundreds at changed in the quarter and so what we're seeing as.
That customers are staying with us but are shifting technology platforms.
From those on Prem environment.
To the add to the cloud environments in the case encryption rotation.
It's kind of price margin neutral equation and in terms of a hacks to office 365 that prices relatively constant but the margins.
I get impacted.
So those are trends that we've been aware of in the business what happened with Cove. It as it people don't want to go in and mass with servers and so they're really looking to us to take that us on our partners or take that equation and move fully to the cloud. So thats the rotation that we're capitalizing on.
And what the numbers now look like we said 84% of our business is coming from the cloud based businesses now so if you look at.
That would mean that would mean the other people that would be our total defense product line, which is our consumer base, which is $7.5 million to $8 million. So.
You get outside of that Theres, probably 15% to 20%.
That we need to rotate through from either either on Prem or hosted exchange to our cloud and you know.
Not all those won't be losses, right those will be lots of opportunities for us to move them onto our cloud. So overtime. We think we can move well over 50% of those two to our cloud if not more with the secure cloud launch.
Sounds like the risk is fairly low in years, a majority of the way through anyway. So okay guys. Thanks, nice job executing in a tough environment. Thanks, Chad inkjet.
Our next question will come from Andrew King of call. Your security. Please proceed.
Hi, guys. Thanks for taking my question, so booking customers being on board secure cloud versus legacy can you give us a little bit.
Why there that.
That is choosing legacy versus secure cloud and is it more of the feature functionality or what's going on there.
Yes, sorry, I've talked a lot of how do the timing Andrews, our secured cloud launched officially in mid April so the work customer sales cycle.
In place.
In in the second quarter.
We weren't bring and.
What I would bring all the new customers on secure cloud.
Dave shared the July number just to show that momentum that we're getting as the sales cycles our transition over.
And then we'll expect for the long time to still bring some customers into our our dedicated zones, particularly large customers.
Some of them why keep their now flow and I'm very dedicated way, but the very vast majority of our class customers as as Dave indicated our common that directly on secure cloud now, yes, I did you pull that back even a little bit further.
Exactly what Dave said, it was timing a lot in that part and even in that 87%, we're allowing for we have we have tiny tiny six mail type of customers that come on that aren't going to be a secure cloud type customer that they get caught up in those numbers. So.
Were more in the if your take some of those small ones out you get up into the Ninetys pretty quickly and then as we continue to build the feature functionality on the core products on to secure cloud and get full feature parity there.
We will get into the high ninetys across and it'll just be as Dave said, a few of those maybe older or customers that are stay on on prem or customers that come onto us on Prem for some reason that may not go on to secure cloud. So we expect that number to continue to climb and be a pretty high percent by the end of the year.
Great and then could you dive in a little bit on to the impact of co bid on the conversion on the trials.
Yes.
We're really in terms of conversions, we continued to perform right at.
The.
Prior conversion rates that VIX IP continues to improve as more and more of the partners are exposed.
Synodex IP that that continues to converge.
So the trial conversions are our real strong again that.
At March April and into May was top and then.
At June June July we've seen the trial activity Odyssey picking up there the record that we talked about a month June.
Great. Thank you.
Thanks, Andrew.
Our next question will come from the Hall Choksi of Northland Capital. Your line is open.
Yes. Thank you.
I see the results come in above guidance and the tightening the range a little bit higher end. So that's great.
So I want to stick on this.
96% net dollar expansion to 96%.
You guys mentioned somewhat given that caught back up but I still want to double click here.
You did mention another factor was the loss or large OEM customer can you give a little more details about that OEM customer and why was that lost and how much of an impact your play in that downtick.
Yes, so it was on the because it through an OEM at that price per years or very low so.
Not a.
It was as a low six figures I guess how to.
Our our account, but quite a number of users on it.
It was through an OEM and that when we.
Implement product or we sell product our implementation rate is 99.988, we always get implemented.
One of our OEM partners was not nearly that good about getting implementations, Don and so I add on and it and we were the OEM, we weren't that we weren't the person Ted Outfront, making that happen. So it was a three year renewal that didnt that didnt get renewed with our OEM partner.
Okay, Great and what do you think is driving the net increase to existing customers recovering to pre koby levels are seems a bit odd given that.
The macro remains pretty tough.
Yes, I think.
We're.
Two things on the decline.
Because we're a monthly billing and because we're around E mail box, even though we have lots small business customers either knowledge workers not not help hospitality healthcare worker and so.
What we had as a contraction we didnt lose customers we lost.
Users app.
The customer and.
That then allowed us to recover more quickly and then.
We're seeing the work remote work even smaller businesses are all getting set to the work from home and so were.
Bringing on our MSP partners, especially are bringing on new accounts.
Because we offer that.
Officethree hundred 65, and secure mana workplace that they need to be affected so.
Where it is not easy out there huh.
But where we think we're in the right right possession and clearly the the June and July rebound, we feel good about.
Okay, great. Thank you very much.
Thank you to hold them.
Again to ask a question. Please press Star then one.
And next question will come from annualize the Wedbush.
Yes space.
Thanks, and hope everyone as well.
So maybe just following up on the other question.
In terms of June July and just trajectory.
Is there anything different that you guys are doing from marketing campaign.
Attack and the customer aimed at sheet or.
It should to natural rebound in terms of what you believe issue.
Yes, I think if a natural rebound from where we're positioned I would like to give credit to the sales leadership and the sales team.
Yes, they really.
Really gotten bulk at.
Our GAAP and.
Especially since covert that thats really gotten focused on our executing our executing well.
Can't trial activities, a part of how they're measuring and paid and they've really focused and done a nice job, but then.
And I think it also it also go to secure cloud and actually of the product too much credit to we launched that ICSC aircraft.
Product, we spent a all year working on it and we're delivering what the partners asked us to de lever and.
So the enhancements to the advanced threat product are really causing the update the localization Europe.
Causing an uptick as we continue to to the follow on delivers threats. The summer we thought we'd we'd really there's a lot of value for our especially for our MSP partners. At this point, we expect to continue to capitalize that as we headed to summary into the fall.
Okay great.
In terms of the cost structure now obviously theres.
We will retain any in.
Interest in number of things just given the environment. How you think about that going forward in terms of everything's are temporary versus your more longer term sustainable.
Yes, so you'll remember that we made a meaningful expense reduction.
At around our last earnings earnings call and we think.
That was the right size for the right time and that showing through in the bottom line and driving.
You know driving the profitable growth were.
We're just really pleased by the effectiveness of the remote work.
We'll be continuing to look at little thing down the road office leases as they come up I don't think travel will spring back, but when it safe and that we won't do it told say, but when it safe partner conferences are really good way to engage with new prospects will be out there.
When it's time, but we don't see that time being at this calendar year.
Great. Thanks.
Thanks, Dan.
At this time. This concludes that question answer session I'd now like to turn call back over to management for closing remarks.
As were thank you all for your at a time and attention on our Q2 earnings call. We look forward to speaking with again in 90 days.
Thank you for joining us today for the second quarter 2020 earnings call you may now disconnect.
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