Q3 2020 Rapid7 Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to <unk> third quarter 2020, Rapidseven earnings conference call at this.
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I would now like to hand, the conference over to your speaker today to nail shop like VP of Investor Relations. Please go ahead Sir.
Thank you operator, and good afternoon, everyone.
We appreciate you joining us today to discuss Rapidseven third quarter 2020 financial and operating results. In addition to our financial outlook for the fourth quarter and full fiscal year 2020.
With me on the call today are Corey Thomas our CEO and Jankulovski Rcs we've.
We've distributed our earnings press release over the wire and is now posted on our website at investors saw roughly seven dot com along with the updated company presentation and financial metrics on this.
This call is being broadcast live via webcast and following the call an audio replay will be available through thought Rapidseven dot com until November 11 2012.
During this call we may make statements related to our business that are forward looking under federal Securities law.
These statements are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and include statements related to the company's positioning for future goals and financial guidance for the fourth quarter and full year 2020.
Assumptions underlying such goals and guidance, including the anticipated impact of 19 on our financial guidance business financial condition results of operations and renewals and our assumptions on the pace of economic recovery in the global economy on our future results of operations and product strategy.
These forward looking statements are based on our current expectations and beliefs and on information currently available to us.
Actual outcomes and results may differ materially from the expectations are contained in these statements due to a number of risks and uncertainties, including those contained in our most recent quarterly report on form 10-Q.
Equal of course that we saw with the FCC.
The information provided on this conference call should be considered in light of such risks Act.
Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward looking statements and reported results should not be considered as an indication of future performance.
Rapidseven does not assume any obligation to update the information presented on this conference call except to the extent required by applicable law.
Our commentary today will be primarily non-GAAP terms and reconciliations between our historical GAAP and non-GAAP results and guidance can be found in today's earnings press release at.
At times in our prepared remarks or in response to your questions. We may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results.
Please be advised that this was additional detail maybe one time in nature, and we may or may not provide an update in the future on these metrics.
With that I'd like to turn the call over to our CEO Koreatown fourth.
Thank you Phil and good afternoon, everyone.
Okay got you and your families are safe safe and healthy and appreciate you joining us today for our third quarter 2020 earnings call.
We are pleased to report strong Q3 performance and exceeding growth and profit expectations. Thanks to solid execution by our record 17.
Through the fundamentals continue to improve during the third quarter as customer demand I think the security architectures for the file.
We saw strong demand for our security transformation solutions, which again grew over 40%.
Coupled with healthy beer performance Rapidseven delivered year over year here our growth.
Actually 29%.
Current market trends and our results reinforce our expanded opportunities and bolster our confidence in raising for your 2028, our our growth in capital targets.
And investing for global growth and margin expansion.
I would like to start today with a perspective on what we're seeing in the market as we engage with our customers I.
I will then share a brief update on our product innovation before closing with our goals and turning it over to Jeff to cover our financial.
Security teams faced unprecedented challenges securing their organizations today, it's cobot opinions the traditional operating model for businesses.
Simona engagement has been a catalyst for companies to transform the digital experience excel.
Accelerating their cloud strategies in the midst of an escalating threat landscape.
It's organizations lean into the cloud they are engaging with rapidseven to modernize and extend their security architectures in the cloud what their insights happier.
What we're seeing today is companies focus on answering the question how do we upgrade our core operations to be more digital.
This effort drives a growing need to address in monitoring and securing a more distributed environment and new cloud based applications.
I'd be surprised if that platform was built on the view the organizations of all sizes will undergo digital transformations.
Driving the need to upgrade their socks with enhanced monitoring automation golf security.
We see this coming to fruition as more customers leverage our security transformation solution.
In particular, we saw third quarter strength led by IDR application security and cloud.
Organizations are increasingly turning to best in suite approach to solve their security operations Center.
A great example of this was our largest deal in the quarter he competitive in a pathway with the well known consumer brands discussing with struggling with a myriad of tools and service providers to manage their complex environment.
Initially turned to reference seven where our best in class IDR technology quickly Sol depreciated value and increase the efficiency of leveraging integrate at Sam Moore ability and automation and the ones who.
This customer chose a unified insight platform experience over a piecemeal set up alternative.
We remain focused on investing behind this platform to deliver industry, leading customer experience is in the cloud.
As evidenced by our ongoing integration of difficult.
<unk> has force companies to reevaluate their craft strategy accelerating the need for cloud and even the security that bridges the gap between debt and second.
We are seeing continued success with demi crowd, which once again drove significant competitive wins in the quarter.
I'll highlight two large deals, including one new land and one cross sell for existing customers.
Key Differentiators in these deals included our practice after ability.
Multi cloud disability and integrated automation.
We're excited about the growing cloud security capabilities give me clout, we're playing to our in fact after that as we continue the integration process.
While we remain early in effect off platform customer churn.
That's that's an integrated cloud native offering are bearing fruit.
This is robin deeper customer engagement.
Great proof point is our compete strong growth in New York for a customer which grew 19% year over year to approximately $42700.
Holistic approach to security visibility automation and cloud enablement is resonating with customers, who today, but spoke with all delivering both greater efficiency and efficacy of their security programs that.
This was the case for a six figure competitive said this placement deal in the quarter with an enterprise retail customers.
This customer consolidated their Sim.
Workshops analysis, I bought a building management solutions or insight platform again improved functionality.
In addition to getting more reliable in Texas the RDR.
Consolidation Eddie huge value on it on the customer security team to spend less time bouncy from tool the tool and more time focusing on real threats.
This is another great example of our Rapidseven platform breadth and our ability to roll out in a way to combination of B M. IDR cloud apps second automation is becoming more prevalent and discussions with our customers.
It's important to note however that should best of suite feel required with industry, leading products that don't force customers to compromise product functionality for platform value.
In addition to our existing leadership status across mobility management, Sam and application security right.
Hi, I'm pleased to announce yet another industry recognition for our team.
August Rapidseven was named a leader in the force away for midsized managed security service providers.
This isn't great acknowledgment of our ongoing effort to make our cloud native pick off platform accessible to all.
This recognition also serves as a critical validation point as we gauge with our channel partner ecosystem and manage its partners to extend the reach of our insight platform.
The ongoing recognition of Rapidseven. Its technology leadership is a function of our core strategy and commitment to disciplined investments in innovation.
Let me take a moment to highlight some of our most recent product innovations.
In October we announced the availability of our cloud identity and access management governance module forgive me clout.
We believe this will be key differentiator for our cloud security offering going forward.
Companies moved towards zero trough at least privilege access framework and a cloud world, reducing cloud I didn't even if it becomes crucial that's.
The traditional focus our user access and insufficient for managing any risk in the cloud.
Todays access is far more complicated extended beyond users to applications and resources in the cloud.
This drives an order of magnitude change and the complexity of determining effective access.
With cloud I am governance, our customers gain deeper visibility into their resources to assess prioritize and remediate independent access no matter, how many different cloud providers users or resources they have in place.
Oh, the reception to cloud I am has been positive with a handful of customers already having license it and more customers and prospects beginning to trial the module.
We also recently announced the availability of our enhanced endpoint telemetry and Oprah in fact IDR.
Covert drive a massive increase in their remote workforce the distributed nature of endpoints creates an ever expanding threat vector.
He T enables customers to bring endpoint activity and the insight I'd, our unified it with net worth user and cloud data to provide holistic visibility of their bombs that itself is a security teams are able to better boxer their attack surface and drive accelerated investigations and the spots from a single interface.
E T extensive cord threat honey capabilities I've inside RDR and fits our official launch just a few weeks ago, you've seen a number of customers ACMI trial for eating.
Turning now to a brief update on our 2020 goals, if we close the year.
Our first goal is to be a leader, enabling customers to transform their security operations practices around the cloud.
It starts with our unified cloud native insight platform as it continues with the recent innovations like cloud I am governance, and our strategic partnership with <unk>.
As I look at our innovation pipeline I'm excited about our opportunity to raise the bar for cloud Native security operations.
Our second goal is to accelerate our platform distribution engine, we remain in early days with our add on and bundle opportunities, but when they go in set of capabilities like network traffic analysis and enhance endpoint telemetry among others, we see lot of fight to increasing our customer lifetime value by expanding a our first customer.
From roughly $40000 to over $60000 over the mid term.
Finally, our third goal is to try to long term operating leverage while investing for growth.
We continue to focus on disciplined innovation and believe that our investments in technology and customer experience and drive increasing penetration across our insight platform. This should support improved efficiency and leverage in our go to market motion overtime.
With that I would like to close today by sharing my appreciation for the hard work and commitment of our entire Rapidseven team.
We remain focused on building and delivering the most sophisticated accessible security operations platform on behalf of our customers.
You all and I will now turn the call over to our CFO Sokoloski.
Yeah.
Thanks, Corey and good afternoon, everyone.
Before I begin a brief reminder, that except for revenue all financial results. We'll discuss today are non-GAAP financial measures unless otherwise stated and reconciliations between GAAP and non-GAAP results can be found in todays earnings press release.
We're pleased to report that Rapidseven delivered milestone results during the third quarter with revenue exceeding $100 million on a quarterly basis for the first time and strong cash flow from operations in the quarter.
Total revenue of $105.1 billion came in above the high end of our guidance range, reflecting year over year growth of 26%.
This result was driven by better than expected products revenue of $98.6 million, which grew 29% over the prior year period.
Revenue outperformance was a function of solid execution by our team as we ended the third quarter with total air or $398.7 million up 29% year over year led by strong demand for our security transformation solutions and continued healthy growth the EPS.
Looking at the business geographically during a third quarter North America revenue grew by 25% year over year and comprised 83% of total revenue for rest of world grew by 32% year over year and represented 17% for total revenue.
We experienced healthy engagement with new customers in the quarter ending the period with over 9300 customers globally growth of 8% over the prior year.
New customers contributed over 50% of our new air ordered this quarter, reflecting continued pace of demand improvement as the year has progressed.
[noise] differentiated value of our insights platform is resonating with customers and as a result, we saw continued expansion and customer relationships ending the third quarter with air our per customer of approximately $42700 a growth of 19% year over year.
We continue to see Broadway for sustained long term growth in this metric.
Turning now to margins and operating results total gross margin for the third quarter was 74% consistent with Q2 as well as the year ago period.
Sales and marketing expenses grew 19% year over year, reflecting growth in headcount and improved to 42% of revenue compared to 44% in Q3 2019, driven in part by lower tier cities.
R&D expenses grew 34% over the prior year and represented 21% of revenue up compared to 19% of revenue last year, reflecting a full quarter of DB cloud contribution and continued investments in product development.
Gene expenses grew 15% were 9% of revenue down from 10% in Q3 2019.
Third quarter operating profit of $2.4 million was ahead of our guidance range driven primarily by Overachievement on revenues.
Adjusted EBITDA for the third quarter was $5.8 million and net income per share zero cents also ahead of them.
Moving to our balance sheet and cash flows. We ended Q3 with cash cash equivalents and investments of $331.4 million compared to $321 million at the end of Q2 2020.
The sequential increase was driven predominantly by our positive cash generation in the quarter.
Operating cash flow of $11.1 million was driven by strong billings and collections activity in the quarter and improved from $1.8 million for the year ago period.
Shifting now to guidance amidst an uncertain backdrop, our third quarter results demonstrate that companies are investing in Soc modernization to keep up with the rapid pace of digital cloud transformation custom.
Customers are engaging with us as part of a best in suite security strategy, leveraging our combination of market, leading technology and platform value.
Looking ahead Rapidseven is positioned to capture the fast growing cloud set crops opportunity with best in class B M and security transformation solutions on her insight platform.
Our strong Q3 execution reinforces confidence in driving growth and margin expansion as we raise full year 2020 targets for our growth and cash flow, while reinvesting outperformance to pursue our expanding market opportunity.
We are conscious however, we must balance healthy customer demand for transformational security was an uneven macroeconomic recovery as we look to the rest of the year.
With that in mind, let me start by sharing our guidance for the full year.
Building off our solid third quarter performance, we are raising and tightening our guidance range now anticipate full year air are to be in the range of 418 million to $422 million and $8 million increase at the midpoint or growth of 23% to 25% year over year.
This range assumes a continuation of the gradual demand recovery, we have experienced to date.
Second and third quarters.
We continue to see our security transformation solutions, there are growing over 40% this year.
I'm sustaining double digit growth.
Given our increased air our expectations, we're raising full year revenue guidance now anticipate 2020 revenue.
In the range of 406.2 million to $407.8 million or growth of 24% to 25% year over year.
We're raising full year non-GAAP operating profit to be the upper half of our prior range or approximately 1 million to $2 million.
This guidance reflects investments for sustained future growth and margin expansion and as a reminder, we expect that we will return to our profitability framework for 2021, assuming a continued recovery trajectory.
We are tightening our full year non-GAAP loss per share towards the upper end of our prior range and now anticipate a range of a loss of 12 cents to a loss of 10 cents.
This is based on 51 million weighted average shares outstanding for the full year.
Given our strong cash flow performance in Q3, we now anticipate a notable improvement in cash flow from operations for the full year to approximately breakeven compared to our prior expectation for a loss of $15 million.
Turning to quarterly guidance.
We anticipate total revenue for the fourth quarter of 2020 to be in the range of $107.9 billion to $109.5 million growth of 18% to 20% year over year.
We anticipate non-GAAP operating loss for the fourth quarter to be in the range of negative $1.8 million to negative point $8 million, reflecting reinvestment of some of our outperformance to date.
Non-GAAP net loss per share is anticipated to be in the range of a loss of nine cents loss of seven cents.
Is based on an anticipated 52.1 million basic weighted average shares outstanding.
In conclusion, we continue to execute against our vision to provide a leading cloud native second EPS platform to our customers as they transform their digital experiences in the cloud.
With that we appreciate your time and support.
And we'll now open the call for any questions operator.
As a reminder, ladies and gentlemen to ask a question at this time. Please press Star then the number one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Our first question comes from the line of Rob Owens with Piper Sandler Your line is open.
Yes.
Some comments about the unprecedented challenges.
You are facing nowadays.
You talked about.
Asian, as well, where do you think folks aren't in terms of Oh response to digital transformation work from home versus getting more strategic and that's his.
Conversations are playing out.
She kind of not asking to be back next year, but I think that you know as we get into 2021, we should see really a tailwind because of all this modernization how it translates into opportunity just like yours. So if you could comment would be great.
Rob I'll just repeat it came.
It came in a little bit muffled as that sounds like a core question is where are we in the phase of people sort of like really thinking about work from home versus the more strategic aspects of digital transformation and how does that play out over the course of this year, but also on the four years and that their tailwind and I would say, yes, we actually do see a positive tailwind into the future.
In our discussions with most customers you know there was a big crisis early on it was really fundamentally around can even be bulk show and this cold and working on world. Many.
Right.
Quite surprised about how functional they didn't get quickly and while there's still some work to be done some aspects of maturing those work from home security programs lots of the order. They said that we're talking to are really addressing the imperative of how did they really the place and upgrade their digital system. So that they can actually support their customers engage with us.
Customers sales to new customers a in.
In a world where digital is just much more critical a much more strategic and so we see customers that are actually moving at a very fast pace given that some of the competence that we've actually seen reflected over the course of this year, we see a lot of customers that are in planning and we actually think that provide some upside what I would say in the mid to longer term you know the feedback that we're getting a lot of our customers.
Is that they're making the moves they just trying to figure out the ordering in the steps around the budgeting and so they don't know whether they're going to actually be aggressive in the first half or the second half of next year, but did you know that they are moving and they're doing they're planning now and they're working through budgeting with their finance department the teams.
And then second you mentioned your largest deal in the quarter with a one them consumer brand with consolidation of simple durability automation or you see more of these consolidation opportunities as you bring a more holistic suites and is this customer somewhat uncharacteristic relative to I guess, the the perception or what you've articulated this resource.
Constrained at mid market customers historically.
Yeah.
Quick question I would say no the customer is not a typical can be our resource constrained one of the things that we continue to find its resource constrained cuts across segments. So we've always treated as that over half of the five unfortunate propositions resource constrained you talk to the large some of our largest customer he thought that one of the largest manufacturing organization.
Since in the world they feel very resource constrained.
You talked to some of our large retail customers are whats called <unk>, they build resource constrained and so what I would say is that no. It's not all in terms of the resource constrained nature.
And in fact, we expect to see lots more of that over time, and we actually are seeing customers have a bias towards but again, how we emphasize it what we just got a new study this quarter customers are not interested in buying a suite for the purpose of honestly, but what they're very interested in if they can get best in class performance in quality and they can.
Actually get a highly productive cost effective platform that actually allow them to have best in class capability, there absolutely 100% interested.
To your question about what's the traction progress well steadily increasing I think that we still have more upside in front of US I think we're just starting to tap the edge of that surfaced and we see that as a building momentum over the next several years.
Great. Thank you.
They just don't.
Thank you and our next question comes from the line of the catch up you know with Barclays. Your line is open.
Okay, Hey, guys. Thanks for taking my questions here can you hear me okay.
Okay. Bye. Thank you okay excellent excellent Hey, Corey maybe first for you I kind of want to build off that last line of questioning but maybe we then something you talked about last quarter, which is some of the the experiments the team has done with bundling.
Can you just dig into that that you know what the bundling means for Rapidseven up.
What's the opportunity could be and maybe as part of that maybe.
Maybe touch on on how that sort of factors into what sounds like a higher air our target per customer, but does that make sense a degree of priming and I'll start with your last frame it about the orchestra.
Big goals is to drive up the ARPU per customer you know we move from the you know high teens to the Thirtys to now the 40, and we actually see very clear line of sight to 60 capability or customer and what we think a lot of that actually come from is it combination of customers adopting morphea environment.
Also customers adopt multiple products and we're well on the path there. They bundled experiments that we I would say both research and the experiments that we actually Didnt really fall into a couple of categories. What is that we now have the capability to add ons, but you can make about sort of the add on whether that's the anti AD on board the networks up analysis and IDR or the E.
He but importantly country at home on Friday, our or the store as an add on to our products. In addition to sort of a Atlantic Bill that is a capability that were actually have been doing lots of holiday and lots of employees and customers really like that model to actually provide flexibility and our goal is to have the simplest possible pricing and packaging.
But we also want customers to have the flexibility to actually get something as economical for where they are in their journey.
That's really what we're trying to do and lots of our research and say that we have customers that are looking at a single solution. We have customers that are looking at a single solution, but I think they want to move very fast. So they may want to have some expenses to it and then we have customers that want to tackle multiple problems at once.
And so when you think about our focus on these things is that we want to make sure. It's it's easy and as cost effective as possible customers. They listen I want to build on my entire security program quickly and I want to actually look at multiple packaged together, that's a simple value proposition customers say listen I want to start here, but I actually want to actually build up my eyes.
Like solutions and my second platform over time, we want to make it easier to possibly start and then to expand overtime and so that's what we actually did at least that's what I would say is that the research is absolutely validated customer interest. We're in the process right now consolidating that whole need a few more of the traffic.
Paramount and we will start running that out over the course of 2021, what I would say that from a benefit perspective, we expect the largest benefited that to hit 2022 board, but we will see some positive benefits and 21, primarily because we just see positive interest from customers in our best of breed platform.
That's very helpful. Yeah, maybe for my follow up fruit for you Jeff.
I think that the net revenue retention came came in at about a 103% yeah. I think we've seen this from other security companies as well you know, whether it's a combination of sort of lower employee counts.
Lower up sell them, it's the pandemic et cetera, but you know can you just maybe touch on what drove the downtick in net revenue retention.
From last quarter, and and just as importantly, where do you think that bottoms.
Yeah, I'll make a couple of points you know one of the one of the primary factors is that we've seen a mix shift.
In our new air are going to IDR customers.
Yeah, and they tend to buy more of their environment fraud, resulting in larger deal sizes as opposed to buying it in pieces like unlike the EM.
And products.
Also you know renewal rates are still healthy and this quarter. We also had more than 50% or new air are coming from net new customers as well as opposed to the base, we do have a healthy balance from.
New era base as well as new customers.
You know, we do manage to totally ARR, which was solid in Q3.
And to your last question as to where you know it might go we did forecast a decline over the course of the year and while we might see a modest decline.
We still expect Arab customer Iraq for customer to continue to grow and that's the primary metric.
Got it very helpful. Thanks, guys.
Thank you.
Our next question is from the night, Matt Hedberg with RBC capital markets. Your line is open.
Hey, Matt are you there.
Oh, sorry, guys. Yeah. Thanks, Thanks for taking the question.
It was really good to hear of the growth in your transformational offerings.
You know I think that that to me it feels like that Theres a large.
Quarterly secure increased era.
Air Our guide for the year, but I guess my question probably on sockets Achatz question.
You know when we look at new customers I think the grew 8% this quarter and I guess either for Jeff for Corey when when when you think about where our growth. How do you think about sort of new customer adds selling more into what looks like even larger customers and larger initial deal sizes and then on the flip side.
You know sort of through kind of your expectations on quarter Rep additions into Q4.
Did you kind of think about a 2021.
I'm happy to jump into so I think it's a great question. So the first thing when we think about customers. Our primary focus is really from two distinct areas. One we of course of course, they are for customer, but we're still actually very very focused on coined customers overall I'll add to sort of important characteristics of that the first is our focus and the Oregon.
Patients going platform customers, we make platform customers have the highest.
Our our potential overall and the highest customer lifetime value. So we have a high focus on growing the platform customers and that has actually grown at him any much higher weight that comes up expenses. Some of the transactional customers that may have just done that's what went on projects on time, we're happy with that trade off all day long so totally I mean, it's for platform customer.
Gold versus just the some like the total customer growth that said, we still plan to grow total customer growth overtime as for your second question about sort of how we think about the build enough and you know clearly the market demand in the near term you can think about we have good visibility into this year was higher than we expect a few quarters ago.
And that's a good thing and we actually are very confident in the market demand in the long term you know the middle about like when people get budgets. What just Q1 Q2 Q3, we're not worried about that we'll look at some of the long term demand characteristics and so therefore, we are making some investments this quarter actually rightside, our sales force and we expect productivity to go up next year, but we are making some investments.
I thought the Salesforce for the demand and were also feed and the market even while we continue to show improved profitability. This year and as we committed before we expect to continue the ongoing leverage as we go into 21.
That's great Super helpful. Corie, Congrats again on that one point I'll make on the platform customers you know our net.
In terms of just platform customers. The net increase was a little over 300 customers. So you can see that is.
Overall, those are growing much faster than our overall customer growth. So what would churning are low air our customers nonstrategic customers.
Super helpful. Thanks, guys.
I do.
And our next question is from Darren Talcotts with Stifel. Your line is open.
Okay, great. Thanks for taking my questions I'm Corey in terms of the threat environment, we've seen a pretty sharp right here in ransomware attacks over the past few months when you sort of think about your installed base and your broader engagement has this created a broader shift in urgency for either b M or the out where the broader platform.
Let's see I think created a there I'll just comment on both of those one I would say.
M. remains healthy and it's right in line with the expectation that we felt bad quarter of that sort of like you know mid teens plus revenue growth. We think they'd be up demand is actually better than we actually done a couple of quarters ago, and we see that continuing throughout I would say lots of the demand that we're seeing if you want to tie it directly the ransomware probably goes into this.
Category of do I have the right modeling solution in place actually monitor my overall environment a security operations.
That's one of the catalyst of IDR adoption in growth I don't think its a primary driver necessarily how cool I think that come from more digital initiatives, but I do think it's one of the contributors to some of the strong and healthy demand that we're seeing an IDR fracs.
That's a that's helpful. You talked about a mid term pathway to 60, K. and air opera customer in the past you've talked about a potential taken around 200 K. is it still fair to think about the long term viewpoint and that threshold or should we adjust our lens here.
Well, it's actually going up we haven't updated the numbers since we actually will expand and went deeper on our cloud offerings since youve got more visibility to some of the automation stuff and so that's something we'll update at the analyst day. They just need to work on getting that data out, but it'll be in Q1, I expect at some point and.
And I think we'll talk more about there, but that was higher than 200, K. right now, but it just didn't make sense actually update that before we want to analyst day.
Okay. That's helpful. Thank you.
Thank you.
Our next question comes from Jonathan Ho with William Blair. Your line is open.
Hi, Good afternoon, I just wanted to first of all I get a sense of how much contribution there was from DB cloud on and if you can maybe give us a sense of what that they are our contribution once as well. Thanks.
Yeah, so in terms of revenues.
2.3 million in the quarter, we we're not breaking out the specific contribution of getting there are in the quarter on its doing well and I'll just remind you that you know at the time of the acquisition, we brought on 10 million or they are at closing.
Got it and then just in terms of the digital transformation, maybe opening up on some of these new opportunities you can you give us a sense of you know what this means around those to be called Andrew Cloud solutions and you know it's just like.
The number one priority that you're seeing for customers. So just wanted to get a sense of how big of a driver you know digital transformation is.
Well I live with them well, it's it's definitely helped three I mean, it's definitely something that most of our customers are talking about and looking at in some material way of saying it or and playing it around.
And there are different levels of maturity, there, but I would say, we see lots of momentum in customers trying to sort through how they become relevant as the world moves more and more to cloud I mean that is something thats on lots and lots of customers by as Jeff pointed out like Democrats doing great, but its still cut off of a small base.
It's actually there, but I'd say, it's well exceeded our expectation and we have other cloud capabilities that we've actually added ended didnt cloud internally. The TV coffee must continue to innovate with some really impressive technologies around identity governance or some other areas. So I would describe it as lots of customers that I see are actively looking at how they act.
We think about taking their operations more digital security is considering the conversations so we're seeing plenty of opportunity over the next several years to actually grow and expanded that direction.
Great. Thank you.
So much.
Our next question comes from the line of Brian Essex with Goldman Sachs. Your line is open.
Hi, there in them on here for Brian and thank you for taking the question.
So thank you for the color on the traction that you're witnessing that divot cloud.
And probably following up on Jonathan's question, just wanted to understand the mix of opportunities for yard expansion that you are actually seeing coming from and from the cloud in terms of lets say better overall platform penetration or uptick from potentially more do launches going forward like <unk> <unk> <unk>.
Governance that you announced this quarter and also as you highlighted with large deal wins with the cloud is it more if agreed a greenfield opportunity compared to competitive displacements or do strike a balance yes.
Well I'll start last question on the overall about markets very early in its evolution, but mostly greenfield.
And yes, just competitors there, but its a mostly greenfield market.
We view as positive.
I think if I go back to some of your earlier questions I would describe it as it is to select growth drivers, it's one customer expanding expanding their cloud environments and so typically I have natural growth is actually built into the expenses.
Yes, David Cloud team has some great expansion capability.
I suppose that we're actually adding own that allow additional sort of value to customers over time.
That also provide incremental corporate customer over time, it's I would say, it's a three paul sort of like big lots of new customers, a greenfield opportunities customers, expanding which is super positive there the ability to actually provide incremental capability and functionality that's valuable to customers that allows us to continue to expand they are with us.
Thank you.
Thank you.
Our next question comes from the line of himself out of Rollo with Morgan Stanley. Your line is open.
Hey, guys. Thank you for taking my question. My first question for you with.
Well just around.
The recent announcement of the cloud I am module for.
The divvy cloud I'm, just wondering if you could give us.
Color as to you know.
What sort of drove your decision to to get into the governance identity government space kind of what your offering versus maybe some of these solutions out there and kind of what the early response there has been.
Yes, there was talk of a positive I do want to actually a couple of important there. So this is not us entering the market as you would think about it.
Our primary competition, it's sort of like some of the offering as I think mid she's been Palo Alto up here in a couple of fearless. It sorry, let me just talk about whether it is to make sure everyone is clear.
If you think about cloud environments you.
Do you have the users that we actually think about but you also have a mass.
Applications.
And Reits privileges and rolls and entitlements that actually go along with that and that can actually get very very complex very fast you can think about is its own form of configuration management, but it also introduces mass at risk and so the way that I really think about it is that there's so many aspects of the cloud that has its own.
Set of rights privileges and entitlement and understanding what things like effective access mean, it analytics problem and the solution to that is often automation problem. So this is really about so like how do you think about analytics and automation and cloud context that happens to be around identity, which is very core to what sort of our book.
Cloud and given the initiatives I focused on represented the analytics and automation platform. So of course, we're talking on the analytics automation problem as it relates to the cloud and we think that in this space.
You know, we think most college in the entitlement management I think other people use that terminology.
Winning in this space it's both.
Extraordinarily strategic for our customers and the feedback that they've given us. So far has been like this is the right path that they want to see us continue to invest here, we've already got some real attraction.
Got it that's helpful and then a follow up question for.
I'm just curious on how did the gross renewal rates trend.
Q3.
Versus maybe some recent quarters, how are you thinking about renewal rates going you know going forward. As you know we are likely to remain and in a more uncertain macro environment.
For the for the time being that's it for me. Thank you.
Yes, I mean, I think at the beginning of the year, we did say that the renewal the renewal rates would decline over the course of this year, which which they've done.
Are you asking.
The overall renewal rate, you're asking are expiring renewal rate.
Burn rate essentially yeah, yeah, yeah, that's been very consistent and stayed in our historical range and we have seen.
Nothing no change there at all it's still healthy.
Yeah, we're doing.
Well comment I think our team at our customers.
Very effective job of retaining.
Customers with a special focus frankly on like we see very good rates around our platform customers.
Which I think is important when you think about sort of how we look at it going forward. If you take out Oh, let's say mix shift or the fact that from an order perspective were happened to be doing more IDR deals which are larger upfront.
Deals our focus as we actually go forward again is to really grow retained platform customers, because that's where all the value come from and that's where all of the I would say the scale and the leverage where you get both growth and profitability over time, so listen to both grow and retain that.
That mix of customers over time.
Didn't really leverage our packaging and pricing strategy to actually drive cross selling upselling to actually go home and again, we'll talk more about that at our analyst day, but I will say that strategy is paying off quite well I think we have good visibility now mixed up a call from puts and takes as we actually go into the future.
But I would say the if you think about the core of the strategy is always an effective job of growing and retaining platform customers and what does that do to an economic engine over the next couple of years I would say that's gone extraordinarily well.
Got it thank you.
Our next question comes from the line of Adam Adam Tindle with Raymond James Your line is open.
Hi, Thanks, This is actually Alex on for Adam.
I'm just curious are you speaking with some of your customers. We've noticed that one of your competitors matched becoming share donor due to a lack of innovation.
Kind of being slow responding to customer requests pitcher, leaving some share on the table.
For the grabbing it have you noticed that have you added to the current competitive environment sort of stack up in your core VM market.
Hi, This is a question about the Korea market.
I would say the and.
As I said earlier I think you may recall is that I think the dynamics of your much healthier than we expected.
As we go out and so really its a combination of I think the innovation that you're seeing us do customers really like our focus on productivity.
Scale anyway, so we're continuing to make investments and drive innovation to be a market and that's netting well what the customers are all which gave us the confidence last quarter, it's actually sort of increase Arctic for patients around B M and the fact, we talk about the durability of that and then to your question I agree that customers long term are actually looking at like for the strategic players and the volatility man.
<unk> market and we see that as an opportunity.
So our team internally is very very much focused about how do we continue to grow our share of the overall vulnerability management market and we see ourselves as a sustainable share taker in that market.
Okay perfect. Thanks, and then just a follow up if I may.
Do you have any color on air our growth.
Looks like there was a slight deceleration this quarter and guidance kind of implies a deceleration into the end of the year and gauge any any commentary on that.
Got me when we think about our overall IR, but we think that 29% as extraordinarily healthy, especially in this macroeconomic environment.
And what do we see it going forward our real focus is on sort of like sustainable dual aspects. They are especially around our platform customers. You'll also note that I talked earlier about some of the investments that we're actually making to increase back ourselves capacity, because we actually Paul some of that was in one hundreds of endemic.
And a lot of that had to do we see a very very healthy demand environment over the mid term.
Okay perfect. Thank you so much.
Okay.
Our next question comes from the line of Alex Henderson with Needham Your line is open.
Thank you very much you hear me okay.
Hey, just fine thank you.
You've talked about Rightsizing your salesforce multiple times over the course of the call.
It is clear to me that you have got great product suite.
That you're gonna great uptake on it.
Can you give us some idea of what rate of expansion of your sales force is going to look like and what your targets are.
Do you expect to increase your cell stamping.
Capacity.
Faster than your topline.
Or do you expect to.
To continue to drive to margin expansion.
Within that.
Within that specific line or as margin expansion coming from R&D or DNA leverage.
That's a good question like there's an opportunity here to to drive your competitive edge.
That's a great question, so what I would say is that.
We do see we.
We do see very very healthy demand, but we expect to continue to get leverage in the overall business you know what I would the way I would describe it is that we expect 2021 to be back on the growth profitability model that we actually gave.
Last year, well, we'll continue to get ongoing leverage while we are extremely focused on sustainable growth.
The overall business.
So the leverage is across all operating lines were across sales marketing specifically.
Yeah, I would say its oh, we look a generalized average across all they sell that market is to answer. Your question is that are we planning to make sales more inefficient to drive growth and the answer is no.
No I think that you know [laughter] put in practical terms is that fair.
You are putting in practical terms is cobot yours, so somewhat special.
You expect to have like improved productivity all of this year and we actually see enough demand to actually improve the productivity over this year. So I would expect sales to be part of that improved efficiency.
Then the second question if I could follow up on you clearly increasing revenue per customer, but I was wondering if there. If you were to look at your customers are the size of the customers that you're no. The on average moving up as well.
Is that also part of the equation that you're penetrating into higher accounts larger accounts and more strategic accounts.
Yeah, I would say, yes, that's definitely an element of the equation I don't want to say I don't want to imply that it's the only element of the case equation, but I would say, it's one of the elements of the equation. That's happening. We also are going to be a or for a customer of even our mid size customers. So you know the way we think about that you have different.
Size cohorts of customers and we look at the dynamics of that and so what we really want to see it increase adoption.
Looking back you talked about this at the platform, but we also want to see our expansion within different size cohorts, but to answer. Your question. Yes, we are having greater success in penetrating some of the larger enterprise customers.
Great. Thank you very much for taking my questions.
Thank you so much.
And as a reminder, ladies and gentlemen, if youd like to ask a question at this time. Please press Star then the number one on your Touchtone Keith.
Our next question comes from the line of Gregg Moskowitz with Mizuho. Your line is open.
Okay. Thank you very much and could have had a pretty good evening guys. So Cory there are a lot of Sim vendors out there and yet you continue to execute at a very high level with with IDR. I know you don't compete head to head all that often first them deals that you did call out one displacement this quarter and so I'm curious if you're seeing any changes compared.
At least speaking that he would also point to.
No I would say when we start off our Sem journey, we really were doing a lot of Greenville, they actually start off with a small a slightly at market like buyers well, let's say now we're competing effectively across the board.
And you know we definitely we went a lot we lose a few but what I would say is that we are becoming a mainstream film leader across the board and I think that gives us lots of upside potential over the next couple of years and when you really look at the underlying foundation of that is that it should be.
One of these enjoying platforms that it's still continuing to provide scale both in leverage and satisfy our customers you know in the both not just the short term, but often the mid long term.
Okay. That's very helpful. And then just maybe as a follow up we've been hearing about some improvement in your federal business I know that has not been.
Particularly strong area for EPS haven't historically is that something that youre seeing as well and if so just wondering if you could update us on why you may be getting traction in the eye and the federal vertical. Thank you.
I I would describe the federal vertical was stable.
I think we have a song public sector practice.
When you look at both the state and federal.
[noise] together I think that really one of the aspects of the Federals number we've actually moved a lot to our cloud infrastructure that infrastructure and that's just a wallet stable. It is a different role to toe to actually have a primarily fast platform in the federal that would fit inroads, we expect that to grow over time, but we're actually paid.
Often about how that works its way through the system.
Okay got it thanks, Cory Thanks, Patrick.
And I'm not showing any further questions I'll now turn the call back over to Cory <unk> CEO for closing remarks.
Well I just want to thank you all so much again for joining us today and I Hope you and your families stay safe during this time. Thank you.
Ladies and gentlemen, this does conclude the program. Thank you for participating you may now disconnect everyone have a great day.
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