Q4 2020 Proofpoint Inc Earnings Call
Please standby.
Good day and welcome to the proof point Q4 and year end 2020 results call. Today's conference is being recorded at this time like to turn the conference over to Jason Starr Vice President Investor Relations you may begin.
James Good afternoon, and welcome to proof points for quarter 2020 earnings call today I'll be discussing our results for not only the fourth quarter, but also a full year of 2020 as detailed in the press release that we issued after the market closed. This afternoon, a copy of which is available on the Investor Relations section of our website. Joining me here on the call are Gary Steele from <unk>, Chief Executive Officer.
From a board portal for force Chief Financial Officer.
During the course of this call we will make forward looking statements regarding future events and future financial performance for the company, which are subject to material risks and uncertainties that could cause actual results to differ materially.
We believe that the COVID-19 crisis continues to create additional complexity when it comes to providing a forward looking view on the business, where we're providing our guidance on a good faith basis per recent FTC recommendation.
We caution you to consider the important risk factors contained in the press release and on this conference call. These risk factors are also more fully detailed under the caption risk factors and proof points filings with the SEC, including our most recent form 10-Q.
These forward looking statements are based on assumptions that we believe to be reasonable as of todays date February for 2021, we undertake no obligation to update these statements as a result of new information or future events.
Of note. It is proof points policy to neither reiterate nor adjusted financial guidance provided on today's call unless it is also done through a public disclosure such as a press release on through the filing of a form 8-K.
<unk>, we will present, both GAAP and non-GAAP financial measures on today's call. These non-GAAP measures exclude a number of items as set forth in our release.
Non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results and we encourage you to consider all measures when analyzing group wide performance a reconciliation of GAAP to non-GAAP measures and a list for the reasons why the company uses these non-GAAP measures are included in today's press release. Finally in addition to reading our press releases on efficacy.
Filings, we encourage investors to also monitor not only the investor section of our website, but also our corporate work as we were routinely post investor oriented information such as news and events financial filings webcast presentations and other relevant materials on those pages. Both of these are available at investors got proof points Dot com.
So that said I will turn the call for Gary Thanks, Nathan I'd like to thank everyone for joining us on the call. Today, we are very pleased with our fourth quarter results closing out a challenging year on an exceptionally positive note, beating our guidance on all metrics and demonstrating significant progress in advancing our people centric security and compliance strategy and further extending our mark.
For leadership in this new category in the process.
For the for the full year 2020, we exceeded $1 billion in annual revenue and we're very proud to be the first SaaS based cyber security company to accomplish this important milestone our.
Our results further demonstrate the compelling operating leverage intrinsic to the business model that we have carefully cultivated over the years with our non-GAAP operating metrics such as gross margin net income and free cash flow all coming in well ahead of our guidance.
Overall, the competitive environment remains favorable and our people centric approach to cyber security and compliance is resonating with our customers and prospects alike as evidenced by our continued high win rates robust demand for both our core and emerging products and driven by our superior efficacy level and unique visibility into the highly active threatened.
On a scale.
All of these factors leave us well positioned to deliver on a reacceleration of growth that we plan to deliver over the course of the coming year.
We ended the year with nearly 8000 enterprise customers each of which contributes a minimum of $10000 in annual recurring revenue to our business and an increase of 13% over the past year, which we view as a very solid result, given the challenges experienced in many of our target vertical markets, such as health care travel hospitality.
<unk> reach out on energy.
This included 57% on the Fortune 1027 per cent of the global 3000.
Each with at least one product and up from 54% and 24% respectively.
2019.
Beyond these strong results despite the headwinds related to the pandemic that we faced throughout the year our business momentum remains strong and we've made several important investments to expand our product offerings. While also scaling our organization and infrastructure around the world all with an eye towards emerging from this crisis in an even stronger position.
To capture the significant growth opportunity that lies ahead.
Current work from home mandates have permanently shifted the legacy security perimeter from the traditional corporate network firewall to a new work from anywhere paradigm, where data is everywhere as a result, the attack surface has completely changed extending.
To wherever the employed happens to be accessing corporate data people are the people on the new perimeter, which requires a fundamentally different architecture and proof point is uniquely positioned to enable enterprises to defenders day parameter.
Applying the advanced threat capabilities that we originally developed for a cloud based E mail solution and extending them to all cloud based applications and repository where data resides.
All of this enabled by leveraging our newest capabilities like cloud App security broker or Kathy and browser isolation.
The on World Class Advanced threat Protection group by also provides a robust set of cloud based information protection offerings, which enable customers to defend their data no matter, where that that content resides ensuring that necessity of information and electro property remains secure not only from threat actors, but also from employers engage.
And Carlos behavior malicious behavior, our services are serving hasn't unloading a complex after their credentials are still on by a threat actor.
These insider threat presented on a growing risk for organizations, particularly in the current work from home environment and are driving an acute need for enterprises to gain better visibility into the remote users and the sensitive data that they access for <unk> insider threat management, our ITM capability provides an elegant solution to this challenge.
And it's delivered through a lightweight sensor that is loaded onto the endpoint to empower security teams did attack investigate and correct and for best potential insider threat and obtain important contextual data to better determine user behavior and attacks.
Demand for our ITM solution was exceptional in Q4 as our team found their stride and delivered several meaningful wins with new and existing customers across the fortune 1000, which included booking the three largest transactions in the history on that product line.
While we are quite encouraged by our traction here. It is important to note that ITM also provides our team with yet another attractive new entry for you to enterprises, which then sets the stage for a discussion regarding our broader enterprise data loss prevention capabilities and also threat detection capabilities.
The foundation for our information protection platform built on more than a decade of experience Scott spent developing and refining our email data loss protection solution, a robust comprehensive cloud based on European jet, which at its core Leverages. The same machine learning technology as our advanced threat system.
By integrating ITM and our kashi capabilities into the N. Gen coupled with the creation of a unified DLP incident management console, we provide the customer a single real time view of DLP alerts across all employees and the venues where they interact with content and importantly, the ability to immediately remediate any issue at the click on vote.
Pattern.
We announced availability of our enterprise ERP platform in September and we are quite pleased with the early results with solid customer feedback strong pipeline trends and some initial orders already booked in the fourth quarter, we're seeing on our market assumptions play out well and are quite encouraged at our prospects in fact, approximately 20% of our.
Our new subscription billing booked in the fourth quarter came from the various components of enterprise DLP, specifically email DLP, Kathy isolation, ICM and input DLP, all providing a solid land and expand foundation for future success in this area.
Of note cash we had an exceptional demand.
Kathy had exceptional demand in the quarter benefiting directly from the work from home environment, delivering strong bookings and a solid pipeline as we look into 2021 isolation also had a very strong quarter driven by the need to protect against a significant increase in ransomware, particularly in the health care vertical which drove solid <unk>.
In the fourth quarter. So we're quite pleased with our progress in this area, but there is plenty of work that remains to fully capitalize on enterprise deal. We believe that we have an attractive opportunity to deliver additional customer value with our product roadmap with several unique capabilities pending that will enable us to disrupt.
Market that we believe will represent approximately $5 billion in 2020 for.
Before covering our Q4 highlights I wanted to share a few thoughts on the overall threat landscape given recent developments in the industry. Much has already been said about solar wind and other related breaches. So I likely don't have anything new to share on that specific cash that you haven't already read about extensively in the price was that at a very basic level the <unk>.
Attack services, a clear reminder, that threat actors are innovative persistent.
We remain fully engaged in looking for new sophisticated ways to break into enterprises, large and small with us being true regardless of periodically walls and press coverage that often occur. This otherwise <unk> also provides a compelling wakeup call for businesses and their board that might've been involved into a false sense of security with good enough solution.
<unk>, who will likely now realize that is absolutely critical to investing in world class tools technology due to vendor enterprises, given today's active threat landscape.
As it relates to proof points environment today, we have not identified any indicators of compromise nor have we received any notification from any other third party that we been compromised by the solar wings right actor. We continue to actively investigate the tactics from these attacks and check for evidence of compromise. We are also working with our industry partners.
And forensics consultants and sharing our own threat research with customers and with the with the security community.
I'd like to thank our engineering security and threat research team for their hard work and tireless focus on the security of our customers.
The solar wings compromise also highlighted the risk to.
Two companies around the world that potential supply chain tax whereby threat actors and circumcised and day vendor and partner relationships and exploit the vulnerabilities that exist in these complex chains.
While this particular gas propagated through a malicious software up day through our broader.
Through our broader threat surveillance capabilities proof point has seen a significant increase in the number of supply chain attacks across almost every industry, including invoicing and shipping for on traditional phishing and malware through business email compromise and email accounts compromise reported its recently released many significant enhancements to our email fraud defense or.
Which provides customers an integrated solution to help understand and mitigate supplier risk. This is accomplished through our machine learning supplier identification model mapping empirical vulnerabilities and threats from across the group wide ecosystem to the suppliers in order to then generate supplier risk scores.
Now turning to some of our key operating results during the fourth quarter and for the year.
The fourth quarter capped a strong year for our core E Mail security offerings protection on top of note. We also saw solid contribution from existing customers that have not yet adopted these services demonstrating that while mature or they are still on an important contributor to our growth. We also continue to effectively demonstrate the strength of per price product when compared to the base on.
On security solutions provided by Microsoft as part of our office 365 bundles examples of customers, who had moved to office 365, and subsequently decided to upgrade their security capabilities with <unk>. During the fourth quarter included our largest transaction in the quarter, a fortune 100 retailer that purchased <unk> bundle for over three <unk>.
Hundred thousand users a fortune 500 transportation company that purchased protection and tap for 85000 users a fortune 500 consumer.
Zimmer Foods company that purchased <unk> bundle for 60000 users and a health care company that purchased protection tap <unk> isolation.
Isolation piece at <unk> and threat response for 60000 users.
We're also pleased with the success of our add on sales into our customer base, which contributed nearly 60% of our new annual recurring revenue booked not only here in Q4, but also for the full year. In particular, we are very encouraged by the ongoing strength and demand for our emerging products, which represented nearly half.
Of the total new and add on business closed led by strong demand for for quite security awareness training or piece at email fraud defense on <unk> and also the key elements of our recently reduced released enterprise DLP has discussed earlier.
To better highlight this momentum I would like to share that as of the end of 2020, our emerging products represented 29% of our RR under contract, which is up from 25% in 2019 and 20% in 2018.
But on the products again contributed nicely to our Q4 results, reflecting solid customer interest in this approach, which makes it easier for customers to consolidate their spending with proof point more readily embrace our integrated capabilities and ultimately eliminate unnecessary or inadequate vendors.
We closed over 300 bundled deals in the quarter, primarily with entry level pieces or O N E. One by law and we also made good progress with our higher end P to P. Three bottles and total bundled solutions represented nearly 40% of the new annual recurring revenue that was added in the fourth quarter as compared to just over 20% in.
Q4 of 2019 other examples of customers that purchased bundles during the fourth quarter included a global 2000 transportation company that upgraded to repeat three bundle for 30000 users.
1000 chemicals company that upgraded to the <unk> plus bundle for 25000 users.
A fortune 500 manufacturing company that purchased a <unk> zero bundle for 40000 users.
And a state agency that upgraded to a <unk> bundle for 10000 users.
Our momentum with emerging products, either all card for through bundling is further reflected in the number of customers with three or more products, which has increased from 4000 to 5600, an increase of nearly 40% year over year and now representing 70% of.
Our customer base.
Customers with for them or more products totaled 4400, or just over half of our customer base note that this is up from just 400 cut 400 customers as we lap disclosed in mid 2017, a more than tenfold increase.
Despite this land and expand the success given our catalog for approximately 20 different products. We continue to estimate that our total upsell opportunity within our existing customer base remains in excess of $1 billion.
We also made further progress with our archiving solution, primarily driven by our Middle Enterprise segment, along with developing demand for our recently released archiving capabilities for Microsoft teams and slack, we had several deals converting in the fourth quarter, including the growth global two thousands subsidiary that added archiving for $12 five.
100 users.
The health care system that purchased archiving for 15000 users and a health care system that added archiving for 10000 users.
We also remain very excited about our technology partnerships, which continue to drive our pipeline expand our market reach and increase the overall value to customers by delivering an integrated framework across our family of best in class Security solutions. The technical integration has contributed to several wins in the quarter, including our largest transaction.
For the Fortune 100 retailer as previously mentioned as well as a win with a leading communications company that added protection tap threat response and isolation for 7000 users.
We also continued to make progress towards further expansion abroad and are quite pleased with the quarterly results in our international business, which grew 20% year over year and represented 21% of total revenue.
As we've shared on prior calls we've been making meaningful investments in scaling on our international operations and we are beginning to see encouraging returns with strong bookings in Europe, and a healthy backlog, which provides further confidence as we look to 2021.
We have also seen accelerating momentum in our Asia Pacific Theatre, which represents another important driver for our global market opportunity. We closed notable international deals during the quarter such as the National Railway company that purchased protection and tap for 150000 users.
At technology services firm that purchased protection tap for 100000 users and a global 2000 financial services firm that purchased the insider threat management for 35000 users.
We are very pleased to have added nearly 300 people to our team around the world over the course of the past year with our total head count at approximately 3700 at the end of 2020.
We plan to continue to invest further in scaling our team in 2021, particularly in our markets overseas as we look to capitalize on the Virginia demand for people centric security and compliance around the world. So in summary, we are very pleased with our strong Q4 results at our market momentum as we enter 2021 are unique.
<unk> centric approach to cyber security and compliance is clearly resonating with customers and prospects alike, and we believe we are well positioned to further execute on our plan to continue to gain share and drive attractive top and bottom line growth as we set our sights on on X revenue objective of achieving an annual revenue run rate exceeding $2 billion.
With that let me turn it over to Paul.
Thanks, Gary.
We're quite pleased with our operating results this quarter.
<unk> totaled $275 million up 13% year over year, and well above our guidance range of $268 million to $270 million.
Our fourth quarter billings were very strong coming in at $375 million up 8% year over year, driven by exceptional linearity solid demand for our core protection and tap solutions and accelerating demand for our emerging products and bundled services.
This fourth quarter billings activity again represented nearly one third of total billings for the year, reflecting a sequential increase of 27% from the preceding quarter further underscoring the increasing seasonality we are seeing in this metric.
We were pleased in particular with this result, given the billings duration in the quarter declined sequentially by over 5% and down 11% when compared to Q4 of 2019 lending the middle of our targeted range of 14 to 20 months.
Our duration in Q1 thing consistent with last year's results, we would've reported billings that were at least several million dollars higher.
With that in mind. We are also pleased that short term billings also sometimes referred to as current billings that are calculated based on the change in short term deferred revenue plus reported revenue for the period grew 15% over the prior year, demonstrating a solid step for driving our expected rebound in revenue growth rates in the year ahead.
We are pleased that our <unk> retention rate for Q4 improved to 90% in line with the lower bound of our historical range of performance.
Despite the fact that we continue to have some COVID-19 related impacts in our churn due to lower user counts on our rules for customers in impacted industries, which have experienced layoffs or furloughs.
Turning to expenses and profitability for the fourth quarter on a non-GAAP basis, our total gross margin was 81% above our expectations gross.
Primarily by our strong revenue performance.
Total non-GAAP operating expenses increased 14% over the prior year period to $178 million, representing 65% of total revenue.
We reported non-GAAP net income of $33 million above our guidance range of $26 million to $28 million.
In terms of cash flow, we generated 56 million in operating cash flow, including $1 $5 million of reimbursements received from the landlord for tenant improvements and investing $27 million in capital expenditures, which included $18 million for our corporate campus, resulting in free cash flow for the quarter of $29 million. This result was well above.
Our guidance range from $3 million to $5 million with the majority of this upside being driven by the exceptional billings linearity that I mentioned earlier paired with excellent execution by our collections team during the quarter.
We opened our new corporate campus in November, which we expect will provide plenty of capacity to accommodate our planned growth over the coming decade.
I'm pleased to report that in the final tally. The total net cost came in almost $3 million below our original estimates in total we invested $38 million and capital spending for the project offset by $16 million in terms of capital reimbursement from the last landlord.
And while this campus is a noticeable upgrade compared to our prior headquarters with the new building.
Meeting LEED gold certification for enhanced environmental efficiency. We believe it is one of the least expensive projects of this scale completed in Silicon valley over the past several years.
With a cap on the face the project complete as of the start of the year. We are now incurring the full expense for the new campus. So for modeling purposes. This an 11 year lease with straight line expense of $14 million per year, which represents an increase of $8 million in annual expenses compared to our old campus.
Wrapping up the capital allocation.
To provide a brief update regarding our share repurchase program in the fourth quarter. We purchased a total of nearly $1 2 million shares at an average price of $104, representing a $128 million invested in total.
Since the program's inception in September of last year, we've now repurchased a total of one 3 million shares at an average price of $104, representing 139 $39 billion invested for nearly half of the $300 million program that we announced in August.
We're quite pleased with our repurchases to date and our board of directors continues to view proof points stock as an attractive investment at current levels.
And as such despite the improvement on the stock price over the past several months, we do plan to continue our share repurchase program here in 2021.
With 2020 now behind US, let's move on to guidance as.
As we start the new year, we remain well positioned with a broad product line, a loyal customer base and a favorable competitive environment.
While we are quite pleased with our Q4 performance and we do believe that we can see increased security spending as a result for the solar was for each at some point in 2021 for.
For now it's still too early to determine how this might serve as an additional demand driver in the year ahead.
And consistent with fed Chairman Powell comments last week, we do recognize that there is still considerable uncertainty regarding the timing of the end of the pandemic and its associated headwinds and hence the slope of the economic recovery in key economies around the world.
So with all that in mind.
Let me remind you that our guidance is based on what we know as of today and that the COVID-19 pandemic continues to create additional complexity and forecasting which we could of course change depending on how the crisis plays out in the months ahead.
So in terms of revenue guidance as we discussed in October we continue to see a U shape recovery over the next several quarters, but with that said I'm pleased to report that given the strength of our fourth quarter performance. Our overall outlook for 2021 has improved markedly and as such the bottom of the EU in terms of growth rate is now over 200 basis.
Points higher than our original view back in October providing further support for year over year revenue acceleration over the course of 2021.
For the first quarter in particular, we are targeting a range of $280 million to $282 million revenue, representing approximately 13% year over year growth and in line with Q4 its annual growth rate.
From there we expect year over year revenue growth to increase by 50 to 100 basis points in the second quarter with further acceleration taking place in the second half for the year as the global recovery begins to take hold.
This trajectory takes our expectations for annual revenue to a range of $1, one nine to $1 2 billion.
We expect Q1 gross margins to be approximately 80% and to remain relatively stable at that level throughout the year.
Moving on to non-GAAP net income as we've seen over the course of the pandemic in 2020, our spending regarding travel and entertainment office space and in person marketing events with significantly reduced benefiting our results from 2020 from April through December by a total of just over $17 million.
As the price of base, we expect to increase spending for these items and also to Reaccelerate hiring. Additionally, with our new corporate campus, our rent expense will increase by approximately $8 million for the full year as I mentioned earlier.
As a result, we expect 2021 to be a recovery year as we work our way back to more normal economic activity and as such we expect non-GAAP net income to be in the range of 125 to 130 million roughly flat with 2020. This translates to approximately $1 91 to $1 99 per share using 60.
Six 4 million shares outstanding.
We expect Q1 net income in the range of $25 million to $26 million or <unk> 39 to <unk> 40 per share using $65 6 million shares outstanding.
Also as a reminder, non-GAAP EPS is calculated under the if converted method, which assumes the full conversion of our 2020 for convertible debt for.
For roughly 6 million shares and then add back for one 9 million in cash interest expense associated with it in order to calculate earnings per share.
Non-GAAP EPS also includes the dilutive effect of employee equity incentive plan awards.
This guidance also assumes depreciation of roughly $40 million to $42 million for the year and $10 million in Q1, specifically.
We expect our non-GAAP tax rate of approximately 17% throughout 2021.
And as a final note regarding net income for 2021, we plan to adopt ASU 2020 cash of six effective January one 2021 on a retrospective basis, which will result in the accounting of our convertible notes as a single unit account on the balance sheet.
<unk> and a decrease of GAAP interest expense and net loss as a result, when we report 2021 results. We expected for 2020 GAAP net loss will have been improved by approximately $30 million for 53 per share. This change will have no impact on either our non-GAAP net income or <unk>.
Cash flow.
Now turning to guidance for cash flow.
Similar to net income in 2021, it will be a recovery year for free cash flow as we see gradual return to normalcy in our spending in light of a recovering global economy.
With that in mind, we expect free cash flow to range between 200 $210 million for the year, assuming duration hold steady with 2012.
Now I'd like to break this down to highlight a couple of additional items that this range absorbs when compared to our 2020 results first as I just noted we expect to television.
And spending to increase in 2021, as we recover from the crisis and spending normalizes and hence the $17 million savings realized in 2020 will gradually weigh in here in 2021 is the spending comes back into our daily operations.
Over $20 billion of free cash flow over performance realized in the fourth quarter was a result of collections pulled.
Through 2020, thanks to our strong billings linearity and as such and effectively reduced our 2020 plan for cash flow by a corresponding amount.
And finally, we do have fewer multi year transactions up for renewal in 2021, when compared to 2019 and 2020.
Capital expenditures for 2021 are expected to be approximately 45 million for roughly 4% of revenue, which includes approximately $9 million in investment to open a new office complex in Israel, enabling us to bring together all of our teams in that region from a single World class facility and position us as an employer of choice in that important market.
For cyber security talent.
And similar to our Sunnyvale campus, we have received partial reimbursement from the landlord for this build out which will run through operating cash flow on totaling 4 million.
Note that as we saw in 2020, we expect that roughly 50% of our 2021 cash flow will be delivered in the first half of the year with the vast majority of that taking place in the first quarter as a result of our strong Q4 billings performance and timing of customer payments.
As such we expect to generate approximately $80 million to $85 million of free cash flow in the first quarter, while investing $8 million to $9 million in capital expenditures.
Before wrapping up I'd like to point out for everyone that during our earnings call in October we outlined a few key reminders in terms of the seasonal trends that impact our business. So please refer back to that transcript when refining your financial modeling for 2021.
In conclusion, we continue to execute well delivering strong top and bottom line operating results for the fourth quarter and for the full year 2020 through an extremely challenging operating environment, and we remain well positioned competitively and secular way.
While we expect 2021 to be a recovery year from the headwinds we faced in 2020, we look forward to the gradual reacceleration that we plan to deliver over the arc of 2021, and we believe that proof point remains well positioned to continue to drive disciplined and profitable growth and importantly, our expected return to our rule of 40 framework.
In 2022.
With that I'd like to turn it back to Jason to review, our Q on IR calendar before taking questions from our sell side analysts Jason Thanks, Paul before I go through that I just wanted to clarify one quick comment Paul has made a comment on ASU 2026.
Six.
That will actually reduce GAAP net income not increase it by a $30 million I just wanted to clarify that for the for the transcript.
That said in the fourth quarter, we will be presenting at the Goldman Sachs Technology and Internet Conference on February 10th the JMP Security Technology Conference on March one and the Morgan Stanley TMT Conference on March 3rd webcast. These presentations will be available on our.
Our website at investors got proof point Dot com. Additionally, I wanted to note that like early next week, we'll be providing some additional information of our proof points corporate responsibility efforts, which will be available on our IR website on a new corporate responsibility and governance section.
Before turning it over to the operator for questions I would like to request that everyone. Please limit themselves to just one question to help reduce the duration of our call and to assure as many analysts as possible have a chance to be included in todays discussion. Thanks for taking the time to join us on our call today and with that we'll be happy to take your questions now James.
Thank you should start you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off July Snow Tree chart equipment again press star one to ask a question.
And we'll take our first question of day from Jonathan Ho with William Blair.
Hi, good afternoon, and congratulations on the strong results I.
I guess, one thing I wanted to start out with is what are you sort of baking into your assumptions around the impacted industries for your 2021 guidance and is there what are the guideposts, we should be looking for in terms of the head counts potentially returning.
Yeah, that's a good question.
So we think at this stage that we'll be able to maintain a renewal rate that's in that 90% or better range.
We work our way through 'twenty, one so that's part of the assumption.
For those customers that have seen some furloughs and layoffs the notion of those coming back and as part of the new and add on business. If you will that helps we propel growth we'd be.
A pretty modest assumptions and so while we're hopeful that some of these industries will get back on their feet and do some rehiring sooner rather than later.
For now, we're really not making an assumption that they all snap back to normalcy anytime soon so in the second half of the year I'm, assuming some modest recovery, but nothing significant.
Thank you.
Next we'll hear from Rob Owens with Piper Sandler.
Good afternoon, and thanks for taking my question Gary.
Kind of give a little more visibility around where customer conversations on right now on I think there has been a pretty wide debate in terms of where E mail.
These capabilities you offer gets prioritized.
Post sunburn simpler or excuse me in the environment that being said no further information is coming out around supply chain email compromised. So maybe you can just talk about where customer conversations on right now.
Yes, no great question.
I said, a pretty significant amount of my time interacting with each other I would say that.
<unk>.
The solar wind Sun burst and I actually like the words on burn because it sort of feels like that.
I think that what we're seeing is a.
A much broader focus from outside of the security teams on the security teams in terms of what they're doing to ensure that the organizations are well protected.
We continue to hear that.
There's this broad concern from leadership et cetera around on fishing the importance of protecting their users and I think one of the things that the solar winds threat actor highlighted in their activities as EMA was the prime focus.
So as you saw disclosed other wins indicated that they felt that threat actor had been in their email environment in advance of.
The actual breach.
On the threat actors clearly demonstrated that they care about E mail and so this has become a much higher priority in terms of the conversations we're having and we do believe that it is raising the visibility and importance of what we do every day.
Thank you.
Next we'll hear from Hamzah photo Wallach with Morgan Stanley.
Hey, guys. Thank you for taking my question, maybe following up on the last one just around the prioritization of your solution moving hearing a lot about more about the security awareness training I know internally, we're doing a lot more of that as well.
I'm wondering what kind of tailwind you saw there on 2020, and whether you think that category is going to be.
Particularly are more important area of spending for enterprises going forward.
Yes, good question.
We have seen as we got into the back half of 'twenty and we saw that business accelerates. So as we got into it for and what we're hearing from customers. A day is building that broad resilience within that.
User base has been a high priority I would say that as we went into COVID-19 to go back at full year ago. We saw some organizations putting some of those projects on hold for <unk> seen that really change as we got into Q4, given given the events that have happened around the globe. So we're really we're very bullish.
On the opportunity associated with <unk>.
Raising awareness for our <unk> solution, and we're seeing quite good demand globally for those capabilities.
Thank you.
We'll now hear from Andrew Nowinski with D. A davidson.
Hi, Thanks for taking the question. This is Hannah on for Andy Congrats on a great quarter I know it's on.
Fuller wins pack moving late in the fourth quarter. So just curious what didn't happen on Nexium <unk> and how it's translating for guidance.
Is this the pipeline change in conversion rates increase and general customer interest in areas such as DLP.
Yeah.
Yeah I'll start.
I would say that we were really pleased with our fourth quarter came together, but the solar with Pac didn't really seem to change anything about the trajectory of the business as it was already coming together.
Maybe on the margin in a couple of accounts that might have credit a little more urgency to get a deal closed in the fourth quarter, but we saw no net new pipeline created that was closed in Q4 related to that I would say and as I talked about on the in my prepared remarks.
For now we're not really baking anything in terms of a notional step up in demand related to this hack and how it's changed the demand environment.
Certainly there is the potential for it to improve things, but I would say that the baseline is I would just watch the sales teams execute we have weekly forecast calls for both Gary and I have just they've had I would say that it's kind of current course and speed just based on the same demand environment that we saw throughout the fourth quarter now rolling over into Q on workforce Q1 is always cyclically.
<unk> down in terms of new and add on business.
As compared to fourth quarter, but nevertheless, kind of current course and speed here I don't know whether you have been building I would say is as we've gotten into the early conversation in this new fiscal year, I think budgets will be healthier, but thats just a qualitative view very early on as we enter 2021.
And we'll go to our next question.
Certainly we will take our next question from Matt Hedberg with RBC capital markets.
Hey, guys. Good afternoon. Thanks for the thanks for the time.
Gary what stood out to me you'd noted 20% I believe you said, 20% of subscription billings came from enterprise DLP, which is which is really good to hear can you talk a little bit more about the pricing for this module versus maybe some of your base offerings and at least competitive replacements or more greenfield opportunities.
Yeah, So I'll start I'll, let Paul comment on pricing, but.
What we see in the market is.
Many customers that had invested heavily in the first generation of DLP.
A day with deep <unk>.
Implementations are something like a force point, our Broadcom Symantec and when you look at those organizations and there they really want to get to the next generation given that the architecture is fundamentally changed as their workloads move to the cloud data doesn't live behind the firewall anymore. They have to do something different and the interesting thing about this is that COVID-19.
Accelerated people's need to change because you had all these individuals working from home no longer on the corporate network and those those classic DLP controls basically not solving any problem. So it is it did the takeout market and then there is and there are portions which are greenfield in that.
For example, all of the cloud App.
Data loss issues are really new so casualty for example, really tackles, the issues surrounding what people need to do with their cloud App. So I think from a perspective of budgets, we're taking budgets that we're going to existing incumbent vendors, we're converting that into next generation capabilities that include.
Greenfield opportunities like Kathy.
And on pricing, what we haven't really talked about this much externally at this stage its early in the market right now, albeit a lot of it is a replacement market, but because it involves a number of new capabilities that legacy platforms that are on prem.
On the solutions from Symantec and Mcafee don't include I would say that the pricing. So far would continue this would suggest that the asp's for quite a bit healthier than just kind of core email protection and advanced threat. So.
So it's a very nice uplift when we go on to engage in an existing customer that may have our core flood protection suite solid on the enterprise DLP bundle that includes email DLP, our casualty capabilities with the cloud DLP engine, along with endpoint DLP is quite a nice uplift over the existing spend.
Thanks, guys.
Now, we'll hear from Walter Pritchard with Citi.
Hi.
I'm wondering Paul on the duration comment you made it sounds like things tick tick.
Kicked down actually in usually I guess, you've seen when you on the macro is tough for that happens in macro it seems like it's improving just wondering how youre thinking about what drove that behavior in our in customers and how are you thinking about that going forward.
That's a good question, it's always a little hard for us to plumb, the depths of why customers do more two or three year transactions and in one quarter, and then do fewer and get it in another.
Just had to give you kind of my gut reaction just from watching the cadence of what's happening I do think that while on the one hand, you are doing multi year transactions gives you a little bit of a discount.
The other side of it as you were putting a lot more money down and in a world where I do think people are trying to figure out how to better cover off all their security and compliance mandates.
There's a tendency to want to pay a little bit more per user per year, but have some extra dollars that are available to spend.
Cross a wider set of solutions and so if I had to guess that would be sort of my my intuition of what's going on but.
You can't really say that all I can say is we did a lot of one year deals, which means by definition those folks didn't want to take us up on the standard discounting for two or three year. The great News is we delivered a really good billings results. Despite the lower duration and of course that lower duration, just means healthier pricing and better long term cash flow for shareholders as a result.
Yeah, great. Thanks.
Gray Powell with BTG has our next question.
Hi, This is Stefan on for Greg Thanks for taking my question.
I know you mentioned net.
You had some customers that have created to office 365, who also upgraded with you but have you seen any seen any change at pace.
As described on Microsoft email customers, who have been looking to switch to a better email security solution over the last six to 12 months.
I would say, we have a pretty constant pace of customers moving off of office 365, which once they've tried those security controls.
And what we typically do is demonstrated on the level of efficacy and visibility we can deliver to them and it's through that basically quantitative approach that we can best customers, but I would say, it's been really consistent for the last six months.
Okay.
Thank you.
Next we'll hear from Alex Henderson with Needham.
Thank you very much.
I wanted to go back to the solar winds.
And just to understand to what extent you've had any.
More than just anecdotal conversations with C. So CTO CEO CFO.
<unk> suite players that have indicated to you that as a result of the timing of the disclosure of the dose is actually has gone right to the board level and resulted in a meaningful change in.
Spending for security the Street has certainly come to that conclusion of our survey that we did virtually for the man's suggested that spending was going to pick up in our recent.
In January survey of T cells.
To the man, 100% stated that they were seeing an expansion in spending so have you got more than just a quasi appealing have you actually had conversations where people just the magnitude of that improvement.
I think all of that's happening now so I've had many detailed conversations where that dialogue is in process, but no. This is not much our budget to increase as a result, there is most of those conversations tend to still be in process. Because most sito's are right now working to ensure that they didn't get hacked and theyre working hard to understand any impact they may have had.
From that threat actor. So I think it's I think it's a little early to conclude the magnitude of change that we'll see in the budgetary environment in 'twenty one.
Okay. Thank you.
Our next question comes from Steve Conine with SMB see nickel.
Yeah.
Thank you, yes, SBC Nico.
A question for you Gary just.
Just building on your commentary about enterprise DLP earlier.
That was helpful to understand how your sales.
You're selling in replacing our legacy vendors and seeing greenfield opportunities.
Interesting color in comparing your approach to some of the other next generation vendors because there's so many different angles to go after this.
Cloud security and remote workers on theirs.
And in particular like people that are vendors that are using kind of a zero Trust network access combined with <unk>.
Secure web gateway and cash B versus you all with a more kind of DLP positioning also burden on your tap in cash so like what are the use cases that would drive one approach over the other windows proof points angle makes sense versus some of the other approaches that are out there from the next generation vendors.
Thanks very much.
Yes, no great question. So our approach is very much again in line with our overall framework. So we're taking a people centric approach to this and we are providing visibility and insight as to what people are doing with critical data.
And because our approach incorporates not only cosby, but also new agent we can give.
And combining that with our email solution, we can get full visibility as to what a user or a specific user is doing with specific forms of data and that brought inside as.
Is giving people.
Capability that they never had before so simple use case like okay. So you got an employee's going to be leaving the company they haven't announced it yet save somebody in sales day.
Download their customer list from sales force and they moved into the personal dropbox within proof points DLP solution, you can get clear visibility of that not only do you understand what they get.
With sales force of the cloud App, then you can see exactly how they treated that data once it got on their device and they are moving into personal dropbox. So we're really benefiting from this people centric point of view and then I think the other thing that is unique about our overall operating is we're applying all of our advanced <unk>.
Net detection capabilities within that broad cloud environment. So not only are we.
Being protected day to day users create we're also giving on <unk>.
Security organizations visibility and insight into different forms a threat, whether they be E mail account compromise, which seems to be top of mind today, given solar wind done burst et cetera.
We're giving them insight and visibility that other vendors simply don't have because they they have lived in the threat world.
Thanks, Gary and congrats on the quarter.
<unk>.
No I hear from Taz <unk> with Guggenheim partners.
Hey, guys. Thanks for taking my question, Paul you mentioned that you're feeling better about the business. Then you have a few months ago, a basketball, where you made a comment that.
<unk> growth in 'twenty, one would be lower than revenue growth does still hold.
That will give us improved.
The improved fundamentals that they're seeing now.
Yeah, I think if you go back to some of the things that we've talked about in the prepared remarks, I think that given the fact that we have fewer multiyear renewal opportunities in 2021 as compared to 2020, just given the nature of the way all things come together I think that will likely still be true it will see especially now with duration.
Even a bit lower than we'd originally expected so but the net of it is I do feel good about the business I think the strong fourth quarter was quite good and as I talked about it it raise the base of the you buy for 200 basis points in terms of the growth rates in both Q4 and Q1. So I think we exited the year with what we thought were quite good set of results.
We're excited to go execute here in the first quarter and drive this reacceleration of growth across the arc for 'twenty one.
Thank you.
Yeah.
Well now hear from Phil Winslow with Wells Fargo.
Hey, guys. Thanks for taking my question on your thoughts on strong closed for a year.
One thing that jumped out to me with just the emerging products from their contribution Q for really for the full year, two and particularly the second half what everybody just more clarity on sort of what's driving that and how are you thinking about sort of the potential there in in 'twenty one.
Yes, I mean, just generally speaking with emerging products. It's it's one of the things I really like is that we're seeing broad contribution from the full set of products. So it's not just one solution will be on like security awareness training or passing that are driving it we're seeing good demand across all of those emerging products and then as Gary spoke.
Typically highlighted our newer insider threat management endpoint DLP products also had a nice.
So the deals that we closed on some nice business in the fourth quarter. So so the fact that we've got this diversified portfolio of merchant solutions that are all now executing well and contributing to growth I'm quite excited about it and again when you look at those statistics around the number of customers with three products number of customers with for more products.
It just really speaks to the strength of the add on cycle going into this very large installed base, a very happy customers and selling them additional capabilities, which is very much a key theme in the emerging products, but with that said the other point that Gary made in the prepared remarks is that the emerging products are also a great way to get into a customer who for whatever reason, they're not ready to swap out there.
For email security solution. This just now gives us multiple other dimensions to go on and start that relationship with the customer in a land and expand basis and then sell the other all of us for product line down the road.
Got it alright, thanks, guys.
Thanks for all thank you.
Erik <unk> with JMP Securities has our next question.
Yeah. Thanks for taking the question two if I might one.
The share buyback you bought over $100 billion worth I think that was a $300 million authorization, how should we think of.
Your objectives as we go forward.
The buyback.
And then I have a follow up.
Yes, so to your point I think what I would share on the call is that we've spent about $139 million. So far to the average price for $104 a share so not quite halfway through that authorization I think we're quite pleased with the execution around that and so having a discussion to the most recent board meeting the Board's view is look even with the <unk>.
<unk> stock price, we still view the stock as an attractive investment and so there is an intention to continue with the stock repurchase program.
Buyback, even with the stock price trading in the.
100, <unk> so the specifics behind that program, we don't release externally for obvious reasons, but I'd be surprised if you at this time next quarter people won't be pleased with the additional shares that we've repurchased depending of course on the stock price performance for the next 90 days.
Okay very good and then.
So your emerging products I think they had been for.
40 ish percent of the <unk>.
New and add on business last quarter, they picked up to 50 ish percent a.
Nearly 50% this quarter.
What's going on with the non emerging products or are you pleased.
Pleased with the growth there or how should we think of the traditional E Mail protection.
Growth.
Yeah, the underlying success with our core E Mail security product continues to be really solid baseline.
On the emerging products, obviously have higher growth rates, because we're working on smaller denominator is on a year over year basis, but.
As Gary articulated a number of examples on the call today.
We're seeing lots of uptake for E Mail security to net new accounts.
Customers that are buying just core protection and tap, but also people who are coming in and their initial purchase with per point as a pizza or a P. Water. If he wanted plus bundle. So I think we continue to be very pleased with the performance there.
The huge investment that we've made over the years around a combination of machine learning and other technologies to drive the efficacy of that solution stands out every day day in day out before going out and doing E valves, because one of the great things about having a cloud based solution, it's very easy for us to configure a full production eval Wearables is simply take the mail for.
Low that's otherwise flowing through whatever pilfering solution you are using and will also run through our filter and show you exactly what's being missed that we would otherwise cash and so we continue to make important investments. There. We added a number of people for that team here in 2020 continue to add more people to that team in 'twenty, one because it's all about superior efficacy and having the <unk>.
Engineers in the world working on that problem is what it's all about.
Thank you for the next question.
Yes.
Certainly, we'll hear from Andrew King with Colliers Securities.
Hey, Thanks for taking my question.
Just wanted to get an idea with the bundles as the newer customers one of the facilities purchasing a higher more advanced bundles versus the <unk> muscle strength.
Yes, we do occasionally see initial customers buying a <unk> three but generally speaking when you think about it first bundles include a lot of technology.
<unk> and as a result, there is a fair amount of work, especially when you think about things like casualty browser isolation and some of the other things in those larger bundles.
A relatively longer timeline to get deployed and so we don't want to we don't want to overly discount to get to a bigger bundle nor do we want to overly pushed the customer. So our view is why don't you go ahead and start with pizza or a P. One desktops really east implemented will be up and running immediately and then we'll start working on adding the other capabilities mineral eventually upgrade you to.
<unk> three and so we find that that's a very successful sales motion that we view our relationships with customers spanning decades, and we've got many customers we've had for well over a decade now and so you have kind of that pressure sales tactic of probably the biggest thing you can right from the get go is just tends to be irritating.
Never walk shelf, where in the subscription world and so we just wanted to focus on selling the customer exactly what it is they need and want to deploy a day, we get that closed and then we drive add on sales from there.
Great. Thank you.
Thanks.
Next we'll hear from Brian Essex with Goldman Sachs.
Hi, good afternoon, and thank you for taking the question I was wondering could ask about the on Prem versus cloud exposure do you have the revenue mix for each and what are the trends that you've seen over the last year and expectations ahead for I guess migration to a hosted email platform and how that might drive your business differently in 2021.
As opposed to 2020.
Yes, we don't have great data on exactly which of the broader customer set is running in the office for 65 cloud versus still running exchange on premise I can tell you that for.
For us that migration to the cloud and services, then been useful, but I would say that.
The one thing that is fundamentally true about email security is that unlike for example, your firewall where the average employee would have no idea whether or not the firewalls doing its job correctly.
With email security every employee from the CEO, all the way down to the to the line workers on.
All have an experience for the efficacy of that solution day in day out so it doesn't matter whether the email itself is running whether that's systems in the cloud or on premise. If you filter is not working well, it's letting a taxane everybody in the company can see it and so that's just an ongoing advertisement for operating per flight.
When youre not running per point because of the degree to which you're seeing attacks and other spam unwanted content getting it so for US. It's the same way we've always run for sales cycle. You go back when everybody was on premise years ago before office 365 came along and so as more and more people to move to office 365 is simply we run our sales cycle today.
And.
As an example, when Gary talked about the people who upgraded from Microsoft to per point.
And by the way we have examples of that every quarter. Those are all customers that by definition are running at office 365 have tried out the Microsoft solution limit upgraded proof points. So the net of it is it's hard for us to see exactly where we are in that migration cycle, but it doesn't really seem to matter at this stage, we're still seeing really good productive blocking and tackling on operating people.
From whatever legacy solution theyre running on and moving it over to the <unk> cloud.
Cloud solutions.
Okay, and then as in <unk>.
Arms of the C suite conversations that you might have as an enabler of like transformation that hosted solutions or are you more.
Now I'll stick to the platform with regard to.
Okay.
Any hosting environment, our transformation processes that may be in process.
No I think we this is Gary I think we benefit from.
That Roger.
Digital transformation, where people are moving from an on prem environment to the cloud on working to eliminate their day. This data centers et cetera, and we do see organizations. For example that are running for me I think on from that they've had it for a long high moving and they decide they want to move their email for the cloud they want they don't want to bring on that security infrastructure for cloud.
So a fair amount of that still out there and when you carry that every day and thats. They are fueling our growth in the past and we think that that will continue to fuel our growth.
Over the course for the next three years.
There's a long tail there very helpful very.
Very helpful. Thank you.
Thanks.
Our final question will come from Nicole Chachi with Northland capital markets.
Yeah. Thanks, guys two quick questions.
Can you just talk about how business has fared so far in this quarter.
It seems like there may have been particularly a little bit better given.
Seemingly robust guidance here.
Yeah, we didn't give an official update on the script, but I would say that we're on track with kind of a normal Q1, so there's nothing extraordinary but.
We're happy with the way on track for how we closed out January.
Okay, Great and then what was the driver of improved retention rate.
I think at the end of the day. The most important thing on the margin was just the difference in COVID-19 impacts for key customers that were up for renewal in the fourth quarter.
So each quarter is a little different in the mix of people who are in various industries.
So the mix of renewals that we had up for renewal on the fourth quarter.
As a percentage of the overall total was probably slightly underrepresented in some of the Covid impacted industries, whether it's energy health care or what have you and so that helps and then I would say that we as everybody has already experienced there has been a little bit of a recovery in hiring in some of these industries from sort of a low watermark that they may have had.
Earlier on in the pandemic, where they realize the business isn't quite as challenged as they thought it would be on so they brought some folks back so that's helped as well.
So basically its largely driven by the hiring environment of your customers.
Hiring in front for us on that difference between being a bit below 90% last quarter back in Q3 versus being at that 90% threshold, which is sort of a low end of our historical range.
Really is just the.
Good for which there were layoffs furloughs in the installed base of customers, who are political in Q4 compared to Q3 and Q2.
Got it okay. Thank you very much fantastic quarter by the way.
Thanks for your thanks appreciate it.
Yes.
That will conclude today's question and answer session I will now turn the conference over to CEO, Gary Steele for any additional closing remarks.
Thanks, I want to take a moment and thank everyone for joining us on the call today, we're very pleased with our Q4 results on our continued progress with our people centric approach to cyber security and compliance while also supporting the health and safety of our employees and customers. We believe we remain well positioned to drive attractive returns for our shareholders and we look forward to talking to you on our next call and to seeing many of you versus.
Really on the conference circuit this quarter, we wish you all good health as we press forward through the crisis and with the hope that we returned to normalcy soon thank you so much.
That will conclude today's conference. Thank you for your participation you may now disconnect.
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