Q2 2021 Absolute Software Corp Earnings Call
Good afternoon, everyone and thank you for standing by welcome to absolute Software's fiscal 2021 second quarter financial results Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone for you Rick.
<unk> for any further assistance please press star zero.
Before beginning its formal remarks absolute software would like to remind listeners that certain portions of today's discussion may contain forward looking statements that reflect current views with respect to future events and conditions.
Any such statements are subject to assumptions risks and uncertainties that could cause actual results to differ materially from those projected in these forward looking statements.
Any forward looking statements contained in today's conference call are made as of today States and absolute software undertakes no obligation to update or revise publicly and either you included forward looking statements, whether as a result of new information future events or otherwise, except as may be required by applicable securities laws.
For more information on the assumptions risks and uncertainties relating to these forward looking statements. Please refer to the appropriate section of the company's Q2 fiscal 2021, and DNA, which is now available on absolute softwares web sites and will also be available on SEDAR and Edgar.
And I'd also like to remind everyone that this conference is being recorded today Tuesday February 9th at five P. M Eastern time.
I would now like to turn the call over to Kristy White, President and Chief Executive Officer. Please go ahead.
Thank you.
Good afternoon, and thank you all for joining us for absolute Softwares Q2 fiscal 2021 conference call.
And we get started and I would like to welcome Stephen.
Officers, who joined US from November and joining me on this call.
On today's call I'll highlight the continued positive trends and our quarterly results.
For this development.
And we'll touch on some of the market drivers that are contributing to our ongoing success and finally, we wrapped up for some commentary on our direction and and unique opportunities. We see ahead of us.
Q2 was a strong quarter for absolute highlighted by further acceleration and revenue growth coupled with solid EBIT margin.
Revenue grew 16% year over year, and we delivered adjusted EBITDA of 27%.
And we added $5 7 million of air and Q2 and exited the quarter with 100.
Third and $17 5 million, that's a record 17% year over year, driven by and 18% increase and active devices.
Our education sector for 30% smaller enterprise and government sector for a 12% year over year.
Q2 was driven by a mix of new.
Q2 growth was driven by index as new customer wins and expansion within our existing customer base.
Notable customer wins included Western Alliance Bank Cypress Fairbanks School District, Westgate resorts, and the Royal College of ice and the U K.
This was another strong expansion, Florida for assets with a continued strength across products and.
And Q2, we delivered a number of significant product enhancements focused on and they went deeper management capabilities and enhanced EBIT.
And a few notable deliverables included and flexible modern reporting as well as a new mobile application designed to help I T and security teams manage endpoint devices and for.
Protect sensitive data easily and efficiently and no matter where they are.
Our web usage application, which was successfully launched and our education segment in Q1 with integrated more broadly across our enterprise and I'll say, enabling advanced insights into software usage and employee productivity as well and.
And number of other key features as a result, we've seen 158% increase and the number of accounts that have enabled this feature.
And hence the software asset inventory and analytics for introduced which will automatically scan windows and Mac devices to help customers assess software applications.
Unauthorized and installed applications that need post security risk.
And confirm the successful rollouts of new applications.
Application and persistence added two new titles to its growing library customers can now monitor and apply automated self healing to Palo Alto global protect VPN and net scope Kathy so they remain installed healthy and on debatable.
And our rich library and automated workflows with enhanced to include return counts, giving administrators the ability to efficiently for each of them.
And confirmed success and at scale remedial actions.
Our ongoing investment and innovation resulted and absolute being named as one of the top end point management solution providers G tube customer with your platform.
Based on high levels of customer satisfaction. This marks the sixth quarter on a relative or absolute.
We've continued to see strong traction with our OEM and channel engagements across various vertical markets and territory.
Absolutely added to the Health Trust group purchasing organization offering.
And CDW sales teams are leveraging and the health care sector.
The house Blueprint for success program originally launched in Q1 with a focus on education and has now been.
And it to cover state and local governments and health care.
Additional soft for bundles for lunch with H P and north American and to be on supporting consumers as well as working from home and B Y O D.
And after announcing our new channel partner program last quarter, we doubled partner engagement and Q2, which led to significant increase and channel pipeline from a year ago.
And as we all approach for one year milestone and our remote work and distance learning journey for massive market opportunity for absolute clear and then focus.
We have worked with many organizations to mature their processes are on managing and securing distributed or hybrid environments, while maintaining control and visibility of their devices and their data and ensuring the resilience of their security controls, we are well positioned and remain focused on delivering more secured and resilient security controls and deeper bias level management.
The ability for our customers.
And Q2, we were notified by the sudden and joint authorization and board that we've been prioritized to pursue a provisional authority to operate for the absolute resilient platform.
And that ran for the U S government wide program that provides a standardized approach to security assessment authorization and continuous monitoring for products and cloud services.
Cheating the certification would further enhance our opportunity and the U S federal market over the coming years and demonstrates our commitment to ensuring the highest levels of cloud security across all government agency.
Also in Q2, we were awarded the cyber catalyst designation by Marsh and Mclennan to facilitate and independent evaluation of over 90 solutions by leading cyber insurance.
This designation is significant as it emphasizes absolute critical capabilities and our ability to provide the highest level of protection against cities top cyber security risk and offers customers significant discounts on cyber insurance when absolute is deployed within their environments.
Turning to education, we see three trends that are driving a structural shift and the market that has re energized for the segment of our business.
Historically education I T has not seen the scale and complexity of other enterprise verticals.
And as many schools still largely operated under a campus model with simplified connectivity a smaller number of applications and we're primarily focused on E learning use cases.
Since the emergence of Covid, we have we have.
Witness the complexity of the education environment increased dramatically.
The number of applications and versions of our education customers are using has increased for 282% from one year ago.
At the same time, and the velocity and mix of platforms and devices that are being supported has also accelerated.
And finally, the mobility of the devices. These schools are managing has changed dramatically.
Whereas many whereas previously many schools for managing devices on cards that moves from class.
S class schools are now looking at technology deployment with enterprise scale and security challenges and the combination of complexity velocity and mobility is fundamentally shifted and accelerated the educational approach to it and security.
And as a result of strengthened absolute value proposition and our ability to help our customers manage all elements of this critical work and infrastructure.
Given our long standing position and the education market and our unique ability to provide and unbreakable digital connection to all devices biased enables management and resiliency to their other core applications. We continue to see strong activity in this segment.
These growth drivers are further supported by an increased flow of funds that help schools procure and deploy critical capabilities.
Required to meet the new demands of digital learning, while the cares Act provided an initial boosted investment there are other layers of funding flowing into the sector that support our continued growth.
And the start of this fiscal year, we discussed our plans for further investments internationally, starting in the U K and better and the EMEA region.
One of the focus growth investment strategies and.
In line with our plan for Q2, we have hired new leadership for this region and this team.
And is already in motion and extending.
The team and working with our partners to broaden our reach into the market.
Over the past two years, we have worked hard to put in place for REIT team and infrastructure to take advantage of a large and growing market opportunity, we are becoming increasingly effective at capitalizing on our technology advantage.
Permanent digital connection and self healing security controls, which we believe is increasingly relevant across all market sectors that we serve globally.
Looking ahead, we continue to focus on further accelerating revenue growth, while maintaining a balance to profitability and.
And if prioritize the investments required to achieve these results, which include and ongoing focus on operational efficiency and scalability and.
Extended focus on international markets and global strategic accounts for.
<unk>, our channel and partner program, and delivering new product offerings that leverage our rich data platform and secure channel embedded and over half a billion devices.
With that I will now turn the call over to Steven to take us through the financial highlights.
Thanks, Christy good afternoon, everyone. We appreciate you joining us we're glad to provide some details and color around the business that drove our Q2 financial results and walk you through our guidance for the full fiscal year, 'twenty and 'twenty, one well of course wrap up by opening the call to your questions.
With Athene my inaugural earnings call here at absolute I wanted to frame this out into three areas. One my personal bullishness on the large and growing and point resilience opportunity and absolute software and is uniquely positioned to monetize to our SaaS model, that's driving solid increases and year over year and.
<unk> growth and strong continued profitability and.
And three the compelling path in front of us to drive continued revenue growth and increasing stockholder value for.
First off I'm thrilled to have joined Christy and the team here after 90 days or so on the job I can say that I'm more bullish on the opportunity that sit here for us and absolute and when I first started.
Absolute persistence technology, which is embedded and more than 500 million devices globally by the Oems along with our leading technology platform puts the company and a unique position to disrupt the $68 billion Tam.
And the early signs are that we're doing just that as we continue to make progress and drive growth.
Having joined the company just after our listing on NASDAQ I've taken the opportunity to talk with many of our new and long standing and investors.
The recurring message that I kept hearing.
Kevin and a very large market opportunity and your unique technology advantage. What is the timeline that will see the company fully realized and us.
Well it may not be obvious from the outside and this is a significant transformation that the company has undergone in the past two years.
I would offer that business evident on two important fronts.
One the significant evolution of the team that Christy is driven from a go to market a product to edge.
And to the technology overhaul of our platform infrastructure and SaaS architecture of the past two years to support our revolving security analytics platform and product path ahead.
As a result the capabilities.
Of the product in terms of scalability and functionality are very much new and expanding particularly and the direction of intelligence, which is all the more relevant and important now for where the market is.
Our go to market capabilities and approach has been transformed from direct to partner driven and had been evolved meaningfully and as Christie's arrival and the teams new focus are garnering greater economics from our land and expand SaaS model.
This is what I'm, particularly excited about and so hard driving growth and removing friction.
Helping us continue to monetize our platform model and drive our revenue.
Revenue growth, while we maintain our strong profitability profile.
While absolute is obviously not a startup I believe we are just now and a new position to engage with a stronger technology stack and value prop and looking to realize the potential to disrupt this massive security market opportunity that sits at the front door for our core persistence capabilities.
With that perspective.
Let's look at the results of our SaaS model inherent and the second fiscal quarter ended December 2020 financial results Q2 was another strong quarter for absolute we saw total AOR growth in excess of 17% record revenue growth of 16% and continued strength on both adjusted EBITDA and cash flow.
Yes.
Starting off with our performance and our education sector came in strong delivering 30% growth year over year on Q2.
We're seeing continued growth is K through 12, moving forward with their digital transformation from just the point devices and the pandemic to now needing to manage these fleets at scale and to ensure that all of their investments and security tools are deployed active and working as intended.
The bulk of our portfolio and enterprise and government remains solid and growing our consistent and 12% and year over year and Q2, despite some COVID-19 related headwinds and some of our enterprise verticals.
And we've noted while the pandemic has resulted in increased demand and it.
And security professionals migrated to having to manage and secure devices off corporate networks. We've also seen some headwinds at times and particular sectors, such as health care professional services and for some retail.
We continue to have a diversified customer base across the portfolio, which we believe will help mitigate the impact of any particular sector weakness.
And so far as our expanding global reach and we were pleased to see improvements and our newly enhanced EMEA efforts and another strong quarter from our Latin America portfolio.
We continue to see significant opportunities internationally and are being strongly encouraged by our OEM partners to expand our presence there.
Typically we're investing and our sales capabilities and go to market and EMEA over the second half of fiscal 2021 as I'll discuss in a few minutes on when I talk about guidance for the full year overall international comprised 16% of total error and grew approximately 43% year over year versus 23% growth from that.
Prior year.
Another contributor to our strong performance in Q2.
Was that our sales team executed well and closing a large number of deals early in the quarter.
And this benefited Q2 results and the form of both higher revenue and favorable cash collections.
Looking at some additional business metrics that are also contributing to growing revenue and favorable economics.
Net dollar retention continued to grow and came in at 109% and Q2 versus 100% and the second fiscal quarter of 'twenty and 'twenty.
This very strong number as part of what we believe is a trend that reflects our continued success of expanding within our existing customer base, that's driven off our initial land.
And this regard we wanted to note that we've updated the methodology of how we calculate net dollar retention to be on an annualized year over year basis. So that is consistent with our year over year growth assessment and other performance metrics versus the in quarter calculation that it had been.
On that historical basis and Dr would have been approximately 104%, which was also an increase and growth over the apples to apples year ago comparable.
Going forward and we will only be reporting the annualized and Dr number.
And is built on driving transparency and providing investors with helpful information and a low friction way we have initiated two disclosures that are available on our IR website first we published a standalone earnings deck and addition to the company presentation that contains the financial and business highlights for the quarter and the relevant trends and performance.
<unk> and so for previous quarters.
And we've begun published and a metric sheet that has tended to provide easy access to the various operating and financial metrics that we discuss.
One of the metrics that Youll notice that we added is non <unk> EPS alongside the Ifr S earnings per share, while it's not a key metric as we define those and the MD&A. We thought it would be helpful to provide that non <unk> EPS number but adjusted for the same adjusted EBITDA items. So you have that calculus.
Available as well.
With that lets look at the Q2 P&L our ability to deliver strong revenue growth for Q2 demonstrated the strength of our SaaS model, where we built a solid base of recurring subscription revenue and continue to grow it.
Total revenue came in at $29 $9 million and Q2 for a year over year growth rate of 16% we.
We continue to have solid visibility into the SaaS revenue profile going forward and are bullish on the several vectors of growth across international customer expansions continued monetization of the platform and new analytics cross device and predictive oriented endpoint and security products.
Gross margins came in at a consistent and solid level of approximately 89% and Q2 and while we saw some efficiencies and our go to market Opex. We also saw higher operating costs and G&A as a result of the company and a U S listed company as we message and the past would be the case.
It's multiple net sales and marketing grew a modest 7% and Q2, resulting from some efficiencies for the quarter.
This all manifested itself and and adjusted EBITDA margin of 27% and Q2. This came in above expectations. As a result of two factors first as I mentioned, we closed more bookings earlier in the quarter that drove higher in quarter revenue.
Second on the cost structure side, the pandemic continued to challenge the pace of hiring and dampened teig and eastbound for another quarter, thereby temporarily lifting margins.
You can see that as well and our total employee count at quarter end, which was up marginally to 526 people globally from 517 at the end of the previous quarter.
And we'll talk about and the moment, we're beginning to address this and the current Q3 quarter in terms of.
Spanning our go to market hiring and some increased program spend to drive growth.
And so let's now turn to our third point on a compelling path in front of us and we expect to drive continued revenue growth and increasing stockholder value and.
We're committed to continuing to drive profitable growth.
As we've discussed we benefited from recent cost savings from pandemic impacted head count and T and E savings that drove higher adjusted EBITDA margins.
For the current Q3, we anticipate a marginally higher year over year increase and sales and marketing expenses as we increase our investments and driving growth for me.
And incremental sales head count and channel investments as we expand our presence and growth initiatives and EMEA.
We're also making decided investments to drive future increases and new logos and higher sales rep productivity and continued customer expansion.
And so considering all of this our financial outlook for the full year fiscal 2021, ending June 30th 2021 is as follows.
We are raising our revenue guidance and expect full year total revenue to be and a range of $117 million to $119 million. This equates to a full year of fiscal 'twenty 'twenty, one and revenue growth of 12% to 14%.
We're raising the lower end of expectations for adjusted EBITDA margin for fiscal 2021, and anticipate that to be and a range of 22% to 24%.
We're also raising the lower end of expectations for cash for operating activities margin, where we expect that to be in a range from 26% to 34%.
And finally, we're maintaining our expectations for capital expenditures for the full year fiscal 2021, B and a range of $3 million for $4 million and.
In closing, we're confident that we are addressing the strategic opportunity in front of us and a thoughtful and methodical way to drive stockholder value from a combination of AOR growth and maintaining profitability.
As we move forward and capitalize on this and I'm excited about contributing to our ongoing focus on driving SaaS orientation and execution on.
In terms of both our revenue scale and how we run the business to achieve increasing leverage and returns.
From evolutions, and engaging with customers and customer on boarding to managing our leading indicators and investment profiles, we're driving greater operating and organizational efficiencies.
Nick technology platform to make sure we're well positioned to capture the large market opportunity, we continue to have confidence and monetizing the opportunity in front of us and our path for continued revenue growth going forward with that we appreciate your time and support and we're glad to open the call for any questions operator.
Ladies and gentlemen, and order to ask a question and you will need to press star one on your telephone.
And as Star one to withdraw your question profound or ask you. Please standby won't be compile the Q&A roster.
Our first question comes from the line of Mike Walkley with Canaccord Genuity. Your line is open.
Oh, great. Thanks for taking my question and I hope everybody is healthy on the call and.
And congrats on the record and execution.
My question is on.
Post the solo and packet is really helping demonstrated I guess increase security spending cannot help stop some of the breaches that happen out there I was curious if this is just helping generate increased awareness.
For your persistence technology, both from your enterprise customers and then from companies maybe come into your ecosystem such as from well known companies you added such as net scope and Palo Alto during the quarter.
<unk>.
That's a great question, Thanks, Mike and Sue.
I would say that we definitely had a lot of inbound inquiries.
And the reason and the recent breaches.
And do you think that it did highlight on a pretty global scale and the value of retaining the security controls on the endpoint and making sure that they have the right person.
And the number of companies today.
Two that said that the reason they received and for.
For being targeted list because they were too many surgeons behind and.
So therefore, that's how they've done and I'm not sure well it may work and their favorite is time based.
And more times and that would work against that and so I think it definitely has increased the focus on.
On endpoint hygiene, and making sure that the resilience for those controls is there and in place and we're used to lease side I think we continue down that journey, both from the application for assistance as well as the for assistance as a service Tony I think we continue to grow that catalog and I think sits and the awareness is definitely growing and the customer side and from the ISP partners.
What we're hearing is a lot of enthusiasm around the data, we can share about how and where their controls maybe going on for Mike.
And so.
And it's unfortunate but interesting focusing moment.
Great. Thanks, and just a follow up on that Christy just in terms of adding companies like Mexico, and Palo Alto networks to the ecosystem are those companies coming to you or are there. Your current customers asking you to add and tier two your ecosystem and and how does this add to your sales cycle, Yes, you had more and more well known company said he can.
System.
Yes, and generally the the lift and applications that we're adding to the application and persistence library is customer driven.
These are the solutions that our customers are using where they've message to us that these are critical controls that they go on to make sure are there and they're always working.
And we the lift sales.
The list is.
One in terms of the you know the.
Targets and and the potential opportunities and I would say.
That's the collaboration has only increased in the past here, mostly as a result, we've gotten a lot better at showing data with our partners about.
About what we're seeing about the performance and their applications and that's really.
And the interest.
Okay and last question for me probably for either Kristina Stephen.
You guys have a very large team to pursue and I. Appreciate the updated fiscal 'twenty, one guidance, but as we think longer term to investors is there a certain balance that you're trying to reach between growth and profitability. I mean are you trying to stay near that rule of 40 with like a 2020% growth or what do you need to add medium sales and <unk>.
Getting to to take the growth up even higher than it is currently running thank you.
Hey, Mike It's a great question and as we talked about I think fairly consistently in the past.
Yes, we believe that the rule of 40 is a relevant and helpful measure and parsing out how we think about growth and profitability and and the bogey. If you will that we've said.
And our aiming to get to was a blend right and.
And literally down the middle of 2020 was actually looking at a 20% growth revenue growth and a 20% profitability and so when you look at the trajectory. We're on from a revenue standpoint, we continue the <unk>.
Chip away, and then slowly and accelerate growth to that level and on the profitability side, you've seen and the first half of the year EBITDA margins that are on the higher end of that.
And so we've been fairly explicit and managing expectations that we.
And have it profitability is a very important metric to us, but there were also looking to invest some marginal amount of profitability back into growth and to both product and go to market. So that we would expect to see the profitability not hanging out and the upper twenty's over time, but to work its way towards the 20 as growth comes up with it.
And it won't be a perfectly linear beautiful quarter by quarter sequential tradeoff, but that's that's the goal that we have all the time.
Great well congrats again on the results and thanks for taking my questions.
Thanks, Ron.
Our next question is from Athena and smoked bullets with BMO capital markets and your line is open.
Hi, good afternoon.
Looking at the enterprise segment.
The growth drivers and kind of comparable to what youre doing pre COVID-19 and I think you called out for dynamic, where you're seeing softness and certain verticals and presumably thats being offset by exploration and and other areas.
And maybe as you look at pipeline and as you think about the coming months.
Do you think that dynamic plays out do you think the softness sort of remains sustained and the weaker verticals or are there signs of that getting mitigated.
What's your outlook there.
Yeah.
And Dennis.
And I'm happy to take us on it and then of course, Stephen can jump in with the with anything he sees.
And you know we have continued to see as we said both the strength and weaknesses of the enterprise space low.
Overall see.
The positive strength and I think that the continued stability of that space. We do think that the growth has been somewhat tampered by the softness and some of those other verticals.
And which is why we see the difference between engine and the industry.
And the price and education and thanks for.
So long as we're.
And this pandemic, we're going to see some from continued puts and takes on that but one thing I would point out is that quarter to quarter. It's not it's not always consistently the same one.
And yes, some amount of seasonality to it I don't think that we.
We have any growing concerned about whats coming in front of us if anything I think we're moving towards what looks to be you know what.
And that stabilization as we're making progress with with the with the growth the broader pandemic set of conversations so theres nothing unusual and this quarter that we hadn't been seeing in previous quarters, and and I would say, we continue to see healthy demand for the category.
Offset by some of these other areas, where they have their own things going on.
Yes.
On a premise was.
About on.
Spot there when we look back at enterprise and call it a year before the pandemic.
And the growth rate was actually inching up sequentially quarter by quarter. So it was going kind of from me and all of them.
<unk> nine and 10 to 11 in the 11 and 12 to 13 and working on its way up.
And from a bunch of progress on a few sectors and then the pandemic hit and it was interesting that some of those sectors, where the ones like health care challenges and it and as Christie made a really good point there is still some sectors and enterprise and we're seeing really nice growth from but one or two that are under pressure and so we're bullish on on the overall.
And space.
Those pressures lift we would expect to proceed and the overall growth benefited from that.
Okay. That's helpful and then in terms of the fed ramp certification.
And I'm almost surprised you didnt have that given that I know you have a significant public sector business. So maybe help us understand better what that really means and what kind of opportunity and my mix them on the back of that.
And so on February 5th.
We're actually very excited about this I think that headroom authorization I think that's for when you're referring to GAAP.
And you know Theres a couple of different ways. You can you can approach that certification. It has a very long process to get through it on.
One way is you can go in with a and initial sponsors specifically against their requirements and the others you can work with the strength Authority Board.
The work and more broadly on the program and I think we were very excited we were one of the very small number many applied and we were.
One of the very small number that that was true.
And prioritized in that queue. So so we've always had a very healthy federal business.
And I think that you've seen a lot of opportunity there and it's been one of our better growing segment. We do think that there's a lot of additional opportunity. If we can go deeper into that segment. It's one of the growth strategies and they've talked about and previous conversations and.
And and this is honestly and opportunity that somewhat opened up for us because of and we've been making towards the public cloud and.
And it makes it somewhat more accessible and we're sitting on a public cloud infrastructure, that's already gone through that certification and we get a lot of additional benefit as a result of that and so and we think we're very excited about it and want it.
To set expectations and it is a long standing process. It takes a period of time, but it is a very transparent one and it won't be able to give updates as we go through.
But ultimately this helps reduce the procurement hurdles that and your government agency might be assessing it looks to bring you on court right.
The fundamental principle.
Yes, essentially there's sort of no.
Assessing.
Against a risk framework and set of security capabilities. So that other agencies have disorder certify on and independent basis.
It wouldn't be required they can leverage that certification and more broadly.
Right.
Okay.
And then last one for me in terms of the investments.
And then any specific countries a focus as you think about where you're spending your your incremental dollars for hiring.
We've done very well out of the U K and so we're going to continue our investments and out of there. We are starting to you and just to be clear. We have been we do have many customers across EMEA and across the business.
But we are starting to to sort of stand up additional selling capacity as I've touched on before.
The place that we started really with our partners.
There was a it was an easy way and a hard way to kind of go into new markets and.
And so our strategy is not to land a bunch of head count into two territory and new territory and start with citizens.
You know the demand generation on a round and we really are going into the call centers with our partners and leveraging a lot of the same selling motion that has made us successful and.
In North America, and and the purchase of ear for we have so far so we haven't laid out sort of a country by country plan, but but it is a highly leveraged plan and and I think we are well underway.
Great. Thanks, guys nice quarter and I'll pass the line.
Alright, thank you.
Our next question is from Scott Berg with Needham Your line is open.
Hi, Christy and Steven Congrats on a great quarter.
I guess two.
Two for me, let's start with the education segment, obviously really strong growth there big boost and the IRR and seeing some positive trends there, but how should we think about the longevity of what youre seeing there is this.
That's a much bigger quarters for a bigger spike and what we saw on the June quarter, just something thats kind of a one quarter trend or is there an opportunity to have something more stable.
And then hopefully subsides.
Thanks, Scott and thank you that's a it's a great question.
Spent a little bit longer than normal talking about sort of for color and education on.
On this quarters call because we do see it fundamentally shifting I think that.
And what we're what we're seeing is really this this increase and complexity and so I think that sets us up for longer term success with education and it and again, it's not it's not simply a result of it.
Since learning and it's not simply a result for us.
And I have additional funding is a result of that.
These educational environment for very large, they're very complex and many ways and more complex and enterprise because of the mobility and because they're using right now.
And they have younger users they have a lot of challenges that many enterprises and they would also have.
And and so this is this is really kind of a turning point and then when we took I gave the data point on the call about the number of unique applications just to give you some perspective and and this is information that's actually up on our website and our cause and insights dashboard before COVID-19 and we saw.
And just over $1 5 million unique applications and versions across our enterprise and state.
And and in the education side. It was on the on the education side of the business. It was just a fraction of that.
I think it's you know several.
Several hundred thousand at this point.
Much much smaller and that's the kinds of applications they were using and the amount of it.
Charity controls it was a very simple fight environment. If we look at the new applications that are coming into that environment. There are certainly some.
There are some student support and distance learning tools for sure, but you're also seeing a lot more mainstream enterprise security control and so that that increase and complexity that increase and the number of devices and the complexity of on managing those devices and the diversity of the kinds of applications and security and it there they have to put them on these devices really means that that.
You know that it's starting to kind of get closer to an enterprise and and they use cases start to converge.
Little bit why we've seen such great response to things like the web analytics and the web usage, which we initially put out and education.
And are equally relevant and enterprise right. They use cases between the two start to get very very similar.
And so our belief is now I don't want to set the expectations that you should take a look at this quarter and assume that it's for me.
But I do think what we're seeing is not kind of a uplift and a flurry of activity and what we're seeing is as relevant market going through a pretty significant transformation.
Excellent quite helpful. And then from a follow up question, Steven If I look at your guidance here for.
For the effectively the second half of the year, it's implying a 12% revenue growth rate at the midpoint.
And given the company has come off of a 17%.
And our growth quarter, and the December quarter, and that was after a 13% number in the and.
And the September quarter, So obviously seeing quite strong, but your guidance seems a little bit on the conservative side relative to that sales strength, how should we view the guidance and the second half or is there some dynamic.
Component around Rev. Right, that's delaying some of the revenue on these contracts, maybe some assumption on a churn or.
Anything else that we should kind of read into that number. Thank you.
Yeah, that's a very fair question and I think on the surface, we would offer to not read too much into it and so far as changes and Rev. Rec on contracting or any type of fundamental business shift there is the overall dynamic that while we are very bullish on our business and the market.
And we like everyone I'll start and getting used to living and this pandemic environment and are adjusting.
Ourselves to it for example, we understand a little better how hiring works, we understand a little bit better how engaged and our customers and works and so we're now looking to spend and invest some more than that but on the revenue side really really just wanted to be thoughtful.
And and consider it and laying out some game that we were comfortable with probably nothing more.
Involved on that.
Great. That's all I have thanks, again and congrats on the great quarter.
Thanks, Tom.
The next question is from Adam Tindle with Raymond James Your line is open.
Hi, Thanks for taking my question. This is Alex on for Adam on.
Just wondering if you could provide some color and maybe quantify some of the numbers around the COVID-19 related free trial, you had that expires in October kind of just you know.
And what the uptake on that and what was the conversion rate related to that.
Hi, Alex and it's a great question. So we we havent published on the conversion rate on a specific campaign, we Don and.
I don't we don't publish a sort of a campaign by campaign results, but what what we have seen is increased acceleration on resilient with.
With you know, we've talked about 60% of our <unk> sitting and resilience and I think that that's continued to growth.
And so.
The motivation behind the campaign was really first and foremost really to help our customers, where they were struggling especially around areas like VPN or whether usage and it will reach.
And then in doing so and we introduced them to allow for capabilities of Brazilians and.
And so we did see a healthy conversion up to.
And to the higher tier package.
Whether they took it out on a sort of modular license or whether they just sort of went to them because they're looking for as a whole. It did also help shape, our thinking about kind of the next class and application for assistance applications, which one for most critically needed and I think you'll see that reflected and in some of the new ATP modules and meats and adding we just added.
Hello, Alto solutions and of course, the chassis solution as well.
And I think that if we consider it to finished successful campaign because it really raise the awareness and how it could be more helpful to our customers.
Okay. That's helpful and then sort of on that topic as well I think you mentioned in the past about thinking about Reconfiguring your product offerings based on modules for vertical specific applications.
And you don't need more work on that and what are your thoughts on kind of moving forward with that.
And we have continued to do more work on that we have been continuing to take a deeper look on sort of performance by product line and.
Taking a look at the modularity of our product as I've commented on before and a behind the scenes the product itself the configuration of the product and the capabilities is pretty flexible. So it makes it relatively simple for us to be responsive to customers, who want to look at different stacks and combination, we havent announced any new bundles on pricing and <unk>.
Or any changes I think that we you know it's one of the areas that we're continuing to dig in and do work as we go through this quarter.
Okay. Thanks, and then one final one just housekeeping question.
Taking a dive into the Fresno School district deal and I think that was 100000 devices expansion deal from 20000 devices.
And with resilience.
And kind of ASP for $40 with around 20 Bucks, a net revenue per year and my.
Correct and thinking that's around $1 6 million of incremental annualized revenue for you.
Yes.
And I apologize your math is not orders of magnitude off but we just haven't commented on the revenue profile.
Is that a customer.
Okay, and then do your numbers.
Like reasonable perfect. Thanks perfect.
Are there any other ways you can monetize on relationship or have they already taken kind of the just through expanding the number of devices or are there any other products you can kind of upsell and cross sell.
So you know I don't want to.
We published I think them as a representative case study we have been doing a series of.
Case studies on and sort of customer success and so.
We're very excited about the collaboration we've had with them and.
When we think about.
When we think about upsell and expansion with customers.
We have talked a little bit about the opportunity to do some new product introductions as we go later into this year and and sort of early into next year, we've talked for quite a bit about the work for dealing with.
And with data and analytics, we've talked quite a bit about some of the work that we think is interesting around what I would call proactive health monitoring and so how do we how do we actually prevents devices or applications from calling on complaints as opposed to just fixing them when they when they break or sort of go offline and so.
Net without commenting on any specific individual customer I would say that you know we're always looking at the customer journey and we absolutely think even for customers sitting on resilience. There is much more we can do to be helpful.
Okay. Thank you said and that's all for me.
Our next question is from David Clark with TD Securities. Your line is open.
Hi.
Gratulation is on the corner.
And just wanted to jump into the fed ramp for back into the fed ramp. The question is related to the timing of when you expect this get the certification there and then also.
Any hiring you might need to do to pursue that opportunity and when and which could actually start to see material revenues being generated from from this from the federal.
And testing.
So thank you for the question.
And the process itself is actually pretty loans and win.
I wouldn't hazard to guess when the finish line is but I don't think it's unrealistic to think it's longer than six months.
And some have taken sort of much longer it is.
It has a lot to do with its a little bit like socks, too and has a lot to do with sort of document and controls and processes and and.
And so it's kind of navigating our way through that process. The process is very and they requirements are very public and and.
And I think we're happy to share.
Share them more broadly in terms of the Resourcing required. This is something we've been working up to up to this point, so across our CIO and Diane and world.
The R&D organization and with our cloud operations team.
So this is something we've been working toward and with our customers we have a number of customers who.
And are also huge supporters of us kind of going through this process and I don't I'm not envisioning a whole host of new head count required there are some contractors and consultants that we hired has been through the process before who wishes coaching us and and supporting US as we as we go through it but I don't think you should view it as day.
And a significant investment from an R&D perspective from this point forward sort of within what we're already doing.
We have been building out our federal team over the past couple of quarters. So we have been and sort of.
Beefing up the support from our federal customers and you should continue to see us do that but it's already in line with our hiring plan and Theres nothing nothing additional as a result of this announcement.
That's helpful Christie.
And it gets too low.
Canadian dollars and moving here over the last couple of months.
Can you comment on how much of an impact it might have had on your Q2 results. If you changed the.
Some FX assumption for your guidance and.
And kind of roughly what the breakdown and expenses are Canadian dollars versus U S dollars or or I guess also.
Two key.
Countries that you're in.
Sure. So we as we've disclosed we do hedge our Canadian exposure, where U S dollar functional company globally.
And what we hedge against is our payroll based.
Expenses in Canada that.
Headcount is roughly 70 plus percent of our overall expense worldwide.
And in Canada, it's probably even more and it's probably yes.
Upwards of 80% of our expense base and so we're hedging.
The majority of that and we haven't hedged out two quarters as of now and so that is not a factor.
For the current quarter, and we reported or for Q3, and so far as the P&L.
<unk> per se.
Good question.
That's helpful. I guess lost lots on question for you issue and maybe on the gross margin side its been.
And the high end, I think and where it's been over and over the last few years around 89% range and I think initially it was kind of.
And maybe temporary here, but maybe can you talk about how you see the gross margins playing out over the next six to 12 months.
Sure I think I think you're spot on and not to the acute we have not yet laid out a target model.
And we will be doing that at some point, we look forward to that.
We have talked a little bit about is as we move more to the cloud and less away from on infrastructure based model.
And we would expect some movement of costs on our geography from gross margin for Opex.
And so you may see some of that as we invest more on cloud operations way for.
From a capex and depreciation and so so probably a little bit on a whole lot.
Pressure on me.
And the outer quarters, nothing and materials and near term.
Okay perfect. Thank you.
Yeah sure good question.
Our next question is from Richard Tse with National Bank Financial Your line is open.
Yes. Thank you just one question for me and you sort of look I don't know on a year over year basis, or maybe a trend over the last three years.
Maybe talk about sort of the average deal size trends.
And your existing business.
Sure.
And we'll tag team on that Richard Christiana Mall.
In a nutshell, we've seen some favorable dynamics from customers in aggregate right. There is always.
Topic of lower marginal pricing off for higher volume based deals but.
But we've seen an expansion and success.
Success and expansion of our customers and so.
Glad to see deal sizes, and if you look on two ways to look at that T. C V basis on an IRR basis, and you look at <unk> basis, that's really influenced by.
And how many years allowed for other contracts. So that's not a fantastically helpful view and our opinion way to look at it but we have been able to garner greater economics for our customers over time and one of the metrics, that's probably the acid test on that.
Is the net dollar retention.
And it now.
On a sequential basis over the past several quarters.
Okay, I guess, while I have you.
Could you also maybe give us a sense of the split here between new wins and expansions and the quarter.
Sure.
And I can.
Take the new Guy and I'm not sure what we've discussed in general and the past softball baseball playbook.
And I'll see if you've seen it right and I will jump in.
You can filter on stuff.
And so.
Yes.
The metric that we've always first of all hi, Richard.
We've always talked about the net income.
And.
Number, which we and I'll.
And just sort of go back to our land and expand model. So.
You know, it's I think about $1 5 million this quarter and it was about $1 3 million last quarter and that's true net new logo and so that's that's the true.
You know new air are for from a brand new customer.
And much of what we do everything after that is is and expansion, but it has a lot to do with the way we meet new customers. If you remember we often attach.
And with our OEM partners and then our direct sellers it really focused on that.
And so and.
And when we look at that net new logo number it quarter by quarter. It remains a very small, but we're very focused on internally is sort of the analysis of how it grows over time and I don't think we've published and of those cohorts, we gave a little bit of context around and at the analyst day, but it's something that we are.
And spending a lot of time looking at and hopefully we'll be able to provide for more color on and coming quarters.
Okay. That's great. Thank you.
Ladies and gentlemen, and this does conclude the Q&A session I'll now turn the call back over to you and that's why it's for any closing remarks.
I want to thank everybody for joining us this quarter and we're looking forward to catching up on.
Have you and another couple of minutes.
Ladies and gentlemen, this does conclude today's conference call you may now disconnect.
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