Q4 2020 Zix Corp Earnings Call
Good afternoon, welcome to six fourth quarter and full year 'twenty 'twenty earnings Conference call My.
My name is Livia on all of your operator today John.
I'll split today's presentation on the company's President and CEO David Wagner.
Oh, David Roth fan and Chief Marketing Officer, Geoff Bibby following their remarks, we will open the call for your questions.
I would like to remind everyone that this call will be recorded and made available for replay via a link in Investor Relations section of the company's website.
Now I would like to turn the call over to Geoff Bibby. Sir. Please proceed.
Yeah.
Thank you operator, good afternoon, everyone and thank you for joining our fourth quarter and full year 2020 earnings conference call on.
On the call today, we have our CEO, David Wagner CFO day rock Graham after the market closed we issued a press release announcing our results for the fourth quarter and full year ended December 31, 2020, and a copy of which is available on the Investor Relations section of our website at Www Dot <unk> Dot com.
Please note that during the course of this call we.
We will make forward looking statements regarding future events and the future financial performance of other company. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements. It's.
It is important to note also that the company undertakes no obligation to update such statements. We caution you to consider risk factors that could cause actual results to differ materially from those in the forward looking statements contained in today's press release and in this conference call. The risk factor section on our most recent form 10-K, and 10-Q filings with the SEC provide examples.
Of those risks.
As more fully described in our quarterly report on form 10-Q for the quarter ended September 30 of 2020 and as will be further discussed in our upcoming annual report on form 10-K for the year ended December 31, 2020. The company has been actively monitoring the COVID-19 situation and its impact on both the company and the world in which we operate the impact of COVID-19.
The unprecedented measures to prevent its spread are affecting our business in various ways, causing volatility in demand for our products changes in customer behavior, including their spending and payment patterns disruptions in the operations of our third party suppliers and business partners and limitations on our employees' ability to work and travel.
We expect the ultimate significance on the impact on our financial and operational results will be dictated by the length of time that the circumstances continue which will depend on the currently unknowable extent and duration of the COVID-19, pandemic and government and public actions taken in response.
These factors also make it more challenging for management to estimate the future performance of our business, particularly over the near term during.
During the call we will present, both GAAP and non-GAAP financial measures non-GAAP financial measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results. We encourage you to consider all measures when analyzing the company's performance reconciliation of certain GAAP to non-GAAP measures is included in today's press release.
Which can be found in the Investor Relations section of our site.
Now with that I'd like to turn the call over to Dave Wagner for his opening remarks David.
Thanks, Jeff Good afternoon, and thank you everyone for joining us today, the fourth quarter marked a strong finish to a successful and transformative year for zix.
We delivered profitable growth again in 2020 highlighted by 14% or our growth, 26% revenue growth and 29% adjusted EBITDA growth rather.
Revenue of $218 5 million annual recurring revenue of 237 7 million adjusted EBITDA of $50 9 million in cash flow from operations of $31 3 million all marked record levels for our company.
Achieving these results in the face of unprecedented challenges is a testament to our team our partners our customers and the resilience of our operating model.
As I reflect back on 2020 in many ways, we are able to use the <unk> challenge is to build and grow even stronger the investment we made in culture and in establishing strong core values was perhaps the most important thing we did in 2019 as our culture was essential in helping us manage the challenges of 2020 on.
Emphasis on learning kept the team adaptable and able to respond to many changes on pressures our goal setting and objectives and key results are okay. Our focus kept us executing on track and on plan, which enabled us to meet our financial and operational commitments in 2020 on <unk>.
Proud of the team and our ability to execute.
Our enhanced focus on the channel and our investment in our secure cloud platform was already well time, but the rapid shift to remote work caused by the pandemic provided further support for the transition.
Last March we learned many organizations were not fully prepared to transition to remote work. According to Forrester, 41% of the company's they surveyed between April and May 2020 reported that their organization was not prepared to effectively transition to full time remote work that.
Same Forrester survey found that organizations are increasingly leveraging cloud technology to support remote and hybrid work environments and make decision makers see productivity security and compliance and resilience as key tenants of our secure modern workplace.
These are areas, where <unk> excels the shift to remote work is not transient some industry analysts estimate that 70% of all workers will work from home regularly even as the impact of the COVID-19 pandemic receipts.
Remote work creates new sometimes larger attack vectors, enabling more attacks bigger preaches and an even greater need for data restoration. Following a breach the recent solar winds in mind cash breaches remind us that E mail remains the number one threat factor.
<unk> secure cloud provides security tools and a second layer of threat protection that are increasingly critical for small and medium sized enterprises now I will turn the call over to our CFO day Brock Bam to provide details on our financial results for the quarter and year David.
Thank you, Dave and good afternoon, everyone as David mentioned, we again delivered on our commitment to drive profitable revenue growth increased adjusted EBITDA and generated more than $31 million operating cash flow for the year looks.
Looking at the numbers in more detail at the end of Q4, our air our total $237 $7 million up 14% from Q4 of last year.
Our continued and sustained <unk> growth is being driven by our customers move to a secure modern workplace, which emphasizes cloud adoption.
We are pleased that our cloud based AOR grew 21% over Q4 last year and comprises 87% of our total air our or $206 $6 million.
New customers added in the quarter totaled over 4299% of new customers in the fourth quarter were on boarded on the secure cloud.
In Q4, those classically zika customers onboard and to secure cloud averaged one six services per mailbox, which is above the 1.1 average per service that services per mailbox historically across the company.
For the fourth quarter, we were pleased that our net dollar retention once again was above 100% at 103% net dollar retention represents our renewals plus new sales into the installed base divided by the renewals that were available at the beginning of the quarter.
Revenue for the fourth quarter increased 15% to $57 $9 million from $54 million on the same quarter last year.
The $57 $9 million of revenue exceeded our guidance range for the fourth quarter, which was $56 4 million to $57 $4 million revenue for the full year increased 26% to $218 $5 million from $173 $4 million in 2019 the 218.
$5 million of revenue exceeded our guidance range for the full year, 2020, which was between $217 million and $218 million.
Our adjusted gross profit for the quarter was $30 2 million or 52, 2% of total revenue.
This was an improvement on a dollar basis from $29 $2 million, but down from 58% of total revenue on a percentage basis in the fourth quarter of last year the.
The gross margin change during the year was mainly due to the continued strength of our productivity products and a lowering of rebates from Microsoft on some skus in the fourth quarter of 2020.
Gross profit on a GAAP basis was up slightly from $26 $3 million in Q4 last year to $27 $4 million in Q4 2020.
Our adjusted R&D expenses for the fourth quarter of 2020 were $5 4 million or nine 2% of total revenue compared to $4 3 million or eight 6% of total revenue in Q4 of last year.
The quarter's dollar increase was primarily due to certain development projects, we completed during the year and their expenses have begun to amortize into our R&D costs.
Our adjusted selling and marketing expenses for the quarter were $10 1 million or 17, 5% of total revenue compared to $11 $5 million or 22, 7% of total revenue in Q4 of last year.
The decrease in selling and marketing expense for the quarter was primarily due to lower travel and actions. We took on April of 2020 to contain expenses due to COVID-19.
The lower selling and marketing expenses as a percentage of total revenue for the quarter reflects the benefits of our lower cost of customer acquisition from our high velocity sales model.
It also reflects the success, we were having winning new customers and wallet share gains from our nearly 5000 active the MSP partners.
Our model and go to market strategy enabled <unk> to maintain industry, leading efficiency ratios, including overall cash as well as cash relative to customer lifetime value.
For the fourth quarter of 2020, our adjusted General and administrative expenses were $4 million or six 9% of total revenue.
Which was down from $4 million or seven 9% of total revenue reported in Q4 of last year.
The decrease in percentage of revenue in the quarter was primarily due to lower travel expenses other.
Other expense actions, we took in April and variable compensation expenses due to COVID-19.
On a GAAP basis, we recorded a net loss attributable to common shareholders of a loss of $5 $3 million or loss of <unk> 10 per fully diluted share for Q4 2020.
<unk> net loss per share includes approximately <unk> <unk> per share for an impairment to our deferred tax asset.
We still plan to utilize our Nols, but at this time, we have a number of acquisition and stock based compensation related expenses that will lower profitability on a GAAP basis prior to our ability to use them all in our current profitability model.
Our fourth quarter non-GAAP adjusted net income before deemed dividends and excluding deferred tax was $8 6 million or <unk> 16 per fully diluted share which was within our guidance.
This was an increase of nearly 30% compared to $6 7 million or <unk> 13 per fully diluted share we reported in Q4 of last year.
Our full year non-GAAP adjusted net income before deemed dividends and excluding deferred tax increased 41% to $32 5 million or <unk> 60 per fully diluted share.
And finally, our adjusted EBITDA for Q4, 2020 totaled $13 4 million.
An increase from 11 $5 million, we reported in Q4 of last year.
As a percentage of total revenue adjusted EBITDA for Q4, 2020 was 23, 1% compared to 22, 8% in Q4 of last year.
Our adjusted EBITDA for the full year 2020 totaled $50 $9 million, an increase from $39 $5 million, we reported for the full year of 2019.
As a percentage of total revenue adjusted EBITDA for 2020 was 23, 3% compared to 22, 8% in 2019.
Adjusted EBITDA came in slightly below our guidance due to higher vacation accruals related to COVID-19, as well as higher bonus accrual in the quarter, because we achieve the higher end of our revenue forecast that being said, we are planning to attain about a 61% payout on our 2020 bonus program due to the impact from COVID-19.
On our first half of 2020 results, which caused our numbers to be lower than our internal plan.
We are pleased than a year like 2020 that presented so many challenges to the economy and our country, we were able to come in right at the bottom end of our original adjusted EBITDA guidance that we gave in February of last year.
Cash flow from operations for fourth quarter of 2020 was $7 million, an increase of 17% to Q4 2019.
Cash flow from operations for the full year 2020 was $31 $3 million, an increase of 124% or $17 $3 million over 2019, we.
We feel our strong 2020 cash flow from operations really demonstrates the real cash generation capabilities of the company.
Capex and other intangibles for the fourth quarter of 2020, where chip were $4 million, which consisted primarily of normal business capital purchases and capitalized internal use software development.
We expect Capex and other intangibles to be approximately $18 million for the full year 2021, consistent with our 2020 spend.
We also expect adjusted depreciation and amortization to be approximately $12 $5 million for the full year of 2021.
Billings for the fourth quarter 2020 totaled $56 $6 million up 14, 7% from $49 $3 million in Q4 last year Bill.
Billings for the full year 2020 totaled $219 1 million up 28, 7% from $172 million for the full year of 2019.
Turning to our balance sheet, we ended the quarter with $21 $4 million on cash in addition to our strong cash position. We also.
We are attributable to common stockholders to be in a range of a loss of <unk> seven and a loss of <unk>.
And fully diluted non-GAAP adjusted earnings per share attributable to common stockholders before deemed dividends and excluding deferred tax benefit expense to be in the range of 15 and 16 for the first quarter of 2021.
Which is based on a share count of $55 1 million shares.
We are currently forecasting adjusted EBITDA to be between 22% and 23% of total forecast revenue for Q1 2021.
Based on our current visibility we are forecasting full year 2021 revenue to range between $244 million and $248 $5 million representing an.
An increase of between 12 and 14% compared to 2020.
We also expect fully diluted GAAP loss per share attributable to common stockholders to be in a range of a loss of <unk> 27, and a loss of 25 for the year.
On a non-GAAP basis adjusted earnings per share attributable to common stockholders before deemed dividends and excluding deferred tax benefit expense is expected to be in a range of 58 to 60.
Adjusted EBITDA is forecast to be approximately 23% of total revenue for 2021, and a year over year increase of over 10% compared to fiscal year 2020.
This would equate to full year 2021, adjusted EBITDA of approximately $56 million.
We are forecasting approximately $9 $5 million of interest expense on our bank credit facility.
The per share figures are based on an approximate basic share count of $55 5 million shares for 2021.
It is important to note that fiscal 2021 guidance includes approximately $3 million of expenses related to travel employee raises.
Variable compensation and marketing, which were lower in 2020 due to COVID-19, but we anticipate a return to more normalized levels in 2021.
Those added expenses and the additional R&D expense from the amortization of R&D projects that concluded in 2020 and are scheduled to conclude in 2021 and was relatively flat on adjusted EPS on a year over year basis.
But it does allow us to continue to target over 10% EBITDA dollar growth that we have stated is our current goal.
We expect to maintain a healthy adjusted EBITDA dollars to cash flow conversion ratio and generate approximately $35 million of cash flow in 2021.
Our adjusted EBITDA guidance of approximately $56 million in fiscal 2021 reflects a leverage ratio of just three times adjusted EBITDA at the end of Q4 2021, putting us below the maximum permitted leverage ratio of four five times for year end 2021.
Summary, as we enter 2021, we have a solid financial foundation with consistent cash flow generation, providing us with the resources and predictability to comfortably meet our debt obligations, while executing our growth strategy.
This completes my financial summary for a more detailed analysis of our financial results. Please refer to today's earnings release as well as our 10-K, which.
Which we plan to file by March 16.
Also visit our Investor Relations website to view, our most recent investor presentation David.
Thanks, David heading into new year arent famous Zix is transform 2021 transform as John Thank Nancy worked for change, but we're focusing on the idea that change is something that happens to us while transformation is intentional.
A transformation modifies our underlying beliefs and.
Enables more natural empower change.
And while we continue to transform the core recipe for success remains execution of our growth drivers, new partner and customer acquisition partner and customer add ons and retention.
Our first growth pillar is new partner and customer acquisition as we transform new customer acquisition increasingly comes from our partners in Q4 about 85% of our new customers were added by partners, primarily our MSP partners some key MSP.
Partner wins in the quarter, including a new.
New MSP partner, who has previously buying office 365 from a global distributor and wanted to consolidate their O 365, and security to a single provider for better support and our superior platform.
We had a similar new MSP win in the U K from that same global distributor.
UK MSP consolidated their Microsoft and IP purchases, including cloud backup from three different vendors to VIX secure cloud.
Another large U K MSP moved as X with a bundle of our advanced threat and security audit tool with office 365. These wins are a really clear example of the power of secure cloud for our partners.
Our partners need to keep their customers, usually smbs secure and secure cloud provides the three most important security layers.
Every MSP needs first a second layer of email filtering protection to prevent malware and phishing attacks second a security audit tools to monitor the configuration of their office 365 tenants for indications of compromise and third a backup and recovery solutions to restore their client.
Should a breach or manual error occur when.
When I talked to partners. This is what they refer to as security built in and it's what zix delivers.
Yes.
On the value added reseller and direct side of the business our top five wins in the quarter included two in healthcare two in finance and one in construction most impressively the top five new customer wins averaged for solutions per transaction well in excess of our previous high and another great.
<unk> that were on the right track with our attach rates.
All of the top five new customer wins included E Mail encryption and office 365, and all five new logo wins were deployed unsecured class.
New partner and customer additions will be a key focus for us in 2021, and we are laser focused on attracting new larger MSP partners, who are better positioned to sell RFP.
Which brings us to our second growth pillar, which is sales to existing partners and customers.
<unk> partners are a key source of growth for us in Q4 sales to existing customers through MSP accounted for 46% of the MRI or increases in the quarter, which compares to 47% in the prior quarter and 44% in Q4 last year.
The MSP partners, we added between 2012 and 2020 are growing at a compound annual growth rate of over 50%.
Moving on to a top five add ons through our bar and direct sales team who were in banking two in healthcare and one in legal the two largest square encryption only add ons and all five included encryption.
Moving onto our third growth pillar increasing retention.
Total company net dollar retention was 103% in Q4, which was up from 99% in Q3.
Gross retention at the company level was greater than 90%, which is in line with historical trends. We did however experienced higher than historical churn in both tax and on premise email encryption churn rates on both products began to increase in Q2 and continue to slightly elevated levels.
Through year end.
Earlier this year, we initiated programs to more actively migrate tax and on premise encryption customers to secure cloud.
These programs could accelerate churn from the short term, while optimizing longer term value retention.
Before I turn the call over for Q&A I'd like to expand on three of our 2021 growth initiatives cloud backup expansion into Germany.
Migration of legacy customers to secure cloud.
At a high level the acquisition of cloud ally expanded our product suite into the cloud backup market, which the $1 $3 billion market growing at 25% According to markets for markets.
Microsoft Office 365 backup and recovery represents nearly half of that market and was the number one product expansion requested by our channel partners.
Ally has performed exceedingly well since joining vicks.
For last three months have been net three strongest <unk> growth months in their history no one factor accounts for this increasing momentum.
Clearly some is due to their acquisition by a larger company, but there's also a growing buzz in the market as cloud dataset become increasingly valuable and the large cloud players step away from the backup market, both Salesforce and Microsoft recommend third party backups and Google only retains backups for 25 days.
We're incredibly proud.
With how the cloud ally team is helping us transform partner and customer relationships with technology to date, we're winning 85% of the resolved partner trials as a reminder, the north American bar direct sales team just began selling cloud backup in February and the integration of cloud backup in the secure cloud.
As planned for Q3 2021.
Another highlight of 2020 was our progress in international markets, we more than doubled our international AAR are in 2020 with a focus on the U K, we are launching into the German market during the second quarter of 2021 with the localization of secure cloud.
Our survey suggests that the German market is three years behind the U K market and five years behind the North American market and their rate of cloud adoption and we know the German market opportunity is larger than the U K market both in terms of population and.
And the number of knowledge workers.
Traditional it providers in Germany need to transform their business models from on premise hardware to modern cloud subscription businesses and secure cloud is the perfect solution for that use case.
Our third 2021.
Opportunity is migrating legacy <unk> cloud customers to secure cloud Kroger.
Programmatic migrations will begin in March and once migrated these customers will begin logging into secure cloud and we're more easily be able to attach or their solutions.
We will begin moving meaningful cohorts of customers throughout 2021 with the goal of having 85% of all of our cloud customers on secure cloud by the end of 2021 up from about 70% today.
I highlighted.
Culture earlier before I close I would like to take another minute to highlight our focus on ESG more broadly our core company mission is to protect our partners and customers by empowering them with productivity solutions that are secure compliant and resilient.
Our human capital objectives are to attract retain and develop the highest quality talent and put them in a position to do their best work day.
<unk> equity and inclusion are a top priority and further developing our culture.
We also continue to focus on energy conservation and minimizing our impact on the environment and we remain committed to best practices in corporate governance, we are proud to be recognized as an ESG, Brian company by the NASDAQ a recognition bestowed on less than 20% for public companies.
In conclusion with our secure cloud platform and growing array of applications. We are positioned to benefit from strong secular growth drivers, including the increasingly dynamic threat landscape and the move of business communications to the cloud.
Together with our partners, we provide the solutions customers need to be secure compliant and resilient over time, we believe <unk> will extend its position as the leading provider of cloud E Mail security compliance and productivity solutions.
That concludes our prepared remarks, operator, we're ready to open the call for questions.
Operator.
Thank you, ladies and gentlemen to ask a question at this time. Please press. The Star then the one key on your Touchtone telephone to withdraw your question press.
Keith Please standby, while we compile the Q&A roster.
Now first question coming from the line of Nahal Chuck's team with Northland Capital. Your line is now open.
Yes, Thank you and congratulations on the solid results and nice guidance by the way.
Thanks.
Let's talk about the guidance.
So for guidance for 2% Q2 revenue guidance.
And given that you did have the solid results for Q4 can you characterize what you have seen in the March quarter, So far to provide guidance, which I would characterize it is in line to slightly better than expectations.
Yes, I think in line is what we're saying things have been progressing nicely in line for asking that since Q2 as you've been watching for.
Watching things grow I think from the commentary Youre seeing that those security built in.
Method with our partners is working really well and in the cloud ally success.
Not a really big business, but that cloud backup and the buzz around that.
<unk> strongest months those are the kinds of things that Scott.
That will have us confidence in that and the continuation of the relatively strong trends we've been seeing.
Okay, Great and then just a.
To be clear your <unk> numbers, you say those organic does that include or exclude the cloud ally contribution.
That does include the cloud alloy.
Contribution so it would be a point or two less without the cloud alloy in there.
Okay.
It was going to be bringing about $8 million of air in calendar 'twenty.
Thats alright, okay, alright, so if I subtract that out I'd come up with.
They are up about 3% Q O Q cloud they are up about 4% during Q.
It was just about the same rate as the prior quarter.
But in.
It does reflect an ongoing year over year day sell both the <unk>.
Cloud <unk>, that's because the year ago Q2 increases were larger. So the question is is that one is that analysis is correct and then two.
And of course, the mixture of that analysis is critical for a follow up on that.
Yes, Thats correct.
Okay Alright.
And so does the slower Q2 growth relative to year ago continues to be driven by pandemic induced job cuts.
Or.
Is it something else going on.
It may its been exactly that as we've seen.
Getting back to the 100% IRR growth is a great Bang and we're pleased with that momentum and prepay that talks to the the power up the rotation for cloud and our position in helping our partners take advantage of that but.
The overall environment is not as strong as it was a year ago.
Got it Okay and then finally you did talk about your net revenue retention rate it did improve.
It improved by 100 basis points Q2, correct.
Right.
Okay and can you just discuss what were the drivers of the improvement the components of that between churn versus upsell relative to the quarter ago.
Yes. It was a combination of both actually so we're very pleased that.
Churn, specifically around productivity advanced threat protection archiving and cloud ally.
To stay strong.
I've mentioned on the call a little bit higher churn on the encryption and on hosted exchange.
Specifically the on premise.
Encryption, so, but we continue to see good strength from our core retention of well over 90% and then on the upsell. We did continue to see good strength in the upsell.
What we have seen out there in Q3 Q4, and you can see it from our new customer wins still strong new customer wins, but thats a place where.
We've seen.
With Covid, it's a little bit harder to get out there with the new customers and with our new partners, but the strength has continued to be in that base, while we while we come out of this.
That's great. Thank you for answering my questions.
Thanks, now appreciate a year from here.
And our next question coming from the line of Chad Bennett with Craig Hallum. Your line is now open.
Great. Thanks for taking my questions. So just.
Questions on unsecured cloud and now that.
We've seen.
Significant amount of the cloud.
Base kind of converted or on in that product or suite.
And it sounds like a lot of the new net new logos are directly flowing in there are we at a point where you can talk.
One of the David on <unk>.
Secure cloud net retention or net expansion there and then.
Kind of in conjunction with that.
It's good to see the obviously the services or products for mailbox ticking up which is what youre trying to accomplish I believe with secured cloud, but when do we see kind of the needle move on overall gross margins also.
And that starts to lift those a little bit.
Any commentary there.
Yes.
First of all on the secure cloud rotation, while we were really successful with in 2020 was getting new customers, 99% coming on to secure cloud 2021 to be clear as the year will be bringing over.
Large cohorts.
Customers from the VIX cloud in a secure cloud that movement.
As I discussed are actually next month.
During this quarter and that's a nice opportunity for us to bring those customers and start to see the opportunity to drive even higher attached with some of our existing customers. So excited about that part coming up.
<unk>.
The retention inside secure cloud is really really strong.
It's driven largely by the shift the fundamental shift towards channel and MSP and so as you break it down or our channel retention is is even stronger than our director retention. So we're really leaning in to those MSP for award seeing that growth in those 2012 to 2000.
Two cohorts that I've talked about growing at greater than 50% those are really positive trends that underpin.
Our confidence in the guide in the year. The gross margin piece, we're really focused on the gross margin dollars their office 365.
A really powerful tool and that you have.
No from Microsoft result, Theyre performing in a powerful way and so as that mix shifts up.
Dilutes our margin percentages.
But we're really confident in the attach and the continued growth of gross margin dollars that would deliver for the bottom line.
Okay, and then maybe just.
Sorry, a follow up.
On cloud I think you mentioned.
Did the Wagner than they had their best three months of <unk> growth year over year.
I think you commented.
Once you announced that deal that you expect that business to I believe it was a double over the next couple of years from an IRR perspective, yes exactly exactly.
We are on track.
With that and kind of.
How do you think about that.
That business is out of the gates really really strong.
That team is.
Integrating and executing.
One of the things, it's working better than we thought is the sales force backup market.
There's a lot of really important dataset in sales force and they are increasingly pointing their customers for the need for a for a backup of that that data and we have a really strong.
Our sales force back up for that in a couple of.
Really nice wins in and growing trends. There. In addition to the office 365 piece, which was the core of our investment thesis. So we're just really pleased with that.
With the team and how they're performing the product the adoption rate.
By our existing partners and again full integration doesn't really come for Q3. So the early the early starts really nice.
Okay, and then maybe one last one I think you commented on it a little bit on the previous question, but just what are your thoughts.
We stand here today in 2021, just on the stability of net retention and churn.
Relative to maybe kind of the end of the last year.
Do you feel like things are improving or you have more visibility there than maybe two or three months ago.
Now the good thing is that.
Im relatively.
Wrong, we've experienced since June July has stayed at a pretty relatively strong position fence band.
Looking forward to a much stronger second half when the.
Vaccines around people are really moving again, it's as you know that overall macro from the way we see it stayed pretty steady.
Since July and yes, that's a good thing and that it is steady at the 100%.
Net dollar retention, we're looking forward to being able to drive higher which we think comes.
With the.
The.
The increase in economic activity, we can we look for.
For a couple of months.
Great. Thanks for taking my questions.
Thanks Geoff.
Yeah.
And as a reminder, ladies and gentlemen to ask a question. Please press star one.
Our next question coming from the line of Brian Colley with Stephens. Your line is open.
Okay.
Hey, guys can you hear me alright.
Nice and clear.
Alright, congrats on the quarter.
I just wanted to start off maybe digging in on the top line beat and kind of what are you guys. What products drove the strength in excess of your guidance and then also maybe if you could just touch on what you guys are assuming from a macro perspective.
Just curious if you're baking in any sort of economic recovery or better cyber security spending environment in the back half of this year.
Okay I'll take the front part of the question around the the beat on the revenue side of.
Of course, we continue to see strength in the office 365, so that provided a part of the beat for US and then I would say end of Q3 and in Q for the attach of the Zika IP products onto the what was the historic App River platform.
We saw that.
You heard we are on our.
Our number of trials, we had 30% at almost 30% of trials, where with IP and with that we had our highest IRR growth from VIX IP onto the App River base that we've had and seen so that helped bring up the revenue. So it was a little bit higher than we expected into Q3 and then <unk>.
Into Q4 so.
Sachs IP into that App River basin, and the office 365, I'd say and then I would say archiving continues to be performing nicely.
And at the macro level I think.
I would point you to our guide.
<unk> 14, and <unk> 12 to 14 revenue growth for Q1 12 for 2014 revenue growth in Q4.
Means we're planning on a steady year, we do think the new customer acquisition trends will start to improve in the second half, but the beauty of the ratable model as those wins.
Contribute more 2022 and 2021.
So this year is.
Steady as she goes and what we think are good trends, but they are again slightly less than we are experiencing a year ago at this time.
Got it alright, that's helpful.
And then as a follow up on that I mean, just touching on one of the.
Initiatives that you mentioned for this year migrate in your legacy <unk> customers over to the secure cloud.
You mentioned higher churn rates in that in that customer base I'm curious if there's any.
Any investments you think you can make in the business that can lower that churn rate.
A lot of its execution net the hosted exchange is really the one that where we.
We're really focused on.
Enjoy a higher gross margin on the hosted exchange business and office 365.
But we know that the future of Microsoft in the future.
Productivity is in the cloud and so.
To sit and watch that base.
Go down we don't think the right thing were more aggressively marketing our customers were not moving customers that don't want to move, but we're making sure that our existing customers know that we've got a strong off a 365 presence building bundles and packages that are that are higher margin bundles and packages to access.
<unk> got <unk> churn to create.
Continue the long term relationship at a higher margin and obviously, it's better than losing the customers. So that <unk> piece that I was alluding to that we're going to get more proactive on that given where we are in the.
In the cycle and make sure we're managing those partners and customers not into us for the longer term and not.
And not losing them.
Another provider that is coming in with the with the cloud offer.
I would just add onto that the additional expense youre seeing a little bit I talked about the <unk>.
<unk> was $56 million of EBITDA for the year, we've got $3 million coming in for expenses that we cut really in 2020, because you didn't have travel not as much marketing.
Assuming a higher variable compensation attainment than the 61% we made last year you bring those in right.
<unk> for us.
For more like a 59 number.
So the 56 numbers.
Alignment when you look at some of those things we had to bring back in and then on the EPS side kind of being relatively flat that has to do with that R&D and why I bring it up here is we did spend or spend continue to spend on the tools that we need to make sure that we bring those customers across properly that they come into really strong secure cloud platform.
And so that's a little bit of the additional expense, we are taking to try and make sure that that goes smoothed for our customers.
Got it that's really helpful.
My last question was just on the international business.
Obviously seeing really strong growth there I'm curious if you could provide some disclosure on what what your international.
And our growth rate has been or what it was in 2020 and kind of what you see that being in 2021 and maybe.
For the potential as maybe a reaction for three years.
Yes, it's growing really well, we have a really strong team there and as they've grown from nascent two years ago. This year was a doubling.
It's still sub.
Meaningfully to sub 10% of IRR, but.
We can see them getting 10% of IRR.
For the next year year and a half.
Yeah.
Just.
The market there.
Providers needing to move to a cloud needing a platform to help them migrate their businesses secure cloud fits that really well we're making.
The big investments now to launch later in April which isn't that far away now into the German market.
Which we see.
Being able to in three to five years match, where the UK is three.
<unk> three year investment period so.
That gets you to just under 10% of another 10% for IRR with that investment.
Profiling that Mark GAAP.
Got it alright.
That's really helpful. That's all I have thanks guys.
Thank you Brian.
Yes.
And our next question coming from the line of Andrew King with quality Securities. Your line is open.
Great. Thanks for taking my questions guys. Congrats on a great quarter. So just over the course of the pandemic, we've seen that slow down your ability to add.
MSP partners as a result of the pandemic can you talk a well does that impact from this last quarter and then also what your expectations are for that going forward into 2021.
Yeah. So.
I would put the number out this quarter was a little bit better than last quarter in.
In terms of the number of Msp's added so we're continuing to add NFC.
Just a little bit a little bit slower than again that the prepay.
Pre pandemic.
<unk> done at pace.
The focus for this year is a laser focus on larger.
And so we're building out.
Two careful okay.
John is to attract.
Msp's, who can do meaningful amounts of our IP and so we're segments in a little more carefully around.
The ability to really represent the secure compliant resilient.
Part of the.
The product suite.
And that targeting the other thing we are targeting is growing our existing MSP. That's the real engine that would get built is bringing those MSP on overtime getting all of their customers onto our platform and supporting their growth businesses in that.
A really powerful part of our model that we're continuing to lean into.
Really targeting that the growth of our existing partners as well as that.
Attracting new larger partners.
Great and then just last quarter, you guys announced the hiring of new product Officer. Ryan Open can you talk a little bit about what you've done in the first three months, there and how it fits into the larger strategic view of the company well, yes. Thank you for asking.
At tremendous really big add.
So leadership team Ryan brings experience not only in building platforms, but looking carefully at the data sets and artificial intelligence from how to.
Think carefully about how we take.
Be information that we have uniquely have for our partners.
And customers and helping to improve the experience with machine learning artificial intelligence. So I think as we move forward.
You'll start to see.
More effort too.
Capitalized ultimately monetize the data asset that we have and can build from.
Bring it on like we expected a great architectural view a longer term product vision.
It can be really helpful.
Great. Thank you.
Okay.
Thanks, Andrew.
At this time. This concludes our question and answer session I would now like to turn the call back over to Mr. Wagner for his closing remarks.
Well I'd like to thank everybody for taking the time spent with US. This out there in this evening and look forward to speaking to you again in the 60 to 90 days on our Q1 earnings call.
Ladies and gentlemen, thank you for joining us today for the fourth quarter and full year 2020 earnings conference call.
You may now disconnect.
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