Q4 2021 Mimecast Ltd Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Q for 2021 Mine Cash Ltd earnings Conference call.
At this time all participants are in a listen only mode. After the Speakers' presentation. There would be of question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your speaker for today.
Robert Standard director of Investor Relations you may begin.
Yeah.
Good morning, and welcome to mine cash earnings call for the fiscal fourth quarter and the full year 2020.
We ended March 31 2020 from.
Robert Sanders director of Investor Relations with me on the call. This morning are Peter Bauer, our co founder chairman and CEO and rate from our CFO.
Today's conference call is being broadcast live a replay of this call will be available after the lack of sandy we.
We will make forward looking statements regarding future events and the future financial performance of the company. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward looking statements, including risks and uncertainties related to our recent security incident and the ongoing impact of the global.
COVID-19 pandemic.
We caution you to consider the important risk factors that could cause actual results to differ from those in the forward looking statements contained in today's press release and on this conference call. These risk factors are further defined in line cash most recent form 10-Q filed with the Securities and Exchange Commission.
During this call we will present, both GAAP and non-GAAP financial measures. These non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results.
Conciliation of GAAP to non-GAAP measures and the reasons for our representation of the non-GAAP information is included in today's press release, which can be found in the Investor Relations section of our web site.
Good day of this call is May 11 2021.
Any forward looking statements. We make today are based on assumptions that we believe to be reasonable as of this day. We undertake no obligation to update these statements as a result of new information or future of it.
I would like to turn the call over to Peter Bauer.
Good morning, everybody and thank you for joining us I hope you and your families of doing well.
I'll start with some takeaways from the quarter and the full year as one of the view into our expectations for fiscal 'twenty two I.
I'd like to ground, our discussion and our three pronged strategy and growth drivers and the progress that we're making against them.
Before I turn the call over to Ralph I'll address some of the trends we're seeing in the changing threat landscape and why we believe mine cost provides customers. The best protection and is uniquely positioned to grow market share of threats continue to evolve.
I'll also touch on the leadership transition that we announced today.
In a year that was more challenging given the macro uncertainties. We are pleased to report fourth quarter results that exceeded the high end of our guidance across all metrics.
We generated $133 $9 million in revenues in the fourth quarter.
It's up 13% year over year in constant currency terms.
We won 23 six figure deals an increase over Q4 last year.
And average order values rose.
To $13900 up approximately 9% over the prior year in constant currency terms.
And we delivered $24 million in free cash flow, representing an 18% free cash flow margin as we continue to drive bottom line expansion, while investing in growth.
As I reflect on fiscal 2021.
We saw slower project decision, making by larger organizations in the first half of the year.
And in international markets, where we derive almost 50% of our revenue businesses are still being impacted economically.
Through it all we stayed close to our customers we strengthened our go to market teams and strategies, we broadened our capabilities and ran out of business efficiently and profitably.
We delivered profitable growth with double digit revenue growth.
Increasingly strong free cash flow and meaningful margin expansion.
For the full year revenues came in at $501 4 million, that's up 17% year over year in constant currency terms.
And we drove $88 $4 million in free cash flow, representing a 17, 6%.
<unk> free cash flow margin.
We continue to have industry, leading retention despite increased down sell and churn as a result of the COVID-19 pandemic.
Of these results in the face of significant headwinds underscore the durability of all of business model of <unk>.
<unk> platform and our ability to be nimble and execute with discipline.
We continue to expect a U shaped recovery.
Maintaining low double digit revenue growth through fiscal 2020 to.
Importantly.
We achieved net revenue retention of 104% in the fourth quarter net.
Flat sequentially, which is better than expected and we view it as a sign of stabilization.
We expect top line growth to Reaccelerate over time, and we will continue to drive bottom line expansion as we work towards a rule of 40 balanced between growth and profitability.
Over the year.
The advanced of three pronged strategy were expanding our footprint in the enterprise market.
Selling a multi product platform to all of our customers.
And we're automating to create even stronger and easier to use engagements with the SMB and channel markets.
So let me share some highlights we took steps to further focus our resources consistent with our three pronged strategy and growth drivers. This included adding key people to our leadership team and our board and to our enterprise and go to market teams.
We're continuing to strengthen our organization to build on our momentum in key growth geographies and markets.
We made progress and I'll move up market with significant wins in both private and public sector. This included our largest ever win of.
190000 seats in the third quarter.
And 180000 seat win in the first quarter notable enterprise wins. This quarter include a global professional services company, we purchased all of zone, one and zone two services and added secure messaging for 100000 users.
A global retailer based in the APAC region purchased all zone, one security and continuity of service for 15000 employees.
And both of these underscore the popularity of our multi service offerings with our largest customers. We continue to grow our footprint in Canada. For example of Canadian Technology Company purchased day, Mark one of our zone three solutions for 73000 users.
And of Canadian manufacturing company purchased our security and internal email protect solution for 10000 users.
In the public sector of government agency and one of our international markets purchased archiving for 39000 seats.
We also won a security engagement with an APAC public sector organization with 10000 users and based on our pipeline, we expect to continue to expand our footprint in the public sector in fiscal 2022.
We continue to innovate, Sean and sell our multi product platform to new and existing customers consistent with our email security three <unk> strategy, we drove <unk> up to $13900 this quarter and average services per customer to $3 five up from $3 three last year.
As a reminder, we now have 12 product and our solution framework.
All of zone, one offerings include perimeter defenses and threat protection for our secure E mail gateway and targeted threat protection offerings.
Zone, two comprises internal E mail protection and awareness training focused on strengthening the human factor in security.
Zone three includes our day Mark analyze on a brand exploit protection.
Which acts as an offensive countermeasure of connectivity fight back against cyber threats, we again saw great traction in awareness training.
And internal email protect in the fourth quarter.
Adding 800 of 900, new customers respectively.
Our web security solution also performed well matching a quarterly record of net new customers.
This solution is proving popular with SMB organizations focused on keeping their remote workforces secure.
We continue to have success upselling to larger enterprises for.
For example, one of our global customers headquartered in the U S. With over 40000 users added new services. This quarter for a total of nine services across three zones, along with several of our cyber resilience extensions, including continuity.
And can recover and our privacy pack. We also signed a six figure deal with a prominent UK footwear and clothing brand, which added archiving continuity sync <unk> recover and brand exploit protect from zone three to their existing subscription in February of <unk>.
And alliances program reached a new milestone now offering 60 out of the box and custom integrations with security technology partners, such as crowd strike IBM security net scope Palo Alto networks rapid seven service now in Splunk. These integrations allow organizations to incorporate mine cost threat intelligence.
And automation capabilities into the broader security ecosystem and these partnerships have helped us win new customers and deepen existing relationships for <unk>.
Instance, in the fourth quarter, our partnership with Crump strike supported our acquisition of of new customer a large U K University.
And our largest deal of the year. The 190000 seat win I mentioned earlier was aided by our partnership with Mexico and incumbent vendor at that organization.
We were pleased to see bookings continued to accelerate in North America, and Australia during the fourth quarter as the economic environment has improved in these markets, we expect to see similar trends in our other geographies.
As vaccinations ramp up and stay at home orders come to an end.
I'm pleased to share that.
And gardeners 2021 peer insights voice of the customer program mine cost was named a customer's choice for both E Mail security and enterprise information archiving solutions Forester also recognize mine cost as a leader in the Q2 wave for enterprise email security.
Mine cost client references highlighted efficacy ease of use and pricing of strengths.
Additionally mine cost was selected as the winner of the 2021 SC Awards for best regulatory compliance solution.
Cyber resilience is more important than ever we saw a significant rise in cyber activity over the course of the pandemic.
And in E mail borne attacks in particular as noted in our 2020 state of email Security report.
Email threats rose by more than 64% during 2020, all signs point to this activity increasing going forward in the most recent quarter, we blocked 23% more tax year over year.
So let me highlight a few trends that we're seeing here.
Global malware activity rose by 35% in March across most verticals.
Demonstrating that no organization is immune but most of attacked vertical was professional services, which saw 147% volume increase in February 2021.
Manufacturing retail and wholesale followed closely behind together these industries represent approximately 40% of our revenues.
<unk> remains a significant threat.
I'll state of email security survey found that more than six in 10 company suffered a ransomware attack in 2020, it's proven to be lucrative for criminals and is under continuous active development by a number of threat actor groups and is being sold as a service mine costs comprehensive suite of.
<unk> helps customers prevent successful ransomware attacks maintain operations during an attack and recover data after an attack.
Other important trend, we're seeing is impersonation attacks targeting employees with privilege access to systems and information.
34% of malicious file based attacks blocked in March 2021, and 23, 6% in 2020 with targeted at these types of employees of targeted threat protection remains the leading solution on the market for blocking these highly targeted attacks, we continue to see of rise.
In coordinated multi vector attacks that involve E mail as well as social engineering fraudulent web properties and phishing sites malware and ransomware hosted on trusted cloud infrastructures and non email messaging systems being used as part of the attack chain what is becoming increasingly clear is that the concentration of.
Of data and computing into hyper centralized homogenous environment, such as Microsoft 365, and Azure provides an extremely compelling target and when compromised significant scale advantages to an attack.
And of World with increasingly standardized software stacks.
And software supply chain vulnerabilities layered security remains an imperative.
The recent exchange zero day attacks and solar winds compromise, which impacted companies across our industry, including mine cost really highlight this point of.
Conversations with customers and prospects.
Along with third party surveys indicate the recent threat environment has led organizations to increase their security budgets and explore adding best in class services like mine cost to secure their environments.
Our holistic email security three <unk> strategy and.
An integrated suite of offerings gives customers an advantage in defending against these multi vector coordinated attacks.
Are we continuing to expand and transform our platform dissipate the evolving threat landscape through internal innovation and acquisitions and as we do we believe we are positioned to drive faster growth and gain market share while achieving continued strong bottom line expansion now before I turn it over to Ralph I wanted to briefly discuss the leader.
Trip transitions, we announced earlier the appointment of our new CMO and our decision to combine product development and engineering under a chief technology and product officer. These are important steps in positioning mine cost to achieve our potential.
Burnt Liga our incoming chief marketing officer is an innovator with a proven track record in planning and executing our go to market strategies and building high performing teams.
Significant cyber security and marketing experience and has helped to successfully develop and launch a number of category defining companies and he'll be of great asset to our team.
Building, an integrated product organization.
As seen by a chief technology and product officer will enable us to drive agility and velocity in our innovation as we scale.
While our searches underway I look forward to overseeing the group on an interim basis with the support of great leaders like Kristina and John who will transition to advisory roles at the end of the month, they've made great contributions to my costs and I look forward to their ongoing support as we make this transition and with that I'll turn it over to Rafe. Thank you Pete.
I am pleased to report that we exceeded the high end of our guidance for revenue adjusted EBITDA and free cash flow for the fourth quarter of fiscal 2021 our results demonstrate our ability to deliver both top line growth and bottom line margin expansion.
Before I turn to our results I would like to touch on some trends, we're seeing some of our core markets begin to emerge from the macro overhang brought on by COVID-19. The pandemic has had a varying impact on our core geographies. Let me quickly touch on some of the patterns we are seeing.
We are seeing a favorable relationship between our business and the overall economic recovery of the region building on our observations of last quarter. We saw continued improvements in our North American business in the fourth quarter. Likewise, our Australian operations benefited from a local economy that is moving well past COVID-19 restrictions while the.
The impact of COVID-19 restrictions in the U K Europe, and South Africa remained more problematic, we anticipate that with the lifting of COVID-19 restrictions and expanded immunizations, we will see improvements in the overall selling environment as the year progresses, Let me now turn to our results in the fourth quarter, we generated revenue of 133.
$9 million, which.
Which represents a 17% improvement over the prior year in absolute dollar terms adjusting for $4 $8 million of currency tailwind or constant currency growth rate over the prior year was 13% for the quarter note that since providing guidance in February foreign currency fluctuations positively impacted our fourth quarter revenue result.
<unk> by $700000 for.
For the full year, we've crossed the $5 billion revenue threshold generating revenue of 500 of $1 4 million, which represents 17% constant currency growth over the prior year. After adjusting for the $1 3 million of currency tailwind both stream. Our top line result, where continued year on year increases.
<unk> in average order values or a L V calculated at May 3rd FX rates <unk> for all customers stands at $13900 up approximately 9% over the prior year in constant currency terms.
This trend is attributable to a favorable shift in the average number of services per customer across our customer base. Currently at three five services per customer compared to three three services. This time last year as well as our increasing success with larger organizations in fact customers with 5000 seats or more.
Now constitute 19% of our recurring revenue base versus 18% at the close of fiscal 'twenty. We added 300 net new customers in the fourth quarter, bringing our total customer count to 39900. There are two important trends when should consider in this respect first our focus on selling to larger customers is naturally.
Going to increase the focus on expanding Ao vs versus a rock customer count metric when we look at the year on year change in the net new customer metric. The majority of that change is in the small customer segment second the sluggish economic environment principally in EMEA is Wayne on the net new customer count metric, we do expect to see some improved.
<unk> here as the macro environment improves in EMEA net revenue retention stood at 104% for the four quarter period ended March 31, consistent with the prior quarter, but better than our expectations shared during our last earnings call.
This metric is particularly important as it is dollar based as opposed to purely customer count based looking at its components upsell totaled 113%, where we saw strength in both product based upsell as well as seat and price based upsell on the product side of the fourth quarter saw strong interest in our zone two solutions of.
Internal email protection and awareness training as well as our web security solution.
<unk> churn totaled 9% for the four quarter period, we are seeing early signs of stabilization on down sell and churn and anticipate an improving macroeconomic environment will continue this trend.
As Peter noted we were pleased to see net revenue retention begin to stabilize this quarter, which we believe is an early indication of a broader recovery in certain of our core markets.
We continued to drive improvements in gross margins in the quarter, we recognized a 77, 8% non-GAAP gross margin up 190 basis points from the fourth quarter of the prior year, a good step toward our long term goal of achieving an 80% non-GAAP gross margin adjusted.
Adjusted EBITDA for the fourth quarter totaled $33 $3 million Rep.
Representing an adjusted EBITDA margin of 24, 9% compared to 21% in the same quarter of the prior year on a net basis the quarter derived approximately $3 million of discrete year on year bottom line benefit as a result of COVID-19, driven cost reductions.
This has been primarily of travel savings.
Even excluding these cost savings are adjusted EBITDA margin would have been approximately 22, 6%.
We achieved this margin expansion through operational efficiencies driven by gross margin improvements and resource prioritization throughout our organization.
Our full year adjusted EBITDA totaled $127 2 million.
<unk> and adjusted EBITDA margin of 25, 4% compared to 18, 3% in the prior year in line with the commentary we've given on quarterly calls throughout the year $16 4 million or 330 basis points of this 710 basis point of improvement came from discrete bottom line cost savings.
During the year driven by COVID-19, such as savings on travel and facilities operations costs.
Now turning to the bottom line, our non-GAAP operating profit for the fourth quarter was $24 6 million or $18 four per cent of revenue an improvement of 440 basis points from the prior year, We reported GAAP net income of $5 8 million for the fourth quarter or a profit of nine cents per diluted share based on.
$66 3 million fully diluted weighted average shares outstanding our GAAP tax benefits totaled approximately $700000 in the fourth quarter, our full year GAAP tax expense was $1 7 million or non-GAAP net income for the quarter was $18 5 million or 28 cents per diluted share based on.
<unk> $66 3 million fully diluted weighted average shares outstanding our non-GAAP tax rate was 16% for the quarter, our full year non-GAAP tax rate was 20%.
Turning to cash flow fourth quarter operating cash flows totaled $31 7 million or 23, 7% of revenue for the full year operating cash flow total of $127 million or 25, 3% of revenue free cash flow totaled $24 million for the quarter.
For 18% of revenue driven by higher profitability and better than expected collections late in the quarter for the full year free cash flow totaled $88 4 million or 17, 6% of revenue, which is an 890 basis point improvement over the prior year, and notably well above our beginning of the year pre COVID-19 free cash flow.
Guidance provided in February of 2020 as of March 31st mine cost had 200 of $93 million of cash on the balance sheet up $119 million from the beginning of the year net of debt our current cash balance stands at $189 million.
Let me now turn to guidance for the first quarter of fiscal 2022 revenue is expected to be between $137 2 million and $138 6 million or 12% to 13% growth in constant currency terms. Our guidance is based on exchange rates as of May three 2012.
One and includes an estimated positive impact of $8 $6 million, resulting from the weakening in the U S dollar compared to the prior year.
Adjusted EBITDA for the first quarter is expected to be between $35 8 million and $36 $8 million, which at the midpoint reflects an adjusted EBITDA margin of 26, 3% of 400 basis points from Q1 of last year free cash flow for the first quarter is expected to be between 27%.
$28 million, which at the midpoint reflects of free cash flow margin of 20% of 390 basis points from Q1 of last year turning to the full fiscal year fiscal 2022 revenue is expected to be between $569 $7 million and $579 7 million.
Or 10% to 12% growth in constant currency terms.
And in the detail.
Foreign exchange rate fluctuations are positively impacting this guidance by an estimated $18 6 million.
Compared to the rates in effect in the prior year.
The prior guidance for fiscal 2022 provided in early February with $563 million at the midpoint of the strength, we have seen in our business is leading us to raise the midpoint of our full year guidance by $6 $5 million in constant currency terms.
This increase of $6 $5 million is being further positively impacted by $5 $2 million of foreign exchange tailwind that has arisen since the rates used in our February call, resulting in the midpoint of our full year guidance moving up by a total of $11 $7 million in absolute dollar terms.
From a midpoint of $563 million to a midpoint of $574 $7 million.
We are raising full year 2022, adjusted EBIT guidance to be between $148 5 million at $155 million, which at the midpoint of our guidance would reflect an adjusted EBITDA margin of 26% up 60 basis points from the prior year.
At the midpoint.
This represents a three point for million dollar improvement over our prior guidance. We are also raising full year 2022 free cash flow expectation to a range of $122 7 million to of $124 7 million.
<unk> of free cash flow margin of 22% at the midpoint of our revenue guidance. This is of 390 basis point improvement over the prior year.
At the midpoint this represents a $2 $7 million improvement over our prior guidance for modeling purposes, I would note that on a preliminary basis, we expect capex for the year to be approximately six 5% of revenue, which will be somewhat front loaded in the fiscal year full.
<unk> full year FY 'twenty, two GAAP taxes to total approximately $7 million and a non-GAAP FY 'twenty two tax rate of approximately 25% finally stock based compensation is projected to be approximately 12% of revenue for fiscal 'twenty two to conclude the mine cash business as demonstrated.
<unk> its resilience, we are seeing new and upsell business recover as the economies of key geographies begin to bounce back which is helping our net revenue retention rate to stabilize following the year challenged by the COVID-19 economic fallout.
As our fourth quarter results show the team is working hard to meet and exceed expectations.
As we move into FY 'twenty, two we are investing to protect our customers from the ever increasing threats. They are facing our go to market teams are driving new and upsell business, our product and engineering teams are driving innovation and we are investing in our core initiatives to drive growth, while making significant progress to deliver on our long term free cash.
Cash flow targets with that I'll turn it back to Peter for some closing remarks.
Well thanks Rafe.
We have of differentiated platform and of durable business model with 98% recurring revenue industry, leading retention and high gross margins.
We have the talent and passion at every level of our organization to build from our strong foundation and achieve new levels of growth and profitability. Thank you to all our employees for your hard work your resilience creative and innovative thinking and your strong execution.
Operator, if you would please open the line for questions.
Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
To withdraw your question press the pound key.
Again, Thats star one to ask a question.
These standby, while we compile the Q&A Ross.
Our first question comes from the line of Matt Hedberg with RBC capital markets. Your line is open.
Oh, Hey, thanks, guys good morning.
Thanks for the questions.
Great to see the stabilization here it really seems like.
The year is shaping up to be just U shape recovery.
I wanted to ask about the success in the large account wins, obviously, it's been a focus for you guys for the last several years, but with new senior leadership, including a CMO.
Are you going to take a more profound pivot towards sort of addressing these large account opportunities just sort of curious from an incremental days of how youre approaching this year on that side.
Yes, Matt Peter Thanks for the question.
Yes so.
You're right to say we've been.
Pulled into some really interesting enterprise opportunities steadily over the last few years.
Yes.
We entered.
This fiscal year, we made a deliberate plan to really invest behind that enterprise opportunity in.
Both from a sales perspective, and also from a post sales experience perspective, some of the things that we needed to have in place to more consistently and successfully win and deliver to enterprise customers.
And so that's been really exciting for us and we are seeing that coming through in our numbers now with.
All of 5000 plus seat category.
Growing from 18% to 19% of all of our overall revenue. So absolutely I think we are being recognized as of brands that can deliver.
For large enterprise customers, they certainly have a complex.
A very tiered needs for the types of services that we offer.
So it's absolutely part of our strategy.
As we go into into this fiscal year too.
That's great and then on the Microsoft Exchange Hack earlier this year I mean, it's just another reminder, I think of of.
The opportunity that you guys have in that base are you seeing any change in customer behavior there.
Maybe customers reevaluating, the <unk> SKU or kind of thinking about redundant security like like mine cash a little bit differently.
Yes, I think what we learned again with <unk>.
Zero day of <unk>.
Tax on on Microsoft Exchange.
There is risk in.
Relying solely on your application provider should be your security provider.
And there's a real need to have layered defense in depth.
And to have an independent of cyber security and resilience provide and that's exactly where mine cost comes into it layering additional unique security technologies.
Rounds of these mission critical applications like exchange and office 365.
Painful as it was for many organizations I think an important reminder of the importance of cyber security and.
Certainly the vulnerability that debt.
You can face with email.
Thanks, guys.
Thanks, Matt Thank you.
Our next question comes from the line of Brian <unk> with Goldman Sachs.
Your line is open.
Hey, Thank you good morning, and thank you for taking the question.
I was wondering if I could if we could maybe unpack some of the customer adds and churn data and if we look at 19% of your 5000 seat customers as a percentage of total that mean that applies debt actually most of the customer heads where large enterprise.
Maybe if you could help us understand within large mid and small enterprise some of other dynamics, there and is that math kind of Directionally correct.
Brian Thanks for the question.
Of course of the large enterprise because they are larger ticket items. They are driving an appreciable part of the business now keep in mind the whole base grew quite nicely during the year. It's just that that enterprise group is is growing a bit faster and I think that's one of the things thats encouraging for us as we really focus of this strategy and we're doing it on the <unk>.
Back of a lot of great success, we've had up market.
I mean, essentially you have a hub roughly of $100 million of.
Of enterprise business is growing faster than the other regions when we look across debt and you've seen that tweak up there. So.
The customer when you drill into the customer count elements of it.
It's skewed a bit because one big enterprise customer makes a really big difference in the dollar value measures that you're highlighting.
Got it got it that's super helpful. And then just I guess, if we could.
Maybe unpack the churn a little bit.
Whats the primary driver and where are you primarily seeing some of the churn come from is it still maybe kind of going out of business as opposed to a competitive displacement or maybe just.
Highlights some of the dynamics there why why we might look towards a stabilization of that number.
Sure and the one thing I would just remind everyone is that that's a trailing four quarter metric, we're really looking at customers a year ago and what's transpired. So we pick up all of the renewals and so it is covered in this full COVID-19 period and influenced by that I think what what you're hearing from US is we are seeing signs of stabilization, which.
I think both on the upsell and the downhole side to take that down sell and churn side first.
There is serious economic impact of that hit a lot of our customers over the course of the year, we've talked a lot about how we saw quite a bit of down sell going through the COVID-19 environment, but one of the conscious decisions. We made is to make sure. We're supporting our customers through a tough time, where we would choose down sell overturning of customer and we think.
That sets us up for a nice recovery coming out of the economic fallout I think we're seeing the first elements of it in even in the current quarter, where you started to see upsell move up not just in buying products, which we're always excited about that but youre seeing additional seat adds coming back in and I think that speaks to both the broader economic.
<unk> recovery, but also our investment in our customer success.
Got it that's super helpful. Thank you.
Thank you.
Our next question comes from the line of the Cat Taylor with Barclays. Your line is open.
Sure.
Hey, folks thanks for taking my questions here.
Peter maybe maybe for you just to make sure of the question of assets.
Now that the solar rins breach and the related impact of <unk> is a little further in the rearview mirror can you just talk about any customer feedback of our observations on on whether you feel that incident at <unk> impacted demand at all based on the numbers. It would seem like no, but again just to make sure of the questions asked.
Yes, Thanks second zone.
Look nobody wants to have a security incident like that occur and there is some inevitable impact this will have to see customer.
Customer base.
Prospect opportunities.
But I think as you point out of our numbers remains really strong.
Through this process.
Really proud of the way our teams handled.
The interaction with customers and navigated us through this I think on the positive side. It gave us an opportunity to get <unk>.
Moving closer to some of the security teams within our customer organizations that we work with.
As we handle this and I think that.
It allowed us to look at a variety of ways that.
Coming out of the situation.
<unk> cost and <unk>.
Even better even more robust organization.
As you'd expect from from some of the learnings that we were able to take.
From our experience, yes so.
All in all I think the numbers sort of speak for for.
Absorbed any of any of that impact.
And we're moving forward.
Out of it.
Absolutely.
Rafe for my follow up maybe for you great to see the EBITDA Guide go up for next year.
Can you just remind us how you've kind of thought about return to office expenses sort of layering in and if your assumptions there have sort of changed at all.
Yes. Thank you so we're expecting to try and get back to business more than the usual sentiment.
As quickly as we can so it's certainly in our numbers, we do have those travel costs.
Coming up a bit in Q1, but certainly by Q2 and travel returning to a more normal pace people getting back to work.
We're aware.
Aware that we've all learned about new ways of doing business remotely, but we're also very anxious to get back together and I'm pleased to say we of pilots going on where the Australians are back in the office as readily as her back from the office will be back in just a couple of months here much more regularly than the Lexington office, although a small group of US are here today doing our duty so.
I think that's just really important.
Just for the team morale and also being able to work together as teams and take advantage of the recovery, we're seeing more broadly and then of course the cost side of that will also kind of again buffer and a little bit in Q1, but really picking up steam for a more normalized rate through the rest of the year.
Makes sense thanks, guys.
Thank you.
Our next question comes from Catherine.
Your line is open.
Thank you for taking my question and excellent Princeton tough times guys.
One question I guess I have is on last year at the Investor day for for the entire world closed down.
You talked about free cash flow of inflection can you be instead of a little bit more it looks like you are headed on that directory. This year, we've talked about that some more thanks.
Yes, Catherine Thank you for the question.
Just as a reminder of it when we talked about free cash flow going into a range between 23 and 25% in our long range plan. We've just completed our first year and with just one year behind US as you noted our free cash flow guidance, we're targeting 22% free cash flow for the year. So I think that inflection has.
Very much come to us and I think what we're showing it's not just the COVID-19 travel savings were taking that board and building that into how we're thinking about the business. So we're.
We're feeling good about the free cash flow side of it perhaps even ahead of schedule.
Alright, thank you.
Thank you. Our next question comes from the line of Steve Koenig.
Nicole Your line is open.
Yeah.
Oh, Great Hey, Thanks for taking my question.
I'll ask two questions in one here and by the way of congrats on the results this quarter and the outlook looking looking for.
Same here.
Wanted to ask you for comments on changes in the competitive landscape.
With consolidation of the change of ownership.
Are you expecting any any thing that changed really in that competitively and also Michael toss. This out upfront, maybe just update us on what youre seeing in the field with your partnerships.
For the tech partnerships, including players like Mexico, Thanks, again and congrats.
Thanks, Steve.
Second the partnership side first I think thats such an important.
Area for our customers as they leverage our API integrations.
Long with some of the other leading cyber security products in the market crowd strike Palo Alto networks net scope.
And others Splunk.
And so we're really pleased with those partnerships and some of the the joint customer value propositions.
Able to present, both with our channel reseller partners.
And also of joint drive marketing and sales engagements with.
With some of those vendors, so I think really important for cyber security and obviously positive for our business too.
Just.
On consolidation.
You mean, you're referring to proof points.
The deal has recently announced.
With them in Thoma Bravo look I think it's really.
Powerful validation of the space.
To see something like that happening.
Clearly.
A lot of interest in the potential.
And a recognition of the significant threats that are that email and messaging poses to organizations from the importance of of solutions that can resolve that.
From a competitive standpoint.
I think it's.
It's too early for us to call the book, but we have obviously seen M&A activity in the past with.
Our competitors of consolidation in the space.
Generally it's.
It's known to have some distraction for.
For staff.
Partners and so on of these organizations.
And that can present opportunity potentially to mine cost I think increasingly we're being seen as the credible.
Perhaps sometimes preferred alternative for larger organizations.
And so you know this.
This may indeed present, a clear of shot on goal for us and some of those selling situations. So.
And I guess that's.
Some of that we have to see how that plays out in the market.
We have a we have a positive perspective on it going in.
Great. Thank you Peter.
Thank you.
Question comes from the line of Alex Henderson with Needham and company.
Line is open.
Can get Mike Chico's here for Alex Henderson. Thanks, Thanks for taking the questions.
On the EMEA South Africa. Some of these international markets that have been weaker to rebound versus what we're seeing in North American Australia.
Can you comment on what gives you the confidence for these improvements or how the pipeline looks and I just did one of working back to an earlier comment it sounds like.
For the <unk>.
Seed increases youre seeing based on the.
<unk> ability to support its customers through the year.
So we should expect that the customers will be coming back to you based on those those efforts that you had previously put in place.
That's fair.
So.
Yes happy to take that on.
What gives us confidence as we are seeing that such a strong relationship frankly with these other economies.
As people have gotten back to work hirings picked it up we see people.
Our companies that had reduced workforces, bringing those employees back all of that.
It is translating into a better selling environment for us in those stronger markets.
So we do believe that the U K, which has now lifted there theyre very heavy lockdown people are getting back to needed. We're seeing more vaccinations of across EMEA of pickup we expect that same behavior to continue there's just such a dramatic input impact on the overall economy of people.
Being able to get out from under Lockdowns and get back to work.
We're very much seen of world, that's frankly asking to get back in the office in and return to some state of normalcy normalcy. If you will that's really what what pushes us there and I think thats exactly right.
The second part of your question when we talk about debt supporting customers Youre spot on I think.
We do sell on a per seat basis. So is certainly if a customer had to vastly reduced head count and the.
Ended up having of down sell if you will last year as those numbers come back we're going to see an up sell on our renewals and and I just think that the strengthening of our relationships. The fact that we invested with our customers through a tough time.
It helps people realized that.
There is more to the story there is certainly about greater product efficacy, but theres, great service and theirs.
Investment in each other and of long term relationship.
That's great and then if I could just one more on the combination of the product management and engineering organizations into a single team.
Curious if you could just lay out.
Details as far as what's what's already underway at this point whats involved from a from a communications to the team getting them on board is.
Is there any.
Change in head count from removing duplicative positions, what can we expect there.
Yeah, Great question. Thanks.
So from a communication point of view I think it's been a.
Net.
Okay.
Clearly communicated inside the organization and everybody understands what we're trying to achieve strategically.
Excited of box, how we can be more agile as an integrated team under under a single leader I think.
Responding to get folks back into the office of.
Good time to bring people together into a new structure.
We're ready to use this.
Sure.
As a basis to continue to invest strongly in our R&D and product development initiatives.
And to propel us for it as a growth company.
To achieve our vision and our long term objective so yes, I think it.
It's a very positive manner.
We have a very talented team of leaders.
In all of product management, and engineering organizations and I'm, certainly looking forward to working even more closely with them.
As we as we move forward with this change.
Thank you.
Thank you. Our next question comes from the line of Sterling Auty with Jpmorgan. Your line is open.
Yeah, Thanks, Hi, guys.
I actually wanted to ask about the guidance for so I want to make sure that I'm looking at this properly it looks like the guidance for the for the June quarter has growth near 20%, but the full year, Nir 15, which would suggest a slowdown.
At some point or through the year, what whats kind of factoring into that pattern.
Yes, certainly thank you for calling that out and just to keep everyone. In line the growth rates, you're talking about are in actual rates.
Quoted constant currency in my script.
We've talked about a U shape recovery debt that we'll see throughout the year and I would just remind everyone. Because we recognize such a high percentage of our revenue on a deferred basis being an amortized across the year.
Even drastic improvements still bleed into the revenue line on a fairly gradual basis. So.
What youre seeing is as we get into this U shaped recovery, we are seeing strength as we've talked about in and of number of areas on the quarter as well as on the net revenue retention, we still need to.
We need to see those trends continue certainly before you can really start seeing us being able the uptick out of the bottom of the U. If you will I.
I would call out debt with a constant currency a raise on the full year of $6 $5 million I think that does speak to us feeling better about the year of as it certainly based on the way. We finished Q4 and based on our current outlook there, but it is going to take a few quarters to work through the bottom of debt yield.
Understood and then Peter you had commented about survey work that you've done talking to increased security spend.
When do you think those increases will begin to manifest themselves. Both in results and outlook I think we start to see <unk>.
Order or is it more of a back half share.
Thanks for the question.
Look I think the the outlook and what we've seen there are certainly factors into the guidance that that rate per share.
So thats.
That's part of our perspective on what we can achieve during this year.
I think it is sort of really interesting to see how the the kind of current new cycle is also impacting desire to spend on solutions.
Ransomware, clearly posing significant threats to organizations, obviously here in the U S with the colonial pipeline shutdown.
Organizations understanding that they are significant financial costs associated with with ransomware.
I believe that the average payment for ransom Ware.
The release is now over $300000.
And includes average downtime of about 21 days on average so.
The impact.
These incidents can have on organizations I think is really part of the story of driving.
An appetite to make sure that one has both preventative as.
As well as recovery capabilities in place, which is a.
A key component of the mine cost suites, and our sales motion.
Got it thank you.
Thank you.
Our next question comes from the line of Keith Bachman with Bank of Montreal. Your line is open.
Hi, Thank you very much and congratulations on a solid set of results.
Peter I wanted to direct this to you and it's really a two part question if I could as.
As you think.
Broader.
Longer term to the next call it three years.
You have on average right now customers are using three five solutions you of a total of 12, what does that look like longer term. If you look out three and a half years and is there anything debt.
You think could provide some step function change associated with.
A greater impact or greater distribution.
And part B of the question is if you look at your M. B It was actually up nicely nine.
9% year over year constant currency as we think about the next 12 to 18 months is as you look at the current portfolio is that kind of a steady cadence that we should be thinking about.
In terms of the economic model, thanks very much.
Thanks, Yes, so maybe I'll, let Ralph talk about the economic model on how he sees that that's holding up but from a.
Our cross sell and upsell perspective, and a broad suites adoption of perspective.
That.
Steady growth, we've seen an additional product that is.
Something that we expect to continue.
Yeah.
As you May know about 12 products and the overall portfolio. So there's plenty of headroom for us to increase adoption of in fact, we are seeing that playing out across some of the new modules.
We've introduced some of a strong quarter for products like E. P. M zone, two along with awareness training.
908, hundreds of additional customers.
Are you seeing that debt.
So.
Encouraging signs and then of course some of the other zone.
<unk> you Mark.
The additional customers web security 300 additional customers.
So as those products are maturing and becoming part of the story in customers minds.
We're seeing we're seeing continued adoption of the assets will continue to layout.
Additional capabilities and obviously cyber graph is something that we've recently introduced.
Available initially in North America, and rolling out globally.
We expect to see some some some positive results from that so overall I think for suites of really strong model with with multiple.
Kind of monetize the bowl.
Category of place there that we continue to benefit from <unk> and <unk>.
On the economic model I mean, youre spot on I think that's a key part of the strategy is making sure that we're driving those <unk> up over time, and that's really going to be driven by of course, the emphasis on larger customers as we've been talking about but also on the upsell elements as we we've taken these 12 products and you talked about.
Step change all of at least the strategy is on the one hand, making sure we're continuing to expand the platform in ways that work together sets of customers get more when they buy one plus one equals more than two kind of approach. So if we can continue to build our platform and then we combine that through good bundling good pricing of packages to help customers be.
Successful, that's going to drive <unk> and I think another really important element to understand there is we see much better retention rates with customers, who have more products because they get more value out of mine cash right at.
And I think that's a key part of the story as well so we're at that point in our trajectory, where we realize that while new customers are really really important also how we can take care of our base of customers and keep bringing them new offerings incredibly important to our long term success and of course, the economic model.
Makes sense. Thanks.
Thank you our.
Our next question comes from the line of Terry Tillman with Julien Your line is open.
Yes. Thank you for taking my questions and I'll Echo the solid job on the resilient results I guess Peter of the first question is on web security of asked about in the past I know you just talked about it but it has that product reach an inflection point and also it sounds like it's been more successful at this point of the SMB market could it actually help you strengthen your small.
All business or SMB sales.
Yes very.
Good question. Thank you.
Yes, I think definitely web security, we've seen it increasing popularity.
I think particularly as you point out within the SMB segment and that kind of sub 500 seat category.
1000 seat category.
Especially as <unk>.
Smaller organizations have been continuing to look at ways to keep their remote workforces.
Sure.
And of course, even at the end of COVID-19, we got into a kind of of hybrid working arrangement, which.
Organizations are expecting and preparing for some of the capabilities that we've delivered around web security that income.
Some some interesting advanced functionality like browser isolation.
Application controls shadow it detection.
Selective proxy capabilities user.
Using the same kind of malware interrogation stack is our E mail platform.
It's a really interesting solution, particularly for customers that have already selected mind cost to be the security partner for.
For email.
As part of our suite so yes.
I think we are.
We're quite bullish on what we can achieve with web security in the SMB market over time.
That's great and I just had one follow up right in terms of the enterprise business you characterized the wealth of $100 million kind of run rate revenue business could you remind us what the profitability on this 5000 plus seat enterprise business is like and are you in more of a getting leverage out of that mode or investing for growth. Thank you.
That's a great question I think one of the encouraging thing with enterprise customers.
They come with a real.
Handsome lifetime customer lifetime value and I think that's when we approach of market that we really like to look at it in those terms that we think on the long term investment of them those customers present, great opportunity for us and strength for the customer of our strength for the company if you will.
And I think that's part of the overall formulation as we're looking at this is we feel like that can be a driver to help us achieve those long term goals both on the top line as well as on the bottom line as we've discussed.
Thank you.
Our next question comes from the line of Nicole.
With Northland Capital Your line is open.
Thank you.
So.
Looks like a really strong billings quarter with of the yogurt growth accelerating relative to several quarter can you talk about what was the linearity of the quarter.
Linearity and of course, it was very much in line with prior quarters. There was nothing really to call out exceptional on linearity in the quarter I think.
Just would be around the edges debt.
Net.
That's the cycle of strengthening and certainly in some of the activity in the company came on later in the quarter, but that's really going to have a bigger impact on future quarters, and the way that translates into strength in our business.
That by kind of the geographic breakout that we talked about earlier, where we're seeing those economies gets stronger as they are emerging from the COVID-19 hangover.
Okay and.
One of your metrics you can point to say that for utilization of automation. The midmarket is working.
Given the further slowing in customer adds and what seems to be an improving SMB sentiment here.
Yes, no so.
We have several projects going on in that respect some of them are.
It's going to take a few quarters to fully implement where we're really focusing is the first of all I would say, making sure. We continue to leverage our channel relationships and maybe take those to the next level and I think that's a key piece of this strategy.
Part of it is is just if you look at some of the trends, we're seeing out there with smaller customers rely on non MSP is more we want to improve that working relationship and as you know we made an important hire last year for a channel leader. He is implementing a lot of his work and lane.
Groundwork for continuing improvements in that respect I think more broadly we have some good projects that are going to go along and really approach the whole quote to cash cycle, helping people.
And of digital way transact with us much much more efficiently and then Barents is going to be coming into and really taken it to the next level and a big part of his focus about how we help these customers find microstat claim gas of services and offerings and and really again transact with us more efficiently. So it's going to be.
Our multi quarter track, but I think that's really the focus of it.
Great. Thank you.
Thank you for our next question comes from the line of Brent Thill with Jefferies. Your line is open.
Hey, guys. This is Joe on for Brent I. Appreciate the question and congrats on path from the 500 million of Rev. Threshold lots of me proud of there where they're following up on the billings were there any outsized FX or other dynamics impacting billings I'm just trying to bridge. The current billing strength, we've seen in the past few quarters, obviously, you're lapping from pandemic impacted numbers, but just trying to bridge that you're constantly.
Currency Rev Guide going forward or is there just a yes.
No I think Thats key and this was.
We got a lot of currency tailwind in this quarter, we certainly called it out.
Again, the prepared remarks around Q4 as well as the guidance.
So I think you need to adjust.
In any of your calculations take that into account.
We're of course pleased after when COVID-19 came on the currencies worked against us for a bit. So now as things are kind of normalizing we are seeing that strength.
Obviously, it does flow through not just the revenue line items, but if you're if you're trying to calculate of billings number you'd want to adjust for that as well.
Okay. That's helpful and then being that <unk> is the most important quarter of the of the following year I think you've touched on it a little bit, but just any sense of how the pipeline of booking I believe last quarter. You said generation was lagging slightly due to the increased focus on the security breach just kind of curious how you view of the pipeline.
Yes no.
Look I think ultimately the best indicator of our of our confidence is the fact of we're able to have a nice raise on the the.
Full year revenue number that $6 5 million constant currency raised plus some FX tailwind behind that.
I think thats your best indicator as we touched about on the last call. There was a period of time, where we're making sure. We're taking care of all of our customers and we're all very focused on that the sales team quickly got back to their day jobs of going out and building pipeline and closing deals and I think that's encouraging.
We're very focused on that.
Currently in and I'd say Theres no distractions right now so it's all about building a good year.
Awesome. Thanks, guys.
Yeah.
Thank you.
Our next question comes from the line of Brian Colley with Stephens. Your line is open.
Hey, guys. Thanks for taking the question.
So I'm curious just on the guidance.
Kind of what you're assuming from a macro perspective in terms of the recovery in some of these more challenged international.
International markets.
And then secondly, I'm curious if the guidance raise.
But you made this quarter.
If that.
So youre, saying the drove debt guidance changes change your.
Timeline for a reacceleration of revenue or if you're kind of just raising the base of the U.
Sure.
Great questions.
So first in terms of our kind of macro recovery.
Specced in to start to see you know certainly there are bigger markets in EMEA start to bounce back I would expect it is going to be likely of Q1 Q2 kind of recovery as they get their engines rolling and I'm basing that entirely on just a bit of what we've seen certainly in North America and Australia in end markets that of just.
Yeah.
<unk> gotten a bit of a head start in that respect so I would again start to hopefully see strengthening throughout Q1 Q2 in those markets now of course I would caution COVID-19 has thrown me more twists. If you will on the over the last year than I would've ever bargain for so one has to always take that into consideration.
I think in terms of of the overall recut.
Recovery.
I think it's key to remember that North America is half of our revenue base and Thats really of our roughly half of our revenue basis and Thats key.
The U shaped recovery as I mentioned, a bit earlier, just because of the way we recognize revenue debt. The timings of the bookings really matter a lot somebody said that Q4 is the most important quarter of the next year absolutely true. So there is a little bit of a timing element to did judging when revenue will start to build up I think the.
Port thing here is strength like we were able to show with a nice raise really solid on the free cash flow side shows you that we're executing and as we take advantage of hopefully better selling environment, we're going to be able to build that and make sure that we get to the other side of the U as quickly as we can.
Yeah.
Got it and then just following up.
Going back to the.
Security breach from earlier this year.
Do you guys think the worst of that impact is behind you now or do you think that the impact from.
Net incidents of kind of bleed into end of 'twenty two so.
We believe the worst behind us.
Got it alright, thanks for the time.
Thank you thank.
Thank you.
I'm not showing any further questions from the queue I would now like to turn the call back over to Peter for closing comments.
Folks thanks for joining us this morning for us.
<unk> full year, and our Q4 FY.
'twenty one results, we look forward to presenting all results again to you in about three months time have a great day.
Ladies and gentlemen, this concludes today's conference call.
For your participation you may now disconnect.
Okay.
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