Q1 2021 Zix Corp Earnings Call
[music].
Good afternoon.
Welcome to <unk> first quarter 2021 earnings Conference call. My name is Howard and I will be your operator today.
Joining us today for today's presentation, all of the company's President and CEO, David Wagner, CFO, David Rockville, 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 the 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.
Afternoon, everyone and thank you for joining our first quarter 2021 earnings conference call on the call today, we have our CEO, Dave Wagner CFO day, Rob Graham.
After the market closed today, we issued a press release announcing our results for the first quarter ended March 31, 2021, a copy of which is available in the Investor Relations section of our website at Www Dot <unk> Dot com.
Please note that during the course of this call 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.
It's 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 factors section of our most recent form 10-K, and 10-Q filings with the SEC provide examples of those risks.
As more fully described in our 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 of which we operate.
The impact of COVID-19, and the unprecedented measures to prevent its spread are affecting our business in various ways, such as 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 of business partners and.
And limitations on our employees' ability to work and travel.
These factors are 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 a 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, Dave.
Thanks, Jeff Good afternoon, and thank you everyone for joining us today.
In the first quarter, we delivered consistent overall results, reflecting our continuing commitment to drive profitable growth, we delivered 14% growth in revenue and <unk> in Q1, along with the 18% increase in adjusted EBITDA dollars and solid cash flow from operations of $10 7 million.
In the quarter, which is more than double the amount we generated in Q1 of last year.
Our cloud <unk> growth was 20% our cloud migrations are accelerating and 88% of our total.
<unk> is now in the cloud.
These financial results reflect the increasing adoption of our secure cloud platform by partners and customers alike.
Our cloud backup business is up almost 25% since we acquired cloud alloy in November and is up nearly 40% year over year Rick.
Already cross sold 64, new cloud backup partner since last November a great indicator of our momentum and continuing growth prospects.
The technology.
Our international expansion plans are right on track, we were up 10% quarter over quarter in international.
In Q1, and we are launching into the German market. This month.
Companies are deploying more devices.
Are you, indicating a more channels supporting more remote work and facing greater cyber threats than any other time in history.
Secure cloud provides the robust security and compliance capabilities, our MSP partners and their end customers need.
SMB slowed down a little bit in Q1, but the acceleration we're seeing since mid March highlights the opportunity ahead as businesses continue their journey to the cloud with an increased focus on email security compliance and resilience.
Now I will turn it over to our CFO, David Rock band to provide details on our financial results for the quarter David.
Thank you, Dave and good afternoon, everyone. The first quarter of 2021 marked another period of consistent profitable growth increased year over year, adjusted EBITDA dollars and strong cash flow generation.
Looking at the numbers in more detail at the end of Q1, our <unk> totaled $243 $6 million up 14% from Q1 of last year.
Our cloud based <unk> grew 20% over Q1 of last year and comprised of 88% of our total <unk> or a record $214 $3 million.
New customers added in the quarter totaled roughly 3900 for the first quarter. Our net dollar retention was 98%, which represents our renewals plus new sales into the installed base divided by the renewals that were available at the beginning of the quarter.
Both new customers of net dollar retention were slightly lower than the last two quarters as we felt some impact from the COVID-19 induced SMB slowdown in January and February.
This slight slowdown is right in line with the dip in the December January and February NFIB small business optimism index, which dropped from $104 seven in November the 95 in January the index did come back up to $98 two in March in line with.
Of our business performance.
We have yet to see the April number, but we were pleased to see a rebound in both new customers and net dollar retention in both March and April per zick.
Dave will provide more color in the context of our growth pillars.
But we continue to be encouraged by our ability to grow <unk> at a double digit rate and maintain solid retention rates.
Revenue for the first quarter increased 14% to $60 million from $52 4 million in the same quarter last year.
The $60 million of revenue exceeded our guidance range for the first quarter.
In Q1 as in the past we saw the majority of all new customers onboard of the zick secure cloud platform in.
In the first quarter of those new six secure cloud customers averaged one six services per mailbox, which is above the 131 average we currently have across the company.
We believe this bodes well for our strategy of providing a strong user friendly platform that makes it easy to add more of <unk> solutions, ultimately, making us more valuable and stickier to both our partners and customers.
Our adjusted gross profit for the quarter was $30 1 million or 51% of total revenue.
This was an improvement on a dollar basis from $29 2 million or 55, 7% of total revenue in Q1 of last year.
Gross margin dollars in the period were impacted due to the continued strength of our productivity products and the accelerated rotation to the cloud during the quarter.
We anticipated our customers moving their hosted exchange E mail to Microsoft 365 platform in Q1.
However, our programs exceeded our plan.
Our ability to assist our MSP partners and direct customers as they move to the cloud continues to make us even more valuable partner to them.
The macro acceleration of the business cloud journey and increased focus on email security give us confidence, we can continue to capture meaningful growth opportunities well into the future.
Moreover, our current base of more than 5000 partners of 90000 end customers provided the built in growth opportunity towards that attached the <unk> organic higher margin products and.
And we do expect to grow gross margin dollars in Q2.
Our adjusted R&D expenses for the first quarter of 2021 were $5 4 million or eight 9% of total revenue.
This compares to $4 9 million or nine three percentage of total revenue in Q1 of last year.
The year over year dollar increase for the quarter was primarily amortization due to certain development projects, we completed in the quarter we.
We would anticipate R&D expense to continue to increase during the year we.
We don't expect this to be in current cash expense increases, but the amortization of past projects that are being deployed unsecured cloud.
While these expenses impact our net income and EPS. They are adjusted out of our EBITDA.
Our adjusted selling and marketing expenses for the quarter were $10 $5 million of 17, 4% of total revenue compared to $10 6 million or 23% of total revenue in Q1 of last year.
The lower selling and marketing expenses as a percentage of total revenue reflects the benefits of our lower cost of customer acquisition from our high velocity sales model and the success, we are having winning new customers and wallet share gains from our active MSP partners.
For the first quarter of 2021, our adjusted General and administrative expenses were $4 1 million or six 9% of total revenue, which was down from $4 $6 million or eight 7% of total revenue reported in Q1 of last year.
On a GAAP basis, we recorded a net loss attributable to common shareholders of of loss of $4 $8 million or loss of <unk> <unk> per fully diluted share.
The benign net loss for the quarter compares to a net loss attributable to common shareholders of of loss of $3 $1 million or loss of <unk> <unk> per fully diluted share in Q1 of last year.
The change in the quarter was primarily driven by higher stock based compensation over the prior year.
Our first quarter non-GAAP adjusted net income before deemed dividends and excluding deferred tax was $7 $9 million or <unk> 15 per fully diluted share which was in line with our guidance. This compares to $6 7 million or <unk> 12 per fully diluted share that we reported in Q1 of last year.
And finally, our adjusted EBITDA for Q1, 2021 totaled $13 $1 million, an increase from $11 1 million, we reported in Q1 of last year as.
As a percentage of total revenue adjusted EBITDA for Q1, 2021 was 22% which was in line with our guidance and compares to 21% in Q1 of last year.
Cash flow from operations for the first quarter of 2021 was $10 7 million, an increase of 142% or $6 $3 million over Q1 of 2020.
The increase in cash flow from operations was primarily driven by continued focus on the business operations and continued careful working capital management.
Capex and other intangibles for the first quarter of 2021 were $5 million, which consisted primarily of normal business capital purchases and capitalized internal use software development.
Billings for the first quarter of 2021 totaled $62 $3 million up 12% from $55 8 million in Q1 last year.
Turning to our balance sheet, we ended the quarter with $23 $7 million in cash.
In addition to our strong cash position, we also have $25 million available for borrowing under our revolving credit facility.
The company also repurchased approximately $2 $1 million worth of the company stock as part of our equity management program on investing shares.
In terms of our capital structure and debt metrics, we had $211 $5 million of total debt on our balance sheet at the end of the quarter.
Our trailing 12 month adjusted EBITDA of nearly $53 million reflects the leverage ratio of approximately three five times adjusted EBITDA at the end of Q1, putting us well below the maximum permitted leverage ratio of 475 for the quarter.
Shifting gears to our financial guidance for the second quarter of 2021, which is based on current market conditions and expectations.
In Q2, we currently expect revenue to range between $61 $2 million $61 $6 million our revenue.
<unk> forecast for the second quarter of 2021 implies a 15% growth rate compared to Q2 of last year.
We are forecasting fully diluted GAAP loss per share attributable to common shareholders to be in the range of of loss of <unk> and a loss of <unk>.
And fully diluted non-GAAP adjusted earnings per share attributable the common shareholders before deemed dividends and excluding deferred tax benefit expense to be <unk> 14 for the second quarter of 2021.
We are currently forecasting adjusted EBITDA to be approximately 22% of forecasted revenue for Q2 2021 the.
The per share guidance figures are based on an approximate basic share count of 57 million shares for Q2 2021.
Based on our current visibility we are increasing our revenue guidance for 2021 to be between $248 million and $255 million.
Representing an increase of between 14% and 15% compared to 2020.
We also expect fully diluted GAAP loss per share attributable the common shareholders to range between the loss of <unk> 36, and a loss of 33 for the year.
On a non-GAAP basis adjusted earnings per share attributable to common stockholders is expected to range between 58% and 60.
Adjusted EBITDA is forecasted to be in the range of $56 million of approximately 22% of total revenue for 2021, and a year over year increase of approximately 10% compared to fiscal year 2020.
The per share figures are based on an approximate basic share count of $55 5 million for 2021.
As a reminder, fiscal 2021 guidance includes an increase of about $3 million of expenses in 2021 related to travel compensation and marketing, which were reduced in 2020 due to COVID-19.
Based on our current outlook, we expect to generate continued strong free cash flow in 2021, we are forecasting approximately $9 $5 million of interest expense on our bank credit facility and other interest bearing items for 2021.
In summary, as we execute the strategy, we believe our 100% subscription business favorable profitability profile and strong cash flow generation positions us well to meet our manageable debt obligations and achieve our adjusted the EBITDA guidance of $56 million.
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-Q, which we plan to file by May 10.
Also visit our Investor Relations website to view of our most recent investor presentation David.
Thanks, Dave our financial results underscore the growing role <unk> is playing and empowering businesses of all sizes with technology to drive cloud adoption facilitate digital transformation and protect the communication.
As we noted on our last call 2021 will be a year of transformation presents our transformation plan is built on the same three growth pillars, new partner and customer acquisition partner and customer add ons and retention.
I'll take a few minutes now to provide updates in each of these areas be.
Beginning first with new partner and customer acquisition in Q1, we added about 3900 new customers.
Of which approximately 89% were added by our MSP partners, which was up slightly from 88% last quarter.
Some key MSP partner wins in the quarter included a new UK based MSP, who wanted to consolidate its office 365 cloud backup and advanced threat to a single trusted provider with superior support.
We had another win with a U K based MSP, who recognize the value of being of VIX partner and the benefit of consolidating its cloud backup and office 365 with security auditing into one provider.
They have already moved nearly 1000 seats onto our cloud backup solution and we have an opportunity.
To sell more through this partner as this relationship continues to grow.
Three of our top five new partner wins included cloud backup in the quarter.
All five of our top new partner wins were international with three of the U K and two in Germany, the latter of being a major focus for us this year.
While we are just getting started with our expansion into Germany. Our early traction is encouraging and validates our investment thesis.
Broadly speaking vendor consolidation by partners is a growing trend and VIX is MSP partners are realizing tremendous value from our broad portfolio of products focused on their most critical security and compliance needs.
On the value added reseller and direct side of the business our top five wins in the quarter included four in healthcare and finance.
Turning to our second growth pillar, which is sales of the existing partners and customers.
Key source of growth for us is sales to existing customers through partners in the first quarter sales to existing customers through MSP accounted for 44% of the <unk> increase in the quarter, which compares to 46% last quarter.
As Dave mentioned, we saw a decline in sales to existing customers in Q1 from what we experienced in Q3 and Q4.
The good news is that the sales of existing customers began to recover in mid March and April sales to existing customers were the strongest month for such orders since we've owned GAAP River.
Our interpretation of this modest slowdown in Q1 is that it was the result of the COVID-19 surge we saw in late winter and that the March April recovery bodes well for our outlook.
In terms of our top five add ons were bar and direct sales team three were in health care of to run banking.
The largest was a meaningful six figure add on for an encryption only customer.
We also secured of meaningful add on with a financial institution the license six products, including cloud backup.
Moving to our third growth pillar increasing retention.
Total company net dollar retention was down slightly to 98% of Q1 from 100% both last quarter and in Q1 last year.
Gross retention at the company level remained over 90% consistent with historical trends.
Our net dollar retention was impacted in the quarter due to lower sales to existing customers as discussed earlier and also due to churn and Microsoft hosted exchange are Hicks.
The rotation from Hex to office 365 accelerated in Q1 for two reasons.
First it appears that more cloud E mail migrations were planned for early 2021. The normal. So we saw seasonal work from home induced acceleration and second the program. We instituted earlier this year to proactively market our hex the office 365 migration.
Capability.
Probably.
Accelerated migrations as well.
To be clear the rotations of the cloud remains a point in our favor and we are leaning into it.
Our cloud retention rates remain very strong and our overall net dollar retention in April was back over 100% driven predominantly by the strongest month per App River since we acquired the business from 2019.
Our increased top line guidance for the year reflects all of these factors.
Our acquisition of Clat ally was very well timed and has performed exceedingly well since joining the <unk> last November.
In fact, but allies <unk> has hit record levels each of the last three months and they recently secured the largest deal in company history, which was a six figure win.
When cloud.
Cloud data backup is playing an increasingly critical role within a secure modern workplace and we have of leading solution to address that growing need we're seeing seeing strong attach rates of adoption of cloud backup by our partners.
In summary, we believe <unk> is well positioned our cloud momentum has us on track to realize our goals for 2021, including delivering $56 million and adjusted EBITDA. While also setting us up for more success as we continue to focus on profitably growing the company to 500.
<unk> of <unk>.
By 2025.
That concludes our prepared remarks, operator, we're ready to open the call for questions operator.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on the telephone keypad.
If your question has been answered or you wish to remove yourself from the queue simply press the pound key.
Again, if you have a question or comment at this time. Please press Star then one on the telephone.
Telephone keypad.
Our first question or comment comes from the line of the chart.
<unk> from Northland Capital Your line is open.
Alright, thank you.
Congrats on the upside in the quarter and the.
$3 million guidance increase at the midpoint that's fantastic.
So the clear.
Sure.
I know you cited a lot of the different drivers there but simplistically.
At river versus core offering with the.
One was the bigger driver here.
We're talking about the whole company level, and that's really primarily how we looked at it in the hall.
Are those trends that we've talked about a real consistent across all parts of the business.
Really good momentum, especially later in the quarter and here in April and the kind of across the all parts of the been the.
<unk>.
Just a little bit of SMB draw down in the January February period.
Alright.
Okay and.
Go ahead the other.
The place where we called out was the hosted exchange.
Which was just a little under the little different for us and when you think back about it it makes a lot of sense, but the cloud rotation that happened in 2020.
A lot of customers.
Waiting to year end can make that change and we further incentive that change. So that was the one other thing that was just the kind of.
A different business trend in the rest of the business. So there is of the ones we highlighted now.
I say, okay. What do you think is behind the acceleration in the month of March the.
The year comps or is there something more fundamental going on.
That's why we used those nfib's batch and we just feel like it was really of market a market being I don't know whether SMB players.
But we really thought gross really tightly correlated the market April as you know as of the Super strong month in the U S.
<unk> segment of the economy, and we certainly we certainly saw that.
Gotcha, Okay and.
Great to hear about the.
Great success that youre, having with cloud alloy.
Do you think that has anything to do with the news items of accelerating ransomware across there.
The cyber security universe, that's driving that or you think that or something else that's driving that.
No I think youre exactly right, the ransomware and recognizing that the.
The value of the cloud data workload that the.
That's what we talked about.
First part of COVID-19, a rotation work from home it could drive a lot more cloud adoption.
That's why we also think of US really well timed we were close to our partners through that period of close to our customers recognize and that's where they'd be going next as we come out of.
John.
This new hybrid workplace with a lot of the cognitive workloads rethink it.
It's still really early for backing those out we're seeing great success. Our continued the number one workload of course as office 365, but sales force really right behind that is the second biggest.
Set of cloud data, we're backing up.
I see okay and my final question is is that it's great to see that the.
You're guiding to I don't know if the guidance, but you are targeting $500 million in IRR by calendar 'twenty five.
If I do that on a five year basis of it puts the 16% CAGR.
So you did have a slight acceleration in the most recent quarter the fair to assume that the.
Youre expecting continued acceleration to this sort of 60% rate by the end of this year.
Yeah. So obviously, we're very pleased with the acceleration that we're seeing when we talk about the $500 million related a little bit room for inorganic work as well so you've got 15%, where we are today. There is $30 million of acquired are hard to get us to the 500, but that's exactly how we're looking at building mode.
<unk>.
Continuing to look for tuck in technologies that can further accelerate that rate and accelerated.
Okay.
Okay, great. Thank you.
Thank you.
Thank you. Our next question of comment comes from the line of Nick Mariachi from Craig Hallum. Your line is open.
Hi, guys. This is Nick <unk> on for Chad Bennett of thanks for taking our question.
Have you guys as you guys started to migrate legacy customers on the secure cloud are you seeing customers use of this as an opportunity to add additional projects products and then just overall as we see the number of services per mailbox continue to tick up how should we think about the having an impact on net retention of gross margins.
Okay I'll take the first part of the question, let Dave come back in on the attach rates in the gross margin.
Most of our gross margin dollars. So we are seeing an acceleration of the migrations to secure cloud as you know net we finished up the Dev work late 2020 to get all of the best features of what we call advanced email encryption and secure cloud, but that's of the.
<unk> point for our customers that coupled with.
Just the cloud rotation.
To give you of kind of a sense of how that's accelerated a year ago. We cuts of these customers all the time, but in a year ago, we would have about 20% wanting to move to the cloud in the next 12 months, we have 60% of the customers, we touched year to day moving to the cloudy day now.
Within the next step quarter or two so we were timed well to have that capability ready.
<unk> well in order to.
Enhanced that cross sell and then the other big migration Court cohort happening now that's gone really well is that the AUM.
2000, SMB hosted customers are moving across with great success as well. So that program is moving really well, thanks projected and Nick and I'll, let Dave kind of hit the cross sell on the attach of its going well, we can always always want more.
We're looking at that growing a couple of hundred basis points.
A couple of hundred tens of points every quarter. So we're at 131 in total we'd like to see that.
Most of the one four towards the end of the year. So we are working towards that with the team as far as we look at cross sell.
Getting the UK team continuing to focus on the additional products that they now have to sell especially when you look at the cloud ally add on that brings a lot of opportunity for cross sell.
Launching in Germany. This month, we're real excited about that and the teams we've been able to bring on there to get the cross sell going in in Germany as well. So we got that and then the gross margin dollars. We look for gross margin dollars increasing the next couple of quarters as we as Dave said, we had that pretty significant hedge to office 360 <unk>.
Rotation this quarter early in the quarter, which was great because we retained a lot of those customers.
And the gross margin a little bit in January February on the dollar side, but with what we're seeing in March and April we're looking for that to pull back up in the second quarter. So we would expect to see gross margin dollars increase and a big part of why we can maintain that 56% EBITDA of $56 million of EBITDA per year end.
Got it thank you and then.
A year ago now we were talking about customers downgrading to lower price office 365, Skus I was just wondering if.
Kind of side of the similar impact in the quarter of that.
We're talking about.
Yes, that's Barry.
That's very good reminder, and it was different that time. It was not the churn was super solid we did not see that price sensitivity just a slowdown in the in.
And the addition.
Of fee from the installed base.
That's a good question because we did not do the skewing down like we did last March.
Got it thank you.
The great question.
Thank you again, ladies and gentlemen, if you have a question the comment at this time. Please press Star then one on the telephone keypad.
I'm not showing any other questions in the queue at this time I would like to kind of the current I'm sorry.
Hi, Charles from Northland capital.
Your line is open.
Thanks.
So just to be clear of the.
The reason why the gross margin decline this quarter was because of the the acceleration to the cloud migration the closure.
One of the cloud from basically hosted exchange to the cloud.
Is that correct.
That's right, yes, that's right at the.
Officers of 65 carries a little bit lower gross margin for us so as that rotation happens and.
The brought the gross margin dollars down I think it was down 100 K quarter to quarter of.
But we've seen saw that kind of got off a little bit in March and in April. So we're looking at that to grow in Q2 and the subsequent quarters.
Alright, and can you explain why.
But the long term positive.
Sure the long term positive day holiday the case, the very clear positioning of secure cloud as that as a platform for MSP part of the consolidate the services. So that the higher margin <unk>, we've known for a long long time, but that's not the future of the future is.
Yes.
The cloud solutions for productivity scare compliance that we provide including office 365. So that's the that's the growth area, we're leaning into that and that that debt.
Profit pool from <unk> is one that we're managing.
Managing the transition.
I am sorry, let me say <unk> can you just the explain what that means.
S sites hosted exchange and we call it <unk> to <unk> ex my accent is coming through.
Ex Tac.
Gotcha Okay.
And so this gives you the clear positioning to move customers to secure cloud and therefore attach additional services.
And I think you can get give some additional data at least on what the Charles were.
Which is the route towards.
Adding the additional services can you run through that data in terms of how that's perceived from.
Last quarter to this quarter and maybe over the past few quarters as well.
Of all.
I'll take a cut of that we didn't have it in the script.
So the trials are tired.
Highly correlated obviously with the with the net feet of ads and so trials.
A little of that as we described in the net seat numbers in that December is always electron month, because the folks take the time off that what was the January February of trials of down March.
We saw a really nice increase which led to the debt of the.
The best April since we've had at river.
So that's kind of of the trial.
Rotation window and.
It's just a month.
Precede the seat adds by a month.
Okay. So what are the metrics that gives you confidence that you'll be able to attach additional services.
As customers.
The migrate from the hosted exchange too.
The cloud based.
Okay. Good. Thank you. Thank you for that clarification, Joe Yes.
Yes going back to the to the package that we put together.
Four of them to declare us into our installed base not our partners installed base. The direct portion of our installed base, we've been marketing of package to them that moves them to what we think of the best offer which is the office 360 price productivity suite plus advanced threat.
Archive and encryption if their compliance oriented buyer. So we're stack into gather at least and thermal net cloud back of sort of stacking together at least three services with that migration offer and we have done more.
At <unk>.
Posted exchange or on Prem exchange too.
Occupancy 60 migrations private of any company in North America, where over 19000 migrations that we're really good experts of that and so that's.
A.
The real strong capability that we have that these customers and migration value.
Okay Alright.
Alright.
And then.
There's also the on premise the email exchange exchange Heck do you think that's also been a driver of the accelerated migrations that youre seeing.
So I actually think well I know that we do a fantastic job on behalf of our partners and our customers operating the hosted exchange servers. We have a team that's been doing that for a long time and really really best in class. We collaborated really closely with Microsoft on that.
Our partners and customers of partners particular.
We're really complementary of the work we did the communication we offered.
Got it.
And the SMB customers tended not to be as aware of.
What was going on it but we think it's more of an opportunity for us with that capability that we have for some of the mid market buyers, who havent yet moved to be there is a really good option.
But I would I think what you're alluding to in the hall.
The on premise exchange servers that are still on invest against those are going to get a really really hard lock for upgrade.
Upgrade this year, which I think will help contribute to further acceleration as the as an expert in making those migrations happen.
We will have the slight offset that we've talked about we have our own.
Hosted exchange customers that we're working to migrate as well, but the partner side of that is holding in.
Quite well.
So anyway, it's a balanced with the overall, we think the of net positive because we do some of these migrations.
Gotcha, Okay, and then finally for day rock from you did say that you have confidence that gross profit dollars will increase Q on Q interest into the second quarter can you review the rings online while the others.
Yes, it has to do with the March and April sales that we saw so we.
Had the office 365 really bump up with the hosted exchange in January February.
Continued to see the growth of 365 into March and April for sure and solid gross margin dollars. There. But then we also continued to see growth in the IP products and that's where we're seeing the gross margin dollars increase so we're pleased with the margin April numbers that we've seen.
Now the where it may make this work we have confidence will grow gross margin dollars this quarter and in the coming quarters.
Great. Thank you very much.
Thank you John.
Thank you.
I am showing no additional questions in the queue at this time I would like to turn the conference back over to Mr. Wagner for any closing remarks.
Thank you Howard and thank you everyone for joining the <unk> first quarter earnings call and we look forward to speaking you again in early August with our Q2 results and I Hope you all have a great evening.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect. Thank you everyone have a wonderful day.
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