Q1 2021 Knowbe4 Inc Earnings Call
Ladies and gentlemen, thank you for standing by and and welcome to the note before first quarter 2021 results conference call.
Be advised that today's conference is being recorded.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply Chris Star followed by the number 1 on your telephone keypad.
If you'd like to withdraw your question press the pound key.
As you know and it's my pleasure to turn the call over to Ken.
Palladium.
No before vice President of Investor reporting.
As a reminder, our commentary today will include non-GAAP financial measures information regarding our non-GAAP financial results there are limitations and reconciliations of our GAAP and non-GAAP results can be found in our earnings release, which was furnished with our form 8-K today with.
The SEC may also be found on our Investor Relations website at investors don't know before Dotcom and addition, some of our comments today, including those related to our guidance may contain forward looking statements that are subject to risks uncertainties and assumptions should any of these materialize or should our assumptions prove to be incorrect.
Actual company results could differ materially from those projected or implied during this call needs.
These risks are described in the final prospectus from our recent IPO and our form 10-Q that will be filed following this call. These documents can be found on the SEC's website at D. C Dot Gov and on our Investor Relations website.
During today's call you will hear prepared remarks from our CEO, Stu shower men and CFO and co president and Chris and I could trauma lives a lot and off our chief revenue Officer and co President will join our question and answer session and with that I will turn the call over to Stu.
Thank you Ken and thank you all for joining us today.
We're pleased to share our results with you. This afternoon, we had a record quarter with 40 plus percent annual recurring revenue growth.
Improving gross margins and strong cash flow.
As many of you know he started and all before to help organizations manage the ongoing problem of social engineering, we define social engineering is manipulating and employee and and organization to do something against the benefit of that organization that could be fishing or replying to a C E O.
Alright attack or sending and attachment, which there'll be 2 information to cyber criminals. We're the only public company dedicated to securing the human layer. The emphasis in cyber security has traditionally been on legacy controls however, the exponential growth and cyber attacks and there.
Relative success, Bruce that we cannot solely rely on security infrastructure ignoring the human element of this equation leaves organizations of all sizes vulnerable, which is why we are dedicated to helping organizations transform their employees into a successful last line of the.
Fence against cyber attacks.
And since events, such as the coronavirus pandemic and the mass migration to a work from home environment is only made the problem worse further evidenced by recent high profile breaches.
The ransomware attack on colonial pipeline is the most recent example of an attack that made it into mainstream media, although the root of the attack is still under investigation, most ransomware attacks and begin with social engineering.
This is a problem that is not going away.
Just last week, Verizon released their 2021 and data breach investigation report.
It is no surprise that social engineering and remains a top threat for the last 5 years of running the human layer and needs to be strengthened every day. This is why we are focused on building a strong human and point I will start by summarizing my key observations and we continue to see.
Momentum in our new business and continued strong retention within our existing customer base gross.
Customers in both the SMB and enterprise see our platform as a critical element of their security stack.
Aspects have strong focus on enhancing their security and the ability to manage the ongoing problem of social engineering, we have established a market leading position in the human centric cyber security space, which is further enhanced by our focus on continuing to innovate to meet the.
These are our customers against and increasingly dangerous threat landscape, our new customer growth has been robust as we capitalized on our mostly greenfield opportunity. In addition, our current customers are investing and Arca and said platform and adopting our additional fish and E. R. M.
K C M products and record levels first quarter results exceeded our expectations across the board with continued growth and strong free cash flow generation.
Our inside sales motion continues to win both new SMB and enterprise customers across all industry verticals, resulting in $222 million and a or are ahead of our expectations and up almost 41% year over year, our international revenue growth reached.
88% year over year, which is our highest international quarter ever domestically. We also continued to see strong momentum with over 30% growth penetrating international markets remains 1 of the key pillars of our growth strategy as.
And as you May recall, we made 3 tuck in acquisitions during 2019 and have really started to contribute meaningfully to our international expansion.
These acquisitions has been a key foundation to our expansion in EMEA.
You can expect this to continue this strategy as we move into other geographies such as APAC. We also continue to be opportunistic in our domestic M&A strategy. This quarter, we announced the acquisition of media Pro holdings for approximately $38 million.
A portion was paid in cash and debt remaining was paid in shares of our common stock media Pro will bring some important technology to know before platform to accelerate our expansion in the compliance markets.
We are particularly excited about their advanced courseware and editor this technology will serve as the foundation for and enhanced courseware editor that we intend to incorporate into the no before platform media Pro comes with an exciting library of compliance content that we intend to incorporate into our launch.
Of compliance plus which I'll cover in more detail shortly.
That said, we do not anticipate that this acquisition will be material to our 2021 financial results, Chris will provide more details on the financials.
Organizations across all verticals and sizes continue to see value and our free tools and thought leadership Webinars, which we utilized to generate leads for our inside sales team to sell camps at fishy R and K C. M. G. R C customer growth was strong.
Across both SMB and enterprise and.
As in previous quarters, we saw new customers by both Gaiam said and fishy aren't together to leverage the immediate risk reduction and sushi or brings to their organization.
We do not to reported growth for a few she R and K C M T or C separately, the combined logo growth and revenue growth was triple digits for the quarter the positive trends with our customer wins continue in Q1 total number of customers grew to almost 39000, including really.
Strong momentum internationally.
We saw a number of both greenfield wins as well as competitive displacements and.
A greenfield wins continued to show the value of security awareness is resonating with customers and our platform stands out from the competition.
Our competitive wins are further proof that our platform and customer support ranks well above our competition customers are drawn to the wide scope and breadth of our platform has to offer our platform's ability to record email replies to C O fraud spoof domains.
Randomize fishing and leverage real life logos and data entry landing pages are all big selling points, our reporting capabilities provide customers with the ability to produce a weekly reports and select the best templates to keep up with the actual threats to their database.
The combination of our official word button and the fish E. R product is typically a huge upgrades to a customer's ability to respond to threats. We continued to see success and our enterprise segment, which had several big wins, we displaced a competitor and 1 of the worlds largest defense contract.
With 200000 seats that wanted to efficiently build out our global security awareness program, we had a 68000 seats competitive win at and automotive manufacturing company. They recognized the strength of our platform as well being ahead of the competition we had on ATP.
<unk> thousand seat competitive displacement at a large Japanese conglomerates that favored our global capabilities and the government segment, we had a greenfield sale with 30000 seats to a large U S City Transportation organization. We also have seen good traction and indeed education sector.
With the 38000 and seed win and a large U S. Public School district, Social engineering remains the top vulnerability that organizations face because hacking humans remains the easiest way to access critical information. These threats are far reaching and impact.
Everything from our global Health care system tourist schools regular training sessions, coupled with frequent simulated social engineering attacks remains the most effective protection.
Over the last decade, we have helped our customers across every vertical in the U S. These problems are not specific to the U S and we're focused on selling our innovative products across the world. We have a vision for the security awareness market that we continue to use to define and Ob force product roadmap.
This includes both exciting new features and new products. Our recent new feature we released is AI driven fishing.
Which allows our diamond K upset customers to automatically choose the best fishing templates for their users and yeah.
And I driven fishing is part of our larger strategy to drive our platform with artificial intelligence is helps users learn to defend themselves against attacks that are increasingly going beyond the email threat vector. We're also in the process of releasing a new fishy our feature called Fisher flip.
Fish flip will allow admins to flip actual live phishing attacks into defamed lookalike fishing tests as for new products, we intend to release, a new SKU called compliance plus you and a couple of weeks compliance plus leverages the intellectual property.
And from media pro as well as new in House, New School training modules to expand our reach into the important compliance segment. This is a whole new Tam for no before which shows the power of our platform to reach additional adjacencies.
And then if we are 1 of the only security companies focused on managing the ongoing problem of social engineering, we see significant third party recognition of our leadership I would like to point out recent reports from Okta and Microsoft.
Okta released its seventh business at work report, where no before was recognized as 1 of the 15, most popular apps ranked by a number of customers and that same reported we were recognized as a clear leader in people centric security tools.
And similarly, Microsoft also released their list of top 15 apps by number of organizations within its Azure a D ecosystem.
<unk> made considerable progress moving from number 12, and 2018 to number 5 in 2020 are also very proud that we ranked number 3 among the top 5 most popular security apps just below Palo Alto networks and Zscaler, We believe there's third party recognition per.
<unk> ample proof of our scale and importance to our customers before I turn the call over to Krish I would like to thank our employees and partners for their dedication commitment and customer focus that has brought no before to its market leading position today our mission is.
To enable employees to make smarter security decisions, we had a strong close to the first quarter and are excited about the rest of the year now I would like Chris to discuss our financial trends, Thanks, Dave and good afternoon to everyone.
A quick reminder, on.
Unless otherwise noted all numbers, except revenue mentioned during my remarks on non-GAAP before I discuss the quarter's results I want to remind everyone of the principles that we use to run the business. Our first pillar our focus is driving long term growth.
We continue to focus on investments on international expansion.
Enhancing capabilities in our core products driving channel initiatives, both domestically and internationally.
And finally investing and our people and the skills development I'll touch on a few of these initiatives on the international expansion. We continue to focus our investments on hiring key talent and marketing sales content and customer support we have made several key hires and.
And the U K, Germany, Australia.
And Japan and Lee.
And the foundation of talent to scale across the globe.
On the product side, we have on.
Deep pipeline of new products and are seeing time.
And hence in existing products with key feature releases, we work under a modern agile development framework to help drive speed of execution.
This is evidenced by the release of our AI driven fishing feature and planned releases.
And that's the and compliance plus that's still covered a few moments ago.
The big focus for US is on boarding new channel partners to accelerate international expansion.
Have invested and hiring a number of key resources in our channel team and building, both marketing and distribution capabilities for our channel partners. All the people side, we continue to hire new employees in all departments and.
And invest and training our existing employees to outperform.
This includes key critical new hires in our management here.
Net other firms under the Covid crisis reduced head count investments Vivek.
And we've expanded these efforts significantly.
Keep up with your ongoing demand for our products domestically and internationally.
And pillar for us is capital efficiency.
We are laser focused on maintaining our capital efficiency, we have us little off our investors capital duty a small primary loans right for the IPO and remain just as focused on cash generation and capital efficiency as a public company.
Both day Lovey follow is how to drive long term development.
Believe and balancing organic development with select acquisition debt.
Help expand our capabilities in both existing and new areas.
Because on strengthening the human endpoint this expansion will help us drive into Adjacencies.
<unk> done helps us expand our Tam.
We believe that M&A and must be done and diligently with a high acceptable rois and in fact and no before we track every acquisitions Ottawa and don't stop fracking. This until we have 100% sure that initial acquisition case.
And it and exceeded as you're hooked on SKU or develop and team continue to turn.
Selling new products and features to.
<unk> wholesale a long term roadmap, which is dedicated to the human endpoint and with that let me provide some color on the quarter, both new and existing customers have bitten is the ongoing called them low social engineering worsen over the last year, we continue to support our customers with our platform reach which include.
<unk> integrated capabilities around security and Madden and thank you he orchestration and automation and compliance in addition to our internal efforts, we continue to engage new partners mid day.
Healthy level of joint sales engagement Dolby is still early in the channel develop and process you have made considerable progress in signing on both domestic and international partners. We will continue to make strong investments and the shallow business to drive future growth.
Especially in international markets, maybe 100 per Se channel enabled.
While the quarter, we saw the strength across most verticals.
And you did see some likeness.
Civic industries like hospitality and airlines that are coming out of Covid pandemic in the first quarter totaled.
Recurring revenue.
Sure.
$222 million.
Why do you, 1% euro per year I E.
Growth, which was driven by another strong quarter of new logo additions and continued expansion of cross sell to existing logos and total customer count for the quarter grew to almost 39000 up on close to 32000 and Q1.2020.
Logo churn and gross dollar retention for the quarter were both compatible with historical levels. Now also want to give you some color on the media pro as it relates to <unk>.
And the operating result, as Phil mentioned the acquisition thesis was driven by media technology and the ability to expand our Tam into the compliance marketplace. The impact on full year 2021 revenue from media Pro acquisition is expected to be immaterial.
We expect the E on impact to be approximately $5 million by Q4, 2021 based.
Based on the historical churn rate of the legacy media Pro client base in Q1 total GAAP revenue grew almost 37% year over year, reaching $53.5 million, which was well ahead of expectations, we continue to execute add.
A high level and remain focused on our pillars of growth.
A hallmark of our debt.
By sales approach.
And as resulted in no concentration of clients or E. R. In any industry or vertical this helps us better macroeconomic shocks like the world faced over the last year no single customer accounted for more than 5% of revenue during the quarter geography, Italy.
The vast majority of our revenue is derived from North America.
At this thing and we believe that sizable.
Breath low market Couldnt do before it internationally and we continue to invest both in EMEA and APAC in both low before relationships approximately 14% of our revenue now is derived from international market Rep.
Representing an 88% increase and international revenues year over year, we are still early in our international expansion.
It presents a very large and.
And executable path clearly our strategy of investment in these markets.
<unk> thousand.
To date these investments have focused on for the expansion of our product capability diversified content.
And globalizing up sales and marketing teams since Q1.2020, yet added approximately 44 do you head to the noble international team over the past 2 years, you've opened offices in Australia, and Japan, Norway, Dubai, and then additional office and the U K.
Acquisition on the twist and Shout get completed building our shared service center in the Netherlands.
Help us drive long term support for our clients and our sales teams we have on.
Also accelerated our hiring plan to ensure we have the right resources and plays to execute on our international expansion now on the product side. We launched fishy are in late December 2018, and.
The results have continued to exceed expectation fishy are is another example.
All of our teams ability to launch new products cross sell and increase the overall E. All associated with the initial sale as a reminder, our go to market bullshit and based on landing large customers' full seat count.
Which maximizes the initial deal side, we have seen a number of customers purchasing both cam side and.
Fisher together for the initial subscription as a reminder, we don't bundle of products be prefer to cross sell the product.
And as a result in premium pricing for additional products.
Discounting.
As a result, especially on represents approximately a 45% increase and a odd or F&B.
And 35 on enterprise clients versus a standalone key handset sales our multi product strategy, you think considerable traction with a combination of both fishy R and D. C M G our feet.
Year over year fish E R and Casey M. G R. A T.
Buying have a triple digit revenue and net triple digit logo growth at Athene time, and you still have a massive opportunity to cross sell.
<unk>.
Shifting large customer base as part of our philosophy of running the business.
We remain focused on sustaining a high growth rate with strong margins.
First quarter non-GAAP gross margins improved to 86, 6%.
84, 8% a year ago as we gain efficiency Midscale as a reminder, the economy of scale and international businesses.
We expect non-GAAP gross margin in the low to mid eighties long term total non-GAAP operating expense for the quarter was approximately $40 million versus $34 million for the same quarter last year. This growth was mostly driven by additional G&A.
Costs related to becoming a public company as well as increases in sales and marketing expenses.
Sales and marketing costs were up due to increased head count in channel.
<unk> sales and customer service teams to help manage new logos acquired both domestically and internationally.
Sales and marketing as a percentage of revenue was lower year over year as we scaled the business.
G&A cost increase and reflect our continued effort to build out our support functions, including legal finance and internal audit and HR as we prepare to become a public company over the last year as you can see we have made considerable investment and our technology platform.
We are able to launch a number of new product features such as especially debt and fish flip while continuing to significant investment in product and content and translations. Our investments are also aimed at country to expand.
And I and ml functionality throughout the platform.
I intend to provide updates on our new areas of growth realized from these investments during future unencumbered to note our unit cost of Tech and Dev is significantly lower debt other tech boom and high cost regions on location helps us attract retain and.
Our tech and Dev teams, hence it's important to understand that we have.
And we'll continue to invest in our product R&D and content teams and non-GAAP operating income and the first quarter was approximately $5.9 million and.
And non-GAAP operating margin was approximately 11% and non-GAAP net income was $1.6 million.
Our non-GAAP net income excludes stock compensation expense amortization of acquired intangibles.
And acquisition and integration related costs, turning to cash flow and balance sheet items.
We finished march with cash and cash equivalents of approximately $95 million up about $36 million from Q1.2020, which.
And our continued focus on maintaining a high level of capital efficiency and use of cash plus quarter free cash flow was approximately 91 million compared with 10 million a year ago.
Driven by strong tax collection.
As well as strong sales performance and efficient go to market model.
To note. These metrics do not include the impact of IPO transaction, which closed in mid April.
While our results you can see that lever I E billing and cash generating SaaS model.
And strong balance sheet supporting our balance of top line growth and expanding profitability.
We are continue to expand our resource pool and maintaining.
Sustainable growth as we lead this new category inside the security.
And now onto guidance, we entered the second quarter with strong customer and business momentum.
This momentum is seen across all our segments and international markets.
For the second quarter of 2021, we expect the total revenue and the range of $55.5 million to $56.5 million or approximately 34% to 36% year over year growth for the full year 2021, we expect total revenue in the range.
$229 million to 231 million on approximately 31% to 32% year over year growth, we expect free cash flow margin in the range of 12% to 15% as a reminder.
And that seasonality in our free cash flow, which can cause results to a baby quarter to quarter for modeling purposes, you can assume a fully diluted weighted average share count of approximately 183 million for Q2 as we look forward to the rest of the year, we are seeing continued growth and.
Momentum in the business and we are laser focused on maintaining our market leadership.
And the most important layer and security dedicated to the human endpoint, but that.
We'd like to open the call to Q&A.
As a reminder, and order to ask a question press Star then the number 1 on your telephone keypad and the interest of time. Please limit yourself to 1 question and 1 follow up question. Thank you. Your first question comes from the line of Brian Essex with Goldman Sachs.
Great. Thank you good afternoon, and thank you for taking the question and congratulations on and emerging as a public company.
Maybe.
Steve if I could start or maybe Chris if you want to take this 1.
And you focus on leveraging our platform strategy to penetrate new markets. We saw a nice thick and it was nice to see the acceleration not only and no logo adds but air or per logo.
How much of that was better penetration into larger enterprise versus better attach rate with the percentage of accounts that have multiple products.
That's 1 for Krish.
Alright, great.
Hey, Bryan. Thanks, Thanks, Paul Thanks for the question and thanks for your comment on getting maybe as a public company. So I think the answer is both.
What we have seen and this trend is not just Q1 and this trend as we've seen this across multiple quarters is the athene further expansion into I would say the all the levels, but and enterprise market and also on the megas.
1 thing to note that the Mega expansion is not just a Q1 phenomenon it's been happening month after month over the last almost year, yet and a half.
And second point the cross.
Product penetration has been extremely strong this quarter and last quarter.
In fact I.
Talk about the the triple Crown and where we are seeing.
Or is she R and T C M.
G O ceasing considerable progress in terms of expansion.
As I mentioned in my note also.
We almost saw triple digit growth and logo as less revenue.
And if you look at the overall penetration of cross sell both for fish yard and Kcl combined and we.
And almost doubled from Q1 of last year and remember that's on a base lodge and substantially larger base of clients and the last to be add Q1 and be at about at about 32000 customers and now we have 39 and so this is this is a win across both those key areas I E.
Lots more expansion into enterprise.
And significant traction in terms of cross sell of our 2 key cross sell products, which are G. R. C. K C M as bad as you are.
Right. That's helpful. Maybe just to follow up with the housekeeping, but do you know historically, we have some data percentage of accounts with multiple products. I mean are you open to disclosing what that might be this quarter.
No, but what I can definitely stayed brine it almost as I said almost doubled from Q1 of last year.
For for the number of number of accounts.
The percentage as you requested Oh got it got it okay perfect.
Very helpful. Thanks, again and I appreciate it.
Thank you.
Absolutely.
Your next question comes from the line of shell <unk> with Cowen and co.
And I'll show.
Hey, guys good afternoon.
Congrats on a very strong set of results right out the gate.
2 all krish.
And maybe trying to focus on on Brian's question, maybe from a little bit of a different direction. When we take those 2000 on new logos and just discussed.
Can you, maybe qualitatively kind of break it down.
For us between the Smbs and and the nice traction that you're seeing within the enterprise Arena and I have a follow up.
Yeah, I can sort of comment on debt and a general sense debt.
And I created no before platform, knowing full well that I was going to go large enterprise.
But I decided to take the SMB market first.
We own debt, there's very little competition there.
And over the last 5 years, we have successfully executed into the enterprise and large enterprise space.
And at the moment, if you look at the Pie chart. It's about 50.50. So that gives you a bit of an indication of where we're at today.
Understood understood and maybe.
From a high from a bird's eye perspective, clearly with El.
No proof point being taken out of the public domain.
And from a near term perspective.
To what do you guys have in mind in terms of maybe displacing some of their account maybe a good opportunity to go and revisit some of those given some potential integration disruption.
That could potentially be seen.
Yeah.
And we all know the private equity playbook.
The.
Cost cutting and to some degree.
Not really investing a lot in existing features.
And opportunity for us.
We're continuing to.
Invest heavily in both new features and the existing platform and new products that are coming down the pike so for us.
That was the only good news really.
Got it good job good luck well done.
Thank you very Marshall.
Your next question comes from the line of D J Hynes with Canaccord.
Hey, Thanks, guys and congrats on the great start here.
And 1 of the questions I've been asked by investors and so I figured I'll ask you and this forum is whether the secure email gateway vendors just just by virtue of all the inbound email traffic that they handle if they're better equipped in terms of staying on top of day, the latest phishing threats, which I guess and theory would naval and to put out more relevant training caught them and any.
Any comments or thoughts there.
Sure.
You kind of have to look at the bigger picture in the sense of.
There's billions of emails that are being sent every day tens of billions buts that bad guys sent about 3 billion malicious emails every day.
The additional advantage that they have is they can test those secure email gateways and make sure that their attacks actually get through before day send them. So the attacker always has the advantage and these types of situations.
And for Awhile.
Proof point in mind cash reported on each others.
Failure rates they stopped debt but.
That was like single digit percentages 5.7 day, there's there's press releases that.
You can dig into so.
There's a massive amount of.
E mails and make it through.
All of the security layers and that is 1 of the reasons why I decided it was truly a.
Required to have this eighth layer the human.
Layer, if you will and make sure that you create that strong last line of defense does that answer your question T J.
Yeah. It does that's helpful color.
And then if I.
Think about the number of new Skus that you have today and what youre playing in the future.
How are you thinking about separating kind of the cross sell motion from the renewal cycle is that important what's the means to that and any thoughts there would be helpful and I don't know if that's better for your store Lars.
Actually large would be the best a man to answer that 1 yes D J. So.
We have our you know the minute, we make a sale that debt sale gets passed over to our customer success team and their job is to onboard the customer and make sure. They know how to use all the different features keep them apprised of.
The new features that we come out with and also.
And also get the renewals at the end of the at the end of the.
Subscription and and then just ensure that they have the best possible customer experience. They can but built into that all in all of that work is they're constantly you look and that the customer wallet and determining where there's opportunity for and up sell.
Or cross sell and.
And in some cases, even partner with our direct team.
To get those cross sell stone.
Does that answer your question.
Yep. Thank you guys and again congrats on a good start.
Your next question comes from the line of Rob Owens with Piper Sandler.
Great and thanks for taking my question I guess first around media pro was there anything inorganic relative to either AOR contribution or the customer count and the quarter.
Actually Chris has a few insights and he's willing to share with us about media pro.
Did the thing that I wanted to start with this this was an opportunity that we could not pass by.
Their library with compliance.
Modules is the best way to put it was something that helped us significantly to get faster to market with our compliance plus SKU.
And and that was the main.
Driving force to quickly get debt transaction done.
There are some financial details and crucial share thanks to great Hey, Rob how are you doing.
Yep.
So Rob let me actually start off from.
On the E. R story to actually provide some more color around media pro.
So if you look at Q1 of last year versus this year I R grew almost or in excess of 40% and the vast majority of this growth was organic in nature.
We did see some uplift meant in terms for media Pro's acquisition, but as I discussed in my prepared remarks.
And I expect the.
The existing <unk> to do actually have some level of deterioration to about we believe about 5 million by end of the year.
And as Stu mentioned the primary reason for this deal was not only the technology.
Also the resource quality, who have really strong it's bogie and surround around around our compliance capability and more importantly, as Stu mentioned in his remarks is it really helped us accelerate the launch of our compliance plus product that would be we're working behind the scenes on.
For the last year or so so this was really the biggest driver for the media Pro acquisition was is cash.
Customer acquisition story or a story.
Yeah.
Great and then I guess secondarily for Lars how are you thinking about capacity additions this year relative to sales force, especially given the complaints plus module and then just the success Youre seeing overall when you lean into it a little bit more in terms of hiring plans.
Yeah, we pretty much we have our head count models, just modeled out and the future we don't really talk about that but.
I think.
With.
Launch and the fishy, our product we've kind of already done that so as we add.
As we add the compliance plus we'll have a pretty much exact sales motion.
Going forward and I I I don't think it'll require much more and.
Addition to the head count.
Great. Thanks, guys.
Yeah.
Thanks, Rob Thanks, Rob.
Your next question comes from the line of Citigroup.
And with UBS.
Good afternoon, and thank you for taking my questions.
And do you, Oh, and Lars and either for either 1 of you I wanted to start high level with respect to Canada, and the threat environment backdrop suite and your prepared remarks, you did allude to the ransomware environment and certainly it seems to be at sort of the worst levels on that.
And it has been in recent memory and so because the vast majority of ranch where is propagated by email.
And you're very close to that dynamic until I'm wondering if that has had any quantifiable impact and and maybe specifically colonial that has had any quantifiable impact.
On on your business in terms debt sales cycles in terms of pipeline in terms of conversion rates and.
Any sort of.
Quantifiable detail there would be very helpful. And then I have a follow up for crush strength.
Fair enough.
It's early days these types of compromises take months to actually.
Yeah, there's a whole bunch of research.
That needs to be done to to find what the true cause was.
So no there is no immediate uptick in a whole bunch of people are subtly buying awareness training because the because of the pipeline. However, having said that.
And where it's been a massive contributor too.
The.
Realization in and overtime.
Over time larger and larger customers. The training those end users and absolute must and the day really cannot afford not to do it now.
And now.
The bite and administration recently came out with increased.
And security requirements for <unk>.
Federal organizations that theres going to filter down.
And so.
A very visible.
Pipeline critical infrastructure incident.
It works well for us and the media or our essentially our PR agency Fatima.
Uh-huh.
Fair enough I appreciate that perspective, and Chris for you and as we Anniversaried the pandemic onset and.
And then think about the investments you have in place to continue to chip away at that new logo acquisition and velocity and activity we've seen on.
And and taking into consideration this quarter's performance as well what are some of the things that we should keep in mind vs would be the new customer growth cadence and.
As we progressed through the year and we reflect on some and compare it's shrunk from the prior year again as we anniversary the pandemic and that's it for me. Thank you.
Hey, Thanks for team M. I think it's fair to talk about last year with this year right.
Oh said in Q2, no we actually tend to actually sell to layer in the organization, which is and the direct frontline's off of not only security vendors, but more importantly, those are the same people were bringing and taking all of us to work from home now post that you know and Q3 and Q4 of last.
Here, we were pretty much back to normal in terms of customer acquisition and logo audition on and we saw the same trend I would say into Q4 of last year and Q1 of this year and we have seen a similar trend in terms of pipeline into into Q2, so going back to your point in terms of how we think about customer logo.
It's we are pretty much business as usual for the last almost a year or so.
Fair enough. Thank you.
Your next question comes from the line of Mike <unk> with Needham <unk> Company.
Hi team yet Mike see goes on the line from Needham and police of Alex Henderson, and how are you doing.
Okay, great. Thanks.
Terrific.
I had I didn't have 2 questions for you. The first your gross margin actually came in well ahead of our expectations and I was hoping you could talk to the drivers for both the year on year as well as the quarter on quarter expansion.
And as well as the sustainability of gross margins and this 85% range as we look to the rest of calendar 'twenty, 1 and Chris maybe for you but.
How should we expect media pro to impact your gross margin outlook.
Yes.
Thanks, a lot Mike.
So let me actually talk to you a little bit about overall gross margins as we scale the business no.
And we do it but you did see and improvement in terms of low gross margins from the mid eighties now to really understand and gross margins you wont actually dragged on the gross margins into really the components that drive that.
The CSM teams, which our customer support teams are a big driver of the overall cost associated with our gross margins now they are in 2 different phases of evolution in the U S. We are being driving significant logo additions as you know and low C. S. M teams tend to be.
At a high utilization and capacity levels.
Internationally, we're just building out our international expansion given we've seen the problem of social engineering yearly increase substantially around the world and we are adding CSM teams around the world to help support new and existing customers as it is future customers.
And hence it takes some time before those C. S M teams.
Fully utilized that is why for 2021, we expect gross margins to be in the mid eighties and as previously discussed.
The second part of your question hopefully that answer the gross margin question. The second part of your question is around.
And on how media pro is going to affect.
Gross margins right now as I said before.
Media per well is not a massive pie and acquisition right. It is largely the acquisition thesis was around us actually expanding into a brand new category, which is compliance price. We don't expect media pro to create any compression in our gross margins.
Terrific. Thanks for that and then just 2.2 other small items if I could the first I guess building on media per well. We're on it I know that you guys discussed the E R or by the by the end of calendar 'twenty..1 we've touched on the gross margin, but is there any associated impact too.
And Opex based on media Pro and then secondly, I'm I know we were talking about proof point on.
And where mine cash there is some of these other email secure gateways, but maybe you could talk to that technology here My understanding is that your AI.
Engine for the cans that platform is almost a privileged position again, because you were learning on all these emails and have already gotten through the email secure gateways, which which really puts you in and it had been and position us for showing efficacy and proving out your ROI, but can you can you validate that debt ladder.
Point on the technology as well as come back to the Opex impact from media Pro and thank you guys I appreciate it.
Yeah, there's 2 questions there.
1 is a more krish question and I'll be happy to go into the AI part and the.
And especially the fishy our product so krish.
I'll be quick there. So we expect the opex impact of media pro to be anywhere between 5 and $7 million for the full year.
Very good.
The.
You are right, Mike we have a unique data stream because those literally billions of malicious emails they do get caught by.
Ploys, who who click on the on the official word button, so we get and a stream of E mail that is either clean.
Pam or it's malicious.
We are able to train Fisher E R with that data stream and creates machine learning models.
Allow a very higher.
Hired and 90%.
Reliability score of these malicious emails so.
What we're able to do with debt like I said unique data stream is trained on models to high levels and save the security Operation Center people enormous amounts of time.
They can almost fully automate the process of handling.
Emails that are reported by their users.
The last thing that debt I would like to highlight 4 secondaries to fish flip feature.
Because you can now fully automated.
Train the model to a point, where AIDS recognize it's malicious and then fully automatic change.
And malicious attachments and change any malicious links in the email to make it into a defend training template, which is a feature that.
Has been extremely well received by our customer base.
Thank you for the color guys keep up the good work.
Thank you very much Mike.
Your next question comes from the line of Hamzah firewall on with Morgan Stanley.
Hi, guys. Thank you for taking my question just 2 quick ones first 1 for us do and Lars just.
And the go to market it seems like Youre seeing strong attach rates between this yard and K C M and now sort of you know.
Going after the compliance market and a more fully fledged way I'm curious are these buyers and different relative to who.
And who you sell into per core camps, and what type of go to market investments either both from a direct sales perspective or a channel perspective.
Do you have to make to reach those different types of buyers.
I'm going to grab that 1 myself hamzah good question.
The buyer indeed is different in the case of compliance plus the the buyer for our security awareness platform is definitely the I T Slash director Slash C. So.
And the info sic team.
And as they get confronted with the pain of in fact at workstations, and downtime and data breaches and ransomware.
But they are the same people that can help us refer to the correct people in the organization.
Which are senior executives compliance and risk officers, who are the actual first decides on these compliance type training.
HR is following that.
And essentially decision making unit so we are.
To begin with going after our existing 39000, plus accounts and sell compliance plus in there.
But certainly we will grab our.
Channel.
And help them get this sold as well maybe a large and.
Tell us a little on about the channel side of things and how we're going to approach that.
Yes, it will approach the channel just like any of our other products.
And here in the U S. We have a hybrid model, where we sell both direct and through the channel and I think as we get into the larger and larger deals more and more percentage here locally go through the channel internationally.
We're actually 100% channel, but we had the exact same sales motion we are full on <unk>.
Direct sales teams and.
And our marketing team generates the same leads but the direct teams handle the entire sales process, but they never quote and they never accept a deal and for.
For the second.
Second part of your question with the go to market investment.
I think theres, a little more investment.
When we're talking to international markets and that's because of just specific localization and things we have to do and and localized marketing to go after those different <unk>.
Our kids.
Makes sense and that's the.
A quick follow up for Chris If I may and Chris I think.
Not to belabor this point, but just.
So that's unclear.
Media Pro <unk> run rate, you mentioned $5 million by the end of the year Youre, assuming some deterioration and that even so.
Its above $5 million today, and any color you can give us as.
Towards the ear on run rate is today.
Yeah, and I'm gonna be providing exact color on in terms of what they are is today, but but as youre right its about $5 million, but it's not it's not a meaningful impact in terms of and you look at Q1 last year as supposed to skew 1 this year's.
40% growth and in a majority of the 40% Hamzah was driven by the organic efforts often know before platform.
Yeah.
Okay, but it's at least $5 million.
And make sure.
And I'm, sorry, Hamzah you broke up there.
Got.
At least at least $5 million or today as well.
And that's true that's.
That's true.
Okay. Thank you.
Thanks Hamzah.
Your next question comes from the line of Tyler Radke with Citi.
Hey, good evening guys. Thanks for taking my question I wanted to ask you about that.
Domestic performance I think he talked about 30%.
Revenue growth, there, but I wasn't sure I caught the revenue on a number.
That might have come down a little bit from where that business grew in 2020, maybe if you could just walk us through kind of the puts and takes there.
And then just a follow up to that.
On what related as you look out.
And across your SMB base kind of where are we to a return to kind of pre COVID-19.
And and renewal rates. Thank you.
So yeah I can take that on.
Now if you look at it.
I think the.
For normal part of this business and.
And I use the word phenomenally rarely but I will use. This case is how stable are on gross dollar retention as well as our logo retention has been.
Of course, many of you guys have seen that over the last 2 or 3 years and we have seen the same trend continue even in the worst periods of the of the pandemic and even do now.
You're right, we don't talk about net dollar retention, but it's fair to assume that bid further expansion of our cross sell efforts that it would be some positive momentum associated with that.
And now so that hopefully that gives a little bit color on on that first point.
Now the second point and the U S.
It's I think Stu mentioned this also have historically.
Nope force grew in the and the U S market and the North American markets.
And we have built.
Abstention.
Share in the U S market. So we are starting from very large base in terms of clients as well as revenue.
But if you look at the overall Tam associated with all of our products. The Tam is substantially large globally and that is very much greenfield right now.
Both on the SMB side as well as in the enterprise side. So there is ample opportunity for us to grow both domestically and internationally into the future.
And your last question comes from the line of Joshua Tilton with bigger and Barrick.
Yeah.
Yeah, Hi, guys. Thanks for taking my question.
Just the first 1 for me I just wanted to touch on on the net new <unk>, which actually grew this quarter, which is kind of a solid turnaround from 2020 can you just comment on this relative to the improving macro environment and also maybe what's baked into the full year guidance in regard to net new AOR growth.
And there's definitely a numbers question for Krish.
Thanks for your question.
And from a guidance perspective, they're 2 areas, we actually provide guidance wishes of close and our earnings recording 1 is revenue and the second 1 is scf margin, we do not provide any guidance on overall a are for the rest of the year now.
Your first point was.
Youre right, we did see.
Strong growth and a R.
Year over year, and that's really driven by I would say 3 key factors 1 is.
Continued expansion into new logos, and we have seen that trend.
Over the last year on year and half the second key which I. Just mentioned is the continued focus on the sales and the marketing teams to drive further cross sell of our products both into new customers, where the attachment rates are much higher and now further into cross sell on existing 39000.
And customers.
And the third thing that'd be actually seeing for the driving on.
Or is the threat matrix right as Stu mentioned.
Checkmate 6 countries to be a very challenging.
And <unk>, especially in international and we are seeing further traction into international markets. As you saw that our international revenue grew almost 88% year over year. So all 3 key pillars of our growth are really driving that AUR story.
No that was helpful and if I could just follow up with 1 more it seems as if some newer vendors are offering managed services or their differentiating with additional value added features outside of just more content.
So maybe can you guys just you know.
Comment a little bit on where you're focusing your investments to ensure that you can maintain your competitive moat and market leading position.
I can take that 1.
There are.
Bunch of.
You know the traditional stories there are there were 40000 and vars value added resellers, mainly U S.
All of these people are trying to literally add more value and become managed service providers or even managed security service providers.
Those are the organizations that are adding this additional security awareness platform because it helps them both in opex and and their revenues.
The the no before platform is very well.
Designed especially for those kinds of.
M S piece and we have many hundreds of those that are actually using our platform.
And we have a special pricing model and our go to market for those types of partners as well. So we feel we're in a good position to benefit from that particular trend and the market.
Thanks, that's very helpful.
Very good thanks, Josh.
Do you have no further questions at this time.
Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
Goodbye.
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