Q1 2022 Mimecast Ltd Earnings Call
Good morning, and welcome to mine cash earnings call for the fiscal first quarter 2022, I'm, Robert Sanders Director of Investor Relations with me on the call.
This morning are Peter Bauer, our co founder Chairman and CEO and Rafe Brown our CFO.
Today's conference call is being broadcast live on a replay of this call will be available. After the live call has ended 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 incidents 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.
Our further defined in mind casts 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 for a substitute for or superior to our GAAP results. A reconciliation 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. The date of this call is August 3.2021 any forward looking statements. We make today are based on assumptions that we believe to be reasonable as of this date.
We undertake no obligation to update these statements as a result of new information or future events now I would like to turn the call over to Peter Bauer.
Everyone and thank you for joining us I hope that you and your families are doing well.
I'll begin with some key takeaways from the quarter, which underscore our continued progress and highlight the improving macro environment and some of our markets.
I'll also address the threat landscape and touch on the appointment of our new Chief marketing officer, and on New Chief Technology and product officer.
Both bring great new capabilities and talent to our organization to help us execute on our strategy.
And then Ralph will take us through detailed financial results.
We are pleased to report results this quarter that exceed the high end of our guidance across all metrics, we generated $142.5 million in revenues, which is up 15% year over year in constant currency terms.
We also drove an increase in average order value to $14000, which is up approximately 9% over the prior year in constant currency.
And we increased the number of services per customer 236, which is up from $3 for last year and importantly, we delivered a sequential improvement in our retention rate with net revenue retention of 105% in the quarter.
As these results suggest we had great success, selling our multi product portfolio to new and existing customers. We.
We continue our growth across all segments, including the enterprise, where we have 19 percentage of revenue coming from organizations with 5000 seats or more.
As a growing number of larger organizations place their trust in mind cost, we continue to strengthen our brand reputation amongst this customer set.
For positioning us to continue to win.
In total we brought 600 net new customers into the mine cost family this quarter.
We achieved an important milestone mine cost now serves over 40000 customers.
We saw particular strength in North America, and the U K, our 2 largest markets while in some of our international markets recovery has lagged.
Our premium customer base brings scale to our platform and we generated $31.6 million in free cash flow, a 22% free cash flow margin and we will continue our bottom line expansion as we grow.
We continue to advance our 3 pronged growth strategy as we expand our footprint in the enterprise market.
We sell on multi product platform.
And we ought to make to create even stronger and easier to use engagements brought SMB customers and our channel partners.
Let me share some highlights from the quarter.
Our UK business showed signs of recovery and let me share some anecdotes of new enterprise wins, yet a UK based animal wellness organization purchased on zone, 1 products for the 6000 employees.
And a UK based professional services firm also with 6000 employees selected our zone 1 protection.
And 2 of our more recent offerings and day, Mark Analyzer zone, 3 and web security.
A global medical technology provider based in the EU purchased our zone 1 products added awareness training in zone, 2 and included secure messaging in their subscription for 11000 employees. As noted earlier, we had significant success upselling to existing customers to.
We achieved our largest upsell this quarter a 7 figure deal with a customer that's been with us for several years now.
This financial services company based in the U K added seats following an acquisition and now relies on mine cost to protect all 35000 employees with services across all 3 zones of cyber defense and outdated governance offering than a U S health care provider added services for day 7.
5000 employees and they now use 5 bond cost services across zone, 1 and 2 as well as all secure messaging service and a south African based financial services firm chose to consolidate vendors onto mine cost multi service platform for their 50000 employees and they now deploy security services across zones 1.2.
And 3 as well as our continuity large file sending and secure messaging services.
Also had success selling bundled services to new customers for example, a U S manufacturer of medical products with 4500 employees purchased zone 1.
Internal email protect.
Brand exploit protect.
Continuity and 2 of our newest offerings browser isolation and cyber graph.
Enabling us to provide comprehensive protection to this customer.
And we also had a few significant new customer wins in the U S public sector <unk>.
<unk> a U S municipal government.
Interest nearly our entire product suite 10 products for day 2500 employees.
And the government of a large U S County purchased zone, 1 and internal email protect for their 7900 employees.
<unk>, we achieved criminal Justice information services certification for seizures in Missouri, and led to a new customer win.
In Q1 with over 4000 employees. We believe see just certification is an important milestone that could lead to additional public sector customers selecting mine cost in the future.
As these examples highlight our expanding footprint in the public sector supports both our enterprise and our multi product strategy.
On terms of products our day, Mark Analyzer service continues to be popular among our customers contributing to new subscription revenue in the quarter. We also saw particular strength in awareness training and internal email protect.
With 507 hundred net new customers respectively.
Underpinning all of our success is our continued focus on innovating and expanding our platform consistent with our email security 3 <unk> and cyber resilience strategy for customers.
And this quarter, we launched <unk>, a new product module, which uses AI and machine learning to mitigate human error and contract. The most advanced email based attacks.
And we have seen strong early engagement with cyber graph and believe this will support our market leading position our API on a license program also continue to pioneer new integrations with security technology partners. This quarter. These.
These integrations allow organizations to incorporate mine cost threat intelligence and automation capabilities into their broader security ecosystem and they help us win new customers and deepen existing relationships. Among the partnerships. We launched this quarter was with <unk>, a crop strike company that orchestrates alerts and actions across and organized.
<unk> Ikea state.
The cross stripe partnership is 1 of our fastest growing API partnerships with over 300 joint customers already on this integration is also supporting our enterprise growth strategy.
Our largest customers using it including a 160000 person global beverage company.
Now turning to the threat landscape you may have heard me say that cyber resilience is more important than ever and we blocked nearly 719 million malicious files from January through June 2021, and that's more than a 15% increase over 2020.
And in 2020, we saw more than a 65% increase from the year before as a tech has capitalized on companies across the world moving to remote work embolden, the Tac as targeting larger and more high profile companies as we saw from the ransomware attacks that disrupted the U S food and energy supply.
Transportation networks and hospitals over the last several months.
Importantly, more than 90% of all threats, including ransomware originate via E mail for.
From April through June approximately 35% of attacks where impersonation attacks.
Targeting employees with privileged access to systems and information illustrating the targeted nature and high Stakes of these campaigns.
Our E Mail security $3 for mine cost is helping companies protect against the most determined attack is in our multi product platform works together as an integrated system to provide companies with early detection and prevention to help them mitigate attack as progress.
We believe organizations with all of our products have the strongest cyber security and resilience available on the market today and at the lowest total cost of ownership.
We believe that recent attacks have made companies take cyber risks, even more seriously and reevaluate their security budgets and E Mail security systems.
We continue to expand and transformer platform without progress accelerated through the creation of an integrated product and engineering organization now led by our new Chief product and Technology Officer, David Racy pool.
And we are confident that the actions we have taken over the last several quarters to strengthen our marketing teams.
Led by New Chief marketing officer burnt leaguer and.
Our investments in go to market generally will help us to continue our momentum.
And with that I'll turn it over to Ralph.
Thank you Peter I am pleased to report that we exceeded the high end of our guidance for revenue adjusted EBITDA and free cash flow for the first quarter of fiscal 'twenty to 'twenty 2.
As I begin I would like to note that we are now seeing signs of economic recovery in both of our largest markets North America continued to see an improving selling environment and we were particularly pleased to see UK performance bounce back as they turned in a strong Q1.
While the impact of COVID-19 remains dynamic, particularly in some of our smaller geographies for continued improvement in North America in the first signs of recovery in the U K are encouraging as these 2 regions comprise approximately 80% of our revenue.
Let's now turn to our results.
In the first quarter, we generated revenue of $142.5 million, which represents a 24% improvement over the prior year in absolute dollar terms.
Adjusting for $9.7 million of currency tailwind or constant currency growth rate over the prior year was 15% for the quarter.
Note that since providing guidance in may foreign currency fluctuations positively impacted our first quarter revenue results for $800000.
Our top line results were helped by continued year on year increases in average order values or <unk> calculated at July 26, FX rates.
<unk> for all customers stands at $14000 up approximately 9% over the prior year in constant currency terms driven by the average number of services per customer across our customer base rising to $3.6 services per customer compared to $3 for services. This time last year as well as seed expansion within our base.
<unk> customers as they added new employees, we added 600 net new customers in the first quarter, bringing our total customer count to 40600, the sequential net new customer improvement was seen in all segments, but in particular, we saw a noticeable improvement among our smaller customers with a sequentially higher count of new.
Customers and decrease churn net revenue retention stood at 105% for the 4 quarter period, ending June 30 build enough stabilization on this metric that we noted last quarter. As a reminder, we calculate this metric on a trailing 4 quarter basis and feel it is particularly important as it is dollar based as opposed to purely <unk>.
<unk> account base.
Looking at its components upsell total, 113%, where we saw strength in both product based upsell as well as seed and price based upsell on the product side. The first quarter saw strong interest in our day, Mark and awareness training solutions as well as good traction with our newly released cyber grab solution.
Down sell and churn total of 9% for the 4 quarter period. We are seeing continued signs of stabilization on downhole and churn rates and anticipate an improving macroeconomic environment will further this trend. It is worth noting that this is the first quarter since the pandemic began that we've seen an improvement in the net revenue retention metric provides.
Further evidence of the improving strength of our business. We continue to drive improvements in gross margins in the quarter, we recognized a 73% non-GAAP gross margin up 120 basis points from the first quarter of the prior year, a good step towards our long term goal of achieving an 80% non-GAAP gross margin.
Adjusted EBITDA for the first quarter totaled $38.6 million representing.
Representing an adjusted EBITDA margin of 27, 1% compared to 22, 3% in the same quarter. The prior year, a 480 basis point improvement.
Now turning to the bottom line, our non-GAAP operating profit for the first quarter was $29.9 million or 29 percentage of revenue an improvement of 560 basis points from the prior year.
We reported GAAP net income of $10.1 million for the first quarter or a profit of 15.
Per diluted share based on $66.9 million fully diluted weighted average shares outstanding.
Our GAAP tax expenses totaled $400000 in the first quarter, which included a discrete stock windfall benefit of $1.3 million given recent windfall tax benefit we expect our full year GAAP tax expense to be approximately $6.3 million.
Our non-GAAP net income for the first quarter was $21.7 million or 32 cents per diluted share.
Consistent with the methodology, followed by a number of other successful technology businesses I would like to note a change we're making in calculating our non-GAAP tax rate.
To provide better consistency across interim reporting periods, starting this quarter, we've adopted a long term projected non-GAAP tax rate of 25%. This non-GAAP tax rate excludes the income tax effects of our non-GAAP adjustments. This change was made in accordance with the SEC's non-GAAP financial measures compliance in <unk>.
Disclosure interpretations $102.11.
Under this methodology, we calculated on effective non-GAAP tax expense commensurate with our level of non-GAAP profitability using an estimated long term tax rate applied to our non-GAAP pre tax earnings. It is important to note that this approach is solely for purposes of applying a notional tax rate to non-GAAP pre tax income and as such these fit.
<unk> have no impact on our GAAP consolidated financial statements or the cash taxes, we pay.
We've included a table in today's press release, which presents a reconciliation of net income to non-GAAP net income as well as the summary, non-GAAP tax recast for the prior fiscal year I would also note that our projected 25% non-GAAP tax rate is consistent with the guidance, we provided last quarter turning to cash flow first quarter operating.
Cash flows totaled $40.7 million or 28, 6% of revenue free cash flow totaled $31.6 million for the quarter or 22, 2% of revenue.
As of June 30th mine cash had $338 million of cash on the balance sheet net of debt our current cash balance stands at $236 million.
Let me now turn to guidance for the second quarter of fiscal 'twenty 'twenty..2 revenue is expected to be between $141.8 million and $143.3 million.
Or 12% to 13% growth in constant currency terms our.
Our guidance is based on exchange rates as of July 26, 2021, and includes an estimated positive impact of $4.6 million, resulting from the weakening of the U S dollar compared to the prior year.
Adjusted EBITDA for the second quarter is expected to be between $39.8 million and $48 million, which at the midpoint reflects an adjusted EBITDA margin of 28, 2% up 80 basis points from Q2 of last year free cash flow for the second quarter is expected to be between $24.
$5 million and $25.5 million, which at the midpoint reflects a free cash flow margin of 17, 6%.
Turning to the full fiscal year fiscal 'twenty 'twenty 2 revenue is expected to be between $576.7 million and $583.4 million.
Or 12% to 13% growth in constant currency terms, adding the details foreign exchange rate fluctuations are positively impacting this guidance by an estimated $16.2 million compared to the rates in effect in the prior year. The prior guidance for fiscal 2022 provided in May.
It was $574.7 million at the midpoint our over achievement in Q1, coupled with the strength we've seen in our business is leading us to raise the midpoint of our full year guidance by $8 million in constant currency terms. This increase of $8 million is being negatively impacted by $2.6 million of foreign exchange.
Change headwind that has arisen since the rates used in our may call.
Resulting in the midpoint of our full year guidance moving up by a net $5.4 million in absolute dollar terms from a midpoint of $574.7 million to a midpoint of $581 million. We are raising full year 2022, adjusted EBIT guidance to be between.
152 million on $154 million, which at the midpoint of our guidance would reflect an adjusted EBITDA margin of 26% up 100 basis points from the prior year. Despite our anticipated return of costs associated with travel and in person events for the remainder of the fiscal year at the midpoint. This.
Represents a $3.5 million improvement over our prior guidance. We are also raising full year 2022 free cash flow expectations to a range of $126.8 million to $128.8 million.
Reflecting a free cash flow margin of 22% at the midpoint of our revenue guidance.
<unk> is a 440 basis point improvement over the prior year at the midpoint. This represents a $4.1 million dollar of improvement over our prior guidance.
To conclude the mine cash business is demonstrating its resilience the strength, we noted in North America and the U K has given us confidence as we look forward to the full fiscal year as our teams continue to focus on keeping our customers safe for growing our business. We are pleased with our execution and our strong start to fiscal 2022 with that.
I'll turn it back to Peter for some closing remarks, thanks Rafe.
We have a differentiated platform and a durable business model with 98% recurring revenue.
Industry, leading retention and high gross margin.
Our results this quarter demonstrate our success in staying close to our customers.
Innovating on and expanding our capabilities to best protect customers against and advancing threat landscape.
And running our business efficiently and profitably.
I want to thank all of our employees.
We have hard work for resilience innovative thinking and strong execution on.
Operator, if you would please open the line for questions.
Thank you.
To ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key.
Our first question comes from <unk> <unk>.
<unk> with Barclays. Your line is open.
Okay, Great Hey, guys. Thanks for taking my questions here how are you.
Good day socket.
Hey, Peter maybe maybe just to start with you.
A lot of great stuff to kind of to kind of touch on in the quarter, maybe just zooming out a little bit I'd love to talk a little bit about the competitive environment just to level set and particularly whether you've seen anything change competitively as a result of proof points recent changes as well as any commentary you would.
Offer on Microsoft competitively does that makes sense.
Okay.
Absolutely sockets.
I think to begin with we've made.
To make really good progress up market and obviously, that's an area where 3 points is both a strong franchise.
I think with respect to that.
M&A.
It takes private deal with Thoma Bravo look I think M&A in our space.
This represents an opportunity kind of minimum creating opportunities.
For us to have fared.
Further conversations with prospective customers and over time as we've looked back at M&A on ownership structure changes in our space.
<unk> almost always yielded additional opportunity for my cost. So I think it will take some time to see how that all pans out.
I think with respect to Microsoft what we've seen out there is an intensifying of the cyber threat landscape.
Sure.
Familiar with anecdotes on the new stories of.
How the Microsoft platform has been very heavily targeted lately.
Obviously.
The human layer being targeted but also Microsoft vulnerabilities Bang on.
<unk> unexploited and so this is really driving an appetite for.
Fences depth and layered independent.
Independent best of breed security brought on top of Microsoft.
We get away from a margin as the attack surface.
On a single flavor of security.
Approach.
Organizations are really able to mitigate against some of these fast spreading highly.
Highly highly scalable threats that.
We've seen out there so our share of office 365 customers that are benefiting from the cyber security and resilience platform that we layer on top of office 365.
It's certainly continuing to grow nicely.
Got it that's really helpful. Ralph made me for on a follow up for you.
It was great to see the net revenue retention.
To increase again.
Can you just maybe.
Just talk about which area is driving sort of that sequential improvement, meaning is churn, perhaps getting a little bit better or is it more up sell cross sell just any any color sort of on on kind of what's driving that sequential improvement.
Yes. Thanks.
We were obviously very pleased with that result, because it's just incredibly important to the company and it speaks to the good work, we're doing with our customers.
The great news here for US is we actually saw it on both sides of the equation. The upsell came in stronger this quarter as our rate down sell and churn improved and so that that improvement from 104 of last quarter up to 105, it's almost evenly split along those lines.
I think there's some great things in there there is the.
New products were taken to our customers and theyre seeing value in buying but youre also seeing.
Some of the companies that decreased seat count last year coming back on adding seats, which is really encouraging and then obviously on the downside on churn side I think we've been extremely focused on on getting out in front of renewals with our customers I think we're seeing signs of paying off their and obviously that's helped by an improving macro environment at least in our biggest.
Markets.
Got it that's very helpful. Thanks, a lot guys I'll get back in queue.
Thank you.
Thank you. Our next question comes from Steve Koenig with S. NBC Nicole Your line is open.
Good morning, Thanks for taking my question.
I appreciate that.
Congrats on the quarter actually is what I wanted to start with looks looks very strong things are recovering well.
I was curious.
Little little a bit of a tangential here I was wondering on the.
As youre seeing more customers move to cloud.
Sure.
And not.
Just the migration to office 365, as they look at Zero Trust network architectures et cetera.
How does that changing security landscape affect you guys in terms of.
Selling motions are how you how youre going to be integrated with the broader security architectures in the economy and also with the other threat vectors.
Curious your view on that the fiber landscape is changing and moving to cloud.
Yes, it's a great question.
So I think about it.
2 ways.
<unk>.
Firstly, how does my cost per ticket with the broader security architecture that our customers, putting together and this has been a huge area of investment for us with our platform and our API integrations.
Today, we have over 60 out of the box integrations with a variety of.
Security products industry, leading security products with our customers users as well as certain other tools that they use cash flow compliance E discovery.
And these really help our organization to build a stronger security architecture by connecting threat intelligence that we gather as well as threat intelligence that these other products together and integrating them by direction with our technology.
They also.
Incident response capabilities with with automation and workflow capabilities with things like Simmons. So environments. So we're increasingly seeing our customers connecting us up to build a robust security architecture in conjunction with the rest of the product and in fact.
Just a day at black hat.
We're announcing a new.
Integration and partnership with <unk>.
And the formulation of a of the SPR alliance in conjunction with them. So that's really exciting.
I think the second thing, what's very interesting in a sort of a zero trust architecture.
Is that E mail and messaging.
Sort of cuts all the way through that so while you can secure access to systems.
Use zero Trust.
Network.
<unk>.
To reduce the attack surface by definition E mail on messaging must remain open. So that you can communicate with the outside world and sort of the layers of technology that we bring to aggregate messaging and E mail traffic.
To make sure that it is.
Clean and safe.
Then tracking how those messages are used inside an organization looking for threats that might be moving laterally inside the organization essentially not trusting internal email if you'd like the way 1 might have historically.
Yes.
It's really important for organizations today. So there is no simple networking solution.
To the email and messaging security problem.
Because it must be on open port to communicate with the outside world.
Great. Thanks for the color Peter and congrats again.
Thank you.
Thank you. Our next question comes from Matt Hedberg with RBC capital markets. Your line is open.
Hey, this is on its Jeff for Matt Hedberg, Congratulations on the strong start for the fiscal year with accelerating growth Peter.
Peter can you start by talking about the overall demand environment coming out of the pandemic.
Specifically for those customers on vertical that were heavily impacted by COVID-19.
Brian Thompson group at the margin on the pandemic are those customers adopting more modules on an initial deal with what you've seen historically.
Yeah, Great question. So we've had a really strong quarter from an upsell perspective with customers interest.
More products and you can see that in all increase of average number of products per customer from 3 for up to 3.6 as well as the growth in our average order value, which reflects a couple of factors, but very very much customers existing customers buying additional modules.
We are seeing particularly in the UK and the U S.
Economic recovery across.
Confidence across all sectors.
Particularly those that have been impacted by.
That have been impacted by Covid during the pandemic and so we're seeing a little bit of a rebound there.
Obviously, we're not at the outlet side of the pandemic entirely on than some of our markets.
The recovery is lagging.
We feel we feel good that our customers are.
Coming back in aggregate.
Continuing to volume demand.
More products from us.
Now with 40600 customers it represents a.
Really strong base as they hire more staff and continue to adopt additional modules from us.
Very helpful. Thank you.
Thank you. Our next question comes from Jonathan <unk> with Baird. Your line is open.
Yes, good morning.
So I'm wondering if you could.
Talk a little bit more about cyber graph, just what exactly that brings to the mines mine class mine Paas platform and how should we be thinking about monetization.
It's worth noting.
Yes, great. Thanks, Jonathan first fiber drop the language fiber graph works as it leverages.
Crop database technology and machine learning and essentially it builds.
Based on lines of what's normal good communication traffic looks like.
It's quite a rich sales using.
Many many different.
Variables of that communication looking deep inside the messages as well as as well as metadata and it bodes us normal.
Sure.
Baseline.
And then as deviations occur to that as we see sort of abnormalities in the.
In those patents, we leverage that to make security decisions 1 of the cool things about it is it can share those insights you can share some of those.
Contextual pieces of information.
On NAMIC with the end user inside inside the message across mobile and across.
Desktop metal clients.
And help them make informed decisions, let them know for example that.
They've never communicated with this person before even if that person maybe.
Using the same display name is someone they feel they're familiar with so you can imagine.
As an example, if they involved into communication chain.
Rob, making a particular payment and suddenly on email appears with a changed.
Change of bank details.
We would flag that.
No.
We may have blocked that in the first place, but we may flag that as well and let them know.
This is a potential problem with this with.
With this message and so it really provides that additional deck for some of these highly targeted and very advanced.
Attacks that may not contain malware on particular payload, but maybe looking at business email compromise or.
Some kind of a phishing attack.
From a monetization point of view.
This is a brand new module and we've introduced it.
Our customers were seeing a lot of interest in it.
The monetization strategy is still under development that is available module.
Today customers are paying additionally for it.
It really has been.
Initially 1 of the contributors to our growth in <unk>, which I think you can see has gone up 9% year over year up to $14.
Today, and so modules like fiber graph contribute towards that motion.
We will continue to see what the book.
Potential is overall with fiber graph as we penetrate our customer base more deeply with it.
Peter It sounds like it has broad applicability across the different offerings.
Provide is this something that could potentially drive a premium version of your current offerings or will you just be 1 module, which I think is what you suggested.
Sorry.
Yes, that's a great. That's a great question, it's early with the product.
The way, we've typically approached the introduction of new modules.
As for initially offer it as a discrete module.
Get a sense of.
Customer value.
For the price points around it and then over time, we may look to incorporate that into a premium.
<unk> of our product and Thats, a reasonably sort of common motion that we've followed over time with the introduction of sort of.
Highly adjacent premium capabilities that we've released.
Yes, that's exactly the right question on that is how we think about it.
We look at how these things travel through time.
At greater adoption.
That's helpful. Thanks, Peter.
Thank you. Our next question comes from Terry Tillman with twist. Your line is open.
Hey, guys. This is Joe Meares on for Terry. Thanks, So much for taking the question.
You had mentioned in the press release as well as the prepared remarks about strengthening for marketing team.
As well as building on integrated product organization could you delve a little bit into this more from the vantage point of the benefits from both efforts and.
Understood more benefits in the coming quarters on these areas.
Yes, absolutely that's right. So these are Brian.
Sure.
Changes in evolutions inside our organization. So we're looking we're looking to the benefits going forward.
So the thinking behind the changes in some of the benefits that we're starting to see if you look at mining cost is from.
From a market positioning on market perception perspective, we've built a really strong franchise in the SMB and mid market and we have an emerging.
Hi.
Strength in the enterprise space now with 19% of our revenues from organizations above 5000 seats.
We've started to build a really strong referenced simple base.
In the higher end of the enterprise and that represents I think a real opportunity for our marketing.
Organization to capitalize on that and build that brand up market as a leading cyber security and resilience provider in the enterprise.
I think theres real upside there for us on the marketing team is focused on that.
As well as all of.
Usual Scott mentions of improving our impact at scale.
From a digital marketing perspective.
<unk> marketing perspective in building out our organization looking at all our global operations too on how we can support their growth.
Through the marketing organization.
From a product.
Teen perspective, we've spoken quite a bit about the.
The thinking behind.
The integrated product and engineering organization.
Super excited about some of those.
Synergies and new capabilities as we broke those creeps closer together and obviously David has just joined US a handful of weeks into the.
Into his new role.
And really looking at how we shape that organization to continue to accelerate innovation and bring out even more industry, leading cyber security capabilities for our customers.
<unk> on this terrific platform that we've built.
That is a true multi tenant multi product architecture.
We leverage that to create an even better experience ambev.
On a defenses for our customers into the future.
Thanks, so much.
Thank you. Our next question comes from Nihon Cherokee with North Loftland capital. Your line is open.
Alright, thank you.
Congratulations on strong results.
Thank you for the explanation on the.
Constant currency net effective guidance raise.
That being said.
Big picture on constant currency is that you did put up a 15% year over year growth.
June quarter here.
Adding to that 12% 13%.
For the next quarter, what's the largest stepped down a net year over year growth rate here.
Yes. Thank you for the question.
1 of the things we talked about I think over the last couple of quarters is that largely because of the way. Our revenue is recognized remember 98% of our revenues deferred so even when we have a great quarter that revenue is going to be recognized over the contract life typically around a year and so you get this delay so we.
You talked about the U shape recovery.
And.
We see that really come into play I would point out. This is the first quarter over the last few where our next quarter guidance is perfectly.
Aligned with our full year guidance.
Again, both at 12% to 13%, so I think really establishing that use shaped recovery, we're talking about and positioning us as we continue to execute.
For Reacceleration now.
So all of that I think is 1 part of your question. Another part of it is just.
As we look forward excuse me as we look into this next quarter.
A couple of really good things that happened in Q1, the linearity of Q1 actually came in quite strong earlier on in the quarter and I've.
I mentioned in my prepared remarks about how we saw strength in the UK that was helpful and it happened early enough in the quarter. It actually helps quite a bit and we also Q1 is a quarter, where we're doing a lot of the implementations that yes.
The important data to our archiving solution those kinds of things from the prior quarter and so we had perhaps a little bit higher than you'd normally expect.
Kind of some of that 1 off income even though it's only 2 presented the full year a few hundred thousand dollars of that makes a difference. So we had.
I think of a number of really good things coming forth in.
In the Q1 revenue recognition, but the real important thing here is our.
Our bookings performance set us up for a strong rest of the year, that's where we got that $8 million constant currency rea's I recall that came on the back.
$6.5 million constant currency raised last quarter. So it's like it's 2 quarters in the row, where youre seeing the business strengthened and I think thats.
Playing out just as we had hoped.
Great. Thank you and then just the follow up here.
Does that mean that.
Strength in the business.
In the current good book Q2 has trended for.
I'm wondering what you saw on Q1.
Yes so.
For the 1 month that we're into it we did feel good about the strong start to Q2.
Obviously, that's something we've taken close accounts.
Doing our guidance, but yes, we're seeing again that strength, particularly in North America and the U K. After a strong start for the quarter. So that also helped with that confidence for that $8 million constant currency rates.
Great. Thank you very much and congrats on per quarter.
Thanks.
Thank you. Our next question comes from cash cash.
Ryan Chapnick with Colliers for your line is open.
Congratulations on a nice quarter.
Could you just reiterate if I missed it.
You can ask for client call, but.
Last couple of quarters, the last quarter, you talked about how your re staffing and youre talking about bringing in a higher level.
<unk> expertise and looking to replace staff that we're more focused on the SMB sales at 2 part question how is the staffing going for.
How are you doing on your staffing and getting new guidance to come in our Gal and then what type of automation have you have you put in place or plan to put in place to do that.
Better job to go after the SMB market, even though you are looking at moving up market I do believe you are still trying to maintain part of it through automation.
Yeah. Thanks Catherine.
Youre spot on and just.
Sure everyone's alive, we did talk about a restructuring for that shift that you called out where we're trying to make sure. We're deploying resources in line with our strategic initiatives.
And if people are to go to our website youll see we have a number of job openings out there that has actually increased but we're very very much focused on investing in line with the strategic initiatives that we've shared.
We're also really focused on is we're seeing strength in the economy investing in that growth opportunity. So I think both things are happening I would say, we're making good progress on that front I think like many of our peer companies out there the job market is certainly competitive right now.
In North America, that's the case, but we're getting some really talented people joining us and I think they're excited about what mine cash does and how it protects customers, but also excited about being part of.
The main cash story, so great progress there and we do have those openings also we welcome any referrals that people might have now the second part of your question is of course near and Dear to the finance guys hard about where we can automate and drive efficiency and we have a number of projects underway and some of them.
We're starting to produce benefit already.
But 1 of the first areas. We're really focused on is how we can improve our automation vis vis the channel in particular the MSP.
I think that's a great opportunity to reach a lot of the customers and enable the ecosystem around mine cash, which will further drive growth, so making it easier for them to transact with us, making a more automated on.
All of those are really primary.
Efforts as we launch into that we kind of have a long detailed list in the if you will in the quote to cash cycle, where we started on the top end of it not just with the channel, but where we think we can go in and frankly modernize our systems and upgrade them to reflect the much larger organization. We are now and we're looking at everything.
How do we make this easier to drive that growth to $1 billion.
Alright, thank you.
Q.
Our next question comes from Alex Henderson with Needham <unk> Company. Your line is open.
Great. Thank you very much.
Wanted to go back to the 2.
The architectural question that was raised earlier on.
So really critical.
You spent a lot of time building out a truly micro services based cloud native architecture. It is.
In my opinion, the defining characteristic of your strategy from the get go.
It seems like as we move through this.
Platform World.
Calling for 3 years, the looming platform wars that you'd become strategically more important.
And the integration of your API has become.
Much more resilient than any of your competitors can you talk about the differentiation of your platform against competitive.
The competitive landscape in that.
Context.
Yes, it's a key it's a key point.
And obviously this is really where we architecture does provide us with advantages because.
Across all of our products, we were able to deliver a consistent easy.
To use integration experience.
The features and functions of the product can be cold.
Quite a unified developers our own developers developers at all.
Partners.
On other vendors.
Both of these integrations and that's really helped us to accelerate the breadth of integrations that.
Do you have.
I think without that.
From a competitive standpoint, either competitiveness can find themselves having to either.
<unk> will require additional solutions.
But they have to provide to customers so sort of limited customers choice.
On to the products that they have.
As opposed to our strategy, which is expand the choice and inter operate with.
The other products on platforms that customers choosing.
Ill.
Already get.
Much less value out of.
The email and messaging security.
Threat landscape. So if you think about E mail, it's such an interesting.
And.
Intense attack surface.
And the opportunity.
Extract value and telemetry on what is going on in that attack surface.
And translate that into threat intelligence that can be consumed by other products or other parts of the environment.
Really starts to enable customers to think about E mail and messaging security not just as a way of sort of plugging the GAAP will plugging a hole putting on.
An additional sort of fence up over that aspect, but really is something that can be a strategic contributor to their overall architecture and can strengthen several other parts of there.
Of the security architecture, and so thats really the strategy.
Being able to do that being able to do that.
Technically at scale really does require an architecture. So that's kind of.
<unk> can be available to 40000 customers.
Instantly.
As opposed to having 2 types.
Perhaps spurring an expensive consulting consultancy.
Handcraft integrations.
Really is out of reach for for.
The majority of organizations today, so providing this out of the box and making it.
Really quick and easy.
What the architecture provides them.
We've really designed for GAAP.
If I could slide in the second question, you mentioned that you're starting to see a rebound over the course of the quarter on the demand.
As customers re hire and so forth has that accelerated over the course for the quarter in other words.
Is it.
I assume it's not a linear thing that is actually <unk>.
Proved month to month to month.
The highest rate of transition.
Actually in the headlines as opposed to where we mirror.
Yes.
I think thats it.
I think as things are improving that is absolutely the case.
It's ticking up as it goes along I think the 1 thing we should just caution us like Unfortunately every software company out there we tend to do the bulk of our business in the third month of the quarter. So that tends to be where you have big renewals and opportunities for that so.
That might skew my data.
Say that it's improving across the quarter, but I mean certainly.
We are on.
Seeing a lot of companies out there hiring right in that that drives additional seats and that's going to help us out and especially as we see that moving beyond North America, and hopefully picking up steam around the world.
That will continue to be a big part of.
The story on that net revenue retention rate metric.
Great. Thank you.
Thank you. Our next question comes from Brian Essex with Goldman Sachs. Your line is open.
Great. Thank you good morning, and thank you for taking the question Peter just wanted to follow up on some commentary around EMEA ex Devine.
Maybe if we could dig into that a little bit in terms of how youre partnering with xdr platforms on nature of those relationships is there.
Something more complex than providing raw data for better ingestion into those platforms on maybe a little background there to understand how those relationships are.
On evolving and technically how how much work as that require on your on.
Yes, that's a great question so.
So there is a data exchange component to it and then Theyre also hooks in terms of.
Of automation that are part of the solution and so.
And these things evolve and develop over time, so we've got all our first integration.
Right now.
And obviously you hear me okay.
By crowd strike this is another integration.
Crop strike family.
Sure.
It's a little bit more broad based with prompt strike.
Sure.
Harvest.
We really capitalize on this with our customers and on channel partners.
It's quite interesting to sort of from a go to market perspective, we're able to take.
These integrations.
And really talk to customers with our channel partners that sell each 1 of these different solutions in many cases and have quite interesting joint go to market activities.
Collaborations between our sales organizations on the sales organizations at these vendors.
Then work with our channel partners in the field.
Educational events.
And.
And other promotional activity that I think helps customers see the strongest solutions that we're building together and that are available to them.
So we're very bullish on these partnerships and the value that they bring to customers.
We will continue to evolve and develop the technology that.
That brings them together.
As these different use cases that we support initially.
Deployed into the field.
Got it that's helpful and maybe just a quick follow up for Ralph.
Just noticed that the spike in R&D, and I think you've talked a little bit about initiatives on the.
On development side, but maybe a little bit more detail in terms of <unk>.
Spending there on expectations for the remainder of the year.
Yes.
Good callout so.
1 of the things just to begin with we have throughout the pandemic continued to be prioritizing investment around our product side. So youre seeing some of that in some of the hiring thats going on there that's part of it but also.
There is a 1 time item in this quarter, that's worth calling out and particularly on the GAAP side Youll see it with the executive transition that we announced back a quarter ago.
No they're retained for total.
Total almost I think April of next year in terms of in an advisory capacity, but with David join in and really taken over the primary responsibility. There. The accounting has this frankly conservatively accelerate that cost all into this quarter and that would be for the 2 executives that are both transitioning into that advisory capacity.
And so you see.
Of that piece of it it's about $1.9 million of stock based compensation that would otherwise been spread out of the year accelerated into Q1, and then on the Opex side, which hits non-GAAP, it's about $900000.
That accelerates there so youre seeing that bump up in Q1, it'll normalize well it'll dropdown without those costs, but if you look at it on a full year basis, it's quite normalized.
That's super helpful. Thank you very much for the follow up and congrats on the results yes. Thank you.
Okay.
Our next question comes from Brent Thill with Jefferies. Your line is open.
Hey, guys you have Joe on for Brent really appreciate the question.
Rafe starting off with you how should we think about <unk> going forward is.
Is high single digits, the proxy or can we get the double digits and then maybe if you could talk about the levers is it driven more by seats as you move up market or cross sell.
Yes.
Very good question I think Youre nailing. It this is a big part of our story as we look out so.
<unk> benefits from a multitude of components that move up market, where we have bigger deals is a key piece of it but also just the fact that we have now 12 products with a lot of maturity in them that were taken out to our customers, which is showing up both on new customer sales as well as upsell opportunity.
He's right all of that adds up to build that.
Bigger and I think thats really quite exciting at $14000. As you noted for 9% constant currency increase since last year.
We're obviously pushing for a bigger number there.
Yes.
And we're knocking on the door of double digits. So.
We're pleased with where it is but I will tell you internally.
I think our easy to say our biggest corporate initiatives are both designed about driving that number up.
That's great to hear and then Peter maybe for you you've talked a lot more about internal messaging today kind of east west traffic in the work does that open up the opportunity for defending products like teams and slack and would we ever see mine cost moving to that category does anything that you've kind of acquired in the last year helped in that capacity.
Yes, we do see that as an emerging opportunity.
We've got a lot of the technology under the covers that Ken.
Interrogate strength.
Yes, using API connections.
As we do with with E mail can.
Can interrogate those environments and help.
Andrew remediate threats from within the system I think there's also.
For compliance and archiving opportunity in that space.
Coconut.
So yes.
Yes, I would.
I would look out for for.
For some of the things for me.
The coming months and quarters that we'll be doing that.
Great to hear thanks, guys.
Our next question comes from Keith Bachman with Bank of Montreal. Your line is open.
Good morning, 2 questions first.
Rafe for you is could you talk a little bit about what you think the trends on net retention will be.
So you did a 105 do you think it gets back to kind of a 107 level by end of year and just in the interest of 10 million ask my follow up to Peter.
Talked about.
12 products now Youre expanding your technology leadership, you are moving to a new architecture I'm trying to understand what you think the outcomes may be of that.
So I tend to think it could be a few different things, but if you think about that.
On the number of services does it.
Materially increase the number of services and in particular, if you thought about the number of services used per customer it's been growing at a fairly steady clip I think you said 3.6.
This quarter, which is up.
2 does it change the rate of growth of adoption of those number of services or how do you think all these technology changes will manifest itself and how investors view. It that's it for me. Thank you.
Yeah. Thanks, Keith so on the net revenue retention side.
We're really pleased to see that number stabilize and now reaccelerate there starting to start building back is probably the best way to say it remembering it is a trailing 4 quarter metric.
It does tend to move slowly so we're doing everything we can to.
Build that arc back in the right direction.
We don't give guidance on this number and I think in some part it's because COVID-19 has taught US 1 thing it's hard to predict.
Exactly how the global economies will recover and when based on all the variables in that number but that building back going from 104 to 105 is really key and believe US. We are really focused on continuing to drive that number back towards.
The historic numbers, we used to put up there.
And I think the situation is right for us to be successful and improving economy.
More products and a sales team that has really been focused on on providing.
Providing the upsell opportunities to us so we're really proud of the work the team is doing.
I think all of that coming together, taking care of our customers and continuing to have more value to offer.
It is the right recipe for building building that number up.
Yes, Keith.
Touch on your on your question so.
We built this architecture, both this foundation from which net.
As a multi product multi tenant platform.
And that obviously has some considerable operational benefits for us, but also creating a simpler easier to use greater than the sum of the parts.
Value equation for customers.
Now we talk about 12 products in the portfolio.
Thats expanded.
Steadily I think when we came public 5 and a bit years ago. It was.
About 7 products. So we've added.
<unk> added those products during that time.
I think 1 thing to note is that.
As we've introduced some of the additional modules.
Additional capabilities that maybe amount of possible.
It is not always increment up and say, okay now its 13 on 14.
The additional <unk>.
Products tend to be.
Specific things.
Some of these modules.
<unk> contribute towards on increase in average order value, so the 9% year over year constant currency growth.
And to.
To $14000.
That is supported by.
Additional monetization opportunity within the base that you may not necessarily seeing that.
3.4 to 3.6 year on.
Yes sure.
I think the other really interesting thing is as customers have more products that they are consuming and today. We have I think it's 46% of our customers using more than for all of our products.
As we have customers using more products.
They actually become stickier.
We've seen you asked a second ago about retention rates.
With freight customers with more products tend to.
Stay longer with us, but also because of the nature of the platform. They are also margin accretive and so you've seen that effect as our gross margins have climbed over time as well with customers adopting more products because the underlying platform cost of delivering.
2.3 or 5 or 6 product is.
Very marginally different and so that is a key part of the economic engine of the business and our strategy and we've seen that scale play out nicely as we've as we both those customer base on <unk>.
Okay, great. Thanks team.
Yes.
Thank you and there are no further questions at this time I would like to turn the call back to Peter Bauer for closing remarks.
Yes.
Well folks thanks for joining us for <unk>.
Q1 earnings call. We hope you have a terrific rest of the day and we look forward to presenting our results to you again in a roundabout 3 month's time.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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