Q2 2022 Box Inc Earnings Call
On this call, we'll be making forward looking statements, including our Q3 and fiscal year 'twenty, two financial guidance and our expectations regarding our financial performance for fiscal 2022.
Our expectations regarding the size of our market opportunity.
Our planned investments and growth strategy, our ability to achieve.
Our long term revenue when other operating model targets, the timing and market adoption of and benefits from our new products pricing and partnerships the impact of our acquisitions on future box product offerings. The impact of the COVID-19 pandemic on our business and operating results. The KKR led investment in box and any potential repurchase.
Repurchase of our common stock.
These statements reflect our best judgment based on factors currently known to us and actual events or results may differ materially.
Please refer to our earnings press release filed today and the risk factors and documents, we filed with Securities and Exchange Commission, including our most recent quarterly report on Form 10-Q for information.
Permission on risks and uncertainties that may cause actual results to differ materially from statements made on this earnings call.
These forward looking statements are being made as of today August 25, 2021, and we disclaim any obligation to update or revise them should they change or cease to be up to date.
In addition, during today's call we will.
Discuss non-GAAP financial measures. These non-GAAP financial measures should be considered in condition to not as a substitute for or in isolation from our GAAP results.
You can find disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and in our related Powerpoint presentation.
Which can be found on the Investor relations page of our website.
Unless otherwise indicated all reference to financial measures are on a non-GAAP basis.
Lastly, while we recognize there's been news around our upcoming annual meeting on September 9th the purpose of today's call is to discuss our financial results. We ask that during the Q&A portion of this call you keep your quest.
Questions focused on our performance.
With that let me hand, the call over to Aaron.
Thanks, Cynthia and thank you all for joining the call today.
We achieved strong second quarter results across all metrics, marking our fifth consecutive quarter of achieving both revenue and non-GAAP EPS above our guidance, we delivered second quarter.
Revenue growth of 12% year over year, our second consecutive quarter of accelerating revenue growth billings growth of 13% and <unk> growth of 27%.
From our business performance and building momentum, it's clear that enterprises are increasingly making strategic long term decisions.
<unk> on how to support a remote workforce and digital processes, while still maintaining a high level of security and compliance policies. As a result more customers are turning to the box content cloud to deliver secure content management and collaboration built for this new way of working.
Our strong momentum.
Is best illustrated by our customer deal metrics in the second quarter.
Our net retention rate was 106% up from 103% in the prior quarter we.
We had 74, new deals over $100000 up 16% year over year and.
And we had a 73% attach rate of suites on deal.
Deals over $100000 in the quarter up from 49% in the prior quarter and up from 31% in Q2 fiscal 'twenty one.
We view these strong customer metrics as evidenced that we are executing on the right product strategy. One that is well aligned with the three major changes happening around.
Year of work in the enterprise.
Hybrid work is going to be a necessity going forward.
Digital transformation is driving significant change across all industries and third cyber security and privacy threats are increasing at a growing rate as we've seen with the recent ransomware attack.
A few of these trends have major implications for how companies work with their content.
Content is at the heart of how leading life sciences firms discover develop and deliver new drugs and treatment.
How bank collaborate with an onboard new clients or closed deals and.
And how consumer product organizations Ideate on.
<unk> manufacture and scale new products, whether it's a CAD design a sales presentation marketing asset research study legal contract or financial data content is our customers' business.
Today enterprises have to purchase and integrate amidst of solutions from disparate vendors.
To solve the entire content management lifecycle.
This leaves to broken processes for users security risks due to the gaps between tools fragmented data and increased cost for enterprise customers.
Our vision for the box content cloud is to integrate empower the complete content lifecycle.
From the moment content is created through the entire content workflow.
By leveraging our product leadership in content management or content cloud will continue to extend into key elements of this lifecycle, including esignature content publishing deeper content workflows, new collaboration experiences analytics data prior.
Private <unk> and advanced security.
Critical to our success is our ability to execute on our product roadmap, which expands our total addressable market and add value to our core platform with new product innovation.
This is why we were pleased to deliver on our product roadmap with the launch of box sign to select customers in late July.
Ally capitalizing on the trend of more transactions moving from paper based manual workflows to the cloud while also addressing an incremental multibillion dollar market.
<unk> signed was developed through the acquisition of sign request, a leading cloud based electronic signature company and a good example of our disciplined approach to M&A.
M&A.
Our decision to acquire this particular technology versus developing internally was driven by time to market with esignature being the number one requested feature from customers last year.
Initial response from customers has been very positive and we are rolling out box signed to all business and enterprise customers throughout this fall with a.
<unk> roadmap of innovation ahead.
Also over the quarter, we made meaningful updates to our governance functionality to help support customers legal hold and document retention needs as.
As well as new features within box shield to protect the flow of content with advanced machine learning based security features.
Our security.
Compliance data governance and privacy capabilities remain one of the most critical reasons customers choose the box content cloud and our innovation here is only accelerating in addition to these and many other product updates in the quarter, we continued to integrate deeply across the SaaS landscape.
Key part of our content cloud value.
Position interoperability and strong partnerships with leading technology companies.
This is critical to our success at scale.
Building on the great work, we've done with so many amazing partners, including slack and Microsoft in the second quarter, we announced a new integration with service now legal service.
Every application to modernize illegal operations, which benefit customers by bringing together service now has advanced workflow expertise to minimize manual processing, while ensuring confidential legal content is secured on boxes content cloud and we also announced new and deepened integrations with box for Cisco Webex and make it.
Probably for customers to work securely and effectively in the cloud.
And we're just getting started to address our $50 billion plus market opportunity. We are building the end to end platform for managing the lifecycle of content.
And continue to be regarded by customers and analysts as the leading independent vendor for cloud content management.
Easier.
Of course evolving our product strategy to meet today's enterprise remote and hybrid workforce needs and strengthening our partnerships with leading technology companies are only part of our strategy to drive growth.
We have also been methodically enhancing our land and expand go to market model to deliver our full platform.
Platform to our customers.
To accelerate growth over the past couple of years, we've been actively implementing a number of strategic go to market initiatives, including optimizing pricing and packaging improving sales segmentation and territory planning driving efficient marketing programs and pipeline generation.
Increasing sales enablement and doubling down our focus on key verticals, such as life Sciences and financial services in the federal government.
And the success of our go to market initiatives and the growing demand for our more advanced capabilities drove our strong suites adoption in the second quarter.
This is why we have been working aggressively.
To sell the full box platform through our suites operating to bring all of that box has to offer to our customers.
We know that when a customer adopts our multi product offerings, we see greater total account value higher net retention higher gross margin and a more efficient sales process.
Building on the.
<unk> suites in late July we also announced a new simplified product addition for our enterprise customers called Enterprise, plus which includes shield governance relay platform Fox signed the ability for large file uploads and enhanced important consulting credits.
You can see the success of our go to.
Success for its most clearly when looking at our Q2 customer expansion per.
For instance, one of the largest banks in the world purchase a seven figure deal with multiple products, including key safety governance relay shield and platform to support new use cases for box, including claims processing and loan.
Market in a more secure virtual environment the.
The bank has also standardized on box for internal and external collaboration.
An innovative biopharmaceutical company did a six figure expansion with box to support its growing workforce following multiple acquisition to help power its mission to transform the way that drugs are.
<unk> in the U S with.
With box the company's workforce is able to improve collaboration security and GST compliance, providing with them with a scalable and secure foundation that allows them to work faster.
And finally, a global leader in energy services that has been a box customer since 2017.
<unk> expanded its use of box with a six figure elas and the purchase of enterprise plus.
This will enable them to have a proactive approach to internal threat detection on content be more prescriptive with security controls around content and automate more than a dozen critical business workflows.
These deals showcase.
<unk> simplicity and power of our business model, we are focused on expanding our customers through additional seat growth by going wider within organizations as well as adding more value through additional feature enhancements and new products that drive up customer value and retention.
Over the past year, we have been executing on our strategy.
Is this a reaccelerate growth while also driving continued operating margin improvements in our results in the second quarter demonstrate that our strategy is working.
As a result, we have raised our guidance for the full fiscal year 2022, and are reiterating our long term targets of 12% to 16% revenue.
<unk>.
23% to 27% non-GAAP operating margin in FY 'twenty four.
Our strong second quarter results and our confidence in our outlook for this fiscal year and beyond are the direct result of the leadership of our board and the hard work and execution, we've been driving as a company.
I could not be prouder of the.
Avenue robots and while we still have so much we want to accomplish I am confident that we have the right team and leadership to execute on our strategy and targets going forward as well as a world class Board of directors that is focused on and committed to driving enhanced value for shareholders with that I'll turn it over to Dylan.
The team at Thanks Erin.
Good afternoon, everyone and thank you for joining us.
As Aaron mentioned, we are proud to have delivered strong top and bottom line results in Q2.
We drove an acceleration across key metrics revenue growth net retention and operating profit clearly demonstrating strong.
Business momentum as we build on our content cloud vision.
Revenue of $214 million was up 12% year over year, an acceleration from our Q1 revenue growth of 11% and above the high end of our guidance.
Our content cloud offerings are increasingly resonating with our customers.
As shown by the strong suites traction and net retention rate we achieved in Q2.
As our customers are increasingly adopting products with more advanced capabilities, 61% of our revenue is now attributable to customers who have purchased at least one additional product up from 56% a year ago.
In Q2, we closed 74 deals worth more than $100000 up 16% year over year.
A record 73% of the six figure deals were sold as a suite up from 49% in Q1 and from 31% in the year ago period.
Suites have enabled us.
To streamline our sales process and drive greater adoption of multi product solutions, resulting in customers, who are larger stickier and have a greater propensity to expand overtime.
We couldnt be more encouraged by our traction here.
We ended Q2 with remaining performance obligations or.
Our Po of 922 million up 27% year over year, an acceleration from the prior quarter's RPM growth rate of 20% and exceeding our revenue growth by 500 basis points Q.
Q2's, RPM growth is comprised of 16% deferred revenue growth and <unk>.
37% backlog growth demonstrating boxes stickiness as we continue to sign longer term agreements to support our customers' content strategies, we expect to recognize more than 60% of our RP over the next 12 months.
Q2 billings of $213 million were up 13% year over.
For year, and well ahead of our previous expectations to deliver a growth rate in the mid single digit range.
This billings result reflects the strong sales execution that we saw in the enterprise and SMB with both teams generating double digit year over year sales productivity improvements.
Our net retention rate at the end of Q.
Two was 106% up 300 basis points from 103% in Q1.
This result was driven by strength in customer expansion and a stable annualized full churn rate of 5%.
Based on the strong momentum, we're seeing in customer expansion and retention, we expect to deliver additional.
Improvement in our net retention rate over the course of this fiscal year.
Turning to margins.
Gross margin came in at 74, 5% up 100 basis points from 73, 5% a year ago.
Q2, gross profit of $160 million was up 13% Europe.
Year over year exceeding our revenue growth rate.
We continue to benefit from both our ongoing shift to cloud data centers and the hardware and software efficiencies, we're generating in the infrastructure we manage.
Our gross margin expectations for the full year of FY 'twenty to continue to be approximately 74.
4%.
Our ongoing efforts to improve profitability are paying off as we continue to unlock leverage in our operating model.
Q2, operating income increased 47% year over year to $44 million, which in turn drove a 500 basis points improvement in Q2 operating margin.
To 26%.
We continue to deliver profitable growth and disciplined expense management.
This year, we've made significant progress in building out our engineering center of excellence in Poland, which will help us drive additional operating leverage and efficiencies over time as we transition certain engineering.
Generic functions away from higher cost, California locations.
This resulted in our delivering 21 of diluted non-GAAP EPS in Q2 above the high end of our guidance and up from 18 cents a year ago.
I'll now turn to our cash flow and balance sheet.
In.
In Q2, we delivered cash flow from operations of 45 million up 39% from the year ago period.
We also generated free cash flow of $30 million a year over year improvement of 124%.
Capital lease payments, which we include in our free cash flow calculation were 13.
$14 million down from $14 million in Q2 of last year.
For the full year of FY 'twenty, two we continue to expect Capex and capital lease payments combined to be roughly 7% of revenue.
As a result, we ended the quarter with 779 million in cash cash equivalent.
Equivalents and restricted cash.
We completed our modified Dutch auction tender offer at the end of June for an aggregate cost of approximately 238 million and our board subsequently authorized a $260 million share repurchase program.
As of August 24th 2020.
'twenty, one we have repurchased two 9 million shares of class a common stock at a weighted average price of $23.89.
For a total of $70 million.
Combined with the modified Dutch auction tender, we've repurchased a total of $12.2 million shares for a total of.
$308 million.
With that I would like to turn to our guidance for Q3 and fiscal 2022.
As we announced a few weeks ago based on our strong Q2 results and our continued business momentum we've raised our full year revenue operating margin and EPS guidance.
Note that our share count and EPS expectations factor in only the shares that we have already repurchased to date.
While we expect to Opportunistically purchased additional shares through the remainder of the year under our ongoing share repurchase program. The amount could vary significantly based on market conditions and other factors.
Therefore, we're taking a prudent approach and not assuming any future repurchases in our Q3 or FY 'twenty two outlook.
For the third quarter of fiscal 2022.
We anticipate revenue of $218 million to $219 million, representing 12% year over year.
And a third consecutive quarter of revenue growth acceleration at the high end of this range.
We expect our non-GAAP operating margin to be approximately 20%, representing a 200 basis points improvement year over year.
We expect our non-GAAP EPS to be in the range of 20 to 21.
And GAAP EPS to be in the range of negative nine to eight cents on approximately $162 million and 154 million shares respectively.
We expect our Q3 billings growth rate to be roughly in line with our revenue growth.
For the full fiscal year ending January 31 'twenty.
'twenty two.
We have raised our full year revenue guidance and we expect FY 'twenty two revenue to be in the range of $856 million to $860 million up 11% year over year.
This is an increase from last quarter's guidance of $845 million to $853 million.
And represents an acceleration from last year's revenue growth.
We expect our non-GAAP operating margin to be approximately 19, 5%, representing a 410 basis point improvement from last year's result of 15, 4% and a sizable increase over our previous guidance of 18.
To 18, 5%.
Due to our strong top and bottom line momentum, we now expect our FY 'twenty two non-GAAP EPS to be in the range of 79 to 81.
Approximately 166 million diluted shares.
Our GAAP EPS is expected to be in the range of negative.
<unk> 34 to 32 cents on approximately 158 million shares.
We continue to expect our billings growth rate to be above our revenue growth rate for the full year of FY 'twenty, two and for RPM growth to outpace both revenue and billings growth for the full year of FY 'twenty two.
We.
We'll provide further details into our Q4 expectations on our Q3 earnings call.
Finally, our FY 'twenty two revenue growth rate combined with FY 'twenty two free cash flow margin is now expected to be at least 32% an increase over our previous guidance of at least 30%.
Box today is not in the box of 2019.
Our strong Q2 performance is the result of the business transformation, we began two years ago.
This year, we're delivering both revenue acceleration and increased operating leverage for our shareholders proving that our content cloud platform is resonating with customers.
We are well underway to delivering against our previously stated target of 12% to 16% revenue growth and 23% to 27% operating margin in FY 'twenty for two years from now and.
In FY 'twenty four we're also committed to delivering revenue growth plus free cash flow margin of 40%.
Before we conclude I'll hand, it back to Erin for a few closing remarks.
Thanks, Dylan before we open it up to questions. We wanted to share that on October six we will be hosting tens of thousands of attendees at box works, which will be an all digital event for the second year in a row. This year will be another incredible event.
Share more on our vision for the content cloud and will showcase major product advancements attendees will also be hearing from an outstanding slate of speakers, including the Ceos of Okta slack and zoom as well as ITT leaders from enterprises like Lionsgate State Street, USAA and World fuel services.
Among many others.
Q2 was a strong quarter not only in terms of achieving quarterly revenue and non-GAAP operating results that were above our original guidance, but also in our metrics that showed the power of our content cloud platform net retention rate billings and <unk> growth are all leading indicators that show the success.
As a matter of our strategy to not only retain customers, but expand our solutions within our existing customer base to drive revenue growth and operating margin improvements and ultimately shareholder value Dylan.
And I would be happy to take your questions operator.
Thank you at this time I would like.
To remind everyone in order to ask a question press Star then the number one on your telephone keypad again that is star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
We have our first question coming from the line of Brian Peterson with Raymond James Your line is open.
Success, Hi, everyone and thanks for taking the question. So wanted to hit on the sales strength with large deals this quarter.
We are the only could you maybe unpack that a little bit and I'd be curious how does that pipeline look for the back of the year because obviously the execution has been strong but what are you seeing in terms of pipeline generation and how those customer conversations maybe changed a little bit with the.
With the suites offering.
Yes, I think Brian this is Aaron.
Certainly very happy about the Q2 and overall the first half results when we look at our big deal metrics and our suites adoption.
We've seen and as we look forward and as I think you can tell evidenced.
Evidenced then.
The revenue guidance.
And we're also feeling really confident about the back half of the year and the momentum that we're going to see on suite expansion.
The large deals that that we're now we're not seeing in the pipeline.
Even within the large deal with 100 K plus deals in Q2, we also saw a very healthy number and an increase on the 500 kols.
Steels as well so.
So a nice set of trends within the customer base right now that we're seeing and and overall customers are fully expanding into our multi product plans and we're going to keep doubling down on that momentum.
Okay. That's a good segue into my next question just how are you guys thinking about incremental go to market.
K plug investments going forward I know sales productivity has been in focus it looks like that's ramping up just curious how we're thinking about head count investment going forward. Thanks, guys.
Yes, I think the message that we've had in the past couple earnings calls I would say is it's consistent we're incrementally investing in go to market capacity right now and we.
Certainly.
Get best in.
In Q2 over Q1.
And I think the key is that we're going to making investments into the highest productivity regions. The highest productivity segments. The areas, where we're seeing increasing momentum, but in Q2 I think we saw that in a in a number of a number of areas.
Around the world and across segments. So we're.
We're really happy about the results and we're going to incrementally invest.
Certainly consistent with our operating margin targets that we've called out, but but we want to make sure that we're doubling down in areas of growth right now that we're seeing.
Thank you.
We have our next question comes.
Coming from the line of Steve Enders with Keybanc capital markets. Your line is open.
Okay, great. Thanks for thanks for taking my question just want to get a better sense for what you are saying out there.
On the macro side, you know impressive growth with our RPI up 27% and bookings up.
39%, there, but I guess, what would you kind of attribute.
The strength in the quarter on that front do you think it's more.
The macro driven and the market is coming towards you or is this.
Proportion of a better sales productivity and better execution on your front.
Yeah. Thanks, Steve I think it's it's it's certainly been many quarters of work to.
To get here and and we also are absolutely seeing very favorable megatrends within our customer base of major moves to the cloud.
So a massive push toward remote and hybrid work significant issues around cyber security challenges and then broad digital transformation tailwind and so.
When you add up those three or four mega tailwind in our market, specifically and then having the right product.
We're building out with the right message around the content cloud and then the right team that's able to deliver that product I think all we're just seeing a confluence of events that are.
Certainly contributing to these positive results on the macro front.
We have seen and I think we've seen this across our peer group and I'm sure. All of you have seen it as well the macro environment has certainly improved.
You know markedly in the past year from a year ago, our customers were worried about.
The shutdowns that they were doing the layoffs that they had to enact and that was causing a decrease in it spending.
Sector in some sectors of the of the it environment.
And in a.
A year later with certainly a strong macro environment, but more importantly, very strong tailwind in digital transformation and remote work, we're absolutely capitalizing on that with that with again, the right team and the right product and then when you get one.
I'll, even more specific if you look at our multi product plans. This is again this has been a couple years of.
That finally really coming together nicely.
Box shield is performing incredibly well box relay.
<unk> is helping us advance our workflow story of having an open platform that customers can build on and integrate with many of our largest deals in the quarter.
<unk> on both our.
$500000 plus deals in our six or seven figure deals.
Were customers that were buying into the entire suite of our technology building custom applications any integrating us.
Crossed their their software landscape and fundamentally driving new digital experiences for their employees and their customers and partners.
I think we are we're benefiting from again, the right platform and having this content cloud where where the market is heading toward.
And just to build on that a bit. This is doing because you asked about sales productivity is as we've shared our strategy has really been to focus our go to market and sales in particular investments in higher.
So warming regions and geographies that strategy is definitely paying off and is the approach that we'll continue to take going forward. So for both enterprise and SMB in Q1 and Q2, we saw a strong increase in the percentage of aes, achieving quota as well as a strong year on year improvements in sales force productivity.
So we have been as Aaron mentioned incrementally been adding to that sales force and remain on track to grow the size of that sales force in the low teens as a percentage this year.
Okay perfect great to hear and just on box I know, it's only been out for about a month now, but I guess what are you seeing in terms of in.
Sort of adoption or interest with them within that product so far.
Yeah.
There's absolutely been very strong and overwhelming.
We are on.
In the midst of rolling the product out to our customers throughout this fall the select customers that we're getting it out too are starting to adopt it I.
In terms of what they are fortune 500 customer yesterday and this was the main topic of conversation was being able to rollout bauxite into all of their end users and also through through the API. So we're seeing a lot of great use cases emerge it's getting us into new conversations. It's also helping drive further retention and renewals of customers because.
It was undergoing a fuller suite of functionality in the same platform and when you look at the categories that are adjacent to content sharing and collaboration whether it's advanced data security workflow automation esignature content publishing content analytics.
You can see multiple categories that our platform is a natural fit to expand.
They are getting and as we laid out over the past year or so our strategy is to really build out that entire content lifecycle in a single architecture and that message is resonating very well right now with customers, we're becoming a much more I think strategic vendor for them.
Being much more strategic conversations because of that.
Yeah.
Okay, great to hear thanks for.
Into your question.
We have our next question coming from the line of Matthew <unk> with Jpmorgan. Your line is open.
Hi, good afternoon, Thanks for taking my question.
Dylan on the sales productivity I think you mentioned last quarter you expected.
Improvement in productivity to ramp at a more measured pace and.
I just wanted to dig into this to see did sales productivity truly exceed your expectations this quarter and if so.
What happened is that maybe changed at versus your expectations last quarter.
Sure.
So last year as a reminder, we improved overall sales force productivity by 13% year over year and that was primarily driven by enterprise because of some of the challenges we saw with Covid in the SMB segment in the middle part of the year in the first half of this year, we've seen even stronger growth in both enterprise.
Enterprise and SMB.
That has outperformed our expectations and I think as Ernie talked about we're really seeing the traction of our newer products boosting that performance as well as a lot of the the reason we've been investing in outperforming as well and that's what gives us the confidence as we look at the business on a region by region geography by.
Geography basis in continuing to grow the sales force in most parts of the business certainly where the productivity trends have been strong and where we are seeing the greatest momentum and suites in large deals.
So as mentioned, we do have more modest expectations for the rate of sales force productivity improvements going forward, but we do expect to continue.
Using that.
That metric in both enterprise and SMB, even as we grow the size of our Salesforce.
Okay, and then can you share how many of your reps are ramped currently maybe versus last quarter or this time last year.
But we don't break out the specific numbers, but we'll see.
To improve that we entered this year and have a higher percentage of reps, who are ramped versus the same time, a year ago, especially as in those higher performing regions, we tend to see a stronger sales force retention.
Okay, and then last one from me.
Hmm.
Can you help.
Saves the demand that youre seeing now how much of the demand can you attribute to maybe pent up demand or business that might have normally closed.
<unk>.
The last year or in a more normal environment versus anything where youre seeing a secular surge that might.
Par is something that is truly changing.
Or maybe Aaron it's as simple as when you alluded to earlier sort of a multi year effort.
Behind the product strategy is really taking hold just trying to figure out whats.
Maybe pent up versus what's secular we are different.
Sure. Thanks, Matt Yeah, I mean.
Certainly.
Suggest sort of leaving and given my dozens of CIO interactions in just the past month or so hundreds in the first half of the year I think we're seeing sustaining trends across the business.
When I look at the sectors that are buying an expanding financial services life Sciences health care the technology sector professional.
Animal services Federal government.
And and the trends are remarkably consistent across across the CIO conversations every single CIO, whether you were the CIO of a 500 person company or a 500000 person company you're trying to figure out what is the future of your workforce and what's your future of your workplace, you know that youre not going to have any.
Analog processes going forward, you know that youre not going to have any on premises infrastructure for the most part I mean, there's certainly going to be some some lag to that but for the most part you're moving to the cloud.
We're dealing with massive cyber security and ransomware and data privacy challenges and so as you're thinking about this modern architecture you have major vendors that you have to make sure work together.
Professional.
Microsoft Stack, you've got a Google stock do you have a salesforce that give us lack.
Stack or a service now stack and fundamentally you need a platform that helps them manage content across those technologies and when I look at the trends that we're seeing within our customer base. These are long term architectural architecturally driven.
Yeah.
That we believe will sustain in and we're just seeing that tailwind pickup and that's why again, we are really focused on driving this continued performance.
Thank you both.
Again in order to ask a question simply press Star then the number one on your telephone.
Even <unk> pad again that is star then the number one on your telephone keypad.
We have our next question coming from the line of Chad Bennett with Craig Hallum Capital. Your line is open.
Great. Thanks for taking my question so.
If we look at <unk> noncore.
Allophones, an RP O has.
<unk> grown significantly above from a growth rate perspective current RPI for I think on the order of six quarters now and you know my guess is.
And in this quarter. It was it was significant in terms of Delta.
Between the two you know you guys have talked about from a strategic selling standpoint, I'm moving to suites in and getting the sales force comfortable with that and kind of making sure the.
Repeat ability of that sale you know improves.
And it certainly looks like it did this quarter I guess can you give us an update on on how that impacts contract duration.
Obviously, you're signing more multi year deals with.
Would show up in that that longer term, our P O number and since the attach rates went up so much this quarter it would be.
So you get some perspective on where they are now versus a year ago.
Sure. So as you see we did generate improvements in our in all components of what contributes to RPM growth both on a year on year and quarter over quarter basis, but to your point a lot of that was really.
Due to the outsized backlog growth, which was driven by the large multi year contracts and the higher volume of those that we're seeing especially as customers are increasingly signing those longer term contracts on average we have seen to your point that that's led contract durations.
Improved by a little more than a month over the past year.
Because we do see longer contracts as you would expect for our customers who are adopting a more sophisticated solutions and our add on products and so as we see more of these customers adopt suites and move into that category that is one of the big things, that's driving that mix shift longer durations and then.
Year, attributing to the backlog growth as well as overall RPM growth.
And in that that increase or impact of of months dealing is is there a rough.
Are we at kind of one point to one point for and just in terms of duration. These days.
Just for some perspective.
It's a little more than a year and a half on average for kind of total contract duration or average contract duration, but again those suites and in core plus customers tend to be on multiyear deals and so while we also do see some variability quarter to quarter in those in <unk> growth.
Yes, what this is also being driven on it by and Aaron hit. This is there are some customers who are early renewing their contracts resetting those for longer durations once they really buy into that broader suites strategy.
And it's really a function of <unk>.
Customers, who are betting on us for the long term.
And then just in terms of.
You know when you when you speak of acceleration.
And in the business and in particular revenue growth.
You know.
Obviously, we want to be conservative and guide and.
Okay expectations going forward, but I mean, the secondary metrics have looked.
Really good relative to.
You know real time revenue growth, let's just say the last two quarters you know in the guide.
Forecast kind of roughly the same type of growth rate you've seen.
In this quarter and last quarter in the second half.
Is there any is there anything that you know I know last year I think this time, we're talking about maybe maybe professional services being a headwind in SMB and the headwind is there anything in your guide.
That's a headwind to the to the revenue growth rate that we might not be.
Thanks, Yeah. So sure so to your point as revenue growth as you know reflects the prior 12 months of business performance as the momentum that we're not seeing in our business flows through the revenue. We do expect to see a continued upward trend over time, so ending the year as implied in our guidance for Q3 and the full year.
<unk> seen a higher growth rate than either our Q1 or Q2, actuals or Q3 guidance.
And that's really what gives us the confidence in improving our growth rate over time on the headwinds we are continuing to see both from a revenue point of view because it's trailing 12 months some of the impacts.
<unk> all of the year in Covid at least for from a near term point of view going forward and then we do even now continue to see some pressure on our professional services business. So that continues to be a slight headwind to the overall revenue growth.
Great. Thanks for taking my questions.
Thank you. The call has now ended I will now turn the call back over to Cynthia for any closing remarks.
Great. Thank you everyone for joining us this afternoon, and we look forward to updating you again on our next earnings call.
This concludes today's conference call.
The middle Thank you for participating you may now disconnect.
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