Q2 2022 Mimecast Ltd Earnings Call

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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby and thank you for your patience.

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Yeah.

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2022 nine Cats earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.

I would now like to turn the conference over to your speaker for today, Mr. Robert Sanders you may begin.

Good morning, and welcome to mine cast earnings call for the fiscal second quarter of 2022, I'm, Robert Sanders Director of Investor Relations with me on the call. This morning are Peter Bauer, our co founder of <unk>.

And CEO and Rafe Brown, our CFO today's.

Today's conference call is being broadcast live 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 incident and the ongoing impact of the global COVID-19 pandemic.

We caution you to consider the important risk factors that could cause actual results to differ from those in the forward looking statements contained in today's press release and on this call. These risk factors are further defined in <unk>. Most recent Form 10-Q filed with the Securities and Exchange Commission.

During this call we will present, both GAAP and non-GAAP financial measures. These non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results. 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 website.

The date of this call is November 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.

Now I'd like to turn the call over to Peter Bauer, Peter Good morning, everyone and thanks for joining US I Hope you and your families are safe and healthy.

I'll begin with some takeaways from the quarter and progress on executing our strategy.

I'll also touch on the threat landscape and why we believe mind cost services is mission critical as ever.

And then Rafe will detail our financial results.

Our results this quarter exceeded the high end of our guidance ranges across all metrics underscoring our strong execution and favorable security demand, especially in North America and the UK.

We generated 147 $2 million in revenues, which is up 16% year over year in constant currency.

We drove an increase in average order value to $15000, which is approximately 15% over the prior year in constant currency.

Now this increase in Iot was partially impacted by a reduction in smaller customers that Rafe will discuss in detail later in the call.

Additionally, we increased the number of services per customer to 3.8, that's up from $3 four last year.

We also delivered a strong net retention rate of 106% in the quarter up from 105% in Q1.

Of note we drove another increase in the percentage of revenue coming from enterprise customers with more than 5000 seats to 20%.

Continuing our gains in the enterprise segment.

Now these results speak to our strong execution against our three pronged growth strategy as.

As we.

Expand our footprint in the enterprise market B cell all multi product platform.

And C automate to create even stronger and easier to use engagements with our SMB customers and channel partners now let me provide some examples of that execution this quarter.

Firstly, a UK based consumer goods company with 42000 employees, both full services across all three zones secure E mail gateway with targeted threat protection and zone one.

Internal email protection in zone, two and Denmark analyzed in zone three.

On a U S based telecom company with 20000 seats purchased six services across zones, one two and our continuity offering that protect against downtime.

And logistics services company with 30000 seats added additional services.

This included awareness training brand exploit protect large file sending and D. Mark analyzer and in total this customer has now bought eight services across all three zones plus archiving.

Anesthetic, where company based in the U S with 8000 seats.

Seven services.

Clinical research organization in the U S. With 4800 seats purchased eight services, including secure E Mail gateway targeted threat protection in Zug, one internal email protect awareness training and cyber graph in zone two.

And brand exploit protection in zone three.

And they're also added browser isolation, one of our newer offerings.

We also had three more hospital systems in the U S joined mind cost one with 15500 employees, one with 15000 and the last one with.

9300 seats as you know there've been a number of recent ransomware attacks against hospital systems and it's clear that these organizations are taking the risk very seriously we're proud to help them and ensure the continuity of care. These important organizations.

We're pleased that customers are relying on mine cost to solve additional problems too as they seek to enhance cyber resilience and keep their organizations safe and our teams are doing an excellent job building trust with our customers and prospects and ensuring they understand the enhanced protection provided by our comprehensive suite.

And you can see that in a consistent increases in average order value products per customer.

And our industry, leading retention rates.

On the product side, we saw particularly strong engagement with awareness training this quarter, adding 400, new customers as we expand the scope of our offering we educate on the ever changing attacks that organizations face today.

Our API and alliances program continues to drive results integrations with security partners allow organizations to incorporate mine cost threat intelligence and automation capabilities into the broader security ecosystem. Notable new collaborations include X a beam sumo logic net scope and human.

The crowd strike company.

These collaborations further differentiate offerings from competitors in it.

US win new customers as well as deepen existing relationships, we observe even stronger retention among customers, who leverage our API integrations are cyber crime is occurring at record rates and data breaches are more costly than ever on many companies remains inadequately prepared to defend against these attacks.

As trends continue to shift towards the cloud companies adopt promote and hybrid work environments and the overall digital transition continues security remains of utmost importance and our holistic email security three <unk> strategy and integrated suite of offerings gives customers a meaningful advantage in.

Mitigating these risks.

We continue to work to improve and expand our platform to address our customers' evolving needs.

And the evolving nature of security threats for example, our recent innovations around cyber graph.

And AI driven machine learning social graph technologies designed to identify and mitigate the.

The most advanced and highly targeted phishing and impersonation attacks.

And recently, we were proud to host over 750 customers prospects and channel partners, who attended mine costs beyond 2021 messaging security and compliance virtual conference, where we shed recommendations to help organizations minimize risk and increased cyber awareness.

Another exciting development from the quarter was mine costs roll as a founding member of the Xdr Alliance. The alliance is a partnership with leading cybersecurity industry innovate is committed to an inclusive and collaborative extended detection and response framework. The goal of the Xdr Alliance is to foster an open up.

Approach to xdr.

Which is essential to enable organizations to protect themselves against the growing number of cyber attacks breaches and intrusions I'd also like to provide an update on our ESG efforts and progress towards mine costs net zero commitment.

Recall, we pledged to zero, our entire operational footprint this fiscal year and become a fully net zero emissions company by 2030.

In the near term to meet our goals will be offsetting all scope, one and two carbon emissions with third party certified renewable energy certificates and carbon offsets. Additionally.

Additionally, we're conducting a full materiality assessment to baseline our energy needs and identify opportunities to further reduce our footprint.

Currently we operate several 100% renewable power data centers in the U K, Germany, Canada, and the United States.

And finally, we announced our employees a hybrid model that allows for remote work further reducing the carbon intensity of employee related travel and with that I'll turn it over to Rafe. Thank you Peter I am pleased to report the weak seed at the high end of our guidance for revenue adjusted EBITDA and free cash flow for the second quarter of fiscal.

2022, our performance this quarter was driven by improving customer retention rates excellent cross sell of additional products to our customer base strong bookings earlier in the quarter and an uptick of one time fees from professional services and archived data migration fees.

In the second quarter, we generated revenue of $147 2 million, which.

<unk> is a 20% improvement over the prior year in absolute dollar terms adjusting for $5 $1 million of currency tailwind or constant currency growth rate over the prior year was 16%.

Note that since providing guidance in August foreign currency fluctuations positively impacted our second quarter revenue results by $400000 net.

Net revenue retention stood at 106% for the trailing four quarter period, ending September 30th building off an improvement in this metric that we noted last quarter looking at the components upsell improved to 114%, where we saw strength in both product based upsell as well as seed and price based upsell.

On the product side, the second quarter saw strong interest in our awareness training cyber graph and D-mark solutions.

Down sell and churn improved to 8% for the four quarter period before I turn to net new customer count <unk> metrics I want to provide a bit of detail on a change with a particular managed service provider or MSP as a result of a reorganization of this MSP business a low dollar Porsche.

Of their customer base was transferred to a former affiliate as a result, 600 customers with a total annual contract value of less than $100000 have been removed from our total customer count.

Excluding these customers we added 600 net new customers in the second quarter.

As of September 30, our total customer count stands at approximately 39600 customers.

Given the very small average order value of this particular MSP customers. This action by itself increased <unk> of our base customers calculated at October 25th FX rate Lv jumped to $15000 up approximately 15% over the prior year in constant currency terms exclude.

<unk>. This particular MSP change average order values would have been approximately $14400 up approximately 10% over the prior year in constant currency terms still an impressive increase.

This fundamental improvement in average order values was helped by our having increased the average number of services per customer across our customer base to three eight from $3 four one year ago as well as seed expansion within our base customers as they added new employees.

This is a reminder, that many of the changes to our customer count metric happen among customers with less than 100 seats and typically low annual contract values to that end in isolation, our net new customer count metric is becoming increasingly less important as the focus of our revenue growth has shifted to larger or.

Organizations.

We recommend investors consider changes in both customer count and average order value as important metrics to consider when evaluating our progress toward achieving our strategy.

Turning back to our financial statements, we continued to see improvements in gross margins in the quarter, we recognized a 79% non-GAAP gross margin up 150 basis points from the second quarter of the prior year adjust.

Adjusted EBIT for the second quarter totaled $46 8 million.

Representing an adjusted EBITDA margin of 31, 8% compared to 27, 4% in the same quarter of the prior year.

440 basis point improvement.

Now turning to the bottom line, our non-GAAP operating profit for the second quarter was $38 million or 25, 8% of revenue an improvement of 540 basis points from the prior year.

We reported GAAP net income of $17 6 million for the second quarter or a profit of 26 cents per diluted share based on $68 8 million fully diluted weighted average shares outstanding.

Our GAAP tax expense totaled $2 8 million in the second quarter, which included a discrete stock windfall benefit of $700000. We continue to expect our full year GAAP tax expense to be approximately $6 3 million. Our non-GAAP net income for the quarter was $27 7 million.

Or <unk> 40 per diluted share our non-GAAP tax expense totaled $9 2 million for the quarter or 25%, which is consistent with the rate we discussed last quarter and the change to our non-GAAP tax methodology, whereby we booked to our long term non-GAAP tax rate throughout the year.

Turning to cash flow second quarter operating cash flow totaled $43 1 million or 29, 3% of revenue free cash flow totaled $31 2 million for the quarter or 21, 2% of revenue and as of September 30th mine costs had $367 million of cash on the back.

Once sheet net is that our current cash balance stands at $285 million. Let me now turn to guidance for the third quarter of fiscal 2022 revenue is expected to be between $149 $2 million and $157 million or 13% to 14% grow.

In constant currency terms, our guidance is based on exchange rates as of October 25, 2021, and includes an estimated positive impact of $2 $7 million, resulting from the weakening of the U S dollar compared to the prior year adjusted EBITDA for the third quarter is expected to be between 41 and 42.

Uh huh.

Which at the midpoint reflects an adjusted EBITDA margin of 27, 7% up 100 basis points from Q3 of last year.

Free cash flow for the third quarter is expected to be between $33 million and $34 million.

Which at the midpoint reflects a free cash flow margin of 22, 4%.

Turning to the full fiscal year fiscal 2022 revenue is expected to be between $589 9 million.

And $593 6 million or 14% to 15% growth in constant currency terms.

Adding the details.

Foreign exchange rate fluctuations are positively impacting this guidance by an estimated $17 5 million.

Compared to the rates in effect in the prior year.

Higher guidance for fiscal 2022 provided in August was $580 $1 million at the midpoint our over achievement in Q2, coupled with the continued strength, we're seeing in our business is leading us to raise the midpoint of our full year guidance by $10 $7 million in constant currency terms.

This increase of $10 $7 million is being positively impacted by $1 million a foreign exchange tailwind that has risen since the rates used in our August call, resulting in the midpoint of our full year guidance moving up by a total of $11 $7 million in absolute dollar terms from a midpoint of 580.

$1 million to a midpoint of $591 8 million.

We are raising full year 2022, adjusted EBITDA guidance to between $164 2 million.

$165 7 million.

Which at the midpoint of our guidance would reflect an adjusted EBIT margin of 27, 9% up 250 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 $12 million.

Improvement over our prior guidance.

We are also raising full year 2022 free cash flow guidance to a range of $136 1 million to $137 6 million.

Reflecting a free cash flow margin of 23% at the midpoint of our revenue guidance.

This is a 550 basis point improvement over the prior year at.

At the midpoint this represents a $9 million improvement over our prior guidance.

To conclude we are very pleased with the business performance for the first half of the fiscal year given that approximately 98% of our revenue is recognized ratably. Good performance in the first half of the year provides a significant benefit to our full year revenue results as demonstrated by our again raising our revenue guidance for the full year fiscal two.

<unk> thousand 22.

And with that I'll turn it back to Peter for some closing remarks.

Thanks Rafe.

At mine cost, we offer a unique fully integrated and efficient platform with a highly durable business model with 98% of our business is recurring subscription revenue.

We have industry, leading retention and high gross margins and we are proud to be a trusted mission critical service provider to leading companies around the world.

I'd like to thank the entire mine cost team for their efforts and relentless dedication to our mission.

And with that operator, if we could open up the call to take your questions.

Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone to withdraw your question Christa Pankey again Thats Star one to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of packet EMEA with Barclays. Your line is open.

Okay, Great Hey, good morning, guys. Thanks for taking my questions here how are you.

Thanks.

Hey, Rafe, maybe just to start with you on on the customer count.

I think what you said was basically 600 customers that were removed and so.

The real sort of apples to apples net adds was about 600 customers, but can you just dig a little bit deeper into that MSP change I mean, where those 600 customers that have actually churned or maybe just go one level deeper into sort of the mechanics of how that customer count is being adjusted yes.

Yes, I'm happy to do that.

We're spot on the net takeaway was the 600.

Net new customers, but looking at this particular instance, this is a real one off situation with this MSP and in fact, we have like three different relationships with the provider and this is just one of the three that way because of it.

It gives me.

Because because of our reorganization they did on their side.

And it really had nothing to do with <unk>.

Gives me with us.

They did a reorganization and it goes back years, where these customers came from but industry organization. They ended up transferring part of their business to a former affiliate we don't have a relationship with that former affiliate. So we did drop them out of our customer count.

Okay got it that's very clear Peter.

Peter maybe for my follow up for you.

Lots to talk about but maybe we will stick to maybe I'll stick to the competitive backdrop to start out can you just talk a little bit about or can you update us a little bit on the competitive backdrop I guess with now a couple of quarters since it's gone gone private.

Arguably a little bit more noise coming out of Microsoft on unsecured in general just give us a little bit of an update on the competitive backdrop and what you've seen in the quarter or what you saw in the quarter. Thanks.

Yes. Thanks.

I think we had a very successful quarter from a competitive stand point.

Several large account wins and you heard me call those out in the in the prepared remarks I think very.

Very clear that those would have been in competition with with some of the usual suspects.

So we feel we feel really good about that and we think that that success has come through.

Real innovation over the past year.

And our product as well as strong execution I think.

Email security three <unk> strategy moving customers to a pervasive mindset from.

E Mail and messaging security relative to what historically has been much more of a perimeter mindset.

Given us strong differentiation.

The ability to sell solutions across all three of those items that we described in our email security three <unk> strategy.

We feel good.

Once again, a significant portion of our business comes to us from office 365 customers.

And then if not yet at a third party solution for.

<unk> security and risk mitigation and resilience answer that.

Good quarter.

Very helpful. Thanks, guys.

Thanks.

Thank you.

Our next question comes from the line of Catherine trip, Nick with Colliers. Your line is open.

Thank you for taking my question and excellent quarter.

Mine has to deal with fed ramp flat and any management changes you had in the last six months than where those slots I remember you changed your chief revenue officers lap.

<unk> been onboarding, new people sell little bit more color on where you are with that and the channel and then a little bit on that.

That business and how that's performing thank you.

Hey, Katherine I'll start us off on the our public sector efforts.

As you are aware, we have achieved fed ramp ready status the getting that full federal authority to operate is quite a project and it takes a good long time.

Really in the in the immediate sense, where we've seen really good progress in North America has been.

State governments, we called out the criminal Justice certification last quarter from particular state those things build off its the same infrastructure they need that extra level of security. They have those heightened requirements around support staff. So we're harvesting immediate benefit from that because there's a great demand for that type of search.

<unk> out there even as we continue to pursue the federal side and then of course, we frequently call out some wins, we have outside the U S again, where a lot of public sector organizations are looking to a cloud service providers such as ourselves to give them the protection they need.

Great Kevin.

I'll dive in on some of the team changes.

So.

Just to recall we've got.

And you see them more in the business frankly.

Joined us about five months ago, so he's bedding.

Bedding and while they are building a team up in.

I think we were very.

Very excited about the growth contribution.

And to the company in the second.

Executive.

David <unk>.

Joined us about three months ago, as our chief technology and product office side I recall that was the result of a change in structure, where we created an integrated product and engineering organization, which we think is a.

Better set up for us to accelerate innovation into the next several years for the company.

And.

David has been doing the work of both continuing to drive innovation in the company, but also rate, bringing that structural change around and integrate those.

<unk> together.

What we're seeing in some of the advancements.

Offerings like fiber graph machine learning.

Artificial intelligence some of the ways that we're looking to exploit.

Peter.

Our platform.

And some of the things that we've not yet announced but.

We will share with you in coming calls.

Really exciting us and.

I think creating a lot of energy inside the product and engineering organization. So we feel really good about about those two new executives and then I think as you mentioned.

Our chief revenue Officer left.

Left us at the end of September to join a start up in the Boston area.

We wish him well obviously change.

It is something that brings opportunity and so we're end markets.

<unk> for a new CLO and I think it really brings us an opportunity to.

To find a candidate that has significant international experience and.

<unk> expense at scale as we move from.

Knocking on the door of $600 million.

Up to sort of $1 billion 2 billion and beyond.

As a scalable organization and so we're excited to be to be sourcing talent with with that kind of experience and track record.

Thanks Catherine.

Yes. Thank you.

Thank you.

Our next question comes from the line of Matt Hedberg with RBC capital markets. Your line is open.

It's Dan Bergstrom for Matt Hedberg, Thanks for taking our questions. So on the upsell really nice improvements here is there a way to think about the balance and strength between say pricing upsell of additional seats.

Yes.

We saw good strength on both sides of that equation clearly one of the benefits.

Yes.

We're seeing out there is is.

A lot of companies are hiring back following the COVID-19 downturn.

Youll recall that last year, we went to great lengths to really make sure we could invest in our customer relationships keep customers, even if they had the down sell and so.

It's great to see that come back, but that is just a piece of the story the product side was really strong and we are.

I think it really helps us feel validated because even during all of last year, where we are in the midst of Covid. We continue to invest in our products continued to drive innovation and.

That investment coupled with an environment, where people are seeing a lot of very high profile attacks out there has fueled the upside upsell of product side of the house as well over these last couple of quarters.

Great and then Peter you just touched on this in answering catherine's questions, but.

But maybe a little more on what you're looking for maybe from my Chief revenue officer in the go to market in general as you scale the business.

From that $5 $600 million level, you talked about $2 billion 2 billion and beyond.

Yes, it's Greg look I think the three things that.

At a big opportunities for <unk> costs, I think continental Europe.

An experienced with continental Europe is something.

We're excited to gain expertise in the company if its a massive.

Market and frankly, one that we're just getting started and so there's a real opportunity to scale up there.

I think secondly, what we've done very well with channel.

I think there is an opportunity, particularly as we moving up market to continue to build.

To our channel partnerships not channel relationships.

They're increasingly opportunities for channel partners to provide more services around our platform and our product and we wanted to develop those opportunities.

With the right kind of channel partners that can that can capitalize on that and deliver even greater value to our customers.

Of course intersects with our API strategy.

We're frequently and channel partners or bringing on a multi vendor solutions.

Our strategies before so.

So we're excited about that.

I think also the third piece would be as we look at.

As we look at that next phase of scale.

There's quite a bit operationally.

That I think we can we can.

We can gain from solar looking at sort of some of the most.

<unk> scientific.

Operational aspects of scaling our sales organization from an enablement and operations point of view.

I think some expertise in that area to.

To help lead us forward and build on the on the great platform and track record that we've created thus far is definitely an area that that im looking forward and the new candidate.

Really great. Thanks, Peter.

Thank you.

Our next question comes from the line of Brian <unk> with Goldman Sachs. Your line is open.

Great. Thank you good morning, and thank you for taking the question.

Peter I just had I guess.

Maybe we will at a question for you on office 365 penetration could you, perhaps give us an update on how penetrated is your customer base, particularly as you go upmarket.

And are these migrations I think I think Rafe noted some.

Higher data migration fees in his prepared remarks.

How is the environment changing one that you know that youre going up market and then to now that we're kind of seeing better economic improvement what are you seeing on the migration side, particularly with office three speak by what's the penetration and how has that environment changed.

Yes, that's great.

Within our base and I think we used to provide the numbers fairly frequently around percentage.

Percentage of our base.

On 365, I think we've shared specific numbers for.

A lot of it is probably in the sort of two thirds realm.

All of our base that sits on office 365.

We see a significant proportion of our new business coming to us already at $3 65.

And I think Youll point, when you look at larger organizations.

Frequently a hybrid configurations.

They have and they want to be prepared for hybrid configurations, one way or another and what I mean by hybrid configurations.

That could mean combinations of on premise exchange and office 365 tenancies.

It can also mean combinations of alternative mail environment's like.

<unk> suite and.

And office 365.

Simple office 365 tenancies.

Sure.

Because larger companies are constantly evolving with M&A activities.

And the like and so having a partner like us on the cyber security and infrastructure slide it can really help them mitigate risk.

Heterogeneous.

Setup.

As quite valuable.

So Brian that's great.

Or is everything.

Yes, I guess may.

Maybe just a follow on on the back of that are you seeing an acceleration.

I guess 365 migration.

Is this.

Is the activity that youre seeing more of a function of new customers coming on.

That are adding you kind of.

And synchronization with coming onto the platform and going office 365 or is it are you more frequently seeing your installed base migrate.

Look I think we.

Historically spoken about about sourcing business before the migration.

Office 365 preparation for that.

At the time of migration combined project that looks at both and then.

Post migration once they're on and they recognize the need for additional risk mitigation resilience.

Layered security.

Naturally that mix.

<unk> over time, so going back some years, obviously, a great deal of it was in preparation for <unk>.

And then during.

I know over time as Microsoft has been more and more successful in.

Sure.

And they are customers moving to $3 65, a greater proportion of it is already at $3 65, and selecting to add us to your.

To that deployment.

Got it that's helpful. Thank you very much.

Thank you.

Our next question comes from the line of Steve Koenig with MDC. Your line is open.

Hey, guys. This is Evan Hayworth under Steve Thanks for taking the question congrats on a great quarter.

So Peter it's great to see the enterprise segment get up to 20%. It seems like you're operating your operating sure. It's resonating well with the large customers I'm wondering now that we've hit that 20% Mark where do we go from here, where do you see that segment settling in the mid and long term.

Yes. Thanks.

It's such an interesting question I think we expect it to continue to grow however.

Have a considerable opportunity in the SMB and the commercial mid market sector.

Which which continues to grow so there's this constant.

Pressure within the segmentation of the.

The revenue pie if you like.

And so I think we see that enterprise segment is a considerable growth opportunity and we will continue to invest in our capabilities to service large enterprise customers and to build that momentum.

Sorry.

Yes.

Directional.

<unk>.

But I don't think were specific he shed.

Quite how we see that playing out.

Yes, no I would say that I.

I think we're just really pleased to see the.

The mid market in that commercial space growing as well.

I think it's validation of our strategy of focus on bigger customers and delivering that differentiated value, but if one of the byproducts is it helps the commercial accounts continue to buy our platform and grow with us.

Great outcome.

Yes, great. Thank you also as a second one I'm sure everyone saw the article out earlier this week from the journal central buyout or or M&A.

I'm wondering I mean I'm sure you can't comment publicly on that I don't know if there's anything you can share but the second question kind of how do we had reported these affect your ability to drive net new expansion business does that change anything in customer decision, making and if you can share anything on the on the article that'd be great as well. Thank you guys.

Yes, I think.

But youre not surprised to really comment on those on those rumors are rumors.

There all the time.

But I think I think the speculation is indicative of the value that people see in email security and.

And the importance.

<unk> himself the space and we're really focused on running our business taking care of customers.

Competing in.

In the marketplace.

And.

Continuing our growth journey.

As mine costs.

We try we try not to be distracted by what.

We read.

Thank you.

Our next question comes from the line of Brookdale with Jefferies. Your line is open.

Hey, guys Joe on for Brent. Thanks for the question I have a two parter I guess.

Simplistically Rafe can you just talk through the puts and takes of guidance you've accelerated constant currency revenue growth two straight quarters put a lot of hard work into this U shape recovery any reason to expect a decline in the next few quarters constant currency. When we have easier comps and then maybe you could just provide a little bit of color on the geos and what's embedded into guidance.

As well thanks.

Yes, no happy to add that.

I think as I noted on the.

Prepared remarks really happy with how the first half has played out and it has allowed us.

To be able to <unk>.

Deliver those nice upticks to the full year guidance, what they've just about our business the way that we recognize revenue with almost approximately 98% of it recognized ratably clearly as the year goes along even a great Q4, just has very little impact to move the revenue.

As you would imagine so as.

As the year progresses, the scope of change off of where we are starts to narrow but.

We've had a great first half of the year and remember when we gave that initial guidance the world was still rather unsettled.

And despite all of that we've really been able to take advantage of.

North America first coming out of Covid in the U K and then getting to your next part of your question parts of our business that last 20% are in different stages of bounce back after the pandemic and our Australian colleagues are delighted because they are just now coming out of lockdown and and I think that opens up a lot of new.

Opportunities there, but as the year goes on.

With.

While we still have a lot of wood to chop.

The numbers start to become tighter just because of the ratable nature of our business.

Thanks, guys.

Okay.

Thank you.

Our next question comes from the line of Jonathan <unk> with Baird. Your line is open.

Hi, good morning.

So I'd like to revisit the company's strategy on an M&A, which historically has really been more about small tuck in technology deals relative to let's call larger transformative M&A, but specifically when you look at the <unk> strategy, you've obviously been pushing.

<unk> of serving markets beyond traditional E Mail security.

Curious are there areas you feel might justify more sizable M&A relative to what you have done historically and if possible any color.

What those complementary opportunities might look like.

Yes, thanks, Jonathan.

So I.

I think you referenced.

Security three <unk> strategy.

Good in terms of how it's created a wider aperture for us to deliver.

Patients in a context for us to incorporate some of the adjacencies that really add value to the email security space.

I think for us the direction the direction as it is in a few areas. One is obviously there.

Messaging and collaboration activity happening.

Beyond E mail that.

That we have.

Kind of core domain expertise to be able to add risk mitigation and security capabilities around so we're interested in areas like that.

Also as a platform.

We have such considerable exposure to the threat landscape given the size of our customer base on the global deployment.

Half.

And the.

Diversity of.

Hypes of customers across segments and industries.

So we're interested in ways that we can make that data more useful to customers to strengthen their overall security system and infrastructure.

And we've seen some of that value really playing out in terms of our integrations.

To date, so we're interested in ways in which we can expand.

The contribution that we make in some of those areas like threat intelligence.

And kind of intelligent data utilization.

So as we as we look at what.

Historical Formula I think as you pointed out.

The longest part of the history of the company was building this organic platform and then.

And the last five or six years, a succession of technology and talent.

Orientated acquisitions.

We continue to.

Scott and explore opportunities to grow the company.

Grow our technology platform and.

And there are some interesting there are some interesting things out there.

As a larger company. We also have some optionality to do things that that might be a little bit bigger than what we've done historically.

And so on but.

I think very much in keeping with the strategy that we've described.

In terms of value to customers and not getting too far.

Far ahead of our skis in terms of other schemes.

Yes.

Very helpful. Peter.

A quick follow up I think right. This one's for you you mentioned some contribution from one time PSB has been some archived migrate you shouldn't be any way to quantify that contribution.

Yeah, It was relatively small.

Our run rate.

I was just talking about how 98% of our revenue comes from rapidly recognized sources.

It ticked up in the quarter about a half a million more than our typical run rate I think it's particularly.

I just felt it was worth calling out because that year over year comparison of last year with perhaps a particularly low quarter on those type of fees. So.

The careful observers of the quarter by quarter growth rate would pick up that it stood out so nothing huge but.

I thought it was worth noting.

Appreciate the color thanks, guys.

Thank you.

Our next question comes from the line of Brian Colley with Stephens. Your line is open.

Hey, guys. Thanks for taking the question.

So.

I apologize if I missed it but did you guys disclose the annual revenue impact from the MSP change that you discussed.

Yes.

It was actually less than $100000. So those were really quite small customers.

Got it okay.

And then just thinking about.

Kind of your key geographies and where they are from a recovery perspective.

Which regions are you seeing still struggling the most kind of.

It would be key to.

Driving a further acceleration in revenue from here.

Lee I mean from a product perspective I'm curious.

Which modules are products, you can kind of expect to be the biggest drivers of upsell moving forward sure.

Sure. So on the geographic side, maybe just for everybody's sake give the rundown of the benefit the U S has clearly been the quickest and the strongest to emerge we noted last quarter. The UK seem to come out from under the Covid doldrums and performed well at that happened again. This quarter. We are quite excited about it and the important thing there is when we.

North America, and the U K, that's 80% of our business, so really puts us in a good position.

I'd say the group Thats, probably still has their hands fold.

The most would be our South Africa team.

Actually are performing well on the upsell side of the house, but the broader economy has its challenges.

So that's going to take some time to work out.

And then there's a bit of a spectrum, Australia did fairly well considering but there is there is some hope that they get out of lockdown.

Go through the summer holidays here, but once that bounces through that.

That gives them a green light.

To grow in the future.

And then just.

Yes, just to weigh in a little bit.

Sure.

You see some of the big opportunities and product I.

I think we were delighted obviously.

We're approaching pretty good saturation on targeted threat.

That protection.

We're really pleased to see continued penetration with 3000 customers.

New and existing.

Adding TTP today to the product stack, but that's another solid rate.

Great areas of opportunity.

IEP for example, now at about 25% penetration within the base, adding 700 customers in the quarter.

<unk> is something that is <unk>.

Driving a lot of conversations for us.

Again early days for that with 1100 customers in total in the base.

With it was a tick up there.

And awareness training now at 5000 customers.

Yes.

This pain.

And do you have room to run with even those modules in the base.

And then there is another technology that we've launched which we done efficiently.

Within the product content.

Which is cyber graph.

And we've seen that.

Have.

A tremendous amount of interest within our basin.

Very exciting levels of adoption.

Coming through on that.

Got it that's all really helpful. Thanks for the time.

Thank you.

Our next question comes from the line of Mike <unk> with Needham Your line is open.

Hey, guys. Thanks for taking the questions here just first to cleanup I know an earlier questioner asked about the upsell dynamic and I know that there was commentary regarding the strength of the product uptake.

As well as some contribution from the seat count and pricing and I think when we revisit it in the Q&A it almost sounded like the seat count and pricing was somewhat beneficial but the real dynamic. There was product can you can you I guess further later into that and help parse out those three dynamics as far as how they fit into that upsell.

Yeah.

Yes.

Absolutely.

I think.

They're all big contributors in the quarter right. So there are multiple things going on there.

I do want to underscore that the product side, which you can get a good feel for when you can when you look through in our Investor deck, where we talk about are we lay out for everybody kind of our current customers byproduct you can really see where some nice.

The uptick is on that product expansion side. So that's been just really important to us helping drive that.

The mix it varies of course quarter to quarter, but.

I mean in very rough figures. It's around 50 50, that's split between upsell driven by product versus the upsell that was driven by both seat and price expansion.

That's helpful. And then one other question if I could but.

Can you talk to the investments in the channel and specifically Msp's to ensure that you are continuing to grow alongside those partners and maybe just as a reminder here.

How much of your revenue are you guys generating from from channel and MSP today.

Yeah. So.

That's a great question, we've talked about a three pronged pronged strategy excuse me, but.

The third leg of that third prong is really focused on how we as an organization continue to grow and drive efficiency.

Through our systems through our processes as well as through modernizing a bunch of our relationships in particular on the channel side. So.

We've launched a number of efforts in that respect we're focused on making it easier for channel partners to transact with us making.

Everything from easier to get a quote easier to put it through easier to upsell all of that but but really.

Focusing on some of the frankly, the friction that builds up in the system over time now there's a lot of those products or projects excuse me are going to be rolled out over the coming quarters, we're looking at ways with MSP and particular to.

It really modernize our relationships so that those MSP that are investing in that relationship.

Were reciprocated in behind and really making sure. We're focused on organizations that help us grow to be Frank and likewise, you do that by making sure that they can have a profitable business and provide great service to their customers. So.

That all kind of fits into the <unk>.

<unk> quote to cash project that our it team and the finance team are working on together, so there's a real big focus on.

On how do we.

Build an organization that is at once efficient, but actually using technology in the way we go to market to help accelerate that growth.

And at the end of the day, we get the majority of our business comes through the channel in one form or fashion, whether its MSP as our distributors and resellers. So it's really an important thing as we go to market.

Great. Thank you.

Thank you.

Our next question comes from the line of Nicole <unk> with Northland Capital. Your line is open.

Yes. Thank you.

Awesome quarter.

The constant currency growth rate continues to tick up to six 6% year over year.

Can you put that in context of your February 2000, and Investor Day bunch of both brands are subject to such a 21% is still on the table and whats the timeframe for returning to that now now that you're almost there actually.

Yes no.

Good question and maybe just to make sure everyone's alliance so back right.

Right before we all realize that Covid was going to be the thing that has become we had an analyst day and we set out long term targets, which on the top line, we're 17% to 21% growth on the bottom line the free cash flow line, we called out 23% to 25% growth so on that.

Margin excuse me yes.

And so.

It's focused on the revenue side, where your question was we've said repeatedly as we've gone through when we look at the market. When we look at the need for solutions like ours and frankly, when we look at all of these attacks that keep coming out of out of the woodwork.

We believe that's the right way to think about our business that those long term targets apply obviously with COVID-19 hitting right after that.

Threw off the timing somewhat from what we might have initially planned but.

Those long term targets are the right way to think about our business.

The bottom line down on the free cash flow margin side of that.

We just guided to that 23%, which we think is a really big accomplishment because that actually come in earlier than we dare to think back when we gave that original guidance. So they are the right targets at the right way to think about our business.

We've said repeatedly FY 'twenty two was going to be about stabilization of the growth rate and that that puts us in a position obviously to see how we can get back to reacceleration.

Alright, great. Thank you.

Thank you.

Our next question comes from the line of Yung Kim with loop capital markets. Your line is open.

Thank you first congrats on a solid execution right first.

On the downside of the churn rate that went down sequentially from 9% to 8%.

Congratulations on that does that also include the effect from the NSP change or the dollar impact from that is just too small so it didn't really impact that number at all.

Yes, because that one is the dollar impacted technically yes, but it's.

Such a tiny tiny element there.

In the Grand scheme of things it doesn't move it because remember we look back to four quarters ago at our whole base of customers and see how that goes but.

Well, we're really pleased we were absolutely really pleased on seeing that rate improve because that I think it is.

As a sign that that COVID-19 tail out there from last year has obviously fallen off but it's also the execution that the team did.

Working on on making sure we're retaining our customers, making sure we're making them successful and making sure. They have the solutions out there to protect themselves. So that's what's really helping us on the down sell and churn side.

Okay, great. Thanks for that answer Peter.

As the company continues to move up market, which you guys are executing very well on that front I am assuming your initial land deal size.

Has improved.

I am assuming pretty meaningfully and also the velocity of the expand and then also the follow on deal is changing quite a bit.

And if you can just give us some insight into how the land and expand dynamics are changing.

Focusing on larger customers.

And to that end.

Health.

Has your view on the overall.

For all of your sales organization has changed I am assuming that youre hiring direct salespeople are fast as he can just like anybody else but.

Is there any kind of shift towards maybe providing greater health incentive for new logo lands, but this expansion deals and such.

Trying to get a better understanding of the dynamics there.

The London span and how Youre thinking about your sales organization to support that.

Yes, Greg.

So quite a few led us to your question.

Sure.

I think firstly, what we're seeing in terms of land and expand with with larger customers as.

They really buy into this multi zone mindset of solving the E Mail security challenge and so.

Each of the each of the zones and the capabilities that we offer within each zone resonate with them as our strategic approach to.

Dealing with with these threats these sophisticated threats.

And so what we find is that as a strong differentiator.

And that in enterprise may embark with.

Pretty broad purchase of those solutions and I called out some of those anecdotes in the prepared remarks.

But equally that may start the journey with that's just one of those lines or replacing an incumbent.

And one of the zones.

With a roadmap and an idea then subsequently rollout of additional modules and so we really see a mix of broad based adoption early in the in the last phase.

And then also expansion over time.

It's also fair to say that some of the new module and the the three <unk> strategy has already come about in the last few.

Sure. Yes, so we do have large customers in the base that are now adopting those solutions.

I think when you when we talk about.

When we talk about sales team structure, and how are we optimizing that to capitalize on the opportunity.

In the.

In the larger account space, whereas some more strategic.

Whereas the more strategic and more complex account.

There isn't really strong differentiation between land and expand because those are comps.

Im expansion motion may require a significant amount of.

Sure.

Account management work and effort and so we really do incentivize that quite strongly with with our enterprise sellers.

Obviously that is different as we move down market into more of the transactional.

Part of the business.

But I think we are.

<unk>.

We're seeing how the incentive structures that we have in place are working effectively to drive some of the results, particularly with that let.

That uptick to 106%.

Our net revenue retention.

Thanks you.

Okay, great. Thank you.

Thank you.

I'm showing no further questions in the queue I will now turn the call back over to Peter Bauer for closing remarks.

Folks thanks for joining our Q2 FY 'twenty two.

<unk> earnings results. We appreciate your interest in our business and we look forward to sharing our results with you.

Again in about 90 days' time.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to the Q2 2022 Minecraft earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.

I would now like to turn the conference over to your speaker for today, Mr. Robert Sanders you may begin.

Good morning, and welcome to mine costs earnings call for the fiscal second quarter of 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 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 incident and the ongoing impact of the global COVID-19 pandemic.

We caution you to consider the important risk factors that could cause actual results to differ from those in the forward looking statements contained in today's press release and on this call. These risk factors are further defined in mine costs. Most recent Form 10-Q filed with the Securities and Exchange Commission.

During this call we will present, both GAAP and non-GAAP financial measures. These non-GAAP measures are not intended to be considered in isolation from a substitute for or superior to our GAAP results. 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.

And in the Investor Relations section of our web site.

Date of this call is November 2nd 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'd like to turn the call over to Peter Bauer, Peter Good morning, everyone and thanks for joining US I Hope you and your families are safe and healthy.

I'll begin with some takeaways from the quarter and progress on executing our strategy.

I'll also touch on the threat landscape and why we believe mind cost services is mission critical as ever and then Rafe will detail our financial results.

Our results this quarter exceeded the high end of our guidance ranges across all metrics underscoring our strong execution and favorable security demand, especially in North America and the UK.

We generated 147 $2 million in revenues.

Which is up 16% year over year in constant currency.

We drove an increase in average order value to $15000, which is approximately 15% over the prior year in constant currency.

Now this increase in Iot was partially impacted by a reduction in smaller customers. The grateful discuss in detail later in the call.

Additionally, we increased the number of services per customer to 3.8, that's up from $3 four last year.

We also delivered a strong net retention rate of 106% in the quarter up from 105% in Q1.

Of note we drove another increase in the percentage of revenue coming from enterprise customers with more than 5000 seats to 20%.

Continuing our gains in the enterprise segment.

Now these results speak to our strong execution against our three pronged growth strategy as.

As we age.

Expand our footprint in the enterprise market B cell all multi product platform.

And Steve automate to create even stronger and easier to use engagements with our SMB customers and channel partners now let me provide some examples of that execution this quarter.

Firstly, a UK based consumer goods company with 42000 employees, both full services across all three zones secure email gateway with targeted threat protection and zone one.

Internal email protection and zone, two and Mark analyze endzone. Three then a U S based telecom company with 20000 seats purchased fixed services across zones, one two and a continuity offering that protect against downtime.

And logistics services company with 30000 seats added additional services.

This included awareness training brand exploit protect large file sending Andy Mark analyzer and in total this customer is now about eight services across all three zones.

Archiving.

Anesthetic, where company based in the U S with 8000 seats purchased seven services.

And the clinical research organization in the U S. With 4800 seats purchased eight services, including secure E Mail gateway targeted threat protection in Zug, one internal email protect awareness training and cyber graph in zone two.

And Brian exploit protection in zone three.

And they're also added browser isolation, one of our newer offerings and we also had three more hospital systems in the U S joined mind cost one with 15500 employees, one with 15000 and the last one with.

9300 seats and as you know there've been a number of recent ransomware attacks against hospital systems and it's clear that these organizations are taking the risk very seriously we're proud to help them and ensure the continuity of care. These important organizations.

We're pleased that customers are relying on my cost to solve additional problems too as they seek to enhance cyber resilience and keep their organizations safe and our teams are doing an excellent job building trust with our customers and prospects and ensuring they understand the enhanced protection provided by our comprehensive suite.

And you can see that in our consistent increases in average order value products per customer.

Our industry, leading retention rates.

On the product side, we saw particularly strong engagement with awareness training this quarter, adding 400, new customers as we expand the scope of our offering we educate on the ever changing a tax that organizations face today.

Our API and alliances program continues to drive results integrations with security partners allow organizations to incorporate mine cost threat intelligence and automation capabilities into their broader security ecosystem. Notable new collaborations include extra beam sumo logic net scope and humid.

The crowd strike company.

These collaborations further differentiate offerings from competitors and have helped us win new customers as well as deepen existing relationships, we observe even stronger retention among customers who leverage our API integrations are cyber crime is occurring at record rates and data breaches are more costly than ever on many companies remain in adequately.

Paired to defend against these attacks.

As trends continue to shift towards the cloud companies adopt promote and hybrid work environments and the overall digital transition continues security remains of utmost importance and our holistic email security three <unk> strategy and integrated suite of offerings gives customers a meaningful advantage in.

Mitigating these risks.

While we continue to work to improve and expand our platform to address our customers' evolving needs.

And the evolving nature of security threats for example are.

Our recent innovations around cyber graph.

And AI driven machine learning social graph technologies designed to identify and mitigate.

The most advanced and highly targeted phishing and impersonation attacks.

And recently, we were proud to host over 750 customers prospects and channel partners, who attended mine costs beyond 2021 messaging security and compliance virtual conference, where we shed recommendations to help organizations minimize risk and increased cyber awareness.

Another exciting development from the quarter.

Mine costs roll as a founding member of the Xdr Alliance. The alliance is a partnership with leading cyber security industry innovator has committed to an inclusive and collaborative extended detection and response framework. The goal of the Xdr Alliance is to foster an open approach to xdr.

Which is essential to enable organizations to protect themselves against the growing number of cyber attacks breaches and intrusions I'd also like to provide an update on our ESG efforts and progress towards mine costs net zero commitment.

Recall, we pledged to zero, our entire operational footprint this fiscal year and become a fully net zero emissions company by 2030.

In the near term to meet our goals will be offsetting all scope, one and two carbon emissions with third party certified renewable energy certificates and carbon offsets. Additionally.

Additionally, we're conducting a full materiality assessment to baseline our energy needs and identify opportunities to further reduce our footprint.

Currently we operate several 100% renewable power data centers in the U K, Germany, Canada, and the United States.

And finally, we announced our employees a hybrid model that allows for remote work further reducing the carbon intensity of employee related travel and with that I'll turn it over to Rafe. 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 second quarter of fiscal.

2022, our performance this quarter was driven by improving customer retention rates excellent cross sell of additional products to our customer base strong bookings early in the quarter and an uptick of one time fees from professional services and archived data migration fees.

In the second quarter, we generated revenue of $147 2 million.

Which represents a 20% improvement over the prior year in absolute dollar terms adjusting for $5 $1 million of currency tailwind or constant currency growth rate over the prior year was 16%.

Note that since providing guidance in August foreign currency fluctuations positively impacted our second quarter revenue results by $400000 net.

Net revenue retention stood at 106% for the trailing four quarter period, ending September 30th building off an improvement in this metric that we noted last quarter looking at its components upsell improved to 114%, where we saw strength in both product based upsell as well as seed and price based upsell.

On the product side, the second quarter saw strong interest in our awareness training cyber graph and <unk> solutions.

The down sell and churn improved to 8% for the four quarter period before I turn to net new customer count <unk> metrics I want to provide a bit of detail on a change with a particular managed service provider or MSP.

As a result of a reorganization of this msp's business a low dollar a portion of their customer base was transferred to a former affiliate as a result, 600 customers with a total annual contract value of less than $100000 have been removed from our total customer count.

Excluding these customers we added 600 net new customers in the second quarter.

As of September 30, our total customer count stands at approximately 39600 customers.

Given the very small average order value of this particular MSP customers. This action by itself increased <unk> of our base customers calculated at October 25th FX rate Lv jumped to $15000 up approximately 15% over the prior year in constant currency terms exclude.

Adding this particular MSP change average order values would have been approximately $14400 up approximately 10% over the prior year in constant currency terms still an impressive increase.

This fundamental improvement in average order values was helped by our having increased the average number of services per customer across our customer base to three eight from $3 four one year ago as well as seed expansion within our base customers as they added new employees.

This is a reminder, that many of the changes to our customer count metric happen among customers with less than 100 seats and typically low annual contract values to that end in isolation, our net new customer count metric is becoming increasingly less important as the focus of our revenue growth has shifted to larger or.

Organizations.

We recommend investors consider changes in both customer count and average order value as important metrics to consider when evaluating our progress toward achieving our strategy.

Turning back to our financial statements, we continued to see improvements in gross margins in the quarter, we recognized a 79% non-GAAP gross margin up 150 basis points from the second quarter of the prior year adjust.

Adjusted EBITDA for the second quarter totaled $46 8 million.

Representing an adjusted EBITDA margin of 31, 8% compared to 27, 4% in the same quarter of the prior year.

440 basis point improvement.

Now turning to the bottom line, our non-GAAP operating profit for the second quarter was $38 million.

Or 25, 8% of revenue an improvement of 540 basis points from the prior year. We reported GAAP net income was $17 6 million for the second quarter or a profit of 26 cents per diluted share based on 68 8 million fully diluted weighted average shares outstanding.

Our GAAP tax expense totaled $2 8 million in the second quarter, which included a discrete stock windfall benefit of $700000. We continue to expect our full year GAAP tax expense to be approximately $6 3 million. Our non-GAAP net income for the quarter was $27 7 million.

Or <unk> 40 per diluted share our non-GAAP tax expense totaled $9 2 million for the quarter or 25%, which is consistent with the rate we discussed last quarter and the change to our non-GAAP tax methodology, whereby we book to our long term non-GAAP tax rate throughout the year.

Turning to cash flow second quarter operating cash flow totaled $43 1 million or 29, 3% of revenue free cash flow totaled $31 2 million for the quarter or 21, 2% of revenue and as of September 30th mine costs had $367 million of cash on the.

Sheet net of debt our current cash balance stands at $285 million, Let me now turn to guidance for the third quarter of fiscal 2022 revenue is expected to be between $149 $2 million and $157 million or 13% to 14% growth.

In constant currency terms, our guidance is based on exchange rates as of October 25, 2021, and includes an estimated positive impact of $2 $7 million, resulting from the weakening of the U S dollar compared to the prior year adjusted EBITDA for the third quarter is expected to be between 41% 42.

Which at the midpoint reflects an adjusted EBITDA margin of 27, 7% up 100 basis points from Q3 of last year free.

Free cash flow for the third quarter is expected to be between $33 million and $34 million.

Which at the midpoint reflects a free cash flow margin of 22, 4%.

Turning to the full fiscal year fiscal 2022 revenue is expected to be between $589 $9 million and $593 6 million.

Or 14% to 15% growth in constant currency terms, adding.

Adding the details foreign exchange rate fluctuations are positively impacting this guidance by an estimated $17 5 million.

Compared to the rates in effect in the prior year.

Prior guidance for fiscal 2022 provided in August was $580 1 million at the midpoint our over achievement in Q2, coupled with the continuing strength, we're seeing in our business is leading us to raise the midpoint of our full year guidance by $10 $7 million in constant currency terms.

This increase of $10 7 million.

It has been positively impacted by $1 million, a foreign exchange tailwind that has risen since the rates used in our August call, resulting in the midpoint of our full year guidance moving up by a total of $11 $7 million in absolute dollar terms from a midpoint of $580 1 million to a midpoint of 500 <unk>.

101 $8 million.

We are raising full year 2022, adjusted EBITDA guidance to between $164 2 million and $165 7 million, which at the midpoint of our guidance would reflect an adjusted EBIT margin of 27, 9%.

250 basis points from the prior year, despite our anticipated a return of costs associated with travel and in person events for the remainder of the fiscal year at the midpoint. This represents a $12 million improvement over our prior guidance.

We are also raising full year 2022 free cash flow guidance to a range of $136 1 million to $137 6 million reflecting.

Reflecting a free cash flow margin of 23% at the midpoint of our revenue guidance.

This is a 550 basis point improvement over the prior year at.

At the midpoint this represents a $9 million improvement over our prior guidance.

To conclude we are very pleased with the business performance for the first half of the fiscal year given that approximately 98% of our revenue is recognized ratably. Good performance in the first half of the year provides a significant benefit to our full year revenue results as demonstrated by our again raising our revenue guidance for the full year fiscal two.

<unk> thousand 22.

And with that I'll turn it back to Peter for some closing remarks.

Thanks Rafe.

Mine cost we offer a unique fully integrated and efficient platform with a highly durable business model with 98% of our business is recurring subscription revenue.

We have industry, leading retention and high gross margins and we are proud to be a cost of mission critical service provider to leading companies around the world.

I'd like to thank the entire mine cost team for their efforts and relentless dedication to our mission.

And with that operator, if we could open up the call to take your questions.

Thank you, ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone to withdraw your question press the pound key again Thats star one to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of packet EMEA with Barclays. Your line is open.

Okay, Great Hey, good morning, guys. Thanks for taking my questions here how are you.

Thanks.

Hey, Rafe, maybe just to start with you on on the customer account.

I think what you said was basically 600 customers that were removed and so.

The real sort of apples to apples net adds was about 600 customers, but can you just dig a little bit deeper into that MSP change, where those 600 customers that have actually churned or maybe just go one level deeper and just sort of the mechanics of how that customer count is being adjusted yes.

Yes, happy to do that and you were spot on the net takeaway was the 600.

Net new customers, but looking at this particular instance, this is a real one off situation with this MSP and in fact, we have like three different relationships with the provider and this is just one of the three that way because of our.

Excuse me.

Because of our reorganization they did on their side.

And it really had nothing to do with.

Excuse me with us.

They did a reorganization.

It goes back years, where these customers came from but in this reorganization. They ended up transferring part of their business to a former affiliate we don't have a relationship with that former affiliate. So we did drop them out of our customer count.

Okay got it that's very clear.

Peter maybe for my follow up for you.

Lots to talk about but maybe we will stick to maybe I'll stick to the competitive backdrop.

Start out can you just talk a little bit about or can you update us a little bit on the competitive backdrop I guess with now a couple of quarters since it's gone gone private.

Arguably a little bit more noise coming out of Microsoft on security in general just give us a little bit of an update on the competitive backdrop and what you've seen in the quarter or what you saw in the quarter. Thanks.

Yes. Thanks.

I think we had a very successful quarter from a competitive stand point.

Several large account wins and you heard me call those out in the in the prepared remarks, I think very well.

Very clear that those would have been in competition with with some of the usual suspects.

So we feel we feel really good about that and we think that that success has come through.

Real innovation over the past year.

Our product as well as strong execution I think our E.

Email security three <unk> strategy moving customers to a base of mindset from.

E Mail and messaging security relative to what historically has been much more of a perimeter mindset has given us strong differentiation.

The ability to sell solutions across all three of the zones that we described in our email security three <unk> strategy.

We feel good.

Once again, a significant portion of our business comes to us from office 365 customers.

That is not yet at a third party solution.

<unk> security and risk mitigation and resilience onto that site.

Good quarter.

Very helpful. Thanks, guys.

Thanks.

Thank you.

Our next question comes from the line of Catherine Chip, Nick with Colliers. Your line is open.

Thank you for taking my question and excellent quarter.

Mine has to do with fed ramp Lad and any management changes you had in the last six months and where those slots are memory changed your chief revenue officers lap.

We've been Onboarding, new people sell little bit more color on where you are with that and the channel and then a little bit on the sled business and how that's performing thank you.

Hey, Katherine I'll start us off on the our public sector efforts.

As you are aware, we have achieved fed ramp ready status getting that full federal authority to operate is quite a project and it takes a good long time.

Really in the in the immediate sense, where we've seen really good progress in North America has been.

State governments, we called out the criminal Justice certification last quarter from particular state those things build up its the same infrastructure they need that extra level of security. They have those heightened requirements around support staff. So we're harvesting immediate benefit from that because there's a great demand for that type of serve.

Miss out there even as we continue to pursue the federal side and then of course, we frequently call out some wins, we have outside the U S again, where a lot of public sector organizations are looking to a cloud service providers such as ourselves to give them the protection they need.

Yeah, Great Catherine I'll dive in on the on some of the team changes.

So.

Just to recall we've got.

Our new CMO.

The business currently.

I'm joined us about five months ago, so he's spending and we're building a team.

And.

I think we.

We're very excited about <unk> contribution.

And to the company in the second.

Decorative.

David <unk>.

I'm joined us about three months ago, as our chief technology and product officer and recall that was the result of a change in structure, where we created an integrated product and engineering organization, which we think.

As a better.

Set up for us to accelerate innovation into the next several years.

The company.

And.

Yes, David has has been doing the work of both continuing to drive innovation in the company, but also really bringing that structural change, Iran and integrate those.

Organizations together I think what we're seeing in some of the advancements around offerings like fiber graph machine learning.

Artificial intelligence some of the ways that we're looking to exploit data.

Within our platform.

And some of the things that we've not yet announced but.

We will share with you in coming calls.

Really exciting us and.

I think creating a lot of energy inside the product and engineering organization. So we feel really good about about those two new executives and then I think as you mentioned.

Our chief revenue Officer left.

Left us at the end of September to join a start up in the Boston area.

We wish him well obviously change.

It is something that brings opportunity and saw where end markets.

For a new CFO and I think it really brings us an opportunity to.

To find a candidate that has.

Difficult international experience.

And experience at scale as we move from.

The knocking on the door of $600 million.

Up to sort of $1 billion 2 billion and beyond.

As a scaled organization and so we're excited to be to be sourcing talent with with that kind of experience and track record.

Thanks Catherine.

Yes. Thank you.

Thank you.

Our next question comes from the line of Matt Hedberg with RBC capital markets. Your line is open.

Hey, it's Dan Bergstrom for Matt Hedberg, Thanks for taking our questions. So on the upsell really nice improvements here or is there a way to think about the balance and strength between say pricing upsell of additional seats.

Yes.

We saw good strength on both sides of that equation clearly one of the benefits.

Yes.

We're seeing out there is.

A lot of companies are hiring back following the COVID-19 downturn and Youll recall that last year, we went to great lengths to really make sure we could invest in our customer relationships keep customers, even if they had the down sell and so.

It's great to see that come back, but that is just a piece of the story.

Product side was really strong and we are.

I think what really helps us feel validated because even during all of last year, where we are in the midst of Covid. We continue to invest in our products continue to drive innovation and.

That that investment coupled with an environment, where people are seeing a lot of very high profile attacks out. There has few will be upside upsell of product side of the house as well over these last couple of quarters.

Great and then Peter you just touched on this.

Catherine's questions that.

But maybe a little more on what you're looking for maybe from a chief revenue officer in the go to market in general is in the scale of the business.

From that $5 $600 million level, you talked about $1 $2 billion and beyond.

Yes, it's Greg look I think the three things that.

At a big opportunities for <unk> cost I think continental Europe.

An experienced with continental Europe is something.

We're excited to gain expertise in the company as it is.

Massive.

Market and frankly, one that we're just getting started and so there's a real opportunity to scale up there.

I think secondly, what we've done.

Well with channel I think theres, an opportunity, particularly as we moving up market to continue to build.

All of our channel partnerships and our channel relationships.

They are increasing the opportunities for channel partners to provide more services around our platform and our product and we wanted to develop those opportunities and work with the right kind of channel partners that can that can capitalize on that and deliver even greater value to our customers.

And of course intersects with our API strategy.

We're frequently and channel partners are bringing on a multi vendor solutions.

Our strategies to before so.

So we're excited about that.

Also the third piece would be as we look at.

As we look at that next phase of scale.

There's quite a bit operationally.

<unk>.

We can.

Can.

We can gain from.

Looking at sort of some of the <unk>.

<unk> scientific.

Operational aspects of scaling our sales organization from an enablement and operations point of view.

I think some expertise in that area to.

To help lead us forward and build on the on the great platform and track record that we have created thus far is definitely an area that that im looking forward and the new candidate.

Really great. Thanks, Peter.

Thank you.

Our next question comes from the line of Brian <unk> with Goldman Sachs. Your line is open.

Yeah.

Great. Thank you good morning.

And thank you for taking the question.

Peter I just had I guess.

Maybe we will at a question for you on office 365 penetration could you, perhaps give us an update on how penetrated is your customer base, particularly as you go upmarket.

And are these migrations I think I think Rafe noted some.

Higher data migration fees in his prepared remarks.

How is the environment changing one now that youre going up market and then to now that we're kind of seeing better economic improvement what are you seeing on the migration side, particularly with office three suites by what's the penetration and how has that environment changed.

Yes, that's great.

Yes.

Based on I think we used to provide the numbers fairly frequently around so a percentage of our base.

On 365, I think we've.

Shared specific numbers.

A lot of it is probably in the sort of two thirds realm.

All of our base that sits on office 365.

We see a significant proportion of our new business coming to us already at $3 65.

I think Youll point, when you look at larger organizations.

Frequently a hybrid configuration that they have and they want to be prepared for.

Hybrid configurations, one way or another and what I mean by hybrid configurations that can mean combinations of on premise exchange and office 365 tenancies.

It can also mean combinations of alternative mail environment's like.

G Suite and office 365, multiple office 365 tenancies.

Because larger companies are.

<unk> evolving with M&A activities.

And the like and so having a.

Partner like us on the cybersecurity and infrastructure slide that can really help them mitigate risk across a heterogeneous mail setup.

Valuable.

So Brian that's great.

How is everything.

Yes, I guess.

Maybe just a follow on on the back of that are you seeing an acceleration.

I guess 365 migration.

Is this.

Is the activity that youre seeing more a function of new customers coming on.

That are adding you kind of.

And synchronization with coming onto the platform.

Going to office 365 or is it are you more frequently senior installed base migrate.

Look I think.

Historically spoken about about sourcing business before the migration to <unk>.

Office 365 preparation for that.

At the time of migration combined project that looks at both.

Then post migration once they're on and they recognize the need for additional risk mitigation resilience.

<unk> security.

Naturally that mix.

Shifted overtime, so going back some years, obviously, a great deal of it was in preparation for <unk>.

And then during.

And over time as Microsoft has been more and more successful.

<unk>.

And their customers moving to $3 65, a greater proportion of it is already at $3 65, and selecting to add us two or.

To that deployment.

Got it that's helpful. Thank you very much.

Thank you.

Our next question comes from the line of Steve Connick with MDC. Your line is open.

Hey, guys. This is on Hayward Thunder, Steve Thanks for taking the question congrats on a great quarter.

So Peter it's great to see the enterprise segment get up to 20%. It seems like Youre operating youre offering insurance resonating well with the large customers I'm wondering now that we've hit that 20% Mark where do we go from here, where do you see that segment settling in the mid and long term.

Yeah. Thanks, it's such an interesting question I think we expect it to continue to grow however.

Have a considerable opportunity in the SMB and the commercial mid market sector.

Which which continues to grow.

<unk>.

There is constant.

Pressure within the segmentation of the of the revenue pie if you like.

And so I think we see that enterprise segment is a considerable growth opportunity and we will continue to invest in our capabilities to service large enterprise customers and to build back momentum.

So.

Direct.

Actually more.

But I don't think.

Specifically shed.

Quite how we see that playing out.

Yes, no I would say that.

I think we're just really pleased to see the the.

The mid market in that commercial space growing as well.

I think it's validation of our strategy of focus on bigger customers and delivering that differentiated value, but if one of the byproducts is it helps commercial accounts continue to buy our platform and grow with us that's a great outcome.

Yes, great. Thank you also as a second one I'm sure everyone saw the article out earlier this week from the journal on potential buyout or or M&A.

I'm wondering I mean I'm sure you can't comment publicly on that I don't know if there's anything you can share but the second question kind of how do we how to report these affect your ability to drive net new expansion business does that change anything in customer decision, making and if you can share anything on.

The article that'd be great as well thank you guys.

Yes, I think.

But you're not surprised to really comment on those on those rumors are rumors.

Apparel all the time.

<unk>.

But I think I think the speculation is indicative of the value that people see in email security.

And the importance.

<unk> solved the space and we're really focused on running our business taken care of customers.

Competing in the marketplace.

And.

Continuing our growth journey.

As mine costs so.

Sure.

Yes, we try we try not to be distracted by what we read.

Thank you.

Our next question comes from the line of Brent Thill with Jefferies. Your line is open.

Hey, guys you have Joe on for Brent. Thanks for the question I have a two parter I guess Simplistically Rafe can you just talk through the puts and takes of guidance you've accelerated constant currency revenue growth two straight quarters put a lot of hard work into this U shape recovery any reason to expect a decline in the next few quarters constant currency when we have easier comps.

And then maybe you could just provide a little bit of color on the geos and what's embedded into guidance as well.

Yes, no happy to add that.

I think as I noted on the call.

Prepared remarks really happy with how the first half has played out and it has allowed us.

To be able to deliver those nice upticks to the full year guidance, one thing just about our business the way that.

We recognize revenue with almost approximately 98% of it recognized ratably clearly as the year goes along even a great Q4, just has very little impact to move the revenue as you would imagine so as.

As the year progresses, the scope of change off of where we are starts to narrow but.

We've had a great first half of the year and remember when we gave that initial guidance.

The world was still rather unsettled.

And despite all of that we've really been able to take advantage of.

North America first coming out of Covid in the U K and then getting to your next part of your question parts of our business that last 20% are in different stages of bounce back after the pandemic and our Australian colleagues are delighted because they are just now coming out of Lockdown and I think that opens up a lot of new.

Opportunities there, but as the year goes on.

<unk>.

While we still have a lot of wood to chop.

The numbers start to become tighter just because of the ratable nature of our business.

Thanks, guys.

Okay.

Thank you.

Our next question comes from the line of Jonathan <unk> with Baird. Your line is open.

Hi, good morning.

So Peter I'd like to revisit the company's strategy on an M&A, which historically has really been more about small tuck in technology deals relative to let's call larger transformative M&A, but.

Typically when you look at the <unk> strategy, you've obviously been pushing the boundaries of serving markets beyond traditional E Mail security.

Or are.

Are there areas you feel might justify more sizable M&A relative to what you had done historically and then if possible any color.

What those complementary opportunities might look like.

Yes, thanks, Jonathan.

So I think youll referenced email security three <unk> strategy is good in terms of how it's created a wider aperture for us to deliver.

Solutions in a context for us to incorporate some of the adjacencies that really add value.

To the email security space.

I think for us the direction. The direction is in is in a few areas. One is obviously there.

Messaging and collaboration activity happening.

E mail that we have.

Kind of core domain expertise to be able to add risk mitigation security capabilities around so we're interested in areas like that.

Also as a platform.

We have such considerable exposure to the threat landscape given the size of our customer base in the global deployment.

Half.

And the.

Diversity of.

Hypes of customers across segments and industries.

So we're interested in ways that we can make that data more useful to customers.

To strengthen their overall security system and infrastructure.

And we've seen some of that value really playing out in terms of our integrations.

To date, so we're interested in ways in which we can expand.

The contribution that we make in some of those areas.

Brett intelligence.

And kind of intelligent data utilization.

So as we as we look at what has been our historical.

Historical Formula I think as you point out.

As long as part of the history of the company was building this organic platform and then in the last five or six years, a succession of technology and talent.

Orientated acquisitions.

We continue to.

To Scott and explore opportunities to grow the company and to grow our technology platform.

And there are some interesting there are some interesting things out there.

As a larger company. We also have some optionality to do things that that might be a little bit bigger than what we've done historically.

And so on but.

I think very much in keeping with the strategy that we've described.

In terms of value to customers and not getting too far.

<unk> ahead of our skis in terms of other themes.

Yes.

Very helpful. Peter.

A quick follow up I think right. This one's for you you mentioned.

Contribution from one time PSP is an archived migrate instantly any way to quantify that contribution.

Yes, it was relatively small.

Above our run rate.

I was just talking about how we 98% of our revenue comes from rapidly recognized sources.

It ticked up in the quarter about a half a million dollars more than our typical run rate I think it's particularly.

I just felt it was worth calling out because that year over year comparison of last year was perhaps a particularly low quarter on those type of fees. So.

The careful observers of the quarter by quarter growth rate would pick up that it stood out so nothing huge but.

I thought it was worth noting.

I appreciate the color thanks Scott.

Thank you.

Our next question comes from the line of Brian Colley with Stephens. Your line is open.

Hey, guys. Thanks for taking the question.

So.

I apologize if I missed it but did you guys disclose the annual revenue impact from the MSP change that you discussed.

Yes.

Approximately was actually less than $100000. So those were really quite small customers.

Got it okay.

And then just thinking about.

Your key geographies and where they are from a recovery perspective.

Which regions are you seeing still struggling the most kind of.

It would be key to.

Driving a further acceleration in revenue from here and similarly from a product perspective I'm curious.

Which modules are products, you can kind of expect to be the biggest drivers of upsell moving forward sure.

Sure. So on the geographic side, maybe just for everybody's sake give the rundown of the benefit the U S has clearly been the quickest and the strongest to emerge we noted last quarter. The UK seem to come out from under the Covid doldrums and performed well at that happened again. This quarter. We are quite excited about it and the important thing there is when we.

North America, and the U K, that's 80% of our business. So really puts us in a good position I would say the group Thats, probably still has their hands fold.

The most would be our South Africa team.

They actually are performing well on the upsell side of the house, but the broader economy has its challenges.

So that's going to take some time to work out.

Then there's a bit of a spectrum, Australia did fairly well considering but there is there is some hope that they get out of lockdown.

They go through the summer holidays here, but once that bounces through that.

That gives them a green light.

To grow in the future.

And then just.

Yes, just to weigh in a little bit.

When we see some of the big opportunities and product yes.

Yes, I think we were delighted obviously.

We're approaching pretty good saturation on targeted threat.

Protection.

But we were really pleased to see continued penetration with 3000 customers.

New and existing.

Adding TTP today to the product stack.

Another.

Great areas of opportunity.

IEP for example, now at about 25% penetration within the base, adding 700 customers in the in the quarter.

<unk> is something that is.

Driving a lot of conversations for us.

It's early days for that.

With 1100 customers in total in the base.

With a with a tick up there.

And awareness training now at 5000 customers.

Yes.

There is.

Plenty of room to run with even those modules in the base.

Then there is another technology that we've launched which we done efficiently.

Within the.

The product tons.

Which is cyber graph.

And we've seen that.

A.

A tremendous amount of interest within our basin.

Very exciting levels of adoption.

Coming through on that.

Got it that's all really helpful. Thanks for the time.

Thank you.

Our next question comes from the line of Mike <unk> with Needham Your line is open.

Hey, guys. Thanks for taking the questions here just first to cleanup I know an earlier questioner asked about the upsell dynamic and I know that there was commentary regarding the strength of the product uptake.

As well as some contribution from the seat count and pricing and I think when we revisit it in the Q&A it almost sounded like the seat count and pricing wars with somewhat beneficial, but the real dynamic. There was product can you can you I guess further later into that and help parse out those three dynamics as far as how they fit into that upsell.

Yes.

Yeah.

Absolutely.

I think.

They're all big contributors in the quarter right. So.

Our multiple things going on there.

I do want to underscore that the product side, which you can get a good feel for when you can when you look through in our Investor deck, where we talk about are we lay out for everybody kind of our current customers byproduct you can really see with some nice.

Uptick is on that product expansion side. So that's been just really important to us helping drive that.

Yes.

The mix it varies of course quarter to quarter, but.

In very rough figures, it's around 50, 50 that split between upsell driven by product versus the upsell that was driven by both seat and price expansion.

That's helpful. And then one other question if I could.

Can you talk to the investments in the channel and specifically MSP to ensure that you are continuing to grow alongside those partners and maybe just as a reminder here.

How much of your revenue are you guys generating from from channel and MSP today.

Yeah. So.

That's a great question, we are talking about a three pronged pronged strategy excuse me, but.

The third leg of that that third prong is really focused on how we.

As an organization continue to grow and drive efficiency.

Through our systems through our processes as well as through modernizing a bunch of our relationships in particular on the channel side. So.

We've launched a number of efforts in that respect we're focused on making it easier for channel partners to transact with us making.

From easier to get a quote easier to put it through easier to upsell all of that but but really.

Focusing on some of the frankly, the friction that builds up in the system over time now there's a lot of those products or projects excuse me are going to be rolled out over the coming quarters, we're looking at ways with MSP and particular to.

To really modernize our relationships so that those MSP that are investing in that relationship.

Were reciprocated in behind and really making sure. We're focused on organizations that help us grow to be Frank and likewise, you do that by making sure that they can have a profitable business and provide great service to their customers. So.

That all kind of fits into the <unk>.

<unk> quote to cash project that our it team and the finance team are working on together. So there is a real big focus on.

On how do we.

And build an organization that is at once efficient, but actually using technology in the way we go to market to help accelerate that growth.

And at the end of the day, we get the majority of our business comes through the channel in one form or fashion, whether its MSP as our distributors and resellers. So it's really an important thing as we go to market.

Great. Thank you.

Thank you.

Our next question comes from the line of Nicole <unk> with Northland Capital. Your line is open.

Yes. Thank you.

Awesome quarter.

The constant currency growth rate continues to tick up to six up 16% year over year.

Can you put that in context of your foot.

2000, and Investor day bunch of Brooklyn, Thats subject to such a 21% is still on the table and whats the timeframe for returning to that now now that you're almost there actually.

Yes no.

Good question.

Just to make sure everyone's aligned so back.

Right before we all realize that Covid was going to be the thing that has become we had an analyst day and we set out long term targets, which on the top line, we're 17% to 21% growth on the bottom line the free cash flow line, we called out 23% to 25% growth so on that.

Margin excuse me yes.

And so.

It's focused on the revenue side, where your question was we've said repeatedly as we've gone through it when we look at the market. When we look at the need for solutions like ours and frankly, when we look at all of these attacks it keep coming out of out of the woodwork.

We believe that's the right way to think about our business that those long term targets apply obviously with COVID-19 hitting right after that.

Threw off the timing somewhat from what we might have initially planned but those long term targets are the right way to think about our business.

On the bottom line down on the free cash flow margin side of that.

Are we just guided to that 23%, which we think is a really big accomplishment because that actually come in earlier than we dare to think back when we gave that original guidance. So they are the right targets of the right way to think about our business.

I've said repeatedly FY 'twenty, two was going to be about stabilization of the growth rate and that that puts us in a position obviously to see how we can get back to reacceleration.

Alright, great. Thank you.

Thank you.

Our next question comes from the line of John Kim with Loop capital markets. Your line is open.

Thank you first congrats on a solid execution right first.

On the downside of the churn rate that went down sequentially from 9% to 8%.

Congratulations on that does that also include the effects on the NSP change or the dollar impact from that is just too small so it didn't really impact that number at all.

Yes, because that was the dollar impacted technically yes, but.

If such a tiny tiny element there.

In the Grand scheme of things it doesn't move it because remember we look back to four quarters ago, what our whole base of customers and see how that goes but.

Well, we're really pleased we were absolutely really pleased on seeing that rate improve because that I think.

Sign that that Covid tail out there from last year has obviously fallen off but it's also the execution that the team did.

Working on on making sure we're retaining our customers, making sure we're making them successful and making sure. They have the solutions out there to protect themselves. So that's what's really helping us.

On the downside and insurance side.

Okay, great. Thanks for that answer Peter.

As the company continues to move up market, which you guys are executing very well on that front I am assuming your initial land deals size.

Has improved.

I am assuming pretty meaningfully and also the velocity of the expand and then also the follow on deals is changing quite a bit.

If you can just give us some insight into how the land and expand dynamics are changing.

Focusing on larger customers.

And to that end.

Health.

Has your view on the overall <unk>.

For all of your sales organization has changed I am assuming that you are hiring salespeople are fast as he can just like anybody else but.

Is there any kind of shift towards maybe providing greater health incentive for new logo lands, but this expansion deals and such.

Trying to get a better understanding of the dynamics there on the London has been and how Youre thinking about your sales organization to support that.

Yes, Greg.

There are quite a few layers to to your question.

I think firstly, what we're seeing in terms of land and expand with larger customers is.

They really buy into this multi zone mindset of solving the email security challenge and so.

Each of each of the zones and the capabilities that we offer within each zone resonate with them as our strategic approach to.

Dealing with with these threats these sophisticated threats.

And so what we find is that as a strong differentiator.

And that in enterprise may embark with.

Pretty broad purchase of those solutions that I called out some of those anecdotes in the prepared remarks.

But equally that may start the journey with <unk>, just one of those lines or replacing an incumbent.

And one of the zones.

With a roadmap and an idea to then subsequently rollout of additional modules and so we really see a mix of broad based adoption early in the in the last phase.

And then also expansion over time I think it's also fair to say that some of the new module then the the three <unk> strategy has already come about in the last few years and so we do have large customers in the base that are now adopting those solutions.

I think when you when we talk about when we talk about sales team structure and how are we optimizing back to capitalize on the opportunity.

In the.

In the larger account space, where it's a more strategic.

Whereas the more strategic and more complex account.

There isn't really strong differentiation between land and expand because those are comps.

Expansion motion may require a significant amount of.

Sure.

Account management work and efforts and so we really do incentivize that quite strongly with up with our enterprise sellers.

We see that as different as we move down market into more of the transactional.

Part of the business.

But I think where we.

We're seeing how the incentive structures that we have in place.

Are working effectively to drive some of the results, particularly with that that.

That uptick to 106%.

Our net revenue retention.

Thanks you.

Okay, great. Thank you.

Okay.

Thank you.

I'm showing no further questions in the queue I will now turn the call back over to Peter Bauer for closing remarks.

Folks thanks for joining our Q2 FY 'twenty two.

Quarterly earnings results. We appreciate your interest in our business and we look forward to sharing our results with you.

Again in about 90 days' time.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.