Q1 2022 Absolute Software Corp Earnings Call
[music].
Good afternoon, everyone and thank you for standing by welcome to absolute Softwares fiscal 2022 first quarter financial results Conference call.
All participants will be in a misnomer email should.
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After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then too.
Before beginning it's formal remarks absolute software would like to remind listeners that certain portion of today's discussion may contain forward looking statements that reflect current views with respect to future events and conditions.
Any such statements are subject to assumptions risks and uncertainties that could cause actual results to different materially from those projected in these forward looking statements.
Any forward looking statements contained in today's conference call are made as of today's date in absolute software undertakes no obligation to update revised publicly any of the included forward looking statements. What her as a result of new information future events or otherwise, except as may be required by applicable securities laws.
For more information on the assumptions risks risks and uncertainties relating to the forward looking statements. Please refer to the appropriate section of the companies M. D. N. A which is now available on absolute softwares website and will also be available on SEDAR in Edgar.
I would like to remind everyone that this conference call is being recorded today Tuesday November the ninth at five P M Eastern time.
I would like to now turn the call over to Christy why President and Chief Executive Officer. Please go ahead.
Thank you operator, and thank you everyone for joining us today crab food software Q1 fiscal 2022 earnings call.
As you know this is our first quarter, including the results of our acquisition of Netmotion and we are delighted to report a strong start to the year.
We achieved year over year, a outgrowth of 17% in the quarter accompanied by year over year adjusted revenue growth of 15% and an adjusted EBITDA margin of 26%.
I am also proud to announce that we achieved a net promoter score 62, well above the industry average of 31 and an all time high for a company or.
A strong start to the year gives us increased confidence in her full your outlook, which Steven will cover following my remarks.
Turning to the business, while we have observed the effect of the ongoing chip shortages in supply chain issues, which impacted some of our partners and customers.
We continued to see steady growth and activations across are called hosted products and reported approximately 13 million active endpoints this quarter.
Our enterprise and government business posted one of its strongest quarters with year over year, a outgrowth of 16.9% reflecting strength across both the absolute and that motion product line. Notable wins include under armor and the international law firm Slaughter and May.
Our education business continues to see strong demand with a notable when in Latin America.
As Additionally, you left federal funding makes its way through the regulatory system focused on helping schools. We are working with our partners to support customers through this transition.
We have been working on additional education offerings, including the development of students specific excuse and managed services.
As we look at our progress. Thank you want I want to touch on two areas of particular importance are netmotion integration with a specific focus on go to market and our products fur.
First the integration of Netmotion business has been proceedings totally enabling us to accelerate the integration of sales and marketing functions earlier than planned.
With Matthew Schoenfeld, completing his first quarter is absolutely the chief revenue officer, we formerly integrated the Netmotion selling teams into his organization at the end of Q1.
We also announced the promotion of Netmotion, Chief Marketing Officer, Joel Windows as absolute Chief marketing Officer.
The go to market teams have developed and delivered combined messaging enjoined processes and have begun to operationalized joint marketing campaigns across both pre existing customer cents.
Matthew and his team also initiated the rollout of Forest management is a sales program and we have already started to see the positive effect on both the pipeline and sales performance.
We also saw continued growth of our partner program in the quarter, adding 18, new reseller partners, thereby expanding our reach to 1700 total active partner.
In July AT&T named absolute Netmotion product is one of four solutions to help power their first net offering.
The only nationwide network built with and for America's first responders as Lenovo recently named absolute as a strategic security partner and the launch of the global everything is a service strategy.
Turning our focus now to products.
To assume responsibility of our combined product strategy and roadmap, we announced the addition of John hair amount of seasoned security product later, whose experience includes Blackberry, Microsoft and sprint <unk>.
<unk> and the combined product teams have been working steadily on the integrated product roadmap.
We announced the first step in our product integration with the addition of application persistence Internet motion products, making.
Making netmotion complete the industry's first truly resilient unbelievable and self healing zero trust secure access application.
Other notable product capabilities made available to customers.
Would include as a part of our data strategy, we announced absolute data explore a unique and flexible and point data exploration tool.
That's the part of her endpoint resilience offering we added more than a dozen new applications and updates to our application persistence catalog, including Microsoft in tune and defender. These scalar in Palo Alto cortex to name a few.
And finally I am pleased to share that this morning, we announced the next phase of our application for assistance as a service or a pass program with two new partners Smart I employer alert put of luck.
Persistence is a service enables independent software vendors to independently and bed our application persistence capabilities into their mission critical security in business applications, helping ensure they stay installed healthy and working effectively across their entire customer base. This creates a stronger security posture for their customers and an additional monitor.
Physician opportunity for our platform.
As we look forward with a strong start to this fiscal year, we have a unique market market opportunity before us.
As the World entered the new work from anywhere era, what is needed for employees to connect securely from anywhere with a greater user experience.
Our opportunities to enable enterprises to deliver on that promise and to realize the full value of cloud mobility and remote working by providing the industry's only truly resilient unbelievable and self healing Z T N a solution.
We will achieve this by applying zero trust principles, all the way from firmware to the network leveraging our self healing technologies will enable us to automatically detect and repair unhealthy applications and connections for optimal security and experience.
[noise] combined end point in network intelligence for enhanced risk assessment that cannot be disabled and to intelligently apply and point application in network access controls to fit risks conditions.
And of course, we continue to be able to lock freeze and wipe any device when no. Other access control is appropriate to remediate the risk.
Z TNA has the most highly prioritised segment within the broader sassy category estimated to grow from 1.2 billion to 4.1 billion by 2025 with a combined annual growth rate of 26.4%.
We have been steadily building a world class team, we have unique I P and technology and the ability to deliver significant value to customers in this arena.
The investments we are making in both product development and go to market capabilities helped to position us in this rapidly growing market segment for the future.
For today, we remain focused on execution against our plan and.
And with that I'd like to hand, it over to Stephen for more details on the financial.
Thanks, Christy good afternoon, everyone. We appreciate you joining us we're off to a strong start and fiscal 20 twenty-two driven by solid air our growth in total and across our enterprise and government customers and a record quarter for new logo bookings I'll.
I'll talk more about this in a few minutes overall I'd like to cover two topics with you today first talk to our queue. One fiscal 20 twenty-two financial results and second go through our financial outlook and updated guidance for the full year fiscal 20, twenty-two which started July 1st 2021.
Uhm, It's crispy mentioned Q1 as the first quarter that our financial results include the operations of Netmotion as the acquisition closed on July 1st 2021, and our continued drive to provide our investors with information that reflects how we manage and measure the business. We're reporting revenue wanted adjusted basis that excludes any I F. R. S.
Purchase accounting impact on Netmotion deferred revenue.
In addition year over year comparisons are based on an as if combined basis that includes the netmotion results of the year ago period in fiscal 2021, but that do not factor in any U S gap too I F. R. S adjustments you can find the pro forma combined physical 2021 financial results in the Biz.
This acquisition report that we filed on September 13th and it is available in the Investor Relations section of our web site and on SEDAR and Edgar.
We believe the suggested revenue metric provides a more meaningful and transparent view of the combined business and helps our investors evaluate the progress we're making overtime.
Now onto the results Uhm adjusted revenue was $49 million for Q1, physical 2022 up 15% from the prior year on and as if combined basis for Q1 fiscal 2021, the strong wherever your performance was driven by a robust growth an hour a R. R base as well as a large.
Multiyear Netmotion complete deal that was signed in Q1.
As we discussed in prior calls revenue recognition on these on premise subscription deals is subject to I F. R. S 15, accounting rules that result in half of the value of the contract being recorded as revenue upfront when the contract is executed the upfront revenue recognition of this deal contributed occur.
Proximately $1.2 million in incremental revenue over radical treatment.
The remaining value of the deal will be recognized ratably over the duration of the contract is I'll talk about in a moment. This revenue favor ability also benefited adjusted EBITDA in Q1.
As we previously discussed the Netmotion core complete products are in the process of two important migrations that will support future growth and scalability, but there will also have an impact on the revenue accounting and resulting revenue growth rates.
The first dynamic is the migration of customers from legacy perpetual license agreements to recurring subscription arrangements. This business migration results in on prime subscription arrangements that are subject to upfront revenue recognition that ebbs and flows with the size of underlying customer contracts.
The second migration that is earlier on in its life cycle is the move of the core complete products from on Prem to cloud delivery, which is a typical fast subscription model with this dynamic we do not expect to see any counting fluctuations in revenue.
Looking at the underlying business activity for the quarter total a R. R came in at $187.4 million in Q1, an increase of 17.1% year over year on and as if combined basis. Unlike revenue a R. R has not impacted by the I F. R. S revenue recognition that county and requirements.
And will be free of the complexity and volatility that result from the on prime subscription and license revenue.
The strongly our our performance reflected strong growth of 17% in our enterprise and government customers, which represented 77% of total a R. R. Q1 importantly, we saw record new logo a R. R a $4.7 million, which crude 98% year over year on and as if.
Bind basis.
Education are are came in at $43.5 million at the end of fiscal Q1 up 18% from the prior year on and as if combined basis and represented 23% of total a R. R.
On a sequential basis over fiscal queue for education IRR grew by approximately $2 million a strong overall performance.
And closing out <unk> growth business from our top OEM partner's also showed a nice sequential uptick in the first quarter in terms of both dollars and grocery.
Moving on to profitability for the quarter adjusted EBITDA for Q1 was $12.8 million or 26.1% of adjusted revenue this was stronger than expected and higher than the 25.1% in the prior sequential quarter as a result of the upfront revenue accounting of the large deal that I <unk>.
Just discussed.
Excluding the effects of the revenue accounting rules Q1, adjusted EBITDA margin would have been about 24%, reflecting the incremental investments in the business that we discussed on the last few calls.
As we've said we're investing in our go to market efforts and we're continuing to invest in R&D to build new products that leverage absolute persistence and unique view of the endpoint that only the combination of absolute and Netmotion can provide.
Taking a quick look at the balance sheet cash.
Cash ended the quarter at $56 million as of September 30th the decrease from the prior June quarter and is completely a result of the cash expenses paid on the Netmotion acquisition that resulted in a negative I F. R. S operating cash flow.
Backing out the acquisition related expenses O C. F would have been approximately $8 million in Q1. Additionally, compared to the prior your physical 2021, Q1, 20 twenty-two O C. F is lower by approximately $5 million from more cash being collected primarily.
Longer average contract terms in the prior year.
We continue to believe that the solid profitability and profile of the combined business supports the approximately 4.4 times leverage and will enable us to delever going forward.
As we've discussed we're targeting a net debt to adjusted EBITDA ratio below two times and a two year timeframe.
With that let's turn to our outlook for the balance of physical 20th 22 and are updated guidance.
Overall, we expect our combined operating model and business traction to drive solid revenue results from our growing a R. R base as we continue to invest in a business in fiscal 2022.
We continue to see the gross margin profile for fiscal 2022 remaining consistent with the overall level for fiscal 2021 with a similar dynamic as our investments in sales and marketing and R&D that we expect to increase as a percentage of adjusted revenue in the second half of the year as we've been.
Indicated previously.
We expect these investments to further drive our platform innovation and product differentiation as well as to support the expansion of our go to market presence across additional product lines and geographies, where our OEM and channel partners are pulling us into significant opportunities.
And so with that context, we're pleased to update our outlook for the full year fiscal 20 twenty-two ending June 30th 2022 as follows.
For the full year fiscal 20 twenty-two we are raising our adjusted revenue guidance from a previous range of 203, two $207 million to now be in a range of $204.5 million to $207.5 million. This equates to an implied full year fiscal 20th.
[noise] twenty-two adjusted revenue growth rate of approximately 12% to 13.5% from a previous range of 11% to 13%.
And we're raising our fiscal 20 twenty-two full year adjusted EBITDA margin guidance, which is based on adjusted revenue to now be in the range of 19% to 21% from the previous issued guidance of 18% to 20%.
In closing we also wanted to reiterate that are adjusted revenue growth rate guidance for fiscal 2022, and our other year over year growth metrics presented on and as if combined basis are calculated based on the combined company fiscal 2021 financials and does not include any adjustments were purchase accounting or gap to.
F R S conversions.
With that we appreciate your time and support and we're glad to open the call for any questions.
Operator.
Thank you. He will now begin the question and answer session to ask a question you May press star than one on your telephone keypad. If you were using a speaker phone. Please pick up your handset before pressing the keys to withdraw your question. Please press store then too.
At this time, we will pause momentarily too simple I'll Ross.
And the first question will come from Scott Berg from Needham. Please go ahead.
Hey, guys. This is Josh on for Scott, Thanks for taking our questions. So.
So maybe just certain off.
I think we're all familiar with the chip shortage in the P C industry.
Is impacting a lot of players in the space, but how much of that is.
Offset for you guys with strength and chromebooks.
Chromebook shipments over the last couple of years as these units have really searched faster than the overall P. C industry, particularly in the education market curious what your penetration is in that market at this point.
Hi, Josh and thanks, that's a great question. So so I think with the supply chain affects that we've seen.
I would say well difference between from books and pieces, we've definitely seen some on both sides I would say chromebook volume remained incredibly high this past quarter.
And so.
What we tend to see is more of a timing delay as a result of this whole customer, placing a larger order may.
May have an additional three plus weeks of delay before they receive their hardware and that could could impact kind of the distribution of software licenses as well.
And so I don't know that we've seen anything unique I would say broadly across the segments cause we've seen their depending on the specific partner we've seen the effects.
It would be applied differently.
Okay, Great and then.
Just a question on the metrics so new logo air was strong in the quarter curious now how much can that sway in a given quarter going forward. Following the Netmotion acquisition and curious if there's any color you can give us on the size of their lands relative to the core absolute business.
Yes, it's Steven good good question and the answer is that <unk>.
New logo acquisition is a very important part of our growth profile, you know now and going forward. So we have a very nice model of land and expand and the expansion part of the model that you see in the reasonably solid net dollar retention.
Is driving a lot of value, but the new logo acquisition is important and you saw that come in really nicely this quarter.
On both sides of the business and we expect it to be a focus and contributor going forward for sure.
I would I think the second part of your question was about the average deal size on those initial lands and I would say there are about the same between the two product portfolio. So those initial deals tend to be quite small.
Regardless of how we attached to that customer it's upselling extension that happens after that uhm.
Uhm.
It starts to very.
Got it. Thank you for helpful I'll move back into the queue. Thanks, guys.
Thanks, Josh.
The next question will be from Adam Tinkle from Raymond James. Please go ahead.
Okay. Thanks, Good afternoon Christie I wanted to start on the sales integration I think were positively surprised that that's already done at this point between the two businesses. So a couple of questions around that maybe you could just touch on what enabled you to go faster than in the first place on this and maybe more importantly, double click on what.
Changes in compensation or incentives that Matthew was driving for that team and how we can think about the opportunity for synergies now that the two entities are combined.
Sure Uhm. So just maybe one quick clarification I think that we said.
That we were accelerating the integration of sales and marketing and had pulled kind of the people integration into the end of Q1.
I definitely don't want to set the expectation that full integration is completely done we have still been renting the two teens almost in parallel and she went and that had been our intention until the end of December I think we believed that we could start to move the functional great integration had more quickly.
But I would say from our selling motion perspective. The teams are still somewhat distinct and will you'll start to see those come together more in a more integrated way as we end the calendar year, we do first and second half Com plans. So we do six months plans not annual plans and so I think we'll have more to say about how we've reflected in the.
The integrated selling strategy as we go into the second half of the calendar year. The account plans remain unchanged a couple of things that we did do as we came into this here is we increased our investment in.
The separation of renewal versus expansion I know, we've talked a lot about that in and passed quarters. We had formerly or previously sort of outsourced a part of that I think increasingly we've been building our own in house renewals team and taking that on directly and we're seeing some nice.
Improvement as a result of that is the sort of get stronger and I think the current plans continue.
Continue to evolve to make that distinction as well in terms of you know or.
Rewarding growth as well as as it really focusing on that net pretension metrics. So so.
So I think those are sort of some of the two new distinctions we came into this year, but you'll see the.
A more complete picture as we go into the second half complaining.
Got it okay. That's that's helpful and maybe just as a follow up Netmotion is going through a couple of different transitions that Steven highlighted and I just had two questions.
On on the mix of perpetual moving to subscription T. V could you just maybe let US know at this point how much is left to move what is the time to move over and the ultimate impact of financials. If we move all of that to subscription revenue.
Sure. So uhm the background is the three different revenue models. If you will is the perpetual all that revenue is recognized upfront the subscription on prime is recognize roughly 50% upfront and and clouds subscription is rateable and so what we talked about last time was that the.
Book of business on the core complete side.
Of a R. R book of business was roughly 50% five O percent.
Migrated over to subscription uhm that is right around 60% six O percent now closing up the first quarter. So a bunch was added.
And the Magic question is the second part of your question, which is what's the time frame to drive that over we are not decidedly pushing customers to do that it's really customer driven and so we would not purport to say that you know it will happen in the next two quarters.
Three quarters.
But we are continuing to see interest and we continue to see some uptake from customers migrating over the three months that we've been running a business.
Okay, and just to follow up what kind of customer behavior have you observed that they've made this transition would return rates look like how do you ensure that you are retaining customers through this process.
I can take that one up initially I think that we're very pleased that the customer retention numbers remain high.
And so I I don't think we.
Expect a lot of churn throughout that that process I think if a customer is wanting to stay.
And one bottle or another it has more to do with you know.
The leveraging of capex versus opex or or sort of how they are running that within the organization. I know we've said this in the past, but we don't offer perpetual licenses to new customers to the only perpetual license is actually being sold currently today are are sort of expansion licenses to existing customers.
Got it that's helpful. Thank you very much.
Sure.
And the next question will be from Doug Taylor from Canaccord Genuity. Please go ahead.
Yeah. Thank you good evening.
I'm Gonna start with a a bigger picture question you noticed noted some of the education funding that's going through the system right. Now I also noted that the recent infrastructure Bill has a pretty sizable amount set aside for kind of state and local governments for cyber security type initiatives, starting over a billion I wonder if you've had any.
You know you've got a significant installed base and and state and local do you have you believe you're gonna benefit from from those funds are getting deployed have you had any conversations or our discussions on your pipeline related to that those funds.
Hey, dad and.
So I. It's a great question, we do continue to track the federal funding is it mostly ECF funding is moving through the system for education customers. There are similar funding vehicles coming through for state and local.
Uhm I would say we are we are we are tracking them I don't know that we've seen them play a direct technique significant role in the business yet to date, but but I think as I said, we're we're tracking them in understanding how best to to help customers that are sort of sitting in that space right now.
Okay Uhm.
Uhm.
You touched on the announcement this morning kind of the next evolution of this application persistence as a platform a couple of new partners can you can you maybe refresh us on.
You know the the milestones the the road map for for that initiative as you broaden it out.
And add partners and surface additional value for your existing and prospective customers what should we be looking for over the.
The coming years.
Sure.
So just as a refresher or folks who are less familiar with the program.
You know our capabilities that are embedded in over a half a billion devices and clearly we use them for our enterprise software uhm to ensure that applications remain unbelievable and can heal themselves when something goes wrong and so for other ifc's that are that are not absolute there are two ways that they can also benefit from that footprint.
Then the bias. The first is that catalog of application. So if somebody purchases are endpoint resilience product, we have an ever increasing and growing catalog of third party applications that customers.
Can monitor and heal and automatically repair using endpoint resilience.
The second is is what we announced this morning, which is application for assistance as a service and so it's essentially asked embedding our capability that can talk to kind of our anchor in the bias and use it for self monitoring and self healing of their own application, whether or not that devices already registered.
With some other piece of absolute software.
This is a program we started talking about is what I have kept referring to the horizon. Two events. So this is a longer term strategy. It comes from the perspective that we believe that there's way too many security controls on application on on these devices and that they are increasingly fragile because of the complexity in so we can open up that set of <unk>.
Capabilities to help the rest of the broader security ecosystem to build more resilient solutions and of course, there's overtime.
And increased line of revenue potentially available for us.
Uhm, what I would say you should expect to see is that we will continue to to work with new partners.
But you should continue for us continue to see us take a very.
Mm metered approach and the reason for that is clearly because this is a a critical set of capabilities, it's not something.
You would want to go to go wrong and so we are being quite selective as we're scaling and ramping that part of the system. So.
Should continue to expect us to see talk talk about more partners as we continue to grow it but I I wouldn't expect to see any sort of material short term impact.
Uhm in the business.
Oh, that's fantastic color, perhaps one last question for received Uhm you went through the single large netmotion deal very quickly I mean first of all I'll, maybe I'll ask you just repeat the the the contributions to this quarter to the E. R. R and does that in the new logo a R. R. I just clarify that and then also just.
I mean, maybe describe this this transaction a little bit more qualitatively and and whether there are other customers and potential transactions like this you know in the in the in the pipeline sales funnel.
Sure happy too and thank you for clarifying because there is definitely a difference on the E R or impact than revenue and so we.
We had a a transaction crystal go into in a moment, we'll we'll tag team on it with a a large coke customer in Asia pack and it was a three year deal and it was you know just under $3 million of T. C V and so it was on prime subscription and.
So the Rev rack for that is that roughly half of the transaction value is taken upfront as revenue.
In quarter, and so that's where the incremental revenue comes from versus radical that contributed to the quarter.
The impact on a R. R. Though is the annualized effect and so it's much less pronounce the accounting acceleration of revenue recognition is not impacted on the E R or front and so in that regard has a much less significant impact on a R. R and and the point of view of a are are being a better arm.
Better for what the recurring economic nature is of that business.
Maybe just to add a few more points of color on that you would ask it was not a net new logo.
Uhm it was an existing customer.
It's a customer who actually is actually running the <unk>. The service is almost a managed service infected isn't managed service provider in Asia Pacific and so this is.
A service that they are offering to a broad number of customers and so this was an increasing their position as their activation of growing.
Okay. So it's not a new logo are are then then positively contributed cheesier Jeanette dollar retention than in the quarter absolute which was also yes room. Okay. Thanks for the clarification and congrats again on a good result.
Thank you thanks.
Thank you and the next question will come from Kevin Krishna <unk> <unk>. Please go ahead.
Hey, there at team get good afternoon quarter Uhm question for you on the at active endpoint added when I look sequentially. It looks like there were about a million $12.5 million worth of 11.6 Uhm in Q4 is that apples to apples just to clarify and where.
Where are you seeing uhm distract from it was a little lower of an addition in queue for Uhm just curious on your thoughts there.
Hi, Kevin Uhm, so it's not sorry excuse me.
It's a little early in the process for me already I think my Boy [laughter].
Yeah.
So it's not completely apples to apples.
Only in.
Oh, sorry meeting versus previous here because with the addition of Netmotion, we are actually counting.
Netmotion activated cloud and points as well this isn't the $13 million nearly 13 million active and planes.
That said, what I would say is that the the number of cloud hosted active and points in the Netmotion side Uhm was not a huge contributor to the growth of that number. So it was still overwhelmingly the majority of a V C R active and points and in terms of the quarter on quarter Uhm shifting you know I wouldn't read too much into that.
We know that there's a lot of seasonality built.
Built in mm bye bye different industry and that would kind of represent the change between when a customer with purchase licenses and when they would activate licenses. So an example would be you know not a lot of work is happening in in some areas within education during certain months versus enterprise and so it projects tend to have a different season.
Alrighty vs on the market so.
Alright, so I wouldn't I wouldn't read too much into the linearity I think what we're happy about is that we continue to see steady growth and heavy usage.
Gotcha. Thanks, Thanks for that.
Maybe the second question on on on a R. R. You know a.
187.4 million, you remind us what our our run rate for the combined business in queue for 175, I'm just trying to think about how to compare it you know sequentially and then going forward. How do we think about I know you haven't given specific a R. R. A guidance, but you know how do we think about uhm.
You know a R. R guidance relative to the adjusted revenue guidance would be of interest to you know just a perfect out again.
Yeah, I think the last part first as we C. A R R as a bit of a leading indicator that reflects the overall economics and so when we talk about how we are marching towards our 20% sustainable growth target. We we look to a R. R. As the arbiter of the road there so so what.
Wood frame that out versus revenue, particularly in light of the conversation. We just had with some of the other guys on the nature of revenue right. We went through it was adamant dogs on the notion that there are the acceleration of revenue on some of the deals that may be.
Benefit revenue one quarter, and then have it be a little bit softer the next quarter, but over the long term of that contract B a R. R will speak to that so that's one dynamic from our standup point of how a R. R. As it could grow vector.
We did provide as you mention the 70 per cent growth is on an apples to apples as if combined basis year over year and then we have not published though I apologize what the or the organic product level. A R. R is on each piece for.
The previous quarter sequentially.
Having said that the dynamic is that we you know we had good growth in both parts of the business.
Okay Fair enough I went through you know the bar to look at the adjustments to the preferred Rab and looks like last year. It was a little bit over 13, and a half million dollars in it wasn't this is more of an accounting question I think in this current quarter was 5.3 million I mean, how do we just think about uhm that level of other just went over then oh.
The the next few quarters.
Oh good question for you and me and probably no one else on the call. So the right talent and deferred revenue was roughly 50% five O percent of of the balance and most of the deferred revenue. If you dive into the bar, you'll see was short term in nature, So roughly 20 million in shape.
<unk> was you know near term first year and so that's how you get that 5 million for a quarterly basis see if you were to ballpark that you said, okay 20 million of deferred would've come in roughly 5 million a quarter and year, one and so that's how you kind of back into that Okay. Gotcha Gotcha perfect. One last one bigger picture I saw the press.
Really it's not too long ago on you know the combined product for Netmotion, an absolute and I know going forward, you've got a product that road map, where you'll be looking at.
At you know a different you know products under that used both technologies and I know this is a.
Relatively newish and still early you know industry, you've got a very unique offering I'm just wondering as you look across your your client base. How do you think about you know who you might be identifying as the the early adopter sort of thinking about you know logical customers whether that you know based off of industry scale of <unk>.
Avenue side the company I'm just wondering you know just just as a you know a broad question, who who do you see I'm being the ones that might be you know first to adopt and natural you know good first audience to go to market with.
Sure.
So I would say that the.
The first the early candidates kind of come in two areas the first would be existing customers.
So we've identified customers who were customers of both.
Absolute and Netmotion and have been kind of in conversations and gathering feedback and.
And looking for sort of those opportunities to work with those customers as we start to connect the products together.
And then I would say more broadly you know, we we continue to see a nice inflow of opportunities that come from.
What I would call them more competitive situations, where customers are moving off of you know other secure access or connectivity solutions.
And updating for Netmotion, but I'd say.
Curated experience you know the nice user experience that they offer is a part of that it's still too early for us to be outside of the persistent announcement of persistence announcement that you referenced that we just put out a couple of weeks ago.
Uhm I think it's still too early to to be sitting with customers and going through some of the next steps two and three and four and the product roadmap uhm, but we are pulling together that list of customers, who have a set of shared interest in and leveraging that as a feedback eyrie for us if we define those plans.
Okay, great. Thanks, a lot I'll pop back in the cube.
Thank you and the next question will come from Santos was strapless from BMO capital markets. Please go ahead.
Hi, good afternoon.
Just going back to the supply chain impact is there any way to just very very rough ballpark quantify how much of an impact it's having on the business and then.
Given that it seems like it's probably gotten directionally worse over the last three months does that imply you would've been in the position to raise guidance, perhaps even more it's not for me to eat that hoping you back.
I'll take I'll take the first part of that and then and then Stephen concern to speak to guidance I'd say its.
<unk>.
It's tough to kind of quantify what didn't happen. So maybe I'll just kind of give you a few points of color.
Around at the first thing is that we don't see an effect on demand as a result of what we're seeing happening the systems, what we what we tend to see as more of an effect on timing. So so he does some folks not being able to get what they need an S. As in the time period that they had originally thought they could have it and in other cases, we do see and.
In fact on the mix of devices, where they may taken this would be sort of more particular to education, where they may take a higher number of either P c's or or chromebooks, depending on who which hardware partner is in which one they have kind of more availability of especially as folks we're getting ready to get children back in classrooms.
Uhm so the timing effect you know, we're talking about weeks not months.
But if that's happening near the end of a quarter that could that could sort of pushed things back and forth.
Depending on where you are sometimes we can decouple ourselves from that if it's if it's a larger deal. We can you know the software integration can happen more quickly other time, we're sort of happening at the hardware unfolds, but the one thing I just kinda want to remind everyone is that you know it is a relatively small part of our overall sales that are actually still selling connected with.
Hardware, we do sell through Oems as we go back and focus on Upselling expansion, but in those moments. They really are more sort of strategic channel partners as opposed to.
It being a direct connect to a piece of hardware type of the sale and so they.
The effect is probably less than you might've imagine, but it has an effect on a new projects that involve new hardware.
And so to that point uhm and it sounds good question with Christie's context can color. It is there's some impact obviously on how we think about the road ahead and guidance uhm, but it's not a massive impact.
And given the commentary on timing does that imply that <unk>.
Education My seasonality me repeat the difference in what we've typically seen with with usually December and March quarters, being weaker like that ultimate see smoking medical but this year.
It's you know without kind of leveraging the crystal ball, what I would say is that we are seeing customers plan earlier.
So what we would internally referred to as sort of harvest.
Folks getting ready for for kind of the next cycle of of school is happening a little bit earlier. This year as schools are a because they have to be more thoughtful about sources of funding and there's work that needs to be done in order to access that funding uhm as well as there is an expectation that it might take them longer for them to get what they need so we see <unk>.
Starting a little bit earlier so.
So yes that seasonality does exist and you know I think this year, we are seeing uhm folks at least to do the work a little bit earlier.
If that's helpful.
Good thanks, and finally, but going back to the large netmotion deal you mentioned that the at least initial bill. So I just kind of look similar to absolut type of deal sizes, I mean, how how common or not is it for them to sign seven figure deals with the frequency of that'd be comparable to pre existing absolute or you know in terms of that bill size woke up.
<unk>.
Commonly.
Yeah. The scales of business. Obviously is is smaller by you know have from us. So the the volume in <unk> curtains frequency is probably similar on a relative basis and so they do they do sin historically and we have signed obviously this quarter seven figure deal. So that is part of the.
<unk>.
When it is a.
Subscription on from the revenue impact is obviously pretty meaningful upfront.
Okay, great exercise by the way.
Thanks.
And again, if you have a question. Please press Star then one.
The next question will be from David Corn from T V Security. Please go ahead.
Good afternoon.
I was wondering just on on the revenues not have I guess being able to see the financials, but for like the subscription revenue for example, <unk> from netmotion or the perpetual licenses.
I assume that it's gonna be broken out outside I kinda. The recurring revenues that you that account for the account it I guess for that historically the vast majority of the of outflows revenue.
So the really two main parts of the Netmotion The company, formerly known as the emotion their their business is the software license revenue, which will continue to be broken out you'll see in the financials under software license and then the recurring nature revenue like a subscription agreement like maintenance is included with.
Our subscription agreements and recurring revenue so that will all be included you'll see on the piano in one line item under cloud on subscription revenue and then you'll see license revenue underneath it.
Okay, and I'm guessing, you're probably not gonna be kind of breaking up that motion separately.
Well you you will correct on the on the face of the financials, we do as part of our acquisition disclosure disclose the Netmotion revenue on an I F. R S basis, and the footnote in the financial statements. So you'll see that.
Okay, that's been told.
And I guess, what I was trying to break out what kind of the the growth rates between absolute and Netmotion was this quarter I guess at least <unk>.
I remember seeing something about revenue I think it was all like not be tested Gregory but the revenue was up 53% year over year, and I think 76%, let me do it in that ocean and 24% from absolute so.
I guess doing the math does that apply it gets roughly about 13 per cent growth for for absolutes business.
Thank you one.
I think of you back into the math the way you said.
That that's the only about 24% on the 53 is kind of what I'd done.
Yeah order orders of magnitude that that would not be a a bad assumption.
Okay, perfect and interest on the education business have a nice bounce back corner in Q1 here I guess, what <unk> what are your tribute that too, we'd obviously seen some data points coming out of some of your Oh, Uhm and channel partners that seemed to indicate that it might've been another tough court.
For the education market, but you guys seem to Buck the trend there. So curious to see what you guys what what happened to you in your business.
No. It's a great question I think that first of all we have not seen schools are definitely not through their digital transformation and as much activity as we saw last fiscal year with people acquiring systems.
You know the bar has been raised in terms of their needing to account for where those systems wind and how they're being used and so our data is become increasingly relevant and helpful. For those schools, even if we weren't a part of the original purchase.
<unk> for them to even retroactively go back on track activate and then figure out kind of we're all their stuff is I think that in the first wave of.
Stabilization dollars there was a lot of learning by educational institutions.
Many school, so incredibly high breakage rates breakage, meaning how many systems they sent home, but didn't get back and so so this concept of sort of fleet management as they scale becomes and creating increasingly critical.
As well as all of the visibility attributes required to manage them. So a lot of the stuff a lot of the programs that we are helping some of our larger customers with or things like reclamation is a service.
And so how we help them track and retrieve those devices and get them ready for you there. The next school year the next semester.
Uhm as well as you know making them through some of the other there are other expansion.
Programs for how they continue to deliver new devices out to students and so and I'll also just reiterate something I said, a moment ago, which is you.
You know a very small percentage of our sales are actually connected to new hardware purchases in the aggregate right a lot of what we do is epsilon expansion and so that would be independent of of what was happening with with some of our other channel partners.
Yeah. That's a good point I was gonna ask you about that I that your comment on kind of not.
Not a lot of the occupations are necessarily with in conjunction with with the hardware sales.
<unk> shake roughly what the breakdown is.
We don't we don't really break that out but.
Yeah, we don't really have an easy way of breaking that out here, but I would say.
You know it is the majority of what we do is upselling expansion uhm.
As opposed to even if you take a look at our net new logo that would be an easy sort of indicator writer and that new logo has been trending up nicely and that's usually a nice indicator of where we're seeing kind of new hardware attach a new partners coming in.
But the growth is really happening in upselling expansion.
Okay, Uhm and just the last question do you guys still see you know looking out in the next few quarters and even beyond that just the education business, you're you're gonna be facing some tough for your for your comps, but do you still expect the education business kind of girl in line with what we've seen.
<unk> from the enterprise and government sectors historically.
I don't think our view has changed in the last quarter on that which is.
We think we're still in a period of of accelerated activity in the education space than I expected there to continue to be a lot of work an opportunity within education for for the coming quarters.
We do see the opportunity and enterprise and the demand and starting to build up as well. So you know we do we do believe well enterprise in terms of their level of.
I don't like the word maturity, but I would say complexity in their security strategies and their ability to use kind of a broad a percentage of our teachers and there's a little bit further ahead of education, we do think that they longterm kind of night out into the same place they do converge over time.
So I don't think our view has changed versus where we were when we when we started the year.
Okay great.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Christy White for any closing remarks.
[noise] alright, well first I want to thank you all again for joining us today in our first full quarter. Following the acquisition of Netmotion. We were pleased with what we were able to accomplish not only did we continue to deliver balance chair over your growth of 17% and are are 15 per cent and adjusted reach <unk> revenue and profitability with an adjusted EBITDA margin of 20th <unk>.
Percent.
Did so well also accelerating the netmotion integration.
We have a clear view and what we need to do as a team and with a strong start to the fiscal year, we remain focused on making the investments required to realize this opportunity. Thank you all again for joining us today.
Okay. Thank you conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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