Release Date: September 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue grew by 2% year-over-year to $179 million, exceeding the high end of guidance.
- Earnings per share (EPS) increased by 17% year-over-year, reflecting strong expense management.
- Annual Recurring Revenue (ARR) increased to $582 million, with a net retention rate of 99%.
- The company generated excellent cash flows with Days Sales Outstanding (DSO) at 45 days.
- The SEC concluded its investigation into the MOVEit vulnerability with no enforcement action recommended.
Negative Points
- The proposed acquisition of ShareFile will result in negative adjusted free cash flow of approximately $15 million to $20 million in Q4.
- The decision to suspend the quarterly cash dividend upon closing the ShareFile acquisition may not be well-received by some shareholders.
- Integration of ShareFile, a larger acquisition, poses a significant challenge and risk.
- The company’s net debt position stands at $577 million, with net leverage of approximately two times trailing 12 months adjusted EBITDA.
- Deferred revenue was down slightly from the second quarter, reflecting normal seasonality but indicating potential volatility.
Q & A Highlights
Q: Anthony, really nice cash flow in the quarter and you reduced the annual guidance by $10 million even though ShareFile impact was negative $15 million to $20 million. So I just want to make sure my math is right, it's easy math, but that implies excluding ShareFile effect, you would have raised it $5 million to $10 million, the cash flow guidance, and I just want to make sure is that correct? And can you go through some of the detail of why you're confident in bringing ShareFile profit metrics and free cash flow to your level over the next 12 months?
A: (Anthony Folger, CFO) Yes, your math is correct. Regarding ShareFile, it's a larger acquisition but manageable. The business is already profitable with gross margins better than 80%. Our DX business is used to a transactional type of heavy volume business, which gives us confidence in driving margins and maintaining cash flow conversion metrics.
Q: Yogesh, ShareFile has a lot of exposure to the SMB. We're starting to see indications of weakness in that cohort. Can you comment on your thoughts regarding this and your recent experience with SMB customer base?
A: (Yogesh Gupta, CEO) Our digital experience business has over 20,000 customers and continues to see strength. ShareFile targets business users in highly regulated industries, providing mission-critical services. The business has a track record of stability, and we feel good about its prospects.
Q: Since you mentioned ShareFile and MOVEit have similar customer bases, is there a cross-sell opportunity here?
A: (Yogesh Gupta, CEO) There are some common customers, but our business model assumes no cross-sell. We believe cross-sell is often harder than it looks, and our plan does not contemplate any cross-sell to ensure a more conservative and realistic approach.
Q: Any additional color on the average contract length for ShareFile and what the renewal process will look like?
A: (Yogesh Gupta, CEO) The vast majority of contracts are annual, with some credit-card-based auto renewals. Billing cycles are mixed between annual and monthly, with minimal multiyear billing upfront.
Q: Typically, you have acquired businesses in the 15% to 25% of your revenue base. ShareFile is much bigger. What gives you confidence in integrating this deal in the same timeframe as previous smaller acquisitions?
A: (Yogesh Gupta, CEO) The integration challenge is around people, systems, and processes. The headcount ratio between our company and ShareFile is about four to one, making it easier to sustain our culture and integrate successfully. We are excited to welcome ShareFile employees and customers.
Q: EMEA was a little softer this quarter, and there was outperformance in Asia Pacific. Any comments on productivity levels from sales reps between the different regions?
A: (Anthony Folger, CFO) It was generally in line with what we expected. Nothing unusual to speak of.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
