Mimecast Limited
Q4 2019 Earnings Call Transcript

Published: 13 May 2019

[Operator:]

Good day, ladies and gentlemen, and thank you for your patience. You've joined Mimecast's Fourth Quarter 2019 Earnings Call. . As a reminder, this conference may be recorded. I'd now like to turn the call over to your host, Director of Investor Relations, Robert Sanders. Sir, you may begin.

[Robert Sanders:]

Welcome to Mimecast's earnings call for the fiscal fourth quarter 2019, ended March 31, 2019. I'm Robert Sanders, Director of Investor Relations. With me on the call tonight are Peter Bauer, our Co-Founder, Chairman and CEO; and Rafe Brown, our CFO.

[Peter Bauer:]

Good evening, and thank you all for joining our Fourth Quarter 2019 Earnings Call. I'll start tonight by highlighting some of the accomplishments that we've achieved in 2019, and next, I'll review our results for the fourth quarter. Then I'll review the success we're having broadening our offering as we introduce and customers adopt new services on the Mimecast platform. Next, I'll discuss key innovations and product enhancements, including the Mimecast Threat Research Center, a web gateway and our enhanced archiving services. And as I've done on past calls, I'll share some examples of the types of problems that we help customers address and some of the reasons they choose Mimecast. I'll conclude with thoughts on the year ahead of us and some of the goals that we look to accomplish. So Fiscal 2019 has been a great year of progress across our business. We've grown our team, launched into an important new market in Central Europe, and we've delivered meaningful innovations that have helped our customers to protect themselves. In my executive team, we've brought in experienced executives with global experience at scale. Christina Van Houten joined to lead Strategy, which includes Product Management and Corporate Development; Karen Anderson, joined to lead Human Resources; and Rafe Brown, joined as our new CFO. And we also welcomed Robert Schechter to our Board of Directors.

[Rafeal Brown:]

Thank you, Peter, and good evening, everyone. I'm delighted to be joining you tonight on my first Mimecast earnings call since joining the company as Chief Financial Officer. Before I begin, I want to take a moment to thank my predecessor, Peter Campbell, who not only built a great team here at Mimecast, but has been very helpful with my transition into the role. I would also like to acknowledge the great effort of the Mimecast finance team who has done a fantastic job closing the quarter and working closely with me to prepare for this afternoon's call.

[Operator:]

. Our first question comes from the line of Sterling Auty of JPMorgan.

[Sterling Auty:]

I wanted to kick off with all the FX talk -- about FX in the quarter. Can you remind us what was the FX impact you expected in the quarter, so we can kind of adjust in and really look at the actual results there?

[Rafeal Brown:]

Thank you for the questions. This is Rafe. When we give guidance, we actually don't forecast the FX at all, always do is give our guidance based on FX at a particularly day, which we lock as everybody can do the math off it. It's well too difficult to forecast that with any accuracy. So the date used of the last guidance you received that Peter, that was on January 31 FX rates.

[Sterling Auty:]

Okay. So if you use that -- in other words, how much should we kind of add to the revenue result for the FX impact on the top line? Because this looks like we're on the smallest top line beats that you've had since you've been public, but we know that you had a pretty heavy FX impact, so we just want to kind of normalize for that?

[Rafeal Brown:]

Yes, one second.

[Sterling Auty:]

And may be I should be doing that calculation, maybe one for Peter. Just generally, if we look at results across cybersecurity this quarter, may be not as robust as we've seen over the last several quarters, is there anything just happening in terms of the demand environment out there?

[Peter Bauer:]

Yes, Sterling, we've already took hold for the others in the market space, but we've seen a very consistent demand environments. I think e-mail is one of those sort of perennial things that customers are having to deal with, make sure that they've got their best offences in place. I think also that the general move to the cloud, the Office 365 migration gives us a pretty strong consistent driver of demand. So we may not be as exposed to any other general security fluctuations as some of the other categories might be experiencing.

[Sterling Auty:]

Got it. And in terms of the -- we're able to come up with the FX impact?

[Rafeal Brown:]

Yes, we have. So from going back to the original guide, it was a $4.5 million impact. Obviously, for the year that -- it was just when Peter Campbell gave his first full year guidance for FY '20 was $6.6 million on the $420.3 million. So we're able to maintain the midpoint of our guided range despite that strong FX headwind. Did that answer your question?

[Sterling Auty:]

I was looking more specifically to the fourth quarter. Because I didn't quite catch that, as you went through the remarks. So relative to the guide that was given for the -- coming into -- for the fourth quarter here in FY '19, what that impact was?

[Rafeal Brown:]

Yes. So on a year-on-year basis, it was $4.5 million. I have to go back and look at the exact -- the date from when the guidance came out in Q3 about Q4. So I have to do you do a little bit more digging to make sure I get that one right. But year-over-year, it was $4.5 million amount.

[Operator:]

Our next question comes from the line of Keith Bachman of Bank of Montreal.

[Keith Bachman:]

I'd like to ask a question, and just clarify what Sterling was just asking about. But on my broader question for Peter, how do you see the menu changing over the next couple of years of available solutions? In other words, you have a number of available solutions, your customers are currently using on average 3.1. But does the available solutions over the next year or two, mean could that be 10 or north in terms of potential opportunities? And how does that play into you think the competitive landscape? What do you think is different today? And how might that relate to you guys growing your available solutions? And I'd like to come back after that, just clarify Sterling's questions, please?

[Peter Bauer:]

Sure. So Keith, yes, in terms of our product portfolio today, we have obviously, the core products around e-mail and, in fact, if you add all of our products altogether, today we have, we can count about 10 products, in fact, from security, continuity, archiving, the archive add-ons, large files and Targeted Threat Protection, secure messaging, internal e-mail protect, a way that's trending in a way that will give you a total of 10. And that gives us a fully loaded user opportunity on an all 3 basis, of about $100 to $120. So we feel really good about those, the start of the -- the breadth of the solutions that we can offer to customers today. And because everything is built on an integrated platform that gives us a lot of flexibility from a pricing packaging point of view. Some of the people in the market talk about bundles, we think about those as being sort of additions or combinations or capability that we can light up, excite customers and tenants. The growth that we've seen in that portfolio has been pretty steady over the past couple of years. In the last calendar year, we introduced 2 new available modules, both for web security and the awareness training module. And in the prior year, we had the Sync & Recover, which is our data recovery solution plus Internal Email Protect. So we've had a pretty steady cadence of introducing new additional modules and as you suggest when you bring out new capabilities like this, it does expose us to different competitive situations. But we feel very confident that these are areas that our customers want us to solve problems for their and deliver that within their Mimecast tenant to give them better value for money and a simplified experience of solving those problems.

[Keith Bachman:]

And so if I just -- I don't want to put words in your mouth, but can we think about a continuing growth in the average services per user, even for the next couple of years?

[Peter Bauer:]

Absolutely. We can continue to drive cross-selling and upselling. You've seen that in our growth revenue retention numbers, as customers are adopting more of our products. Naturally, on growth, in terms of new customers, new customer additions, often new customers will joint as with 1 or 2 products, and that may conspire to keep the average number down depending on the number of new customers coming on board at any point in time. But we'll continue to expand our portfolio and continue to drive greater adoption of our solution set. And as Rafe mentioned in his prepared remarks, we have a healthy percentage in both products on the portfolio today.

[Keith Bachman:]

Okay. Fair enough. Rafe, so I just want to ask -- clarify, you mentioned a $4.5 million FX rate in the quarter, and I wasn't sure, if that -- if the question was, what was the incremental impact of FX during the course of the quarter? Is the answer $4.5 million?

[Rafeal Brown:]

So the year-over-year amount was $4.5 million of headwind, and that's where you get that from a natural growth rate of 26% jump it out to 32%. So that number is $4.5 million. And while Peter was speaking, I did dig up the answer to Sterling's question, since Q4 guidance was given, when we ended Q4, it $600,000 in that just three months or so.

[Keith Bachman:]

Okay. That's the number I think we were looking for the $600,000. Okay.

[Operator:]

Our next question comes from Daniel Bartus of Bank of America Merrill Lynch.

[Daniel Bartus:]

Maybe I'll give you breaks from the FX and focus on your efforts in Europe and how that's going. I know you've had a long history of success in certain regions there, but some renewed efforts and expansion in certain areas too. So, I guess, first, could you just walk through what you're seeing in terms of traction and sales and productivity? And maybe which regions could surprise to the upside this year?

[Peter Bauer:]

Great, Thanks, Dan. So as you know, we implemented our Central European grid, which is based in Germany. It went live in summer last year. And we've building out our team in that region, really to serve -- principally focused on Germany, but there's a broader opportunity in central Europe where we sell it to the Nordics, and we had focused on the Netherlands as well. It's a very important market for us. We see a very large opportunity there. And Obviously, that complements our U.K. business which is very strong and where the company was founded. So we have strong European roots in the organization. Our growth over the past couple of quarters and the results that we've achieved in general market we've been pretty seasonal. We've both had enabled our team, with clients, some good logos and generated some good revenue in the base. But on the rest of scale because the other parts of the business have been large and established for quite a period of time. It will take a fair amount of time for the results in our Central European business to really show through on the piechart of our regional revenue breakdown.

[Daniel Bartus:]

It's great color. And related to it, GDPR, I'm just kind of curious at a high-level, how much do you think it was of a tailwind in fiscal '19? And does that tailwind continue in the fiscal '20 or does it kind of taper-off and become somewhat of a growth headwind at some point you think?

[Peter Bauer:]

Yes. So the way we thought about GDPR is I think, it's something that just created in a little bit of a climate for demand in security and compliance products as opposed to being an explicit driver of demand. Drivers of demand that we typically call out things like the migration job of 365, the evolving threat landscape, to share importance of e-mail in an attacker's arsenal and when a customer's need to have good security in that area. GDPR is part of the landscape. We have used it to generate leads and conversations with prospects. We've had a handful of deals that have GDPR influenced, but we wouldn't say that it's having a disproportional impact on the margin that may return to a negative e-mail.

[Operator:]

Our next question comes from the line of John DiFucci of Jefferies.

[John DiFucci:]

I have a question for Peter and, I guess, a follow-up for Rafe. Peter, I guess, with your Co-Founder, Neil Murray, leaving at the beginning of April, can you talk a little bit more about your product leadership, including Christina, but even beyond that? And maybe give us, follow-up to Keith's question, may be a little more of a peek into your product road map? I realized you can't go into too much detail there due to competitive issues, but I know you've done a good job around e-mail technologies. But I've always thought that, it seemed to me anyway that your technology could be expanded to other forms of corporate communication or even beyond that? I mean, like -- and I'm thinking like things like corporate chat, archiving beyond e-mail, I don't, and again, I'm not sure how much you talk about it? But at least hit on the personnel because your Co-Founder Neil leaving, I mean, that's kind of a big deal, I know that was announced at the beginning of April?

[Peter Bauer:]

Yes. Thanks, John. So obviously Neil was on a founding the company with me back in 2003 and '04. A significant part of our history led engineering and product management. But starting soon after our IPO, we started to bring in product management leadership and additional engineering leadership. Less of our creating a succession plan for Neil, but more about just enabling the organization's scale and to train up and enable the next level of leadership in the organization. And then specifically during last year, Neil really started to relinquish a fair amount of control. The product and engineering leadership team with Christina running the product management and John also running engineering, both moved into the exec team, while Christina was hired directly on to the executive team. So that we didn't have sort of typical CTO function running those or the previous CTO function running those functions. We had those 2 new executives coming in and running that aspect of the business. Neil became more of an architect, more of an adviser to the business. From today, he remains on the board of the company. He remains a very significant shareholder, very interested in the success of the business. But I think we very successfully transitioned to a place where we have many very capable technologists and visionaries, several of which Neil has mentored -- hired and mentored and developed, we're all well entrenched in the philosophy and the religion of our -- the design ideology behind MIME OS and the way we build solutions. So I think we're in very good shape, and I think there's a strong team of people that are contributing to the vision. And obviously, as you know, John and around pretty passionate about as well, in terms of the technology and solutions, and what they can do for customers in the market, in general. You're absolutely right that what we built was initially a very e-mail-centric platform. What we've done over time is really started to identify and explore how those micro-services and how those sort of underlying pieces of technology can be used to solve a broader set of problems. So we thought about that as our kind of our e-mail plus phase of development. And we've really been quite successful in expanding out some of the additional technologies in that area, some of those will be capitalized through some M&A and bringing in new technology skills as well as componentry. So you've seen us bring out our web security solution, our user awareness training solution. We're making advances in areas like threat intelligence and advance side of security with some of the capabilities that we've got through the Solebit Acquisition. So we continued to build that up and I think it goes without saying that there's a pretty long list of needs and requirements that customers has that today, they still had to shop for a very clumsy list of point solutions to solve. And they're are looking for vendors like us that can play a consolidation role. And I don't mean a consolidation role in terms of go and buy everything and sell it back to us in a box that's got your logo on it, but they really mean is, can you give us a simplified integrated suite that out-of-the-box does what it needs to do for us and it's very easy to manage with a small often overstretched team with limited budget. So that should be really committed to doing we'll continue to take off additional use cases and build out the platform to help customers be more successful.

[John DiFucci:]

Okay. Great. Peter, that's all helpful. That's what I was hoping you're going to say. I guess, Rafe, just a quick one. You mentioned something about cash flow being in line with the last year's performance. But when I look at, at least, next quarter, I saw, well, this past quarter cash flow grew nicely, but it was actually hindered by a bigger jump in accounts receivables than we expected anyway. I guess, was there anything in the quarter that we should be aware of there? Were there some large deals or larger billings closed at the end of the quarter? I mean, it wasn't a tremendous big jump, but it was something more than we expected. And I don't know, should we expect those receivables to benefit cash flow at least in the first quarter?

[Rafeal Brown:]

Yes. No, there was nothing in particular that jumps out for the quarter. It's really just the timing. The Q4 being a big quarter, there was always a number of renewals that happened in the period. And that AR will come in in Q1. So I don't think there is anything really to call out other than just ordinary course of business. And in that the natural kind of compounding that happens of 1 Q4 has the renewals of the prior year-on-year, and so that caused the numbers to tick-up on the AR side.

[Operator:]

Our next question comes from Alex Henderson of Needham.

[Alexander Henderson:]

That was pretty good parcel, a little bit content around the upsell and deal size number and the -- as well as around the 6% raw churn number. So when you talk about 15% in upside -- 15% upsize in deal sizes, I assume those are mostly new customer deals. Is that the right way to think about it? I would assume upsell does move that number generally?

[Rafeal Brown:]

Yes. Thank you. So you're speaking today the average order value figures, which did jump nicely during the period. That is actually for both our base as well as new customers. And it was really driving it for the base customers is just our ability to go out and offer them expansions of their footprint, whether it's -- they have more seats we are giving them more products. Certainly, for new customers, that's also helping, is driven by, obviously, just the fact that we can bundle a number of products together, get them started with this complete suite, that is helping to drive AOVs.

[Alexander Henderson:]

Well, how much of the increase in deal size is a function of you guys moving up market versus the upsell exercise associated with more bundles of product to existing customers or new customers?

[Peter Bauer:]

Yes. Exactly a factor so it's both ready and we haven't broken off the distinction between the two.

[Alexander Henderson:]

And the 6% raw turn rate number, is that consistent with the recent quarters? Can you just unpack that number a little bit?

[Peter Bauer:]

It's consistent with the recent quarters, it's probably consistent with the recent decade.

[Alexander Henderson:]

Okay. Perfect. And then, one more question, if I could. Around the Office 365 attach rates, obviously, nice driver of your business to the extent that it implies more bundles per customer. Are you seeing any leveling of that trajectory? How should we think about that in terms of the next couple of quarters? Is it going to start to flatten out? Or is it continuing at a steady pace? Any color on that?

[Peter Bauer:]

Yes. I think office -- yes, thank you. And I think, Office 365 is an ongoing trend for, at least, the next several quarters if not the next several years in terms of continuing on that migration. So we're seeing customers within our base as well as within our prospects or planning that migration. So we think that that steady uptick in terms of the percentage of our customers using Office 365 is going to continue for a while.

[Alexander Henderson:]

Are those customers coming on after or before they've taken the Office 365 package, generally?

[Peter Bauer:]

It's really both. So sometimes they will come to us ahead of a migration because they want to be in confident and good shape with their routing, with their security, with a uptime assurance with us. Sometimes they will move to Office 365 and then look to add more services around it to make it more successful. So really the combination.

[Operator:]

Our next question comes from the line of Saket Kalia of Barclays Capital.

[Saket Kalia:]

Thanks for fitting me in here. May be first for you, Peter Bauer. A lot of focus on the roughly 3.1 sort of average products per customer. I think we can all take a guess for what the most three are, but I'd love to hear what those 3 are from you across the base, right, and this is across the entire base. And then probably just as importantly, what product do you think is most likely to become #4 over time?

[Peter Bauer:]

Great question, Saket. So the Top 3 products by penetration, we don't really break it up by revenue right now, but by penetration, obviously, e-mail hygiene as a base, that E-main hygiene is one of the products that we've been selling for the longest time, and is the most important base product that is the highest penetration. Attaching directly to that is Targeted Threat Protection. So that's an add-on product, where that's good for second highest penetration. There is continuity from a customer logo perspective and then archiving is actually fourth today, but accounted by one really accounted by revenue because the ARPUs on archiving a higher you would see archiving getting in the number two or number three position in reality. So which product should we think have the most promise to be big revenue generators sort of a number four or number five? We have several products that are lower ARPU like large file sending and secure messaging. I don't think those are going to be -- to home run long growth products, but they certainly are good cumulative generators of revenue that provide us with differentiators in sales situations and they certainly give us a level of stickiness as with was used cases become entrenched. So I would say that awareness training and web security are the two products that have tremendous potential in terms of addressable markets. And as we mature and invest in those two additional products, we think we can make some nice gains with those, both in our customer base and with new customers over time.

[Saket Kalia:]

Got it. That's super helpful. Rafe, may be for you. You called out in your prepared remarks sort of the top 3 kind of long-term drivers of growth. And can you talk to about sort of moving up market and working with larger customers as one of them. And obviously, in a SaaS model, large deals, I think, from a revenue perspective, probably don't have that much impact, I guess, depending on when they are signed. But I guess, the question is especially since this is your first call, how do you typically forecast for these types of large deals going forward? And so what do you sort of think about in terms of pipeline coverage ratios when you're forecasting those types of deals? Does that make sense -- does that question make sense?

[Rafeal Brown:]

Yes. No, it certainly does. Well, I think, one of the -- the great strengths of the company is that it's also a great diversity in terms of size of the customers. And we're by no means overly concentrated in one part of the entire universe of companies than the other. You're spot on, as you start to go up market, those deals are on the one hand bigger and nicer, but they tend to be more lumpy because they stand out more. So mainly one of the things that, I think, that has taken place in the company is great to see any time you start to draw closer to the quarter, the team is targeting specific details, talking about them, really working to do and it quickly moves out of a pipeline metric to a specific close plan, great execution. And I think that's kind of a cornerstone of large enterprises. But again, I would say -- just as a reminder, the company covers the full spectrum and even what we would consider as fairly large companies are not huge enterprises. We're executing by delivering great service to a lot of companies out there that aren't necessarily the big goliaths of the world.

[Peter Bauer:]

In fact, I can add to that. I mean, we did enjoy, I think, again a record number of six figure deals this last quarter, over that -- over 30 of them. And it's important to realize that while some of those may have been with pretty large organizations, we don't need to be selling to a particularly large organization to generate a six figure deal. And that's -- so that's thanks to the breadth of the portfolio we're able to offer. So a few thousand seats we can put six figure deals together.

[Operator:]

Our next question comes from the line of Matt Hedberg of RBC Capital Markets.

[Matthew Hedberg:]

I wanted to follow-up on those large deals, the 30 six figure deals, I guess, first question, was there any 7-figure deals this quarter? And second, entering this new year, when you think about building out sales capacity for the year, given the success you're having out market, does it change how you think about investing in sales to target these larger deals relative to some of the smaller sort of run rate deals?

[Peter Bauer:]

Matt, so -- great, Okay. So let me start with that. So if there had been a 7-figure deal, we'd have -- we'd certainly had taken the opportunity to mention it so as we did in the prior quarter, but there wasn't. There wasn't. I would also add that there is more than 30 six figure deals that we did. So we were strong with that. In terms of go-to-market execution and how do we think about that? I guess, if you take the breakdown, we now 17% of our revenue done about 5,000 seat organizations, about 73, I think it is in the middle and then the balance done -- 10% or so done to meet 100 seats. So if you look at that ratio by any respect as we're growing as an organization, just to hold that ratios steady, would it require an increase in absolute dollar terms in our ability to perform and do business with each of those types of customers. And what we're finding is, that as we apply effort to resourcing, and getting better at each of those segment areas, and that's slightly keep focusing on the very low end of the market for sort of some-20 or some-50 seat space. We've seen the market kind of really available to us in that 5,000 seat space, to accommodate a little bit more growth than just holding that 10 percentage. And so What we'd considered quite normal investments in dealing with larger customers, both in terms of the sales motion and our brand and some of the product capabilities and features, just the same growth. We're seeing that's just a slightly better return than we might have expected through some of our efforts in those areas. And that's certainly happening in all of the geographies that we're working in.

[Operator:]

Our next question comes from Eric Lemus of SunTrust Robinson.

[Eric Lemus:]

I just wanted to focus on threat intelligence in the Threat Center. Can you talk about how this is being received by customers and by prospects? And secondly, how important is a threat intelligence improving yourselves in the bigger midmarket and enterprise type take-off deals?

[Peter Bauer:]

Yes, it's a great question. For a lot of organizations that we deal with, their primary interest is in receiving a key stream of e-mail, making sure that bad stuff doesn't come near them, and frankly, they are not that interested in what the bad stuff was to begin with. They just want an assurance that it's not turning up in front of the end-users. Some basic reporting about what's there is of interest, but not the main part of the story. What we have seen the time as we begin with larger organizations, and as the sophistication of our own platform is growing, in some of the work through acquisitions that we've done like and Solebit is we really started to show customers more insight and more value in terms of the things that we're blocking, and giving them a sense of whether the kinds of things that are being blocked in their tenants are unique to them or unique to the industries, or unique to the geographies or unique even to particular job functions inside of the company that may be targeted. So aspiring to collect that data and that off and do that not only through Mimecast interfaces and dashboards, that reports that they control, but also just trying to provide some of that treat information through APIs and through log data that they can then consume, either inside of the security systems or other log management systems or with some environments that can consume that data. So there is an increased appetite for that, that is emerging. It is more of an upmarket phenomenon. It's really useful for us to have more of that data because it really does help us demonstrate the efficacy of our platform as well as some of the sophistication of the underlying engines and detection technologies that we've got in place. So it's an important piece of our strategy going forward.

[Operator:]

Our next question comes from Gray Powell of Deutsche Bank.

[Gray Powell:]

Just a couple, if I may. Can you talk about the linearity in Q4? And Just how did the March quarter compared to the prior few quarters?

[Rafeal Brown:]

And this is the right time -- well not -- it's not having a great many Q4s under my belt. And I think the kind of standout for us is it's inter-fairly back-end loaded for us this quarter. So it really -- I just started March 18 and I will say it was 2 very exciting weeks and there's was a ton of energy and a great deal of progress for the company. But things were a bit back-end loaded this Q4 as compares to kind of the historic data we have.

[Gray Powell:]

Got it. Okay. And then, may be just a higher level question. I mean this is like the first earnings -- so your numbers were good, but there was -- just the first earnings season where we've seen a decent amount of volatility in the Security space. So I just -- I'm curious like how do you feel about the pace of demand in Fiscal '20 versus '19, just -- same, better or worse?

[Rafeal Brown:]

Yes. Well, I think, the clearest indication of our thoughts on the -- in our confidence on it is just really around the full year guidance which I gave, which again, just at the midpoint you still see constant currency coming at 23% to 25% growth. So that's a, I think, a very confident guide, going to get a strong guide for us rather. And speaks to kind of our outlook based on all the factors we had before us.

[Operator:]

Our next question comes from the line of Tim Klasell of Northland Securities.

[Timothy Klasell:]

Well, question around Office 365. Obviously, you've got all the early adopters and you're getting close to the halfway point. What could be different with the customers who are may be later adopters of Office 365 versus the early adopters? May be as far as option, take rates or may be the size of deals? Maybe you can help us out there as you get into the second half?

[Peter Bauer:]

Yes. That's an interesting question. I think it's fair to say that we're getting customers that are both long -- so if you look at our new business, office or what's driving that increase in Office 365 adoption. It's completely a combination of customers that are being on Office 365 has for a while and are now choosing genuine Mimecast to their Office 365 solutions, as well as customers that organizations that have be on-premise and are now moving to Office 365. So I don't think we would characterize our basis then sort of Office 365 early adopters and now we've beginning the laggards. I think we get a complete mix of companies that may have been on Office 365 for 1, 2, 3 years. And now, I guess, or maybe even replacing a competitive offering that they were using on Office 365 and now, they're switching that up to have Mimecast than Office 365.

[Timothy Klasell:]

Okay. Great. Then the next question is on the FX on the guidance, but in terms of top line, may be on adjusted EBITDA, maybe you can sort of remind us of how FX has impacts that? And may be how -- maybe that expects your guidance for this year may be versus what would have been if currency may be hadn't taken the big turn this quarter?

[Rafeal Brown:]

Yes. So as you call out, the last three months has been quite a bit of currency volatility. And it's not any 1 currency, it's frankly, the U.S. dollar strengthening against all of our major currency peers, whether it's the pound, or RAND or even the Aussie dollar and euro. So it's just across the board, the U.S. dollar showed pretty significant uptick there, or strengthening. And then obviously, it has the impact that you're calling out and place down the EBITDA. I think as we sit here and think about it, we're looking forward to this next year making sure we're driving margin improvements, making sure we're executing across the board, but overall, I think, probably the best way to think about it is just -- we will continue to measure things on a constant currency basis. You can have a clear view of how we're executing and that's really what's gets boiled all together to come into our guidance range or EBITDA guidance range that we gave.

[Peter Bauer:]

I think something I just add to that, be aware that we have some natural hedges in the model, which was -- we have costs in country for certain limit of the revenue that's generated tech support cost sales and cost to the local. Also worth noting when we do a considerable amount of our R&D out in the U.K. so that's denominated in pound, sterling. So there's a natural hedges in place, but that give us a little bit of color on the bottom line as .

[Operator:]

Our next question comes from Catharine Trebnick of Dougherty.

[Catharine Trebnick:]

One housekeeping. Did you give us a percent of customers with TTP with this quarter?

[Peter Bauer:]

Catharine, so we went up 1,800 customers on TTP. So we're now sitting at 23,200 customers on TTP. What is that as a percentage of overall customers, about 68% of customers are now using TTP.

[Catharine Trebnick:]

Nice jump there. All right. Just a quick question on the competitive environment. It looks like you had a significant jump from a year ago, quarter now with the attach rate. But at the same time when you speak to Microsoft and large the channel, and et cetera, you're finding that Microsoft seems to be getting a little bit more sophisticated in their security and adding security on. And I just wonder if you could talk in general to the competitive landscape? There's another company out there that's really pushing hard, selling with like Cisco at this time in the mid-market would be a so you can just address the competitive landscape at this time?

[Peter Bauer:]

So we've seen a very consistent competitive landscape over the past few quarters. And I think that's based all in our numbers and based all in our adoption of our GET solution. Microsoft must continue to improve what they do in security, relative to where they've been in security. So on a relative basis, looking internally only they do make improvements and they improve their sophistication. I think the important thing is that from an external perspective, the adversities and the cyber threats and attacks are becoming more sophisticated and already doing so at an accelerated rate. So on a relative basis, it's very hard to tell exactly what this progress looks like. But needless to say, it's very important that customers bring both best practice from a security standpoint. They leverage as much as they can out of the Microsoft stack, But they added to that high-quality offerings from external players and independent security office like Mimecast. And certainly that approach that we take to market, we see as being well adopted and very successful in protecting customers from these threats.

[Operator:]

At this time, I like to turn the call over to Peter Bauer for any closing remarks.

[Peter Bauer:]

Well, thanks everybody for joining us for this earnings call. It was fun to have Rafe on this first earnings call with us. So thank you for your questions that you provided to both he and I. And we look forward to giving you our results, again, for the quarter that we're currently executing in, in a couple of months' time.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.