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spk02: Welcome to Zik's first quarter 2021 earnings conference call. My name is Howard, and I will be your operator today. Joining us today for today's presentation are the company's president and CEO, David Wagner, CFO, David Rockvam, and Chief Marketing Officer, Jeff Bibby. Following their remarks, we will open the call for your questions. I would like to remind everyone that this call will be recorded and made available for replay via a link in the investor relations section of the company's website. Now I would like to turn the call over to Jeff Bibby. Sir, please proceed.
spk01: Jeff Bibby Thank you, Operator. Good afternoon, everyone, and thank you for joining our first quarter 2021 earnings conference call. On the call today, we have our CEO, Dave Wagner, and our CFO, Dave Rockbam. After the market closed today, we issued a press release announcing our results for the first quarter and of March 31st, 2021, a copy of which is available in the investor relations section of our website at www.zix.com. Please note that during the course of this call, 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. It's important to note also that the company undertakes no obligation to update such statements. We caution you to consider risk factors that could cause actual results to differ materially from those in the forward looking statements contained in today's press release and in this conference call. The risk factor section of our most recent Form 10-K and 10-Q filings with the SEC provide examples of those risks. As more fully described in our annual report on Form 10-K for the year ended December 31st, 2020, the company has been actively monitoring the COVID-19 situation and its impact on both the company and the world in which we operate. The impact of COVID-19 and the unprecedented measures to prevent its spread are affecting our business in various ways, such as causing volatility in demand for our products, changes in customer behavior, including their spending and payment patterns, disruptions in the operations of our third-party suppliers and business partners, and limitations on our employees' ability to work and travel. These factors also make it more challenging for management to estimate the future performance of our business, particularly over the near term. During the call, we will present both GAAP and non-GAAP financial measures. Non-GAAP financial measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results. We encourage you to consider all measures when analyzing the company's performance. A reconciliation of certain GAAP and non-GAAP measures is included in today's press release, which can be found in the investor relations section of our site. Now with that, I'd like to turn the call over to Dave Wagner for his opening remarks. Dave?
spk05: Thanks, Jeff. Good afternoon and thank you, everyone, for joining us today. In the first quarter, we delivered consistent overall results, reflecting our continuing commitment to drive profitable growth. We delivered 14 percent growth in revenue and ARR in Q1, along with an 18 percent increase in adjusted EBITDA dollars and solid cash flow from operations of $10.7 million in the quarter, which is more than double the amount we generated in Q1 of last year. Our cloud ARR growth was 20%, our cloud migrations are accelerating, and 88% of our total ARR is now in the cloud. These financial results reflect the increasing adoption of our secure cloud platform by partners and customers alike. Our cloud backup business is up almost 25% since we acquired CloudAlly in November and is up nearly 40% year over year. We've already cross-sold 64 new cloud backup partners since last November, a great indicator of our momentum and continuing growth prospects for this key technology. Our international expansion plans are right on track. We were up 10% quarter over quarter in international ARR in Q1, and we are launching into the German market this month. Companies are deploying more devices communicating on more channels, supporting more remote work, and facing greater cyber threats than any other time in history. Secure Cloud provides the robust security and compliance capabilities our MSP partners and their end customers need. SMBs slowed down a little bit in Q1, but the acceleration we're seeing since mid-March highlights the opportunity ahead as businesses continue their journey to the cloud with an increased focus on email security, compliance, and resilience. Now, I will turn it over to our CFO, Dave Rockbam, to provide details on our financial results for the quarter. Dave?
spk04: Thank you, Dave, and good afternoon, everyone. The first quarter of 2021 marked another period of consistent profitable growth, increased year-over-year adjusted EBITDA dollars, and strong cash flow generation. Looking at the numbers in more detail, At the end of Q1, our ARR totaled $243.6 million, up 14% from Q1 of last year. Our cloud-based ARR grew 20% over Q1 of last year and comprises 88% of our total ARR, or a record $214.3 million. New customers added in the quarter totaled roughly 3,900. For the first quarter, our net dollar retention was 98%, which represents our renewals plus new sales into the installed base divided by the renewals that were available at the beginning of the quarter. Both new customers and net dollar retention were slightly lower than the last two quarters as we felt some impact from the COVID-induced SMB slowdown in January and February. This slight slowdown is right in line with the dip in the December, January, and February NFIB Small Business Optimism Index, which dropped from 104.7 in November to 95 in January. The index did come back up to 98.2 in March, in line with our business performance. We have yet to see the April number, but we were pleased to see a rebound in both new customers and net dollar retention in both March and April for ZIX. Dave will provide more color in the context of our growth pillars, but we continue to be encouraged by our ability to grow ARR at a double-digit rate and maintain solid retention rates. Revenue for the first quarter increased 14% to $60 million from $52.4 million in the same quarter last year. The $60 million of revenue exceeded our guidance range for the first quarter. In Q1, as in the past, we saw the majority of new customers onboard to the Zix Secure Cloud platform. In the first quarter, those new Zix Secure Cloud customers averaged 1.6 services per mailbox. which is above the 1.31 average we currently have across the company. We believe this bodes well for our strategy of providing a strong, user-friendly platform that makes it easy to add more Zig solutions, ultimately making us more valuable and stickier to both our partners and customers. Our adjusted gross profit for the quarter was $30.1 million, or 50.1% of total revenue. This was an improvement on a dollar basis from $29.2 million or 55.7% of total revenue in Q1 of last year. Gross margin dollars in the period were impacted due to the continued strength of our productivity products and the accelerated rotation to the cloud during the quarter. We anticipated our customers moving their hosted exchange email to Microsoft 365 platform in Q1. However, our programs exceeded our plan. Our ability to assist our MSP partners and direct customers as they move to the cloud continues to make us even more valuable partner to them. The macro acceleration of the business cloud journey and increased focus on email security give us confidence we can continue to capture meaningful growth opportunities well into the future. Moreover, our current base of more than 5,000 partners and 90,000 end customers provide us a built-in growth opportunity to attach Zix's organic higher margin products. And we do expect to grow gross margin dollars in Q2. Our adjusted R&D expenses for the first quarter of 2021 were $5.4 million or 8.9% of total revenue. This compares to $4.9 million or 9.3% of total revenue in Q1 of last year. The year-over-year dollar increase for the quarter was primarily amortization due to certain development projects we completed in the quarter. We would anticipate R&D expense to continue to increase during the year. We don't expect this to be in current cash expense increases, but the amortization of past projects that are being deployed on SecureCloud. While these expenses impact our net income and EPS, they are adjusted out of our EBITDA. Our adjusted selling and marketing expenses for the quarter were $10.5 million or 17.4% of total revenue compared to $10.6 million or 20.3% of total revenue in Q1 of last year. The lower selling and marketing expenses as a percentage of total revenue reflects the benefits of our lower cost of customer acquisition from our high velocity sales model and the success we are having winning new customers and wallet share gains from our active MSP partners. For the first quarter of 2021, our adjusted general administrative expenses were $4.1 million or 6.9% of total revenue, which was down from $4.6 million or 8.7% of total revenue reported in Q1 of last year. On a GAAP basis, we recorded a net loss attributable to common shareholders of a loss of $4.8 million or a loss of nine cents per fully diluted share. The nine-cent loss for the quarter compares to a net loss attributable to common shareholders of a loss of $3.1 million or a loss of six cents per fully diluted share in Q1 of last year. The change in the quarter was primarily driven by higher stock-based compensation over the prior year. Our first quarter non-GAAP adjusted net income before deemed dividends and excluding deferred tax was $7.9 million or 15 cents per fully diluted share, which was in line with our guidance. This compares to $6.7 million or 12 cents per fully diluted share that we reported in Q1 of last year. And finally, our adjusted EBITDA for Q1 2021 totaled $13.1 million, an increase from $11.1 million we reported in Q1 of last year. As a percentage of total revenue, adjusted EBITDA for Q1 2021 was 22%, which was in line with our guidance and compares to 21% in Q1 of last year. Cash flow from operations for the first quarter of 2021 was $10.7 million, an increase of 142% or $6.3 million over Q1 of 2020. The increase in cash flow from operations was primarily driven by continued focus on the business operations and continued careful working capital management. CapEx and other intangibles for the first quarter of 2021 were $5 million, which consisted primarily of normal business capital purchases and capitalized internal use software development. Billings for the first quarter of 2021 totaled $62.3 million, up 12% from $55.8 million in Q1 last year. Turning to our balance sheet, we ended the quarter with $23.7 million in cash. In addition to our strong cash position, we also have $25 million available for borrowing under our revolving credit facility. The company also repurchased approximately $2.1 million worth of the company's stock as part of our equity management program on vesting shares. In terms of our capital structure and debt metrics, we had $211.5 million of total debt on our balance sheet at the end of the quarter. Our trailing 12-month adjusted EBITDA of nearly $53 million reflects a leverage ratio of approximately 3.5 times adjusted EBITDA at the end of Q1, putting us well below the maximum permitted leverage ratio of 4.75 for the quarter. Shifting gears to our financial guidance for the second quarter of 2021, which is based on current market conditions and expectations, in Q2, We currently expect revenue to range between $61.2 million and $61.6 million. Our revenue forecast for the second quarter of 2021 implies a 15 percent growth rate compared to Q2 of last year. We are forecasting fully diluted GAAP loss per share attributable to common shareholders to be in the range of a loss of nine cents and a loss of eight cents. And fully diluted non-GAAP adjusted earnings per share attributable to common shareholders before deemed dividends and excluding deferred tax benefit expense to be 14 cents for the second quarter of 2021. We are currently forecasting adjusted EBITDA to be approximately 22 percent of forecasted revenue for Q2 2021. The per share guidance figures are based on an approximate basic share count of 57 million shares for Q2 2021. Based on our current visibility, we are increasing our revenue guidance for 2021 to be between $248 million and $250.5 million, representing an increase of between 14% and 15% compared to 2020. We also expect fully diluted gap loss per share attributable to common shareholders to range between a loss of 36 cents and a loss of 33 cents for the year. On a non-GAAP basis, adjusted earnings per share attributable to common stockholders is expected to range between 58 and 60 cents. Adjusted EBITDA is forecasted to be in the range of $56 million, or approximately 22% of total revenue for 2021, and a year-over-year increase of approximately 10% compared to fiscal year 2020. The per share figures are based on an approximate basic share count of $55.5 million for 2021, As a reminder, fiscal 2021 guidance includes an increase of about $3 million of expenses in 2021 related to travel, compensation, and marketing, which were reduced in 2020 due to COVID-19. Based on our current outlook, we expect to generate continued strong free cash flow in 2021. We are forecasting approximately $9.5 million in interest expense on our bank credit facility and other interest bearing items for 2021. In summary, as we execute this strategy, we believe our 100% subscription business, favorable profitability profile, and strong cash flow generation positions us well to meet our manageable debt obligations and achieve our adjusted EBITDA guidance of $56 million. This completes my financial summary. For a more detailed analysis of our financial results, please refer to today's earnings release as well as our 10-Q, which we plan to file by May 10th. Also, visit our investor relations website to view our most recent investor presentation. Dave?
spk05: Thanks, Dave. Our financial results underscore the growing role ZIX is playing in empowering businesses of all sizes with technology to drive cloud adoption, facilitate digital transformation, and protect communications. As we noted on our last call, 2021 will be a year of transformation for ZIX. Our transformation plan is built on the same three growth pillars, new partner and customer acquisition, partner and customer add-ons, and retention. I'll take a few minutes now to provide updates in each of these areas. Beginning first with new partner and customer acquisition. In Q1, we added about 3,900 new part customers. of which approximately 89% were added by our MSP partners, which was up slightly from 88% last quarter. Some key MSP partner wins in the quarter included a new UK-based MSP who wanted to consolidate its Office 365 cloud backup and advanced threat to a single trusted provider with superior support. We had another win with a UK-based MSP who recognized the value of being a ZIX partner and the benefits of consolidating its cloud backup and Office 365 with security auditing into one provider. They have already moved nearly 1,000 seats onto our cloud backup solution, and we have an opportunity to sell more to this partner as this relationship continues to grow. Three of our top five new partner wins included cloud backup in the quarter. All five of our top new partner wins were international, with three in the UK and two in Germany, the latter being a major focus for us this year. While we are just getting started with our expansion into Germany, our early traction is encouraging and validates our investment thesis. Broadly speaking, vendor consolidation by partners is a growing trend, and Zix's MSP partners are realizing tremendous value from our broad portfolio of products focused on their most critical security and compliance needs. On the value-added reseller and direct side of the business, our top five wins in the quarter included four in healthcare and one in finance. Turning to our second growth pillar, which is sales to existing partners and customers. A key source of growth for us is sales to existing customers through partners. In the first quarter, sales to existing customers through MSPs accounted for 44% of the MRR increase in the quarter, which compares to 46% last quarter. As Dave mentioned, we saw a decline in sales to existing customers in Q1 from what we experienced in Q3 and Q4. The good news is that the sales to existing customers began to recover in mid-March, and April sales to existing customers were the strongest month for such orders since we've owned AppRiver. Our interpretation of this modest slowdown in Q1 is that it was the result of the COVID surge we saw in late winter, and that the March-April recovery bodes well for our outlook. In terms of our top five add-ons to our VAR and direct sales team, Three were in healthcare and two were in banking. The largest was a meaningful six-figure add-on for an encryption-only customer. We also secured a meaningful add-on with a financial institution who licensed six products, including cloud backup. Moving to our third growth pillar, increasing retention. Total company net dollar retention was down slightly to 98% in Q1 from 100% both last quarter and in Q1 last year. Gross retention at the company level remained over 90%, consistent with historical trends. Our net dollar retention was impacted in the quarter due to lower sales to existing customers, as discussed earlier, and also due to churn in Microsoft Hosted Exchange, or HEX. The rotation from HEX to Office 365 accelerated in Q1 for two reasons. First, it appears that more cloud email migrations were planned for early 2021 than normal. So we saw seasonal work-from-home induced acceleration. And second, the program we instituted earlier this year to proactively market our hexed Office 365 migration capabilities probably accelerated migrations as well. To be clear, the rotation to the cloud remains a point in our favor and we are leaning into it. Our cloud retention rates remain very strong and our overall net dollar retention in April was back over 100%, driven predominantly by the strongest month for AppRiver since we acquired the business in 2019. Our increased top line guidance for the year reflects all of these factors. Our acquisition of Cloud Ally was very well-timed and has performed exceedingly well since joining ZIX last November. In fact, Cloud Ally's ARR has hit record levels each of the last three months, and they recently secured their largest deal in company history, which was a six-figure ARR win. Cloud data backup is playing an increasingly critical role within a secure modern workplace, and we have a leading solution to address that growing need. We are seeing strong attach rates and adoption of cloud backup by our partners. In summary, we believe Zix is well positioned. Our cloud momentum has us on track to realize our goals for 2021, including delivering $56 million in adjusted EBITDA. while also setting us up for more success as we continue to focus on profitably growing the company to $500 million of ARR by 2025. That concludes our prepared remarks. Operator, we're ready to open the call for questions. Operator?
spk02: Ladies and gentlemen, if you have a question or comment at this time, please press star then 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, if you have a question or comment at this time, please press star, then 1 on your telephone keypad. Our first question or comment comes from the line of Nihal Chaki from Northwind Capital. Your line is open.
spk03: Thank you, and congrats on the upside in the quarter and the $3 million guidance increase at midpoint. That's fantastic. Just to be clear, I know you cited a lot of different drivers there, but simplistically, AppRiver versus Core offering, which one was the bigger driver here?
spk05: We were talking about the whole company level, and that's really primarily how we looked at it in the hall. Those trends that we talked about were real consistent across all parts of the business. Really good momentum, especially later in the quarter and here in April, and it kind of crossed all parts of the business. Just a little bit of SMB drawdown in the January, February period. Okay. Go ahead. The other place we called out was the hosted exchange, which was just a little different for us. And when you think back about it, it makes a lot of sense that the cloud rotation that happened in 2020, a lot of customers were waiting to year end to make that change, and we further incented that change. So that was the one other thing that was just kind of a different business trend in the rest of the business. So those are the ones we highlighted in the home.
spk03: I see. Okay. What do you think is behind the acceleration in the month of March? Is it either your comps or is there something more fundamental going on?
spk05: That's why we use those NFIB stats. We just feel like it was really a market thing. I don't know whether SMB players, but we really felt like it was just really tightly correlated the market April, as you know, was a super strong month in the SMB segment of the economy. We certainly we certainly saw that.
spk03: Gotcha. Okay. And great to hear about the great success that you're having with cloud ally. Do you think that has anything to do with the news items that accelerating ransomware across their across the cybersecurity universe that's driving that or you think there's something else that's driving that?
spk05: No, I think you're exactly right. The ransomware and recognizing the value of the cloud data workloads, that's what we talked about. First part of COVID is this rotation, work from home, which is driving a lot more cloud adoption. And that's why we also think it was really well-timed. We were close to our partners through that period and close to our customers and recognizing that's where they'd be going next as we come out of COVID. to this new hybrid workplace with a lot of cloud data workloads. So we think it's still really early for backing those up. We're seeing great success. Continued, you know, the number one workload, of course, is Office 365, but Salesforce really right behind that as the second biggest set of cloud data we're backing up.
spk03: I see. Okay. And my final question is that it's great to see that the you're guiding to, I don't know if it's guiding, but you're targeting $500 million in ARR by calendar 25. If I do that on a five-year basis, that equates to 16% CAGR. And so you did have a slight acceleration in this most recent quarter. Is it fair to assume that you are expecting continued acceleration to this sort of 16% rate by the end of this year?
spk05: Yeah, so obviously we're very pleased with the acceleration that we're seeing. When we talk about the 500 million, we're leaving a little bit of room for inorganic work as well. So you have 15% where we are today. There's $30 million of acquired ARR that would get us to the 500. But that's exactly how we're looking at it, building momentum, continuing to look for technologies that can further accelerate that rate and accelerate us through it.
spk03: Okay, great. Thank you.
spk05: Thank you, Nahal. Thanks, Nahal.
spk02: Thank you. Our next question or comment comes from the line of Nick Mariachi from Craig Hallam. Your line is open.
spk00: Hi, guys. This is Nick Mariachi on for Chad Bennett. Thanks for taking our question. As you guys started to migrate legacy customers onto SecureCloud, are you seeing customers use this as an opportunity to add additional products? And then just overall, as we see the number of services per mailbox continue to tick up, how should we think about that having an impact on net retention and gross margins?
spk05: Okay. I'll take the first part of the question and let Dave come back in on the attach rates and the gross margins. most gross margin dollars. So we are seeing an acceleration of the migrations to secure cloud. As you know, Nick, we finished up the dev work late 2020 to get all of the best features of what we call advanced email encryption into secure clouds, but that's the migration point for our customers. You know, that coupled with just the cloud rotation is, you know, to give you kind of a sense of how that's accelerated. You know, a year ago, we touched these customers all the time, but in a year ago, we would have had about 20% wanting to move to the cloud in the next 12 months. We have 60% of the customers we touched year-to-date moving to the cloud, either now or, you know, within the next, you know, quarter or two. So we were, you know, timed well to have that capability ready, timed well in order to enhance that cross-sell And then the other big migration cohort happening now that's going really well is the over 2,000 SMB-hosted customers are moving across with great success as well. So that program is moving really well. Thanks for checking in, Nick, and I'll let Dave kind of hit the cross-sell.
spk04: Yeah, and on the attach, it's going well. You know, we could always want more. We're looking at that growing, you know, a couple hundred basis points, a couple hundred tenths of points, every quarter, so we're at 1.31 in total. We'd like to see that get close to 1.4 towards the end of the year, so we're working towards that with the team as far as we look at cross-sell. Getting the UK team continuing to focus on the additional products that they now have to sell, especially when you look at the Cloud Ally add-on, that brings a lot of opportunity for cross-sell. launching in Germany this month. We're real excited about that and the teams we've been able to bring on there to get the cross-sell going in Germany as well. So we've got that. And then the gross margin dollars, we look for gross margin dollars increasing the next couple of quarters. As Dave said, we had that pretty significant hexed Office 365 rotation this quarter, early in the quarter, which was great because we retained a lot of those customers. It flattened the gross margin a little bit in January, February on the dollar side. But with what we're seeing in March and April, we're looking for that to pull back up in the second quarter. So we would expect to see gross margin dollars increase, and a big part of why we can maintain that $56 million of EBITDA for year-end.
spk00: Got it. Thank you. And then a year ago, now we were talking about customers downgrading to lower-price Office 365 SKUs. I was just wondering if... kind of saw any similar impact in the quarter of that that you're talking about?
spk05: That's a very good reminder, and it was different this time. The churn was super solid. We did not see that price sensitivity, just a slowdown in the addition of seats in the installed base. That's a good question. We did not see the skewing down like we did last March. All right, got it. Thank you. That was a great question.
spk02: Thank you. Again, ladies and gentlemen, if you have a question or comment at this time, please press star, then 1 on your telephone keypad. I'm not showing any other questions in the queue at this time. I'd like to turn it over. Oh, I'm sorry. It's Neha Chalky from Northland Capital. Your line is open.
spk03: Thanks. So just to be clear, the reason why the gross margin declined this quarter was because the acceleration to cloud migration, acceleration to cloud from basically hosted exchange to cloud hosted. Is that correct?
spk04: That's right. Yeah, that's right. It's, you know, the Office 365 carries a little bit lower gross margin for us. So as that rotation happened and it brought the gross margin dollar down, I think it was down 100K quarter to quarter. But we've seen, you know, saw that kind of fed off a little bit in March and April. So we're looking at that to grow in Q2 and the subsequent quarters.
spk03: Right. And can you explain why that's a long-term positive?
spk05: Sure, the long-term positive, Nehal, is the very clear positioning of secure cloud as a platform for MSP partners to consolidate these services. So, you know, the higher margin hacks we've known for a long, long time, but that's not the future. The future is, you know, the cloud solutions for, you know, productivity, secure compliance that we provide including Office 365. So that's the growth area we're leaning into and that, you know, that profit pool from hacks is one that we're managing, you know, managing the transition.
spk03: I'm sorry. When you say hacks, can you just explain what that means?
spk05: I'm sorry. Uh, hosted exchange and we call it hacks, just H E X. My accent's coming through. Sorry. H E X. Gotcha.
spk03: Okay. Um, and so, uh, this gives you the clear positioning to move customers to secure cloud. and therefore attach additional services. And I think that gives some additional data at least on what the trials were, which is the route towards adding the additional services. Can you run through that data in terms of how that's proceeded from last quarter to this quarter and maybe over the past few quarters as well?
spk05: I'll take a cut that we didn't have it in the script. So the trials are tightly correlated, obviously, with the net seat ads. And so trials were off a little bit, as we described in the net seat numbers in that area. December is always a low trial month because the IT folks take the time off. So it was the January, February trials were down. March saw a really nice increase, which led to the best April since we've had that river. So that's kind of the trial rotation window, and it's just a month. It precedes the seed ads by a month.
spk03: Okay. So what are metrics that give you confidence that you will be able to attach additional services as customers migrate from host exchange to customers?
spk05: Oh, okay, good. So, thank you for that clarification. So, you know, going back to the package that we put together for our install base, not our partner's install base, the direct portion of our install base, we've been marketing a package to them that moves them to what we think is the best offer, which is the Office 365 productivity suite plus advanced threat plus archive and encryption if they're a compliance-oriented buyer. So we're stacking together at least – well, not cloud backups. We're stacking together at least three services with that migration offer. And we've done more – hosted exchange or on-prem exchange to Office 365 migrations, probably than any company in North America. We're over 19,000 migrations. We're really good experts at that. And so that's a real strong capability that we have that these customers and migration value.
spk03: Okay. All right. And then... There's also this on-premise email exchange hack. Do you think that's also been a driver of the accelerated migrations that you're seeing?
spk05: So I actually think, well I know, that we do a fantastic job on behalf of our partners and our customers operating the hosted Exchange servers. We have a team that's been doing that for a long time and really, really best in class. We collaborated really closely with Microsoft on that. Our partners and customers, our partners in particular, were really complimentary of the work we did, the communication we offered. and the SMB customers tended not to be as aware of what was going on. So we think it's more of an opportunity for us with that capability we have for some of the mid-market buyers who haven't yet moved to be there as a really good option. But I think what you're alluding to, Nahal, is the on-premise exchange servers that are still in existence, those are going to get a really, really hard look for upgrade this year, which I think will help contribute to further acceleration as an expert in making those migrations happen. We'll have the slight offset that we've talked about. We have our own hosted exchange customers that we're working to migrate as well. But the partner side of that is holding in quite well. So anyway, it's a balance with the overall, we think, being net positive because we do so many of these migrations.
spk03: Gotcha. Okay. And then finally, for Dave Rocklam, you did say that you have confidence that gross profit dollars will increase Q2 into the second quarter. Can you review the reasons on why that is?
spk04: Yes, it has to do with, you know, the March and April sales that we saw. So, you know, we, you know, had the Office 365, you know, really bump up with the hosted exchange in January, February, continued to see the growth, you know, Office 365 into March and April for sure. And we saw gross margin dollars there. But then we also, you know, continued to see growth in the IP products. And that's where we're seeing the gross margin dollar increase. So we're pleased with the March and April numbers that we've seen. Now that we're at May 5th, we're We have confidence we'll grow gross margin dollars this quarter and in the coming quarters. Great. Thank you very much. Thank you, now.
spk02: Thank you. I'm sure no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Wagner for any closing remarks.
spk05: Well, thank you, Howard, and thank you, everyone, for joining Zik's first quarter earnings call. We look forward to speaking to you again in early August with our Q2 results, and I hope you all have a great evening.
spk02: Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Thank you, everyone. Have a wonderful day.
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