Datto Holding Corp.

Ladies and gentlemen, thank you for standing by and welcome to DATO's fourth quarter 2020 earnings results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. And if you should require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today. Mr. Ryan Burkhart, Datto's Director of Investor Relations. Thank you, sir. Please go ahead.

Ryan Burkhart Thank you, operator. Good afternoon, everyone, and thank you for joining us today to review Datto's fourth quarter and full year 2020 financial results. With me on the call today are Tim Weller, our Chief Executive Officer, and John Abbott, our Chief Financial Officer. During this call, we may make statements related to our business that would be considered forward-looking statements under federal securities laws. including projections of future operating results for our first quarter and full year ending March 31, 2021, and December 31, 2021, respectively. As a result of a number of factors, actual results may differ materially from those projected in such statements. These factors are set forth in the earnings release that we issued today under the section captioned Forward-Looking Statements. And these and other important risk factors are described more fully in our reports filed with the Securities and Exchange Commission. We encourage all investors to read our SEC filings. The following statements reflect our views only as of today and should not be relied upon as representing our views as of any subsequent date. In addition, Datto undertakes no obligation to publicly update or revise any forward-looking statements made here. Additionally, non-GAAP financial measures will be discussed on this conference call. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our fourth quarter and full year 2020 earnings press release, which can be found on our investor relations website. A financial supplement and webcast of today's call are also available on our investor relations website. With that, I'd like to turn the call over to our Chief Executive Officer, Tim Weller. Tim?

Thank you, Ryan. And many thanks to everyone for joining us on the call this afternoon. We are excited to report strong fourth quarter results, capping off a milestone year for Datto. I'll start with a few highlights from the quarter and year. Then I'll discuss two specific strategic initiatives for 2021, including our recent acquisition of BitDem. And finally, I'll turn the call over to John to discuss our financial results and guidance in more detail. Our enthusiasm for the MSP opportunity has never been higher, as SMBs continue to accelerate their digital transformation. Last year introduced a new set of challenges for Datto and for the global economy. But despite those challenges, we grew full-year subscription revenue 18% year over year, expanded our cash flow margins, and deepened our strong global MSP partner relationships. Our performance is a testament to the demand for Datto's platform, the unique and symbiotic relationship we have with MSPs, and the power of our recurring revenue subscription model. We are well positioned to capitalize on the global opportunity in front of us, and the themes of cloud and security will be areas of focus for Datto as we deliver new solutions to our MSP partners in 2021. First, I'll touch on our strong fourth quarter results. We delivered another great quarter primarily by continued expansion from existing partners with newer MSPs beginning their journey of growth with Datto. We were particularly pleased to see new sales from our core BCDR business rebound nicely with continued strength in SaaS protection and Datto RMM as well. Subscription revenue for the quarter reached $129 million, an increase of 16% from Q4 2019, and total revenue was $139 million, exceeding our previous Q4 revenue guidance. We ended the quarter with $543 million of ARR, which represents an even higher sequential increase than in the previous quarter. We view this as a key leading indicator of revenue reacceleration. In Q4, adjusted EBITDA was $41 million, and we generated $23 million in free cash flow. This represented our third consecutive quarter of positive free cash flow. Before John fills in some details on the numbers for you, I'd like to describe progress on the two areas of highest strategic focus in 2021 for Datto, and probably for the MSP industry overall, and those are cloud and security. There are fundamental long-term shifts for all companies, and both have been in Datto's DNA since inception. All of our products have been cloud managed, for example, from day one. And a deep infusion of security is also common across our product set, which at their heart are about data protection and monitoring. In 2021, we will be more directly monetizing new products in these two areas. in cloud with continuity for application workloads in the public cloud and in security with new products to help MSPs protect their SMB clients. So let's first talk about cloud. As I said, Datto products are all cloud managed. In 2021, we will be launching our first continuity product for applications running in the public cloud, specifically Azure, which is the most relevant for our partners who largely run Windows-based servers. This new Azure Cloud Continuity product will follow on the success of SaaS Continuity, where we protect data in the cloud that is hosted in Microsoft 365 and Google Workspaces. We plan to take Azure into beta with a group of partners in Q2. Of course, we also protect laptops and desktops today directly to our Datto Cloud with our Cloud Continuity for PCs line of business as well. The advantages Datto will bring to Cloud Continuity are many. First, our MSPs trust us and our service model, and the same technology benefits they know will be there in the cloud. Second, our solutions will be hybrid cloud focused, so partners get a unified user experience, independent of whether their workloads are on premises, in private clouds, or in public clouds. This is critical in a multi-tenant deployment, where MSPs and clients have diverse workloads in many places. Third, copies of applications and data from every live environment are stored securely away from public cloud providers in our proprietary exabyte-scale Datto Cloud. And finally, the business model will be familiar and transparent as usual with Datto, which is something that has caused many MSPs and their clients to delay migrations to the public cloud. We will be solving both economic and technology challenges for our partners. The long-term continuity roadmap continues to be securing and protecting SMB applications and data anytime and increasingly anywhere, in clouds and on-premises, on virtual machines and physical machines, servers and PCs. Now let me turn to security. As COVID has accelerated digital transformation and remote work, cyber attacks have also proliferated, leaving enterprises and SMBs increasingly vulnerable. To address this trend, we've developed a model best visualized in three concentric rings, securing Datto, securing our MSP partners, and helping those partners in securing their SMB clients. The inner ring one is Datto. We continue to invest heavily in technology and the best information security team in the industry, which leads our efforts to secure our infrastructure, practices, and products to the highest standards. Datto's Chief Information Security Officer was recently invited to join the Institute for Security and Technology's multi-sector ransomware task force in the fight against cybercrime. Ransomware continues to be the most critical problem SMBs and MSPs face today. In fact, 95% of MSPs report that their own businesses are increasingly being targeted by attacks, and 70% of MSPs report ransomware as the most common malware threat to SMBs. both according to Datto's annual ransomware report survey. Let me give you two simple examples of how Datto has been a security company throughout its lifetime. One is continuity, where many urgent restorations of backup images are as a result of primary servers being locked by ransomware. Another example is RMM, where patch management and system monitoring are fundamental to the protection of endpoints. We recover and restore applications and data for victims of cybersecurity attacks and downtime events thousands of times a year. In many cases, even after attacker has locked or erased their production servers and their primary backup copies. of course strong cyber security involves not only technology but also people processes training and auditing and these need to be dynamic over time experts increasingly recognize that an attacker will breach any network eventually and it's important to be able to respond in real time and operate your business and systems while remediating a well-funded ongoing and proactive approach to security is what's most important here we call it cyber resilience So that's ring one, protect Datto. Ring two is protecting our partners. MSPs and their SMB clients also need cyber resilience, as I described it, not just the old world with a collection of point solutions like antivirus or firewalls. Cyber resilience is a living, breathing security mindset, and it costs real money. This means risks and opportunities for MSPs. We start in Ring 2 with thought leadership for MSPs in the form of content, webinars, live events, and even direct interaction with our security team. But we also take action and offer tangible technology help. In response to the Q4 cyber attacks on several prominent companies and nations, Datto moved quickly to help the MSP community. Within a matter of days, we created the Datto FireEye Countermeasures Scanner. The scanner used the signatures that FireEye released to the public, and we provided detection scripts to MSPs, whether or not they were a Datto customer. This one release resulted in over a million scans and many malicious detections within Datto's partner systems. Continuing this proactive approach, we released similar scanners to the MSP community a couple weeks ago to address the Silver Sparrow malware threat to macOS. Now let's talk about Ring 3. This is about offering MSPs new products with margin opportunities to help them protect their SMB clients. While we have always been in security, this marks the beginning of us offering specific products or features that allow MSPs to grow while selling security with Datto. Our first entry here was ransomware detection and isolation for Datto RMM, which we launched in December and which has now been deployed on over 250,000 machines in just the first 90 days. We've seen numerous verified saves from ransomware where our product isolated, identified, isolated, and prevented the spread of the infection. Our second foray is this week's Bitdam acquisition. Bitdam's technology protects cloud-based applications from ransomware, malware, and phishing attacks. We are thrilled to welcome Bitdam's elite team of security experts to Datto as we continue to shape the cyber resilience roadmap for MSPs. We are starting the process of integrating their cutting-edge technology into our platform. Starting later this year, Bitdam Solutions will be offered to our 17,000 MSPs to help secure the millions of SMBs that they serve. In summary, security and cloud are complex by nature, but we will make them simple and turn them into growth and margin opportunities for our partners. We continue to believe both opportunities are enormous and feel data was well-positioned. We will continue to increase our investment in each area to expand our product offerings and addressable market, which we believe will drive strong partner retention and boost long-term revenue growth. John will give you the specific guidance, but you will see that our 2021 adjusted EBITDA margins reflect the impact of the BITDAM acquisition and the increasing investment in security and cloud as previewed on our last call. In closing, 2020 was a milestone year. We are thrilled with the progress we've made throughout the year, culminating with our IPO in October. Our strong fourth quarter and full year results and a good early start to this year, as you can see in our Q1 guidance, position us well for growth in 2021 and beyond. I'll now turn the call over to John to go through the financials in more detail. John?

Thank you, Tim, and good afternoon, everyone. We're pleased to report strong fourth quarter and full year 2020 results. As I review our numbers today, please note that I'll be referring to non-GAAP metrics unless otherwise specified. You can find a reconciliation of non-GAAP measures to GAAP measures in the press release that we issued this afternoon and in the supplemental financials posted on our website. Our fourth quarter results reflect the strength of our operating model in focused execution. Fourth quarter recurring subscription revenue grew 16% year over year to $129 million and comprised 93% of our total revenue of $139 million in the quarter, exceeding our previous guidance. ARR at December 31st was $542.8 million, up 14% from $474.8 million a year ago, and importantly, increased $20 million sequentially, up from a $16 million increase in Q3 and an $8 million increase in Q2. Continued evidence of the reacceleration of the business. We think of ARR growth as a leading indicator of subscription revenue growth, and the acceleration we're seeing in ARR will take a few quarters to impact revenue growth. We ended the fourth quarter with more than 17,000 MSP partners, a net increase of 400 year over year, but slightly down sequentially. the small sequential decrease was driven by higher than normal churn of smaller MSPs that we believe were challenged more than most by the economic fallout of the pandemic. These churned MSPs averaged less than $9,000 of ARR, while our overall ARR per MSP expanded to nearly $32,000 at December 31st, 2020, up from $28,600 the year before. Importantly, we added a strong cohort of new MSPs with more than 3,000 gross MSP additions in 2020, which was not far off from the levels we were adding prior to the pandemic. These new MSP partners typically start small and expand over time, helping to fuel future growth. We also grew the number of MSPs contributing over $100,000 in ARR to more than 1,100, up from 950 at year end 2019. On another positive note, year to date in 2021, we've seen several hundred net new MSP additions. Our fourth quarter gross margins of 74% were up from 65% in Q4 2019, driven by an increase in the mix of higher margin subscription revenue and from the operating leverage we're realizing in our 24 by 7 support function and in the infrastructure supporting our unified continuity solutions. Fourth quarter operating expenses were $68.3 million or 49.1% of revenue, a reduction of 712 basis points year over year. Within OPEX, Sales and marketing expenses were $27.2 million, a slight decline from $30.6 million in Q4 2019. Research and development expenses were $18.5 million, an increase from $16.1 million in Q4 2019. General and administrative expenses were $20.5 million, a decline from $21.8 million in Q4 2019, and now include public company costs. And finally, depreciation expense within operating expenses was $2.2 million compared to $2.5 million in Q4 2019. Operating income for the fourth quarter was $34 million or 24.5% of revenue compared to $11.3 million or 8.9% of revenue in Q4 2019. Adjusted EBITDA for the quarter, which excludes stock-based compensation, restructuring costs, and transaction expenses was $40.8 million compared to $17.1 million in Q4 2019. In recalibrating our cost structure during COVID, we further expanded our adjusted EBITDA margins to 29.4%, a significant increase from 13.6% in Q4 2019. As we discussed on our last earnings call, we believe the adjusted EBITDA margins remain artificially high, reflecting certain expense reductions we implemented in Q2 and significantly lower expenses associated with reduced travel, events, marketing, and office costs during COVID. As we continue investing in technology innovation to drive revenue growth and commercial activity returns to more normal levels, these expenses will increase and margins will return to more normalized levels. Free cash flow in the quarter was positive $22.7 million compared to negative $5.8 million in Q4 2019. And we ended the quarter with just over $170 million in cash. As a reminder, we completed our IPO in the fourth quarter with net proceeds of over $640 million, which we used to pay off our outstanding debt of $590 million, with the remaining proceeds added to our cash balance or used to cover other IPO transaction costs. We also entered into a new $200 million revolving credit facility, which remains undrawn and which provides us with tremendous flexibility to invest and grow the business. Additionally, the IPO triggered the vesting of certain employee options, which added approximately $23 million to our stock-based compensation expense in Q4. The remaining value of those options would be expensed ratably at a more normal level as they continue vesting over subsequent quarters. Moving to our full-year 2020 results, total revenue grew 13% year-over-year to $518.8 million, and subscription revenue grew 18% year-over-year to $485.3 million. We delivered full-year adjusted EBITDA of $150.5 million, an increase of 78% year-over-year. Turning to guidance for the first quarter in full-year 2021, The solid profitability and structural operating leverage in our business provides ample capacity for us to continue investing in technology innovation, go-to-market resources, and scaling infrastructure to support and sustain our long-term growth and expand our leadership position in the market. Our 2021 guidance includes a modest amount of BITNAM revenue in the second half of the year and the expected EBITDA dilution from the acquisitions. along with the impact of the incremental investments in the important areas of cloud and security. The purchase price for BITDAM was $46 million in cash, and we expect the acquisition will contribute meaningfully to revenue growth in 2022. For the first quarter of 2021, revenue is expected to be in the range of $142 million to $144 million, adjusted EBITDA is expected to be in the range of $45 to $46 million. For the full year 2021, revenue is expected to be in the range of $582 to $590 million, and adjusted EBITDA is expected to be in the range of $130 to $135 million. We expect subscription revenue to continue to be in the low to mid-90% range of total revenue in 2021, in capital expenses to be in the high single-digit percentage range of revenue. As a reminder, for non-GAAP income taxes, we use an effective tax rate of 25%. And for calculating EPS, we estimate approximately 170 million fully diluted shares for Q1 and 175 million fully diluted shares for the full year. In closing, we believe our Q4 results and 2021 guidance reflect the ongoing reacceleration of the business. We're very excited about the future and look forward to reporting on our progress in the quarters to come. With that, we'll open up the call for questions. Operator?

Ladies and gentlemen, if you'd like to ask a question, please press star and then the number one on your telephone keypad. Your first question comes from the line of Matt Hedberg with RBC Capital Markets.

Oh, hey, guys. Thanks for taking my questions. Congrats on the quarter. You know, I guess either for Tim or John, you know, just thinking through your ability to add new MSPs, I think, John, in your script, you noted there was a strong start to the year with MSP ads. just sort of wondering, you know, how you think about the cadence post COVID, you know, does it kind of revert back to kind of the trends you saw in 2019 or 18, just, just maybe a little bit more perspective on that.

Yeah, Matt, it's Tim. Uh, thank you. I'll give you, I'll make a comment and John, welcome to jump into, um, you know, we actually had good steady gross ads. Uh, you know, John referenced the number 3000, uh, we had good steady gross ads throughout last year. Obviously COVID hits in Q2 and, uh, you know, some of the lower end there, you know, came under some financial challenge. And, you know, by the end of the year, we kind of finished that cleanup. And nothing we're seeing, you know, we think Q4 will be the low there, and Q1, it will go up again. So I would, you know, say it's a macroeconomic effect that we feel pretty good about going into reopening.

Sure. Okay. I know that's helpful. And then, Okay, thanks. Yeah, no, thanks, John. And then I guess, you know, Tim, you talked about continuity for Azure apps, which sounds like it's a nice addition. Maybe just wanted to get a little bit more sense of, you know, maybe if you could just sort of double click on that and maybe a bit more on the timing there. It seems like a real interesting opportunity, especially for your install base.

Yeah, it definitely is. I think, you know, I would tell you it's for the installed base in as much as that's one of the elements you'd want to have before you lift and shift those servers into Azure. But clearly for us, you know, we'll also be represent a very nice net new opportunity where there are many Azure servers already, of course, that we can go. now addressed directly all on the same platform. So I probably won't add much on timing other than it's gone really well. And, you know, we said we'd be in beta in Q2 with broader availability later this year. So probably about all I want to say at the moment. But I think you have the basics of the opportunity and scale of it.

Excellent. Thank you very much.

Thanks, Matt.

Your next question comes from the line of Saket Kalla with Barclays.

Hey, guys. It's Saket from Barclays. Thanks for taking my questions here. Saket? Hey, guys. Hey, Tim, maybe for you, I'd love to also kind of dig into cloud and the cloud and security commentary a little bit. Maybe on cloud, you mentioned something interesting in your prepared remarks around maybe some economic differentiation around the Azure offerings. And all of a sudden, it's like transparency in pricing. I was wondering if you could just dig into a little bit more around what that means, broad brushes, of course. And then on security, I was just wondering if you could go one level deeper on what sort of products Bitdam is offering that you think could be the most significant margin opportunities for your MSP customers. Does that make sense?

Yeah, I'll take a shot at each of those. So on economics, I think the key is, and you'll know this as well as anybody as a cloud analyst, when you move into a cloud, whether it's AWS, Azure, et cetera, you move from knowing the cost of your Dell server, your VMware, VMs on top of that server. When it's in your building, you can sort of put a box around those, CapEx and OpEx. And when you move over to a public cloud, you might have a hazard of gas on the way in, but you really don't have a big idea of what it's going to cost two years in. And that becomes a running joke in the industry. What's your third month's bill? And it goes up, right? As you move more terabytes, you use more compute. And so I think one of the things that's caused some MSPs and their clients to be hesitant about the public cloud is some of those early horror stories. And obviously, others will tell you, hey, it's so much better. I can remove labor. And there's obviously a strong long-term trend toward cloud. So we're just hinting at the fact that you have to not only solve the technical elements of that move, but you have to solve the economic elements as well. You have to be able to tell MSPs what you think it's going to cost on day one and what you think it's going to cost three or five years in. And we've done a lot of studying of that. So I won't say more. I don't want to, you know, let the cat out of the bag, so to speak. But, you know, anybody that tells you, hey, we've got, you know, copy and paste technology and it just works great in Azure might work on the first day like that. But, you know, there's a lot of nuance that we've discovered. And we think it's one of the reasons MSPs aren't moving maybe quite as quickly as they would have. So on your security question, You know, you drilled right in on the crux of it. We look at the world in terms of MSP margin, and so I think I said initially it feels like a very strong fit, you know, with our SaaS protection for M365, Google workspaces, and that whole ecosystem. And, you know, without giving exact pricing, we've certainly worked back from what end users and MSPs pay there in, you know, in terms of dollars per seats. And, you know, we'll price accordingly to make sure we have very good margin for MSPs in that kind of a product set. They do address a wide spectrum of collaboration tools with the technology. It's pretty generally applicable. And, you know, we'll have to sort of work through new applications as we get to that point. But initially, it's just getting focused in that SaaS protection, you know, you know, live and breathe today. So that'll be job one. Hope that helps.

Got it. Yeah, that does. That does. John, maybe for you, just on the financial side, how do you think about the interplay of ARR per MSP customer next year? and growth in the customer base. And maybe as part of that, you know, any comment that you'd be willing to make on just overall ARR growth or, you know, any sort of visibility for next year on ARR?

Sure. Thanks, Saket. As you've seen, our ARR per MSP has expanded nicely here over time up to nearly 32,000 customers. per MSP from 28.6 thousand a year ago and has been consistently expanding each quarter, even with some of the fluctuations in MSP count. And that obviously is reflecting the continued growth with our larger partners. It reflects MSPs adopting more data products, and it's also, to some degree, a reflection of the churn of some of those smaller partners. And in general, we would expect this metric, it would continue to expand in the future. But it's important to note that, ironically, adding more MSPs can actually bring the average down because those new MSPs start small and grow their business with that over time. So arguably, if we had a blowout period for new MSPs, the The metric ARR per MSP could even go the other way. We haven't seen that happen, but just the way the math works, it could happen that way, given, again, that the new MSPs come in at a lower ARR. And we're not guiding on ARR, but, you know, we'll point to our – you know, recent re-acceleration and sort of continued re-acceleration, you know, from Q2 to Q3 and then Q3 to Q4. And we obviously, you can see in our guidance for Q1, we feel good about, and for the year, we feel good about the year. And only thing I would add, I guess, is we would expect a broader economic reopening. The stimulus package probably doesn't hurt, right, to provide a tailwind to the business.

Absolutely. Very helpful, guys. Thanks very much.

Thank you. Your next question comes from the line of Jason Ader with William Blair.

Hey, guys. Thank you for the question. I wanted to first ask about BITDAM. Thank you for the detail on the price paid. Could you give us a sense of the specific revenue contribution in 2021 and also the EBITDA impact from the deal?

Yeah, you know, we didn't break out either of those. We tried to give you a little color that it's a small number this year. We're really factoring very little of that into the 2021 revenue, and obviously that would be later in the year anyway. But the EBITDA impact, right, we inherit all those expenses of the business day one. So the EBITDA impact is – I don't want to characterize it in any way.

It's like $10 million or something like that. $10 million?

Yeah, we're not really giving a number, but I'll say it's meaningful. It was worth mentioning.

How many people in the company are coming over?

We haven't put that out either. Okay.

And then just on the comment on the year-to-date additions of the Net new MSPs, I think you said several hundred net new MSPs. Tim, is that just a kind of economic impact there that, you know, things are starting to loosen up a little bit? Or was it more of a kind of an internal focus and you guys said, you know what, Q4 was not what we wanted or Q3 wasn't what we wanted. We need to really kind of double down on adding new MSPs in Q1.

Yeah, no, Jason, I'll just say what I said before. You know, we've had a good, steady machine for producing gross MSPs. There's lots of MSPs in the world, and so you're bringing them on. Obviously, in our model, we generally bring them on small, and we grow them from there. And so if... If you want to attribute that higher churn to the pandemic, which I would in general, economic, the gross engine is still there as things get better on the churn side now going into reopening. We just see it growing. So no special programs on our end to drive that. I do think we're getting a little bit more global now every day. And so you know, as, as that grows, maybe toward the back half, we might see some, uh, some, some pickup there, but I don't think we're doing anything special. We're always interested in new MSPs and as many as we can get.

It's really been a Jason. It's really been a churn factor, right? The gross ads have held up remarkably well, um, despite COVID and, uh, it's really been churn. And, and as Tim said, you know, as, as we ended the year there, it was, it was, uh, you know, I would say clean up, if you will, COVID-related, economic, you know, environment-related, and we're seeing that turn and feel good about the net positive movement now.

Great. And then last quick one for me, John, for you, just on the NRR, you know, down to around 111%, I think I saw, which is that a trailing 12-month number?

It is. It is. And so it's always backward-looking. So that's the right way to think about it. It's Just like revenue growth, we've sort of been saying from the get-go that ARR is our leading indicator, and that's where we're seeing the early reacceleration, and we continue to see it. And it's not until we lap the COVID lows of Q2 that we're going to see things like, you know, subscription revenue growth and net retention start turning back the other way.

And where do you think NRR – gets back to ultimately? I'm not trying to, you know, give you a specific timeframe, but what would you be happy with on NRR?

Yeah, I mean, we don't see any reason why it wouldn't get back to historical levels, and that's certainly, you know, what we're aiming towards.

Gotcha. Okay. Thank you, guys. Have a good night. Great.

Thank you.

Thanks, Jason.

Your next question comes from the line of Sanjit Singh with Morgan Stanley.

Hi, everyone. This is Calvin on for Sanjit. Congrats on the quarter. I have two questions for you guys. The first is on Solar Storm. Can you give us a sense, an overview on how the attacks have affected conversations with MSPs? Are MSPs more likely now to look at continuity solutions? And how large of an impact do you think the attacks will have on security awareness and uptake of your new ransomware solutions, as well as the existing core product set?

Hey, Calvin. It's Tim. It's a great question. I think, you know, you hit on it, right? Driving more demand for cyber resilience in our products is probably a fair way to characterize the output. Obviously, it demands more attention on security as a theme, which we were already in the mode of anyway. You know, security for most tech companies like us is opportunity and risk. I think, you know, we mentioned in the script, in direct response to that specific attack, we were able to quickly release some countermeasure scripts for both our MSPs within our RMM tool, as well as we just posted to the public domain. We did the same for the Silver Sparrow. And actually, I think either yesterday or today, we did the same for the recent Microsoft, you know, hacks as well. So it's something we're getting fairly well versed in. I think, you know, on a go-forward basis, we continue to focus inward on security to make sure we're at that level. And now with BITDAM and RMM, we've started to talk about focusing outward. But, you know, I probably wouldn't comment much on whether it helped our pipelines a little bit or not. You know, you never wish – wish that kind of an event on another company. So just overall, very strong tailwinds for security, obviously. And I'm sure you're hearing that in other companies.

Right. No, that makes a lot of sense. Thank you for that. And then on the second one, on Bitdam specifically, When you thought about the company and the products out there, how did you assess the need in the marketplace, and specifically on the ability for MSPs to ramp on it, get trained up, and how does it fit into the broader security strategy that you're pursuing there?

yeah so it's a it's a good question we you know first and foremost wanted great technology and a great team and you know trust me we've looked at dozens of security companies there are other very interesting ones out there so you have to kind of find that that fit um we did and i think when you get down to the products of protecting collaboration tools you would expect that the the kind of vectors there would be as i said along the sas you know, attach, you know, that line of thinking. Start with the M365 Google. You'll see with our ransomware, we're driving into RMM, which is another kind of, say, vector of growth there. And it'd be interesting to see if we can get some of that technology accelerating us there. And then the third piece is, obviously, we run a cloud at exabyte scale. And, you know, we have a lot of data there, and that data needs protecting. And we do that well today. But, Again, in this world, you have to keep raising your perimeter wall. And the fourth one is data networking. We connect all of these things, and that is evolving towards a software-defined networking world, and you see a lot of traffic and it needs security. So as I said, it has broad applicability, but watch for us in round one here to stay focused on kind of that SaaS factor of growth with their set of technologies.

Awesome. Thank you, guys.

Thank you.

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

Many thanks. Thank you for taking the question. Tim, I want to direct this to you, and I want to go back to Azure Backup. And we've had some conversations over the last 45 days with MSPs and even some of their customers and detected more interest in migrating from on-prem to the cloud. And then also more interest in Azure backup as a potential solution. Most of the MSPs did mention that your solution wasn't out. And so I just wanted to ask you on, hey, how you're thinking about features and cooperation and cost and what I mean by feature, you know, feature parity with what Azure backup has. Is there any technology challenges that you're facing in delivering the solution, particularly from Microsoft in terms of, being able to enable the data capabilities. And when you think about the margin, you mentioned that, you know, you would be competitive in pricing with data, excuse me, with Azure. But how would that compete in terms of your on-prem solution that you're offering customers versus if they go to Azure and use you for backup? How does that, is there a risk of kind of cannibalization of margins? I know that's a lot. But what I'm really trying to understand, are you at risk at losing share as more workloads go to Azure for your backup solution? And are you at risk at all from a margin degradation point of view?

Yeah, I think, you know, it's a great question, right? A year ago, I would not have been able to answer the question. I would have had all the same questions you have had. We've gone deep and understand the opportunity here. We actually think it's a great opportunity to gain share. Azure is a big workhorse.