This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Magnet Forensics 2021 Second Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided for you at the time for questions. If anyone has any difficulty hearing the conference, you may press star zero for operator assistance at any time. Listeners are reminded that portions of today's discussion contain forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology, such as planned, target, expect, estimate, forecast, strategy, intent, believe, or variations of such words and phrases. In addition, any statement that refers to expectation, inventions, projections or other characterizations of future events or consensus contain forward-looking information. Statements containing forward-looking information are not a source of facts, but instead represent management's current expectations, estimates, and instructions regarding future investments, events, or consensus. Any such statements are subject to risk and uncertainties that could cause actual results to differ materially than those projected in the forward-looking information. For more information on the company risk and uncertainties related to the forward-looking information, please refer to the factors described in the summary of factors affecting our fulfillment section of the company's MD&A for the three months and the June 30, 2021, and in the risk factors section of the company supplemental debt prospectus dated April 28, 2021 posted on CDOR. Although the company has attempted to identify important risk factors that could cause actual results to differ materially from those contained in forward-looking information, there remain the other risk factors not technically known to the company or that the company presently believes are not material, but could also cause actual results or future events to differ materially from those expressed in such forward-looking information. No forward-looking statement is a guarantee of future results. Accordingly, you should not place and do reliance on forward-looking information which speaks only as of the date we met. The forward-looking information referenced in today's discussion represents the company's expectations as of the date hereof and are subject to change after such date without obligations to update any forward-looking information, except as required under applicable securities laws. The company reports its financial results under IFRS and all values are US dollars unless stated otherwise. This morning's call is being recorded on Tuesday August 10, 2021, at 8 o'clock a.m. Eastern Time. I would like to turn the call over to Mr. Adam Belcher, Chief Executive Officer of Magnet Forensics. Please go ahead, sir.
spk08: Thank you. Good morning, and thank you for joining us today. This morning, we released our 2021 second quarter results, which you can find on our website at magnetforensics.com. Q2 was a record quarter. with $16.5 million in revenue, up 42% from the same period last year. 81% of the revenue in the quarter was recurring in nature, which speaks to the consistency and predictability of our business model. We ended Q2 with ARR up 48% to $49.6 million, compared to the same period last year. ARR is one of the most important metrics that we monitor to evaluate how the company is performing. Adjusted EBITDA was $4.4 million, which is in line with the same period last year. However, as noted in past filings, last year's figure included $1.5 million of government support due to the pandemic. This momentum is being driven by our innovative digital investigation product suite, our effective go-to-market strategy, and a large and growing market. Public safety organizations... All right. experiencing a transformation in how criminals are using technology to invent new types of crime and are creating new methods for committing traditional crimes. Police, defense and intelligence agencies, private companies and forensic service providers are left to manage the challenges of digital crimes and cyber attacks, which continue to increase in frequency and scope. Here at Magnet Forensics, we've reimagined digital investigations and provide a unique and differentiated solution in the marketplace. We bring a complete, unified digital investigation platform to our customers and prospects. Our platform enables them to quickly identify critical evidence to their investigation. It's powered by the largest digital artifact library in the market and our built-in AI and analytics, which helps investigators uncover more evidence. Our product portfolio supports technically sophisticated forensic experts in their work. but we've also designed our offering to support non-technical investigators and stakeholders, agency-wide, to ensure our platform is part of the solution along every step of the case. A great example is our MDIS offering, or the Magnet Digital Investigation Suite, which includes our case management, workflow automation and orchestration, and web-based evidence review products. These solutions address the case intelligence and analytics space and represent a differentiator in the market for us. We continue to innovate in our approach to digital investigations. During the first half of the year, we released 27 software updates across our product portfolio. We launched our major spring releases of Axiom, our flagship product that is designed for the public sector, and Axiom Cyber, which is purpose-built for the private sector. Our Axiom 5.0 release featured improvements related to getting to the evidence more quickly and enhancements to the digital media review, which continues to be an important element in investigations, in addition to supporting new evidence sources. Our Axiom cyber offering continues to gain traction in the market. As the frequency and scale of ransomware attacks gain greater awareness, the private sector is becoming increasingly engaged in search of solutions that better prepare and protect them. The importance of digital forensic solutions is a tailwind for us. Our cloud-based technology empowers our customers to conduct global investigations from anywhere in the world. Axiom Cyber extends their investigation capabilities beyond their corporate networks and helps manage the heightened security risks related to remote work and insecure Wi-Fi networks and applications, which are expected to persist long after the pandemic ends. As part of our Magnet Digital Investigation Suite, or MDIS, we introduced new capabilities in mobile workflow automation for our Magnet Automate offering and added a new deployment option for Magnet Review to complement our existing support of the leading cloud providers. Earlier this year, we introduced Magnet Ignite, a cloud-based solution to quickly review computers to understand if they could have been compromised and require deeper forensic analysis. We understand from our service provider customers that such an incident response triage tool would be especially helpful in the investigation of potential ransomware and other cyber crimes. In May, we hosted our second annual Magnet Virtual Summit. The event attracted more than 5,000 registrants. We held 130 lectures and 21 hands-on labs led by 51 industry guests and 26 Magnet forensic speakers. This event has typically been a catalyst for our sales momentum in the second half of the year. It attracted a balanced mix of existing customers and new prospects from both the public and private sector. These new prospects are now tiered across various stages of our sales funnel. Yesterday, we introduced our collaboration with the London Metropolitan Police and Microsoft to transform how police agencies investigate crimes with digital evidence from smartphones and computers with magnet review. The project with the Met Police, which is a long-term customer of ours, will leverage analytic tools to identify and report on critical evidence in a timely manner. Developed in concert with the Met Police, Magnet Review helps bring together technical and non-technical investigators to collaborate while maintaining the forensic integrity of the evidence. Its aim is to ensure digital evidence is reviewed in a simple, timely, effective, and secure manner to ensure justice is achieved. Our consistent and rapid ability to innovate supports our land and expand strategy. We again won new Axiom customers in the public sector in each of our core regions, including the Americas and MIA and Asia Pacific. The momentum for Axiom cyber product continues to build with new wins in the private sector. While Axiom remains our workhorse, the size of the private sector opportunity is growing as well. As an example, in the second quarter, we won almost as many customers with Axiom Cyber as we did with Axiom, which we believe is a great indicator of the opportunity in the private sector and the traction Axiom Cyber is gaining. We have a robust pipeline of opportunities across both our core markets as we enter the second half of the year. The strength of our pipeline underpins our financial outlook for the back half of the year, which Angela will address in a moment. As noted, we are seeing particular strength in our Axiom Cyber and MDIS offerings. With the launch of MDIS, we have also received increased interest in our Atlas offering as a standalone product that addresses specific case management needs or as part of a broader agency offering. Our Automate solution that supports workflow automation orchestration is also drawing increased interest with the public sector. A key driver of ARR is our ability to expand within existing customers with new licenses, additional products, as well as innovations that drive value. We increased our ARR with effective upsell and cross-sell strategies across both our private and public sector customers in each of our major geographies in the second quarter, which supports future revenue growth. We bring a compelling value proposition to a large and growing market. It's resonating. We continue to attract new customers, expand with existing customers, and introduce new innovations into the market. With that, I'll turn it over to Angelo to describe the impact that it's having on our business.
spk02: Thank you, Adam, and good morning, everyone. Before I address our financial results, I will provide a quick review of our business model for anyone that is new to Magnet Forensic. We earn revenue from the sale of digital investigation software products and services, which are comprised of software licenses, software maintenance and support, and professional and training services. Approximately 90% of our revenue comes from the sale of software licenses and support. And in the prior year, approximately 70% of our total revenue was recurring in nature. You'll hear us talk about two forms of software licenses, perpetual and term. We offer both types of licenses to our customers to ensure we are meeting the unique requirements for both our public and private sector accounts. Perpetual license sales contain both a one-time license component and a recurring software maintenance and support component, which our customers are required to renew in order to receive the latest software and digital artifact updates. Term licenses allow customers to use our software for a defined term and also receive updates and support. Term licenses are similar to a conventional software subscription model and are recurring in nature. We have been actively selling term licenses to new and existing customers, and all our products are generally available as term subscriptions only. This has allowed us to continue growing our recurring revenue base in the first half of the year. Now I'll turn to the financial results for the second quarter. Total revenue is $16.5 million. an increase of $4.9 million or 42% compared to the same period last year. Revenue was comprised of the following, each compared to the same period last year. Software license revenue of $4.9 million, an increase of $1.7 million or 54%. Software maintenance and support revenue of $9.5 million, an increase of $2.7 million or 38%. And professional services revenue of $2 million, an increase of $500,000 or 36%. As Adam mentioned, our efforts to grow our install base through upsell and cross-sell is the core strength of the business, which is demonstrated by the growth in software maintenance and support revenue. Annual recurring revenue, or ARR, was $49.6 million in Q2, an increase of $16.1 million, or 48% from the same period last year. As Adam noted, ARR is an important measure as it provides insight into our ability to generate predictable earnings for future years. Total recurring revenue is $13.3 million in the quarter, representing 81% of total revenue. This is an increase from 72% in the same quarter last year. The growth in recurring revenue is in line with our expectations as we see more customers adopt term licenses of our product. On a quarterly basis, this metric will fluctuate depending on mix of term versus perpetual licensing. On a trailing 12-month basis, total recurring revenue was 77%, and we would expect it to continue to increase as a percentage moving forward as we sell more term-based products to our customers. Gross margins for the quarter were 94% compared to 95% in the same period last year. Our gross margins have historically been at this level, reflecting consistency and efficiency in costs to deliver our current products and services. Adjusted EBITDA was $4.4 million in Q2, which represents a margin profile of 27%. The adjusted EBITDA is unchanged for the same period last year. However, as Adam mentioned, in Q2 2020, we received $1.5 million in government support related to the COVID-19 pandemic. Additionally, EBITDA includes $1.1 million of transaction-related expenses specific to the IPO and preparation for a public filing that were expensed in the period. Our margin levels still reflect the environment that we are in as a result of COVID-19, where spending related to travel, marketing events, and other employee-based expenses are generally lower than expected due to continued regional restrictions. Moving on to cash flow, we have demonstrated a track record of positive cash flows on an annual basis, which has been a key factor in our growth. Cash flow varies quarter to quarter based on timing of payments, receipt of accounts receivable, as well as the impact of certain large projects. Cash flow from operations in Q2 was $6.3 million, compared to $5.3 million for the same period last year. On an annual basis, we expect to continue to generate positive cash flows from operations. As of June 30, 2021, cash and cash equivalents stood at $108.9 million, compared to $21.2 million at the end of fiscal 2020. The change is primarily as a result of the net proceeds from the IPO of $86.5 million, which represents $106.5 million in Canadian dollars. Finally, I'll close on guidance for the year. We have revised our outlook based on the performance of the business for the first half of 2021. We expect revenue for the full year 2021 in a range of 65.5 to 67.5 million, which represents a growth of approximately 28 to 32% over prior year. We expect adjusted EBITDA for fiscal 2021 in a range of 11.7 to 13.7 million, which represents an adjusted margin between 18 to 20% on an annual basis. We feel this margin profile represents an appropriate balance between revenue growth and further investment in the business, together with continued focus in unit and economics to ensure we are growing prudently. Thank you again to everyone for participating in today's call. And with that, I'll pass it back to Adam.
spk08: Thanks, Angelo. As you all know, the cybersecurity market is a fast-growing and evolving one. We believe the role we play is important as cybercrimes and other digitally enabled crimes, like human trafficking and child sexual exploitation, continue to grow at unprecedented rates. We are passionate about assisting public safety agencies in achieving the best outcomes in the pursuit of justice and the support of victims. Equally important is our work supporting private enterprises to safeguard their corporate assets and reduce organizational risk. It's not hard to come to work every day. We appreciate the trust that shareholders have shown in us, and I look forward to updating you further on our progress during our call in November. With that, I'll turn it back to the operator to open up the call for questions. Thank you.
spk07: Thank you. At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. Once again, that's star one on your telephone keypad. To withdraw a question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Doug Taylor of Canaccord Publications. Jen, your line is open.
spk01: Yeah, thank you. Good morning and congratulations on another strong quarter. I'd like to start by digging in a little bit more on the recent London Metropolitan Police win. It seems like a pretty meaningful customer and development. So maybe to the extent you can, I'd love to hear a bit more about what the implications are for revenue from that type of upsell. uh for a large customer i assume this was factored into your new guidance and not your arr as of june maybe you could confirm that and perhaps it would be a a good time to revisit what the penetration rates are for some of your newer products and and how they impact the overall addressable market opportunity sure yeah sure doug yeah thanks for that yeah maybe i'll start with the the met question yeah i mean we were on this we've been on this journey with the met
spk08: with our product called Magnet Review over the last couple of years. They were, I would say, one of the progressive agencies that were trying to reconcile this challenge of the tsunami of digital evidence that's coming at literally all these public safety agencies globally. And how do they, in an environment where there's a talent shortage and there's all this digital evidence, how do they start sharing that workload with others within the agency? So they had this vision, and again, pretty progressive agency, as did we, right? We've been seeing this firsthand over the last several years that these agencies are just under pressure to get cases turned around quickly, but also challenged with how many people are actually able to do the work So it is a game changer in terms of what we're doing with the Met. They're an anchor customer, top 10 largest law enforcement agencies in the world. So the fact that they're working with us on this is quite important. But I think the important thing to note is what we're doing with the Met is transferable to every public safety agency, frankly, they all have this same challenge. And we've created a new category with Magnet Review by allowing non-technical, you know, the investigators to be able to review that digital evidence. You know, in the current environment with most agencies, it's bound by just the very technical experts that review the evidence. So with Magnet Review, we are now enabling more of the organization you know, including the investigators to be able to remove that digital evidence. So, you know, a landmark deal for us, really, you know, a bit of a starter pistol on the product in terms of credibility with a large, you know, global public safety agency. So pretty important deal for us. You know, we expect, you know, momentum to come from that. And then on, I think you had a question around penetration rates, and I'm not sure if it was specific to a particular product. But generally, I would say, you know, with Axiom Cyber, you know, we launched Q1 of 2020. In our experience with new products, like it does take a couple years really to see kind of the flywheel turning rapidly because you're doing pilots, you're getting that kind of initial deployment into customers. So, We're early days with cyber, frankly, and obviously we're seeing great results even though we're early days. We're early days with our MDIS products, so that's Automate, Review, and Atlas. So yeah, lots of kind of opportunity, both from upselling, cross-selling our existing customers, but also attracting kind of new logos to our products. And I think there was another question there.
spk02: Yeah, I mean, I can just take the, you know, with guidance and ARR. So certainly, so yes to guidance. So any future MET revenue is included in guidance. And with respect to ARR, it's a milestone-based project that we've got with them. So we've kind of completed the first milestone. And so we've included that portion in ARR. But no, the contract's not fully recognized in ARR yet because we haven't hit the other two milestones.
spk01: That's great, Keller. Maybe one more on that topic. I mean, you mentioned Microsoft in your collaboration with the London Metropolitan Police. Can you maybe speak a little bit about how you interface with an organization like Microsoft on that type of engagement?
spk08: Yeah. I mean, they're the preferred cloud provider with the Met in terms of their deployment. And we've had to work with them to fine-tune our product, make sure it's optimized. for Microsoft. They've been a great kind of support for us. I think what's interesting related to the Microsoft is we have this co-sell relationship with now. So they have thousands of people, feet on the street that are talking to enterprise clients. They have relationships at the CIO level. and can open up a lot of doors. So they're quite excited as well because, you know, they're trying to drive utilization on their cloud and Magnet Review and some of our other products are really key in the public safety in terms of kind of transforming to digital policing. So really excited about that relation. We haven't fully realized, you know, what they can do for us. It's still early days, but, you know, we've done some events with them and co-speaking and and really starting to engage at the field level to open doors and accounts we may not be in or to move up the kind of chain in terms of people that are higher up in those kind of accounts. So really excited about what's to come there with Microsoft.
spk01: All right, one more for me. Another strong EBITDA beat. I think we can see the higher guidance continues to imply some pretty aggressive increases in spend in Q3 and Q4 to get there. So maybe you can speak to your hiring plans or have you observed the travel and entertainment coming back already in Q3? Or is this something that could outperform depending on where we go with these variants? I know I shudder to think about this, but perhaps you can speak to what you're assuming in your guidance related to that kind of thing.
spk08: Sure. Yeah, maybe I'll start, Doug, and then I'll pass it to Angelo. Yeah, I mean, we have, you know, we hired a lot, frankly, in Q2. We're ramping up hiring in Q3 and Q4. We have in the neighborhood, I believe, about 100 people we're trying to hire before the end of the year, roughly. And then, you know, I think as, especially in the U.S., as the markets start opening up, like we're starting to do more in-person events there's more travel from the sales team you know in specific regions so you know there will be more expenses kind of the second half based on you know based on our um you know what we're seeing in in the different markets so that's a bit of color angelo if you want to yeah sure you know yeah doug um absolutely we're still heavily investing in you know sales marketing r d and in gna i mean we've already hired you know 60 to 70 employees in the first half
spk02: of the year so we're looking to attract you know more than that in the second half so um you know as adam mentioned fairly aggressive hiring plans um travel related expenses yeah i mean guidance that we have reflects some of the savings we've seen in q1 and q2 we are starting to see an uptick in travel certainly in the us and we've had a couple of in-person conferences now which we're very excited about so we are modeling an uptick in travel, but to your point, we have continued seeing savings based on the continuing restrictions. And then we're also looking at an increasing spending on building that infrastructure and business systems and IT that we noted during kind of the ITO process. So, you know, we still see a lot of investment in the second half as we scale to a larger public company while stewarding, you know, the dollars that we have and not trying to invest over the tips of our skis. But, you know, Yeah, we're comfortable where we've set guidance certainly in the EBITDA right now. Again, we may see further savings or we may not have or be able to hire as aggressively as we thought, which then would be upside to that.
spk01: Thank you very much.
spk07: Thank you. Next question comes from the line of Tanis Moskopoulos from BMO Capital Markets. Your line is open.
spk05: Hi, good morning. I thought your commentary around the number of new Axiom cyber wins is quite interesting. And so maybe to expand on that, at the moment, is that being driven more by existing Axiom customers who are upgrading to cyber, or is a lot of that net new as well?
spk08: Yeah, no, great question, Thanos. It's a bit of both. Frankly, we're seeing some great kind of upgrades from customers that are on Axiom, but also on the new logo side. So it's really a blend of both. You know, I think there's a couple of things that are driving, you know, driving, I would say cyber momentum in general. One of those would be just the things that, you know, we all read about in the news around cyber crimes in general, whether that's phishing or malware or ransomware, you know, companies are really looking for the tools to be able to deal with those types of incidents and investigations. And then the other piece is, and COVID accelerated this, but the move to remote work, there's more risk for these companies as they have employees working out of home offices that are on home Wi-Fi that may not be secure and there's additional devices connected to it, etc. So there's a couple of those big drivers for us, but it's really, yeah, it's been actually a good blend in Q2 of new accounts plus upgrades from existing customers.
spk05: Great. As we look towards the second half, I mean, I know that it's seasonally important for you guys. How's the mix of perpetual versus term evolving? Is that kind of consistent with your expectations or is there anything you'd call out there in terms of shifting towards customer preference versus what, you know, your initial expectations might have been?
spk08: Yeah, you know, what we almost all, in fact, I think all our new products that we've launched are term-based. But, you know, as you know, we have a good install of perpetual licenses. You know, we've been very pleased, frankly, that the sales team has done a good job of kind of moving customers to term and whether that's, you know, perpetual licenses that move to a term based site license or just especially in corporate, you know, they're used to buying term licenses. So we've seen, I mean, frankly, I think we're a bit ahead of where we thought we'd be on the move to term, which I think is good from, from an ARR perspective. So, yeah, I think we're, we're running better than we thought on that, on that conversion side.
spk05: Great. And I want to get your take on the news regarding Apple and what they're doing with CSAM. I guess my initial thought on that is that maybe that might be helpful in potentially uncovering some new suspects that law enforcement then needs to follow up and investigate, which might be kind of a positive driver for you guys. Would you agree with that, or what's your take on it?
spk08: Yeah, I mean, my understanding of the technology is, you know, essentially... you know, for any pictures that are backed up in the iCloud, they're basically using a known database of, you know, illicit material that they'll scan, you know, any of those pictures. And then what happens, they'll identify law enforcement if they found something that's related to child sexual exploitation. You know, based on what we see with our law enforcement customers, it's like they're overwhelmed with data and what they call like tips as well. They come from the National Center for Missing and Exploited Children in the U.S. So they're overwhelmed today, but what happens is those tips then get sent to the local sheriffs or city police, et cetera. So our view is those agencies are overwhelmed with data and cases as it is. This is just going to create even more, you know, even more kind of case backlogs, if you will, more things they need to do. which I think plays very nicely into what we do in terms of how do you leverage technology to automate and process, you know, the common kind of workflows and case types. So I think it actually creates even more demand and push for, you know, you can't solve the problem just by trying to hire your way out of it. You need to leverage technology, at least on the repetitive tasks, and then, you know, keep your highly trained employees forensic experts on the analysis and on the difficult parts of a case. So, yeah, our view is it's going to, you know, create even more pressure on law enforcement to look at adopting new technology to deal with this case backlog and, you know, all the digital evidence that's coming at them.
spk05: Great. Thanks, Adam. I'll pass the line.
spk07: Thank you. Thank you. Next question comes from the line of Paul Treber. from RBC Capital Markets. Your line is open.
spk04: Oh, thanks very much and good morning. I was just hoping that you could elaborate a bit more on the mix of revenue between public and private sector, either in the quarter or maybe your outlook for the year. And then could you also speak to the relative growth rates of those two segments?
spk08: Yeah, maybe Angela can comment on the split specifically. I'll comment on the growth piece Yeah, I mean, you know, the real nice thing that we're seeing, frankly, this year, coming off some of the momentum from last year, is really good growth, frankly, in both sectors, right? And I would say the public sector growth is primarily... Those existing customers, a lot of existing customers that are adopting our new MDIS products, automation, case management, and evidence review. So we're seeing a lot of that. They try to figure out how do they drive more efficiency in their lab? How do they spread the workload out in terms of reviewing this digital evidence to other people in the organization? So we're seeing a lot of that in public sector. And then in the private sector, as you know, we do have a good number of private sector customers today in our base, so we're seeing them move to cyber. But again, we're also seeing, and we've organized our team to chase new logos specifically, and we've adjusted our comp plan. And so we're getting really focused on that new logo growth as well. We saw really nice growth from kind of Q1 to Q2 on new logos now that we're putting a lot more focus on it. So, yeah, and as I mentioned a bit earlier on Thanos' question, we're just seeing in the private sector these kind of major macro trends around the increase in cybercrime and the distributed workforce, which is really having customers seeking out solutions to say, hey, how do I better protect? And if there's something that happens, if there is a breach, how do I do an investigation on that incident? How do I contain it? How do I minimize the risk to my organization? So, yeah, really happy in terms of the growth kind of on both private and public so far in the year.
spk02: Yeah, and Paul, just on the mix, certainly on ARR, mixed between the two. I mean, back in Q2 last year, we're kind of a 70-30 split. And this quarter, we're actually 65-35, so public versus private. So we're certainly, as expected, moving along and getting more public sector contracts and accounts. I mean, certainly on the private sector side, Cyber has a higher ASP, so that's going to continue driving higher in terms of impact to ARR. But, yeah, progressing, I don't have the details, and we're, you know, at hand on where we think we end at the end of the year, but we're certainly moving along as expected with getting more private sector as a bigger percentage of ARR.
spk04: And also, on the private sector, I mean, your partnerships and customers are And there's a number of EDR companies and others who are partners on the private side. Can you speak to this as a partner strategy, how that's been building out, where you see that going in the near term?
spk08: Yeah, I think we're early days on the private sector partnerships. And I think as I've talked to prior, the EDR vendors, so those endpoint detection and response are interesting partners, right? Because their products are essentially identifying and notifying security teams and SOC analysts about a potential suspicious or malicious incident on their network. And then oftentimes, well, all the time, then the analyst needs to determine, do I go deep on this incident? Is it truly malicious? Do I just want to do a triage on those endpoints? So there's a really nice, we kind of dovetail into what they do with both our Magnet Ignite product, which is that kind of targeted triage of endpoints determined, you know, if something's suspicious, but not sure if it's malicious or you need a deep dive, then you can use Magnet Ignite. So it fits nicely in there. And then if there is something that's malicious, then that's when you would use cyber, for example, to do the deep dive, to really understand things like what are the, you know, are there indicators of compromise, you know, websites, URLs, virus signatures, things like that. So generally we're early days, but there's some, there's some really complimentary things that we do and we're, you know, inactive discussions with partners in that space to, Yeah, extend our reach into those customers and kind of leverage them as a channel.
spk04: And lastly, for me, can you speak about your expectations on the cadence of growth in the second half of the year? You're obviously coming off a very strong quarter. How should we think about that growth rate in Q3 and Q4 and beyond?
spk08: Yeah, I mean, you know, we've, as Angelo mentioned, you know, we've updated our guidance for the rest of the year. Generally, the second half of the year traditionally has been stronger than the first half. So we feel really good. You know, we're getting great traction on our MDIS suite. We're getting great traction on cyber. So, yeah, we think we'll have continued momentum for the rest of the year, but we're comfortable with the guidance we've provided, and yeah.
spk04: Okay, thank you.
spk07: Thank you. Once again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Once again, that's star one on your telephone keypad. Next question comes from the line of John Shaw. of National Bank. Finan, your line is open.
spk06: Hi, this is John from National Bank. My first question is the professional services revenue actually came in above our estimate. And looking at historical numbers, I believe this is a record quarter for this professional services revenue. So just curious about the driving force and how much is professional services revenue leading indicator for the subsequent perpetual or term license revenue growth?
spk08: Yeah, I mean, you know, professional services is partly attributable to the momentum that we're having with our MDIS suite, so Automate, Review, and Atlas, because it's really a blend with our customers. You know, customers like the Met, you know, they're on Microsoft Azure as their kind of preferred deployment, But we do have a lot of our other public safety customers that want to deploy on-prem, which requires, as you can imagine, people there to help implement and install and set up the system. So that's a big driver of the professional services and certainly, to your point, an indicator of the success we're having with our new products.
spk06: Yeah, thanks. And following a successful IPO and obviously more than $100 million cash on your book, maybe just give us an update on your go-to-market strategy. More specifically, how do you spend the dollars to drive the near-term license conversion, upsell more of your product from your suite? Yeah, I mean, part of it is
spk08: And I mentioned, I think, a bit earlier in the call, we're looking to hire about 100 people between now and the end of the year. A bunch of those are in kind of what you consider the kind of go-to-market teams, sales, marketing. You know, what we're finding with kind of our newer solutions, you know, there's more complexity. You know, to sell, there's more stakeholders involved to be able to get those solutions adopted. which means we need to put more, you know, frankly, more people in market, talking to customers, you know, more kind of sales engineers to help support our sales team as well. So there's a bunch of spend that, you know, we're doing today and we got to continue to do for the rest of the year to really ramp that kind of those new solutions and get some, you know, a lot of kind of repeatable processes as part of that, as well as, putting more people in our professional services to support those installations. But the other thing, and I think this ties a bit into your question, John, in terms of the IPO proceeds, we're active in terms of M&A on discussions with companies that either would be complementary to our platform and augment our platform and or help us kind of accelerate are moving to adjacent markets. So, you know, those, those are, those are quite active as a company. You know, we have somebody leading that corp dev team, you know, that's, that's really their, their focus. So continued kind of, there'll be, there'll be some spend as we, you know, as we roll into the rest of the year here around, around that.
spk06: Okay. That sounds, thanks. That sounds great. And the last question is related to the pandemic. Obviously, the Delta variant is posing a threat to the reopening clients across the globe. And from your perspective, how much of this risk to your sales and marketing and product implementation, assuming we are back to another round of lockdown?
spk08: Yeah, I mean, you know, we, when we look at 2020, which was basically almost all pandemic, you could argue that you know, the company did well, right? Like we surpassed our targets, internal targets, and, you know, we did well. You know, I think it also, especially with things like Axiom Cyber where, you know, the need for these organizations to be able to do an investigation globally from, you know, someone that's on their security team sitting in their home office That's how they can use Axiom Cyber. If you're a security analyst or a forensic or incident response analyst sitting in Toronto and you're in your home office and you actually need to do an investigation on somebody based in Los Angeles, for example, or there's been some kind of cybercrime or cyberattack, being able to do that from your home without having to go in the office is a real benefit. So I would say, you know, we did well last year through the pandemic. We're doing well this year through the pandemic. And I think if there's further lockdowns, I think we'll continue to perform, frankly. You know, the team has really learned how to work remotely. You know, you lose some of the face-to-face, especially with new customers, which I think goes a long way to build rapport. So you missed some of that, obviously, if you can't see them, but generally, we feel pretty good about our ability to work and the team's ability to work kind of through the pandemic.
spk06: Okay. Thanks again, and congrats on the quarter. I'll pass the line.
spk08: Thanks, John.
spk07: Thank you. I would now like to turn the call back to Adam Belcher for closing remarks.
spk08: Yeah, thanks, Aubrey. Thanks, everyone, for joining this morning. Have a great day and great talking with you all. Bye-bye.
spk07: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.
Disclaimer