LogMeIn (LOGM) William Raymond Wagner on Q1 2016 Results - Earnings Call Transcript

| About: LogMein, Inc. (LOGM)

LogMeIn, Inc. (NASDAQ:LOGM)

Q1 2016 Earnings Call

April 28, 2016 5:00 pm ET

Executives

Robert Bradley - Vice President of Investor Relations

William Raymond Wagner - President, Chief Executive Officer & Director

Edward K. Herdiech - Chief Financial Officer

Analysts

Gregg Moskowitz - Cowen & Co. LLC

Matthew George Hedberg - RBC Capital Markets

Ben McFadden - Pacific Crest Securities, Inc.

Tim Klasell - Northland Securities, Inc.

Darren R. Jue - JPMorgan Securities LLC

Operator

Greetings, and welcome to the LogMeIn First Quarter 2016 Earnings Conference Call. With us today are Bill Wagner, President and Chief Executive Officer; Ed Herdiech, Chief Financial Officer; and Rob Bradley, Vice President of Investor Relations. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Rob Bradley. Thank you Mr. Bradley, you may now begin.

Robert Bradley - Vice President of Investor Relations

Thank you and good afternoon from Boston's Innovation District. We're pleased that you can join us on our earnings conference call to discuss the first quarter of 2016.

Before we begin, let me remind you that some of the statements made during this call may be considered forward-looking statements. These statements include the company's financial guidance for the second quarter and full-year 2016. The company's securities filings identify certain factors that could cause the company's actual results to differ from those projected in any forward-looking statements made on this call.

Any forward-looking statements are made as of the date hereof and are based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. The company does not undertake to update any forward-looking statements as a result of new information or future events or development. The company's filings are available through the company or online.

During the call, non-GAAP financial measures will be used to provide information pertinent to ongoing business performance. Our non-GAAP results are more representative of how we internally measure the business. These non-GAAP financial measures exclude stock-based compensation expense, litigation-expense and acquisition-related costs and amortization. These numbers are reconciled in the tables attached to our press release. With the exception of revenue, all metrics will be non-GAAP unless specified.

Now, I'll turn the call over to our CEO, Bill Wagner. Bill?

William Raymond Wagner - President, Chief Executive Officer & Director

Thanks Rob. Good afternoon and thank you for joining us today as we report LogMeIn's first quarter 2016 result. I'm happy to report that we had an outstanding Q1, and a strong start to the year. Revenue, adjusted EBITDA and earnings per share were all above the high end of our guidance. Most of all, I'm pleased that these results were driven by strength in each and every one of our core businesses.

Total revenue for the quarter was $79.7 million, $1.7 million above the high end of our guidance. This represents 30% year-over-year growth. Adjusted EBITDA in Q1 was $16.6 million or 21% of revenue. And our cash flow was strong too as we generated $38 million in operating cash flow or 48% of revenue.

During the first quarter, each of our businesses are clouds grow in double digit. Not only was this the first time that that has happened since 2014, but based on what we saw in Q1, we expect that trend to continue throughout the rest of the year.

Furthermore, all of our critical growth drivers grew well above the company average. We believe this bodes well for 2016 and beyond. Given its very strong start, we are raising our revenue guidance for the full year.

Now before I begin and turn things over to Ed to dive into our Q1 numbers, I want to take a few minutes to discuss the developments, activities and trends that we witnessed in Q1 that not only are driving upside to our 2016 outlook but also setting up our longer-term growth opportunity.

On our last earnings call in February, I stated that it's our goal to double the company's revenue over the next three years to four years by focusing on what we see as three market opportunities. The first is a large and growing online meeting and collaboration market dominated by old technology.

The second is the rapid adoption of cloud software that has created the need for an entirely new kind of identity solution. And the third is the Internet of Things, and the opportunity it brings to expand our Service Clouds business far beyond the supporter PCs and mobile devices.

Collectively, these opportunities expand our addressable market, far beyond our remote access routes and I saw encouraging progress in each of these areas during the quarter. So, I'd like to take a few minutes to describe some of the highlights from the quarter, that not only give us confidence for the year, but we believe help illustrate our long-term prospects in each of these areas.

First, let's look at Collaboration space in join.me. We talked a great deal about join.me's rapid growth in revenue and in users and that continued in Q1 as join.me was once again our fastest growing product. This growth was driven by the combination of an intuitive product, a freemium business model, and an inside sales organization executing our land and expand strategy.

An example from Q1 that illustrates this well was a sale to one of the world's largest SaaS companies, a story that actually began several quarters ago. It started with a handful of employees at this company who were frustrated by the legacy tools, and began using the free version of join.me to start meetings more quickly and to make it easier for others to join their meetings. join.me quickly spread to other teams within the company, who's growing usage triggered a call from our inside sales team, who landed the first small join.me sale.

Now driven in part by the natural virality of join.me, usage continued to spread throughout the company, and triggered growth opportunities for our account managers, who over time continued to add new teams and licenses to the mix and as this company continued to grow, so did its adoption of join.me, moving from individuals to small teams to whole departments. And finally in Q1, it crossed the threshold for our enterprise sales team, and in the quarter, that team closed one of the largest join.me enterprise sales ever. And that's the process, that deal is a perfect illustration of the join.me adoption and sales strategy.

That's why join.me is growing so rapidly, driven not only by new users, but also by new seats being added to existing customers, as our land and expand model plays out. Given the size of the online meeting and collaboration markets, and the large market share of legacy products, our join.me team feels like we're just getting started.

Shifting to the second strategic opportunity, the growing need for identity management as cloud adoption continues to gain momentum, I know a lot of people that follow us who will be interested in the performance of our recent acquisition, LastPass. The short version is, we couldn't be happier with LastPass' first full quarter of revenue contribution as it grew well above the company average.

But that immediate financial contribution only hints at the opportunity we see for identity management in general and specifically for LastPass. For some time, we've been talking about password management as a natural extension of our remote access routes, as more and more people try to simply and securely get access to applications that have moved from the desktop to the cloud. But with so many apps being used each day, people often write down passwords or increasingly use the same password for multiple applications, leaving their employer and themselves highly vulnerable.

LastPass not only solves the security problem, but it also makes employees more productive since they no longer have to struggle to remember different passwords or to reset the passwords they forget throughout the day. Like join me, LastPass is a disruptive product that has attracted millions of users to its free product. And just as with join me, it often begins with a handful of early adopters, who use it for personal use and introduce it to other people within the company. From there, it spreads to teams and into different departments until it becomes a companywide solution.

One example of this in the quarter that demonstrates the greenfield opportunity and the bring-your-own nature of LastPass was a sale to one of the world's largest law firms. Now before LastPass, employees in this firm, like employees across the world, had poor password practices, including sharing passwords and storing them on spreadsheets. Early adopters in the IT team were using LastPass to manage their personal passwords and brought it into the firm as a way to improve security and implement policies for cloud-based applications. Over the next few months, it spread from an individual to a team of users and eventually the firm began to evaluate LastPass as a firm-wide solution. In Q1, one of our salespeople closed a site license that makes LastPass available to roughly 5,000 users within the firm.

Now during the quarter, we introduced LastPass 4.0; it features a simplified user interface, aimed at helping adoption of mainstream users, and LastPass Authenticator, a product that was developed by LogMeIn engineers and integrated into LastPass' product after the acquisition. Both of these contribute to strong growth for LastPass in the quarter. And while it's still early, we're optimistic that password management will continue to grow rapidly and by leveraging the premium model and our existing sales infrastructure eventually exceed the size of our remote access business.

The third area we're really excited by, is the opportunity to grow our Service Cloud business, by expanding beyond the traditional PC and mobile support into a broader market, something we call the Support of Things. The Support of Things involves new used cases for our Rescue and Bold products. If we're successful, we'll be able to sell Rescue and Bold to a completely new set of product companies, a trend that we believe will accelerate as more and more products become connected.

In Q1, our service business reported double-digit percentage, year-over-year revenue growth for the first time in seven quarters. We are now forecasting double-digit growth for this business for the full fiscal year in 2016. And if we're right about the opportunity to move beyond PC and mobile device support, 2016 could be the beginning of a longer-term reacceleration of our Service Cloud business.

Rescue Lens is a great example, where a recent innovation is expanding that market opportunity for our Service Cloud. The video support capabilities of Rescue Lens are now being used by over 2,000 unique accounts. I spoke with several customers during the quarter, that were using Rescue Lens and see it as a way to reduce the cost of providing support, while at the same time improving the customers' support experience. However, it's not just existing customers, many of the use cases were strong with prospects are entirely new and we see interest in industries ranging from retail to field service, to insurance. And while we've only begin to monetize Rescue Lens, we are excited by the potential to accelerate the growth of the Service Cloud even with products that aren't yet connected to the Internet.

In Q1, we also added new features to the other product that may accept the Service Cloud, BoldChat, using the same video service that underpins Rescue Lens and join.me, this new video capability in BoldChat allows our customers to offer a new level of personalization to their engagements with their high-valued customers.

We also introduced Auto Answers in the quarter, and early machine learning capability that will allow customers to help drive down the cost of support for their customers where human interaction may not make sense. These and other features we're planning to introduce over the summer should help BoldChat continue to grow faster than the company's average, as it did in the first quarter.

In summary, the Support-of-Things opportunity could be exciting, even before we factor in the billions of connected products that analysts expect over the next few years as the Internet of Things becomes more mainstream. However, when you combine our Support-of-Things capability with the potential proliferation of connected devices, the opportunity could be transformative.

But, before I conclude by looking at the this convergence of our Service Cloud and the Internet of Things, I want to talk about Xively's performance in the quarter. Xively had a really nice quarter as sales exceeded our expectations. We added several new customers including a well-known consumer brand who is working with us to bring a new line of connected wearables to the market. And while most of our Xively sales to-date have included some services work, we're encouraged by the growth in our platform, or software sale. In fact in Q1, we recorded our first six-figure platform only deal for Xively.

While I love seeing us add new companies to our roster of customers, I was equally pleased to see us expand our relationship with early clients, like Lutron, who increased our use of Xively, and more than doubled their commitment as their products achieve more widespread adoption. We also hit a key new milestone in our expanding relationship with Salesforce.com. If you recall, late last year, we were a launch partner with Salesforce's IoT cloud, and were prominently featured at Dreamforce where the majority of companies in their IoT pavilion use Xively to run their products.

During Q1, we trained dozens of Salesforce's own teams in the U.S. and in Europe, and signed a new agreement that allows Salesforce reps to resell Xively directly. With Xively and the Service Cloud having good quarters, we're really interested to see the convergence of these two businesses as the Internet of Things develops. Just this week, we started the initial rollout of new capabilities within Xively, designed to help connected products talk directly to helpdesk and CRM applications, letting the products themselves call out for help, when there are issues or errors that need to be addressed.

In the upcoming weeks and months, we'll be talking a lot about connected product management or CPM and how we'll continue to integrate the capabilities of our Service Cloud into Xively. We believe that by offering a more complete solution for companies that are trying to build and manage connected products, we are setting ourselves apart in the myriad of other players in the IoT market, who offer a more bare bones connectivity platform.

So overall, it was an exciting first quarter with revenue, margin and cash flow well above our previous outlook. We believe we're in a strong position to deliver significant growth in Q2 and throughout the year, and are raising our guidance for 2016. All three of our key businesses are growing in double-digit, something that points to the unique strengths of our portfolio strategy. First of all, we're continuing to make meaningful progress on our Collaboration, Identity and IoT fueled growth initiatives.

Now, I'll turn the call over to our CFO, Ed Herdiech, for more details about our results and outlook. Ed?

Edward K. Herdiech - Chief Financial Officer

Thank you, Bill. I'm pleased to report a very strong first quarter, and that we are off to a great start in our fiscal year 2016. Our results significantly exceeded the high end of our revenue and earnings guidance, and we continue to be in a class of a select few publicly-traded SaaS companies with business models that consistently deliver revenue growth, adjusted EBITDA margins, and free cash flow margins all in excess of 20% of revenue.

Our financial highlights include total revenue of $79.7 million, which represents 30% year-over-year growth, and exceeds the high end of our guidance by $1.7 million. Adjusted EBITDA grew 32% year-over-year to $16.6 million, which is $1.8 million greater than the high end of our guidance.

Our net income was $9.1 million or $0.35 per share, which beats the high end of our guidance by $0.05, and our GAAP net loss was $1.1 million or $0.04 per share. And a real differentiator for LogMeIn continues to be our GAAP operating cash flow which was $38 million or 48% of revenue and our GAAP free cash flow which was $33.2 million or 42% of revenue.

Next, I'll provide additional information in context to highlight our Q1 performance and the breadth of our business model. During the quarter, several products including join.me, Central, BoldChat and LastPass, all grew faster than the company average and helped contribute to our strong performance and over delivery. And from a cloud perspective, as Bill mentioned not only that all three clouds grow in double-digits during the quarter, but it's also important to note that our Collaboration and Identity and Access Management clouds continue to grow at rates in excess of our company average, specifically, our Collaboration cloud revenue grew 40% year-over-year, while accounting for 34% of total company revenue, and our Identity and Access Management cloud grew 41% year-over-year and represented 36% of total company revenue.

And finally, growth in our Service Cloud accelerated in the quarter to 13%, while accounting for 30% of total revenue. Significantly, while Q1 marks the first double-digit growth quarter for our Service Cloud in the last seven quarters, we also expect double-digit growth for the full year. From a geographic perspective, our international revenue comprised 28% of total revenue, which is down 1 percentage point from the previous quarter, and Europe was our fastest growing international region during the quarter.

Moving to renewal rates, across all of our product lines, gross renewal rates were approximately 75% on an annualized dollar basis. Now, I realize this is a change. So I would like to provide some additional information to help you understand it. As we discussed on our last call, in January, we increased the list price of Pro while including additional functionality for cloud storage and password management. As planned, Pro customers renewed at lower rates in the quarter, which impacted our overall gross renewal rate.

We do expect our gross renewal rate to remain at this level throughout the balance of the year. That said, while our overall renewal rate was lower this quarter, the strength and broad-based performance across all our cloud not only produced a very strong Q1, but also allowed us to increase our full-year outlook.

As I mentioned in my opening remarks, our ability to consistently deliver profitable growth is a fundamental element of our operating model. And with that in mind, I'll provide some additional color regarding our Q1 expenses and cost model.

First, we continue to leverage our proprietary service delivery platform to not only quickly and securely deliver our services across all our product offerings, but to do so in an efficient and scalable manner, which drives LogMeIn's best-in-SaaS gross margin, which in Q1 was 89%.

Our first quarter adjusted EBITDA margin was 20.8%, which is in line with Q1 of last year. Historically, our first quarter adjusted EBITDA margin is the lowest in our fiscal year as a result of our annual salary and benefit related increases, our sales and marketing conference, and our front-ended hiring plan. Consistent with prior years, we expect our adjusted EBITDA margin to increase throughout the year.

Total expenses were $66.1 million in the quarter, which is in line with guidance. Sales and marketing expenses were $37.8 million or 47% of revenue, up 4 percentage points in the quarter. This increase is primarily due to higher salary and benefit costs associated with our annual review process, commissions, and our sales and marketing conference.

Research and development expenses were $11.9 million, or 15% of revenue, up 1 percentage point in the quarter. This increase is primarily due to the cost associated with our annual R&D conference.

G&A expenses were $7.2 million or 9% of revenue, up 1 percentage point in the quarter. This increase is primarily due to higher salary and benefit costs associated with our annual review process, professional service fees and miscellaneous tax fees. Our effective tax rate in the first quarter was 31%, which is also in line with guidance. And finally, quarter-end head count was 1,036, up 30 net new employees in the quarter. The majority of the new head count were in sales and marketing.

Turning to the balance sheet, our first quarter GAAP operating cash flow was very strong at $38 million or 48% of revenue. GAAP free cash flow for the first quarter was $33.2 million or 42% of revenue. Our strong first quarter cash flow was primarily due to seasonally strong sales and renewals of LogMeIn Pro and Central during the quarter. We ended the quarter with cash, cash equivalents and marketable securities of $226.5 million, an increase of $18.1 million from the prior quarter. In the quarter, we repaid $7.5 million against our line of credit, reducing the outstanding balance to $52.5 million at quarter end.

Deferred revenue grew 28.5% year-over-year to $165.3 million. This meaningful increase is also due in part to seasonality that was introduced into our business model beginning when we discontinued LogMeIn Free, and further impacted by subsequent pricing programs.

Total accounts receivable was $15.1 million, down $900,000 from the prior quarter and accounts receivable days sales outstanding are down one day to 18 days. During the quarter, we increased the level of our share repurchases as we spent $8.4 million to repurchase approximately 164,000 shares.

Now that I have finished reviewing our Q1 performance, I'll provide an update to our Q2 and increased full-year guidance. For the second quarter of 2016, we expect total revenue to be in the range of $81.5 million to $82 million. We are targeting adjusted EBITDA of approximately $19.8 million to $20.2 million. Our net income per diluted share which excludes stock-based compensation expense, litigation-related expense and acquisition-related costs and amortization is expected to be in the range of $0.45 to $0.46.

GAAP net income per share is expected to be in the range of $0.07 to $0.08. For the full-year 2016, we expect total revenue to increase approximately 22% and to be in the range of $330 million to $332 million. Further, we're targeting adjusted EBITDA in the range of $81.8 million to $85.3 million. Our net income per diluted share, which excludes stock-based compensation expense, litigation-related expense and acquisition-related costs and amortization is expected to be in the range of $1.83 to $1.93.

GAAP net income per share is expected in the range of $0.37 to $0.48. For both the second quarter and full fiscal year, net income assumes an effective tax rate of approximately 30% and GAAP net income assumes an effective tax rate of approximately 20%. All per share amounts are based on an estimated 26 million average shares outstanding.

With that, I'll turn the call back to our operator to take your question.

Question-and-Answer Session

Operator

Thank you. We'll now be conducting a question-and-answer session. Thank you. And our first question comes from the line of Gregg Moskowitz with Cowen & Company. Please proceed with your question.

Gregg Moskowitz - Cowen & Co. LLC

Okay. Thank you very much, and congratulations guys on a really strong start to the year. So, by way of starting off, it's terrific, Bill, to see Service Cloud business grow double-digits for the first time in seven quarters, and that you guys are forecasting double-digit growth in 2016. But you also made a statement that this could be the beginning of a longer-term reacceleration in that segment, which is a big statement and I completely understand the new used cases provided by Rescue Lens And Bold on the video front and the new vertical opportunities, but after effectively one really good Service Cloud quarter, are you worried that it perhaps might be a bit too premature to say this? I guess, anything that could help us further understand your confidence around that part of the business would be really helpful.

William Raymond Wagner - President, Chief Executive Officer & Director

Sure, Gregg. Thanks for your question. Yeah, we are really pleased to see double-digit growth return to the service business, and if you look back, last year, I was asking – we were talking about bookings, good bookings growth for Rescue and I was careful to point out on the call that we didn't see – we weren't ready yet to say we saw a trend, and I'm really pleased and now we see we have good visibility through the rest of the year.

Bold continues the momentum it had last year and we're really confident that Rescue and Bold together as part of our Service Cloud will continue to grow in double digits for – through 2016. And I think we're seeing early signs for your question that the Support-of-Things' vision could be pretty significant. The kinds of customers we're talking to are not the kinds of customers we've talked to in the past. So the potential market opportunity that we see, we think could be pretty significant. Now as I said, we have to prove this out and validate this throughout the year. But we're doing that on top of our really strong 2016. So, as we work through the year, we also see if that momentum continues and then we'll start looking towards 2017 and beyond.

Gregg Moskowitz - Cowen & Co. LLC

Okay. Great. I appreciate the additional color on that Bill. And then also wanted to ask about the expansion of your relationship with Salesforce and with their reps now being able to resell Xively, can you talk about would do you think that will do or may do for the Xively business over the next year or two?

William Raymond Wagner - President, Chief Executive Officer & Director

Yeah. Gregg, it's early. So I want to be – I don't want to make it like – I don't have a lot of data points I suppose and we have seen some early success in terms of building really nice pipeline since we made that deal. I think we also look towards future quarters until I can kind of report out on were we able to close that business and bring it in. But we certainly see it as a positive that A, coming up last year where most of the IoT companies presenting at Dreamforce were running on Xively and I think it's evidence that we've been able to go out and build upon that by doing a deal, where their sales reps can go out sell Xively. It's on Salesforce paper and we've been active towards the end of the quarter in training their reps. So, we're cautiously excited by it.

Gregg Moskowitz - Cowen & Co. LLC

Okay. That's great. And if I can just ask one last one. What's the realistic way to, I guess, either for you Bill or for Ed to think about standalone LastPass revenue contribution this year. Do you still think it will come in at the higher end of that $14 million to $16 million range for billings, and $10 million to $12 million for revenue, or is that – has that increased just kind of based on the success you're seeing so far?

William Raymond Wagner - President, Chief Executive Officer & Director

Yeah. I think it's going to come in on – we think it's going to come in towards the higher end of that. So we are really pleased with what we saw in the quarter. I think it's pretty much fully integrated at this point. We certainly have started to benefit from the sales, marketing, and R&D teams working together. And so while I think we funded LastPass at the expense of some other things this year, I think we're really pleased with the early returns, and optimistic about where it can go.

Gregg Moskowitz - Cowen & Co. LLC

Terrific. Thanks very much.

Operator

Thank you. Our next question comes from the line of Matt Hedberg from RBC Capital Markets. Please proceed with your question.

Matthew George Hedberg - RBC Capital Markets

Hey, guys. Thanks for taking my question. Congrats on the strong quarter as well. Ed, I wanted to ask about the 75% renewal rate, is that a raw customer renewal rate, or in other words, if you add back in the Pro price increase, would the dollar renewal be higher? Just wanted to understand how you guys are calculating that?

Edward K. Herdiech - Chief Financial Officer

Yeah. Yeah, yes. So our renewal rate is something that we've consistent – that we've been really consistent with and we're pretty conservative about how we calculate it. Specifically, our metric is gross renewal rate, not a net renewal rate. So with the net renewal rate, we would get benefit when customers renew at higher prices, or they have add-on sales. But with the gross renewal rate, like the one that we report, we don't get that benefit.

Matthew George Hedberg - RBC Capital Markets

Got it. That's helpful. And then, Bill, a question on LastPass, obviously it's doing well. I'm curious, I'm sure there is a lot of standalone sales, but when you look at the cross-sell opportunity, where do you see the higher attach. Is it Pro, is it Central, or join.me, just sort of curious where are you seeing the most interest?

William Raymond Wagner - President, Chief Executive Officer & Director

I think it's little too early to say, I would say, it's been pretty broad-based thus far. Just there is a sale, just this week, we had a customer in the UK actually, who was a Central customer. And this customer already had an identity solution map. I think, just bought a new identity solution, kind of an enterprise identity solution in December. And we're able to go in and show how LastPass complements that sale for cloud-based app. So – and that was a Central customer. We've seen sales success in different areas, but I really think that that is things we'll have more information in the future quarters until we get a real feel, is there a trend? Is it more of the join.me customer or the Central customer? But I think – maybe by the end of next quarter, we'll have some more color.

Matthew George Hedberg - RBC Capital Markets

That's great. And maybe if I can squeeze one last one in for Ed. Strong deferred revenue, obviously, good renewal quarter for you guys. I think, in the past you've said that deferred should trend lower as you move throughout the year, generally speaking. I guess, I wanted to make sure, is that still the trend? And I think last quarter you said you expected for the year to grow about 20%, are those still safe assumptions there?

Edward K. Herdiech - Chief Financial Officer

Yeah, yeah. I think, you're – you heard us well last time around. So, it's important to remember that we have seasonality in the business and it definitely impacts deferred revenue. And as you saw in Q1, we had really strong, 29% year-over-year growth, which is indicative of that. And so for the full year, because of the seasonality, we encourage people to really look at this on a full-year basis, and like ending deferred revenue at the end of the year should grow, commensurate with our revenue outlook. But during the year, deferred revenue, as we see this quarter, starts off high, and it will average for the year – it will average throughout the year to around the company average for revenue growth.

Matthew George Hedberg - RBC Capital Markets

Great. Thanks a lot, guys.

Operator

Thank you. And our next question comes from the line of Ben McFadden with Pacific Crest Securities. Please proceed with your question.

Ben McFadden - Pacific Crest Securities, Inc.

Hey guys. Thanks for taking my questions. I wanted to start with the Service Cloud, this acceleration that we've seen. I know throughout 2015, you had some quarters that had double-digit constant currency Service Cloud growth. So, I wanted to get a better understanding, is this a kind of continuation of what you saw and some of this is just FX headwinds abating, or are you actually seeing an inflection in that business particularly, are you seeing signs of Rescue Lens really taking off and could be pretty material to 2016 growth?

William Raymond Wagner - President, Chief Executive Officer & Director

Yeah, thanks for your question, Ben. So, I would just remind everyone that there's two products within the Service Cloud. So we talk a lot about Rescue, but there's also Bold. Bold had a fantastic year last year and that momentum has certainly continued and it's one of our fastest growing products. Rescue is still the larger portion of the Service Cloud. But, no we're seeing good sales on Rescue. It's not just a result of last year, it's continued into this year. And, as I said, we're really just beginning to monetize Rescue Lens. So, I think that is potentially additive, if that – if that validates our Support-of-Things strategy that I talked about, then that would bode well for 2017 and beyond. But, I think right now, we're pretty pleased that we can see double-digit growth throughout 2016.

Ben McFadden - Pacific Crest Securities, Inc.

Great. And then just kind of switching over to join.me. You mentioned the larger sale within the quarter. I wonder if just kind of thoughts on whether you feel like you're reaching an inflection point of where you can start to gain a lot more of these enterprise deals, or you still think it's early days and there's more functionality to be added? How are you thinking about that opportunity to move up market now with join.me?

William Raymond Wagner - President, Chief Executive Officer & Director

Yeah Ben, thanks. So, I don't know that I would say we've reached an inflection point on the enterprise side. It's something that's been building over the last couple of years, but it really starts with the large freemium base and that top of funnel and the millions of free users, and then it kind of happens as I discussed in my comments, which is starts with free users and then builds out from there.

We did in the quarter – actually in December, we started rolling out our new console. And we transitioned all of our customers over to that console in the quarter. So, that was a real positive momentum and now we're building upon that, but I wouldn't say that there has been – that in the quarter that we saw kind of a sea change, I think it's just more of the same, which is, it's a big market, join.me is doing really well. It's early days and we have a lot of opportunity, but a lot of work to do.

Ben McFadden - Pacific Crest Securities, Inc.

Great. Thank you.

Operator

Thank you. And the next question comes from the line of Tim Klasell with Northland Securities. Please proceed with your question.

Tim Klasell - Northland Securities, Inc.

Hi, thank you very much for taking my questions. My first question goes with the margins. Bill, I think you mentioned something about, maybe some projects got starved. Your margins continue to impress. Have you thought about maybe taking some of that and investing into some of the other promising new products, or maybe you can walk us through of how you think of the balance between growth and profitability right now?

William Raymond Wagner - President, Chief Executive Officer & Director

Yeah. Thanks Tim, and maybe I should – I can clarify. I think that was – that my comment about investments were relative to LastPass. So, we know, we've talked in the last call that we were – we had some internal identity projects that we kind of put on the back burner and took that money and invested instead of left into LastPass. So, that was really what I was speaking about.

Overall, our pace of investment continues in all of our growth areas. So, all three clouds are getting I think ample investment and we're still able to raise our margin guidance for the year. So we feel like, we're doing both.

Tim Klasell - Northland Securities, Inc.

Okay. Good. And then on the 75% gross renewal, obviously, the price increase on Pro impacted that. But, if you were to back that out of customers who received the price increase and just sort of compared it to the historical norms, may be around the historical norms on the other products, how did that trend? Is it in line with what you've seen in the past or maybe you can give us a little color around that?

Edward K. Herdiech - Chief Financial Officer

Yeah. Sure, Tim, this is Ed. Thanks. So, maybe to start with, it's just maybe worthy of revisiting that. The decrease is mainly driven by a lower Pro renewal rate which was planned. Last conference call, we discussed the repackaging of Pro, designed to give more value to active users, while knowing that casual users might not renew at the same rate and that's what we saw in the quarter. The good news about this change is, that it's fully factored into our full-year outlook, which we just raised by $7 million as you know.

And then because of that, we really felt we needed to provide some additional detail around Pro, because of the impact it had in the quarter. At the same time, we don't see any other systemic or structural changes in the business, as it relates to renewal rate.

Tim Klasell - Northland Securities, Inc.

Okay. Great. And then one last, quick one. Any change in the competitive environment, particularly from the Citrix GoTo line?

William Raymond Wagner - President, Chief Executive Officer & Director

Yeah, Tim. No, I wouldn't say we seen any competitive – certainly, they're spending money in the marketplace with relative to their on – in mass media and promoting their products, but we haven't seen any competitive change.

Tim Klasell - Northland Securities, Inc.

Okay. Great. Thank you very much.

Operator

Thank you. And our next question comes from the line of Darren Jue with JPMorgan. Please proceed with your question.

Darren R. Jue - JPMorgan Securities LLC

Hey, guys. Thanks. Just want to ask kind of another question around renewal rates. Just with respective to Central, I know you're going through bit of a pricing model change there too. I'm just wondering how did renewal rates on Central trend in the quarter?

William Raymond Wagner - President, Chief Executive Officer & Director

Hey, Darren. It's Bill. Yeah. I just want to be clear, we're not going to start breaking out renewal rates by product, but we were – but let me say, we were pleased with how Central performed in the quarter, and all the products, I think the driver for the change was that Pro, packaging change that we made.

Darren R. Jue - JPMorgan Securities LLC

Okay. And just wondering, can you give us some color on, what your outlook is for the Pro business for remainder of the year? And maybe you could talk a little bit about what you would expect in terms of new customer acquisitions?

Edward K. Herdiech - Chief Financial Officer

Hey, Darren. This is Ed. So, we really like the – as I described, we really like that positioning of the product in the marketplace. We continue to believe that Pro is a really valuable product, particularly for like really active customers. And if we were to report a – we track internally, but if we were to report renewal rates on a net basis like a lot of our other staff comparables do, we would be here telling you that the renewal rates in Pro went be up in the quarter. So, we feel – so, I think that helps put it into context for you.

Darren R. Jue - JPMorgan Securities LLC

Right. Okay. Any color around what you expect in terms of revenue growth from Pro?

William Raymond Wagner - President, Chief Executive Officer & Director

No. I think it's – in general, what we've been talking – of course, not a long-term growth driver for us. It grew below the company average, something we expect will continue and – but that's factored into our guidance for this year.

Darren R. Jue - JPMorgan Securities LLC

All right. Thank you.

Operator

Thank you. There are no other questions in the queue at this time. I would now like to turn the call back over to Bill Wagner for any closing comments.

William Raymond Wagner - President, Chief Executive Officer & Director

Thanks, everyone, for your questions and I – we're extremely pleased with our Q1 results for 2016. In all three of our businesses are growing in double-digits and we believe our most exciting opportunities remain ahead of us. We look forward to sharing our progress on all these fronts, when we report our Q2 results in July. Thanks again for your time this evening.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and we thank all of you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!