Mimecast Ltd (MIME) CEO Peter Bauer on Q4 2019 Results - Earnings Call Transcript

|
About: Mimecast Limited (MIME)
by: SA Transcripts
Subscribers Only
Earning Call Audio

Mimecast Ltd (NASDAQ:MIME) Q4 2019 Earnings Conference Call May 13, 2019 4:30 PM ET

Company Participants

Robert Sanders - Director, IR

Peter Bauer - Co-Founder, Chairman & CEO

Rafeal Brown - CFO

Conference Call Participants

Sterling Auty - JPMorgan Chase & Co.

Keith Bachman - BMO Capital Markets

Daniel Bartus - Bank of America Merrill Lynch

John DiFucci - Jefferies

Alexander Henderson - Needham & Company

Saket Kalia - Barclays Bank

Matthew Hedberg - RBC Capital Markets

Eric Lemus - SunTrust Robinson Humphrey

Gray Powell - Deutsche Bank

Timothy Klasell - Northland Capital Markets

Catharine Trebnick - Dougherty & Company

Operator

Good day, ladies and gentlemen, and thank you for your patience. You've joined Mimecast's Fourth Quarter 2019 Earnings Call. [Operator Instructions]. As a reminder, this conference may be recorded.

I'd now like to turn the call over to your host, Director of Investor Relations, Robert Sanders. Sir, you may begin.

Robert Sanders

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

Tonight's conference call is being broadcast live via webcast. A replay of this call will be available two hours after the live call has ended. On this call, we will make forward-looking statements regarding future events and the future financial performance of the company. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

We caution you to consider the important risk factors that could cause actual results to differ from those in the forward-looking statements contained in today's press release and on this conference call. These risk factors are further defined in Mimecast's most recent Form 10-Q filed with the Securities and Exchange Commission. During this call, we will present both GAAP and non-GAAP financial measures. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results, and we encourage you to consider all measures when analyzing Mimecast's performance. A reconciliation of certain GAAP to non-GAAP measures and the reasons for our representation of the non-GAAP information is included in today's press release, which can be found in the Investor Relations section of our website. The date of this call is May 13, 2019.

Any forward-looking statements we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. We're reporting fourth quarter and full year 2019 results in accordance with ASC 606. The company adopted ASC 606 on a modified retrospective basis on April 1, 2018, the start of our 2019 fiscal year.

Now I would like to turn the call over to Peter Bauer, Peter?

Peter Bauer

Good evening, and thank you all for joining our Fourth Quarter 2019 Earnings Call. I'll start tonight by highlighting some of the accomplishments that we've achieved in 2019, and next, I'll review our results for the fourth quarter. Then I'll review the success we're having broadening our offering as we introduce and customers adopt new services on the Mimecast platform.

Next, I'll discuss key innovations and product enhancements, including the Mimecast Threat Research Center, a web gateway and our enhanced archiving services. And as I've done on past calls, I'll share some examples of the types of problems that we help customers address and some of the reasons they choose Mimecast. I'll conclude with thoughts on the year ahead of us and some of the goals that we look to accomplish. So Fiscal 2019 has been a great year of progress across our business. We've grown our team, launched into an important new market in Central Europe, and we've delivered meaningful innovations that have helped our customers to protect themselves. In my executive team, we've brought in experienced executives with global experience at scale. Christina Van Houten joined to lead Strategy, which includes Product Management and Corporate Development; Karen Anderson, joined to lead Human Resources; and Rafe Brown, joined as our new CFO. And we also welcomed Robert Schechter to our Board of Directors.

We successfully acquired 3 businesses, building on our ability to help customers in advanced cybersecurity, archiving and security awareness training. And organically, we launched new services into the market too, expanding our capabilities and satisfying additional customer needs. We announced web security to help customers protect themselves from web-based threats in a simpler, more cloud friendly way. And we launched the Mimecast Threat Center to help organizations better understand the risks and threats they face. We upgraded our archiving offerings to include more functionality for e-discovery as well as support for regulated industries like financial services. And we introduced our data recovery offering for Microsoft Exchange and Office 365.

Now we continue to be recognized by industry experts like Radicati and Forrester. And we were named a leader in the Gartner Magic Quadrant for Enterprise Information Archiving now for the fourth year in a row.

But perhaps most importantly, we kept our customers safe, while we welcomed 4,000 new organizations to the Mimecast services in fiscal '19. And we've been able to do this profitability and at scale with very broad use case coverage and high customer satisfaction and loyalty across multiple geographies, industries and sizes of organizations, and this has been possible due to our cloud native multitenant architecture that delivers all of our offerings as part of a contiguous suite on a common underlying code base. And it's this unique architecture combined with our strong teams of customer-facing professionals, both inside Mimecast and in partnership with our channels, that's been pivotal to our ongoing progress. And these accomplishments combined to result in a 32% constant currency revenue growth rate over our prior year results. And a continuation of our very strong dollar retention rates. In our fourth quarter, our results exceeded our expectations for both revenue and profitability, revenue of USD 92.2 million, grew at 26% year-over-year as reported and 32% in constant currency. And we signed over 30 six figure deals, a new high aided by the continued adoption of our multiproduct bundles and the traction was larger accounts.

The Mimecast platform operates on a global scale through a network of 12 data centers, safely delivering over 500 million e-mails per day, as we provide mission critical services for 34,400 organizations. Now in the coming 12 months, we're continuing to build-out our solutions with a goal of helping more and more organizations at best avoid and at worst withstand an impactful cyber incident. We focus on helping our customers achieve greatest cyber resilience with less cost and complexity. And we consider malicious action, technology failure and human error as the 3 primary risks to be dealt with. Now we start with e-mail, as the #1 attack factor, the most mission critical communications systems and the most important treasure trove of corporate information. It's a uniquely important and uniquely risky part of the IT estate. And we believe that cyber resilience starts with a robust e-mail security and resilience strategy and build out from there. As organizations have become increasingly dependent on software and connected systems and increasingly using the same large-scale SaaS providers, the inherent cyber risks across industries and geographies are becoming extremely concentrated. And as a result, customers are exposed to security monocultures, large homogenous attack surfaces that are very compelling to an ever-growing community of adversities, and industry-wide single points of failure, combined with reduced ability to manage and control their responses to an incident. It's an almost intractable problem that successful large scale SaaS companies and their customers have to contend with. And this has been an unprecedented shift in the past few years and almost by stealth, it has tilted the risk landscape in a new direction, a direction where both faith and hope are sometimes over relied on as the strategy. Faith with your application provider has exceptional security and resilience and that will always work; and hope, that no malicious action, human error or technology failure will ever come between your needs and their service.

Now while these risks are often weighed against the tremendous business benefits of large-scale SaaS and cloud computing, organizations need help in implementing a robust and pragmatic cyber resilience strategy, especially, organizations challenged by budget, skills and time constraints. It's these organizations that we think of as lean IT and security organizations. These are the organizations that Mimecast is so passionate about helping and innovating for and making all of this much easier and more affordable. It's important work and we're doing at a time when our digital ecosystem is becoming so critical to the functioning of everything we do in life. Let me talk through a handful of our wins during the last quarter to give you a sense of the types of customers who're leveraging our platform and the problems that they are solving.

First, a global mining company headquartered out of the U.K. acquired one of our customers, and the combined organization included over 13,000 employees. The acquirer evaluated our e-mail security solution alongside their incumbent security platforms and thought ours to be superior, migrating all 13,000 users over to Mimecast, but they also chose to buy archiving and e-mail continuity from us as part of their deployment.

Then an African financial services firm with over 3,000 employees were struggling with an expense of archiving solution and selected Mimecast as a better, long-term venue for their data. They evaluated our suite and they saw an opportunity to upgrade their e-mail security as part of the same project. As a result, those customer consolidated products from three different vendors onto 1 Mimecast-powered suite at lower cost and with considerably less complexity.

Then a U.S. healthcare firm with 20,000 employees implemented Mimecast to meaningfully simplify and upgrade their overall e-mail security architecture. They were able to consolidate services for e-mail encryption, hygiene, advanced threat protection and data leak prevention into 1 suite. And using our API integrations, they were also able to integrate their Mimecast tenant with their SIM system to provide greater overall visibility for their team.

Then a global retailer with 13,000 employees across 20 countries using multiple Office 365 tenants was faced with various regulatory compliance challenges, including a need to enforce policy to comply with GDPR. To meet their needs they chose our suite, including advanced e-mail security as well as archiving.

A U.S. professional sports league with 8,000 employees needed a service that could consistently apply e-mail security across multiple franchisors, while still allowing each operation to control elements of their own unique administration. Our suite with our advanced account administration module help them achieve this and simplify their environment while strengthening security.

In a global marketing organization with 20,000 seats look to consolidate their brands behind a new top-level domain. This customer was challenged by complex routing requirements associated with their desire to unify these multiple e-mail domains and a pure cloud solution was a requirement. We displaced a leading competitor in this account and Mimecast was selected due to our ability to rapidly achieve these goals, whilst delivering the highest level of security for their employees.

Then a U.S.-based software company with 7,000 employees was challenged by attacks on a legacy security appliance and looked for a solution designed to adapt with the threat landscape. After running our Email Security Risk Assessors, alongside another leading vendor, Mimecast was selected for our ability to better protect this customer's users. The customer selected our M2 bundle which includes advanced security and uptime assurance for e-mail continuity, and other factors considered included our API library, enabling integration of our threat intelligence with their SIM environment. Additionally, granular controls over routing functionality and an integrated single administrative console helped us to win this engagement.

So in summary, we finished 2019 strong with fourth quarter results that exceeded our expectations for both revenue and profitability. Revenue of $340.4 million grew at 30% year-over-year as reported and 32% in constant currency. 4,000 new customers, coupled with industry-leading retention rates and sales of additional services to our customer base, contributed to these strong results.

With this context, we expect an extremely busy FY '20, with good growth opportunities, tons of innovation, exciting partnerships and investments in our people and community and a relentless focus on customer success.

And on that note, I want to thank our staff and partners for their commitment to helping us achieve our mission this year. We could not possibly have experienced the growth that we have and delivered for our customers without their dedication, passion and expertise. Thank you for everything that you're putting into your work together at Mimecast.

And with that, I'd like to turn the call over to Rafe Brown, our CFO, to discuss our results in more detail and guide you on our outlook for the first quarter and Fiscal 2020. Rafe?

Rafeal Brown

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

I'm particularly pleased to share results for the fourth quarter that exceeded the high end of our guided revenue range and delivered strong performance on both in operating cash flow and adjusted EBITDA basis. Fourth quarterly revenue came in at $92.2 million. This represents growth of 26% as reported and up 32% on a constant currency basis over the fourth quarter of 2018.

Revenue for the year was $340.4 million, an increase of 30%, net of FX headwinds of $5.1 million, that was a 32% increase on a constant currency basis. This is very much an organic growth story. As during the whole of FY '19, revenue growth coming from our acquisitions totaled less than $1 million in revenue for the year. Our revenue growth in the quarter was largely driven by 3 factors: Our net revenue retention rate remained strong at 111% as existing customers continued to renew their subscriptions and purchase additional services. The breadth of our platform and the adoption of multiservice bundles is reflected in the following statistics: On average, our customers now purchase 3.1 of our solutions each compared to 2.9 solutions in the fourth quarter of last year. And the portion of customers adopting 4 or more service has risen to 38% versus 33% in the fourth quarter of the prior year.

Second, we continue to experience robust growth in our customer base. During the quarter, we added over 1,100 customers. That makes 4,000 net new customers added to our platform in 2019 for a total of 34,400 customers globally who make their e-mails safer for business with Mimecast. And the third factor driving our revenue growth is our continued progress, selling to larger accounts. Our success here combined with our existing customers purchasing additional services is reflected in our improved average order value metric. For the fourth quarter, total AOV increased 15% and stood at over $11,200 for the year compared to the $9,700 AOV we saw in the same period last year.

Broadly speaking, demand for advanced security capabilities continues to increase as workloads migrate to the cloud and cyber resilience strategies are developed. In fact, 43% of our customers are now using Mimecast in conjunction with Office 365, up from 31% in the fourth quarter of last year. And not only does migration to Office 365 create a selling opportunity for Mimecast, on average, Office 365 customers buy a higher number of Mimecast services per customer, 3.4 services per customer compared to 2.9 services for customers not on Office 365. Taking a quick look at our product traction in the quarter, our Targeted Threat Protection solutions showed strong momentum for the quarter and the year with archiving and internal e-mail protection, continuing to drive expanded sales to both new and existing customers. Our emerging products continued to show encouraging early traction. Awareness training showed nice progress in the fourth quarter. And we also saw further sales of our web security solution that we launched just last quarter. But I do note, it remains early days for this product. Returning to the income statement, in the fourth quarter, we had a 73.2% gross margin compared to 72.5% in the prior year. On a full year FY '19 basis, our gross margin was 73.3% compared to 73.4% in the prior year. Total fourth quarter GAAP operating expenses were $67.3 million or 73% of revenue.

Taking a closer look at the components of operating expense on a GAAP basis. R&D investment totaled $16 million in the quarter versus $12.2 million in the prior year. As a percentage of revenue, this is an uptick of approximately 70 basis points to 17.3% of revenue. This continued investment reflects our belief that market demand is increasing from Mimecast's unique cyber resiliency solutions, and we plan to continue investing in innovation to meet that demand. Sales and marketing expense totaled $35.8 million for the quarter. The adoption of ASC 606 benefited this number by $4.9 million. This was comparable to sales and marketing expense of $32.3 million in the prior year. On a full year basis, sales and marketing expenses totaled $139.2 million, where the ASC benefit was $13.8 million.

We should also note that we have made a concerted effort to ramp our sales staff in the fourth quarter. As of year-end, total sales and marketing headcount was up 25%. For the quarter, G&A expenses were $15.5 million or 16.8% of revenue compared to 14.1% in the prior year. This increase is primarily attributable to 2 discrete items: Stock-based compensation expense within G&A was $1.2 million higher-than-typical due to a stock grant modification; and the company accrued a liability in the amount of $1 million related to an intellectual property infringement claim made by a nonpracticing entity. In the absence of these charges, G&A expenses would have been 14.4% in the current quarter compared to 14.1% of revenue in the prior year.

Our fourth quarter GAAP operating profit was $200,000 with ASC 606 benefiting our results by $5.1 million for the quarter. On the year, we had $1.2 million operating loss with a full year ASC 606 benefit of $15.4 million. On an adjusted EBITDA basis, we earned $15.8 million in the quarter. For clarity sake, I'd like to point out that our adjusted EBITDA calculation reduces EBITDA for rent paid in the period related to locations which are accounted for is built-to-suit facilities and excludes the litigation-related reserve, mentioned above.

For comparability purposes, our adjusted EBITDA margin would have been 11.6%, having excluded the benefit of ASC 606 versus 9.8% in the prior year. On a full year basis, without 606, our adjusted EBITDA would have been 11.4% revenue versus 9.8% in the prior year.

Fourth quarter GAAP net loss was $1.9 million or $0.03 of basic and diluted share, based on 60.7 million weighted average shares outstanding compared to an $0.11 loss per share in the fourth quarter of the prior year. Full year 2019 GAAP net loss was $7 million or $0.12 per basic and diluted share based on 60 million weighted average shares outstanding, compared to a $0.22 loss per share for the prior year.

Fourth quarter non-GAAP earnings were $4.6 million or $0.07 per diluted share based on 63.3 million weighted average shares outstanding compared to a $0.05 loss per share in Q4 of the prior year. Full year 2019 non-GAAP earnings was $16.4 million or $0.26 per diluted share based on 62.8 million weighted average shares outstanding compared to a $0.01 loss per share for the prior year.

From a cash perspective, we generated operating cash of $18.3 million or 19.9% of revenue, during the fourth quarter, compared to a $14.8 million amount for the fourth quarter of the prior year. On a full year basis, operating cash flow totaled $66.2 million or 19.5% of revenue compared to $46.4 million in the prior year or 17.7%. Our operating cash flow margin improvement illustrates the leverage we are building in the business. From a free cash flow perspective, we generated $13.4 million in the fourth quarter and $37.4 million for the fiscal year, giving us a free cash flow margin of 11% of revenue for the full year FY '19 compared to 4.5% in the prior year. We finished the year with $174 million in cash and marketable securities.

Before turning to guidance, I want to call out a few specific assumptions that will be helpful in updating FY '20 models. We are projecting a GAAP tax expense of approximately $3 million for FY '20 and a non-GAAP tax rate of approximately 31%. Given the grant price applied to our recent stock grants, stock-based compensation expense will be higher in FY '20. This is a difficult expense number to project given its dependence on the specific stock price of future grants. But we're modeling an expense of approximately 10% of revenue for FY '20. From a cash flow perspective, we would have modeled our run rate CapEx at approximately 7.5% of revenue for Fiscal '20. However, CapEx will be higher in the coming year by approximately $23 million as we incur onetime cost to build out and expand facilities in the U.K. and other locations where we have appreciably grown our teams. It should be noted here though that there is a tenant allowance receivable accrued that we expect from the landlord that will offset approximately $7 million of these costs, but that offset will run through operating cash flows as opposed to allowing us to net it against CapEx.

We also expect to incur approximately $5 million for a discrete expansion of the grid in the back half of the year, to accommodate our continued growth in North America and open a new market opportunity. Thus in total, we are anticipating FY '20 capital expenditures of approximately $60 million. With this in mind, in absolute dollar terms, even while including these onetime items, we expect that free cash flow will be in line with our FY '19 performance.

Looking ahead, I will now like to share with you our guidance for the first quarter and update our outlook for the full year 2020. As we start the new fiscal year, Mimecast remains well positioned for success with a loyal customer base, a broadening product line and a favorable competitive environment. For the first quarter of 2020, our constant currency revenue growth rate is expected to be in the range of 28% to 29%, and revenue is expected to be in the range of $96.7 million to $97.7 million. Our guidance is based on exchange rates, as of April 30, 2019, and includes an estimated negative impact of $3.6 million resulting from the strengthening of the U.S. dollar compared to the prior year.

For the full year 2020, revenue is expected to be in the range of $413.3 million to $427.3 million or 23% to 27% growth in constant currency terms. Foreign exchange rate fluctuations are negatively impacting this guidance by an estimated $5.2 million compared to the rates in effect in the prior year.

The guidance for Fiscal '20 provided in February was $420.3 million at the midpoint. Since then foreign exchange has negatively impacted this guidance by an estimated $6.6 million. Despite the significant FX headwind, the strength we have seen in our business is leading us to hold the midpoint of our full year guidance on a dollar basis, and effectively raise the midpoint of our -- on a constant currency basis from 23% to 25%. Adjusted EBITDA for the quarter is expected to be in the range of $12.1 million to $13.1 million, and adjusted EBITDA is expected to be in the range of $70.7 million to $72.7 million for the full fiscal year 2020.

Mimecast has a history of delivering top line growth while making the prudent investments that enabled that growth. Given the strength we're seeing in the market, FY '20 will see us investing in both innovation and our go-to-market capabilities. Nonetheless, we remain committed to achieving our long-term adjusted EBITDA margin targets of 20% to 22%.

With that, I would like to thank you for your time and open the line to your questions. Operator, can you please poll for our first question.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Sterling Auty of JPMorgan.

Sterling Auty

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

Rafeal Brown

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

Sterling Auty

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

Rafeal Brown

Yes, one second.

Sterling Auty

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

Peter Bauer

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

Sterling Auty

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

Rafeal Brown

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

Sterling Auty

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

Rafeal Brown

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

Operator

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

Keith Bachman

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

Peter Bauer

Sure. So Keith, yes, in terms of our product portfolio today, we have obviously, the core products around e-mail and, in fact, if you add all of our products altogether, today we have, we can count about 10 products, in fact, from security, continuity, archiving, the archive add-ons, large files and Targeted Threat Protection, secure messaging, internal e-mail protect, a way that's trending in a way that will give you a total of 10. And that gives us a fully loaded user opportunity on an all 3 basis, of about $100 to $120. So we feel really good about those, the start of the -- the breadth of the solutions that we can offer to customers today. And because everything is built on an integrated platform that gives us a lot of flexibility from a pricing packaging point of view. Some of the people in the market talk about bundles, we think about those as being sort of additions or combinations or capability that we can light up, excite customers and tenants.

The growth that we've seen in that portfolio has been pretty steady over the past couple of years. In the last calendar year, we introduced 2 new available modules, both for web security and the awareness training module. And in the prior year, we had the Sync & Recover, which is our data recovery solution plus Internal Email Protect. So we've had a pretty steady cadence of introducing new additional modules and as you suggest when you bring out new capabilities like this, it does expose us to different competitive situations. But we feel very confident that these are areas that our customers want us to solve problems for their [indiscernible] and deliver that within their Mimecast tenant to give them better value for money and a simplified experience of solving those problems.

Keith Bachman

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

Peter Bauer

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

Keith Bachman

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

Rafeal Brown

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

Keith Bachman

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

Operator

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

Daniel Bartus

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

Peter Bauer

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

Daniel Bartus

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

Peter Bauer

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

Operator

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

John DiFucci

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

Peter Bauer

Yes. Thanks, John. So obviously Neil was on a [indiscernible] founding the company with me back in 2003 and '04. A significant part of our history led engineering and product management. But starting soon after our IPO, we started to bring in product management leadership and additional engineering leadership. Less of our creating a succession plan for Neil, but more about just enabling the organization's scale and to train up and enable the next level of leadership in the organization. And then specifically during last year, Neil really started to relinquish a fair amount of control. The product and engineering leadership team with Christina running the product management and John also running engineering, both moved into the exec team, while Christina was hired directly on to the executive team. So that we didn't have sort of typical CTO function running those or the previous CTO function running those functions. We had those 2 new executives coming in and running that aspect of the business.

Neil became more of an architect, more of an adviser to the business. From today, he remains on the board of the company. He remains a very significant shareholder, very interested in the success of the business. But I think we very successfully transitioned to a place where we have many very capable technologists and visionaries, several of which Neil has mentored -- hired and mentored and developed, we're all well entrenched in the philosophy and the religion of our -- the design ideology behind MIME OS and the way we build solutions.

So I think we're in very good shape, and I think there's a strong team of people that are contributing to the vision. And obviously, as you know, John and [indiscernible] around pretty passionate about as well, in terms of the technology and solutions, and what they can do for customers in the market, in general. You're absolutely right that what we built was initially a very e-mail-centric platform. What we've done over time is really started to identify and explore how those micro-services and how those sort of underlying pieces of technology can be used to solve a broader set of problems. So we thought about that as our kind of our e-mail plus phase of development. And we've really been quite successful in expanding out some of the additional technologies in that area, some of those will be capitalized through some M&A and bringing in new technology skills as well as componentry. So you've seen us bring out our web security solution, our user awareness training solution. We're making advances in areas like threat intelligence and advance side of security with some of the capabilities that we've got through the Solebit Acquisition.

So we continued to build that up and I think it goes without saying that there's a pretty long list of needs and requirements that customers has that today, they still had to shop for a very clumsy list of point solutions to solve. And they're are looking for vendors like us that can play a consolidation role. And I don't mean a consolidation role in terms of go and buy everything and sell it back to us in a box that's got your logo on it, but they really mean is, can you give us a simplified integrated suite that out-of-the-box does what it needs to do for us and it's very easy to manage with a small often overstretched team with limited budget. So that should be really committed to doing we'll continue to take off additional use cases and build out the platform to help customers be more successful.

John DiFucci

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

Rafeal Brown

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

Operator

Our next question comes from Alex Henderson of Needham.

Alexander Henderson

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

Rafeal Brown

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

Alexander Henderson

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

Peter Bauer

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

Alexander Henderson

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

Peter Bauer

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

Alexander Henderson

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

Peter Bauer

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

Alexander Henderson

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

Peter Bauer

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

Operator

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

Saket Kalia

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

Peter Bauer

Great question, Saket. So the Top 3 products by penetration, we don't really break it up by revenue right now, but by penetration, obviously, e-mail hygiene as a base, that E-main hygiene is one of the products that we've been selling for the longest time, and is the most important base product that is the highest penetration. Attaching directly to that is Targeted Threat Protection. So that's an add-on product, where that's good for second highest penetration. There is continuity from a customer logo perspective and then archiving is actually fourth today, but accounted by one really accounted by revenue because the ARPUs on archiving a higher you would see archiving getting in the number two or number three position in reality.

So which product should we think have the most promise to be big revenue generators sort of a number four or number five? We have several products that are lower ARPU like large file sending and secure messaging. I don't think those are going to be -- to home run long growth products, but they certainly are good cumulative generators of revenue that provide us with differentiators in sales situations and they certainly give us a level of stickiness as with was used cases become entrenched. So I would say that awareness training and web security are the two products that have tremendous potential in terms of addressable markets. And as we mature and invest in those two additional products, we think we can make some nice gains with those, both in our customer base and with new customers over time.

Saket Kalia

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

Rafeal Brown

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

Peter Bauer

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

Operator

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

Matthew Hedberg

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

Peter Bauer

Matt, so -- great, Okay. So let me start with that. So if there had been a 7-figure deal, we'd have -- we'd certainly had taken the opportunity to mention it so as we did in the prior quarter, but there wasn't. There wasn't. I would also add that there is more than 30 six figure deals that we did. So we were strong with that. In terms of go-to-market execution and how do we think about that? I guess, if you take the breakdown, we now 17% of our revenue done about 5,000 seat organizations, about 73, I think it is in the middle and then the balance done -- 10% or so done to meet 100 seats. So if you look at that ratio by any respect as we're growing as an organization, just to hold that ratios steady, would it require an increase in absolute dollar terms in our ability to perform and do business with each of those types of customers.

And what we're finding is, that as we apply effort to resourcing, and getting better at each of those segment areas, and that's slightly keep focusing on the very low end of the market for sort of some-20 or some-50 seat space. We've seen the market kind of really available to us in that 5,000 seat space, to accommodate a little bit more growth than just holding that 10 percentage. And so What we'd considered quite normal investments in dealing with larger customers, both in terms of the sales motion and our brand and some of the product capabilities and features, just the same growth. We're seeing that's just a slightly better return than we might have expected through some of our efforts in those areas. And that's certainly happening in all of the geographies that we're working in.

Operator

Our next question comes from Eric Lemus of SunTrust Robinson.

Eric Lemus

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

Peter Bauer

Yes, it's a great question. For a lot of organizations that we deal with, their primary interest is in receiving a key stream of e-mail, making sure that bad stuff doesn't come near them, and frankly, they are not that interested in what the bad stuff was to begin with. They just want an assurance that it's not turning up in front of the end-users. Some basic reporting about what's there is of interest, but not the main part of the story. What we have seen the time as we begin with larger organizations, and as the sophistication of our own platform is growing, in some of the work through acquisitions that we've done like [indiscernible] and Solebit is we really started to show customers more insight and more value in terms of the things that we're blocking, and giving them a sense of whether the kinds of things that are being blocked in their tenants are unique to them or unique to the industries, or unique to the geographies or unique even to particular job functions inside of the company that may be targeted.

So aspiring to collect that data and [indiscernible] that off and do that not only through Mimecast interfaces and dashboards, that reports that they control, but also just trying to provide some of that treat information through APIs and through log data that they can then consume, either inside of the security systems or other log management systems or with some environments that can consume that data. So there is an increased appetite for that, that is emerging. It is more of an upmarket phenomenon. It's really useful for us to have more of that data because it really does help us demonstrate the efficacy of our platform as well as some of the sophistication of the underlying engines and detection technologies that we've got in place. So it's an important piece of our strategy going forward.

Operator

Our next question comes from Gray Powell of Deutsche Bank.

Gray Powell

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

Rafeal Brown

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

Gray Powell

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

Rafeal Brown

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

Operator

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

Timothy Klasell

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

Peter Bauer

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

Timothy Klasell

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

Rafeal Brown

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

Peter Bauer

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

Operator

Our next question comes from Catharine Trebnick of Dougherty.

Catharine Trebnick

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

Peter Bauer

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

Catharine Trebnick

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

Peter Bauer

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

Operator

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

Peter Bauer

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

Operator

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