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Zix Corp (ZIXI)
Q4 2019 Earnings Call
Feb 20, 2020, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon. Welcome to Zix's Fourth Quarter and Full-Year 2019 Earnings Conference Call. My name is Gigi, and I will be your operator today.
Joining us for today's presentation are the Company's President and CEO, David Wagner; CFO, David Rockvam; and Vice President of Marketing, Geoff Bibby. Following the remarks, we will open the call for your questions. I would like to remind everyone that this call will be recorded and made available for replay via a link in the Investor Relations section of the Company's website.
Now I would like to turn the call over to Geoff Bibby. Sir, please proceed.
Geoff Bibby -- Vice President, Marketing
Thank you, Gigi. Good afternoon, everyone, and thank you for joining our fourth quarter and full-year earnings call. With me today, as Gigi mentioned, our CEO Dave Wagner, and our CFO Dave Rockvam. After the market closed, we issued a press release announcing our results for the fourth quarter and full-year ended December 31, 2019. A copy of which is available in the Investor Relations section of our website at www.zix.com.
Please note that during the course of this call we will make forward-looking statements regarding future events, and the future performance, financial performance of the Company. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
It's important to also note that the Company undertakes no obligation to update such statements. We caution you to consider risk factors that could cause actual results to differ materially from those in the forward-looking statements contained in today's press release and in this conference call. The risk factor section of our most recent Form 10-K and 10-Q filings with the SEC provides examples of those risks.
During the call, we'll present both GAAP and non-GAAP financial measures. Non-GAAP financial measures are not intended to be considered in isolation from, a substitute for or superior to our GAAP results. We encourage you to consider all measures when analyzing the Company's performance. For reconciliation of certain GAAP to non-GAAP measures is included in today's press release, which can be found, as I mentioned, in the Investor Relations section of our website.
Now, with that, I would like to turn the call over to Dave Wagner for his opening remarks. Dave?
David Wagner -- President and Chief Executive Officer
Thanks, Geoff. Good afternoon, and thank you, everyone, for joining us today. The fourth quarter capped off an excellent finish to a record year for Zix. This earnings call is on the exact one-year anniversary of the closing of the AppRiver acquisition on February 20, 2019. It has been an exciting year as a larger integrated company. We grew annual recurring revenue, or ARR by 177% from $76 million at year-end 2018 to nearly $210 million at year-end 2019. We grew revenue by more than 15% organically for each of the last three consecutive quarters.
Our success continued in Q4 as we delivered double-digit organic revenue, adjusted EBITDA and ARR growth while maintaining solid adjusted EBITDA margins and generating strong cash flow. I am very proud and appreciative of our team as we delivered this outperformance in the face of a demanding, rigorous and successful integration process during the year. As we look back on 2019, we are extremely pleased with the progress we've achieved. We are already more than twice as large as either Zix or AppRiver was on a stand-alone basis prior to the combination, illustrating the fact that our new whole is greater than the sum of the parts.
We are now a cohesive team, aligned around one shared vision, becoming a leading provider of cloud email security, compliance and productivity solutions for companies of all sizes. With that backdrop, I'd like to revisit the three core strategic premises that the AppRiver acquisition was built on. First, businesses are moving mailboxes to the cloud, and they are looking for partners to help them with that transition. This premise had been validated many times over now, but our strongest affirmation came in Q4, through the record level of net productivity seats we sold, which totaled more than 77,000 net feet add, a prodigious 36% year-over-year improvement and a 9% increase from Q3. We are encouraged by our success with the Microsoft productivity suite, as we believe the migration of mailboxes to the cloud provides us with a highly effective, low-cost lead generation tool for our higher-margin security and compliance portfolio.
This is a trend we expect to continue to capitalize on for the foreseeable future as we continue to deliver profitable EBITDA growth on an absolute basis. To use a baseball analogy, we believe we're still in the second or third inning of companies migrating to the cloud and that they will increasingly leverage partners to facilitate and support that transition. Gartner published a study titled Cloud Solution Provider Program, or CSP, one solution for those adversely impacted by Microsoft Enterprise Agreement or EA changes. This report recommends that current EA customers solicit bids from CSPs to assess their value versus the declining value of the EA program for mid-market enterprises. They further argue that more than 50% of organizations with a current EA will move to alternative agreements, most notably CSP agreements by 2023. Our strategy is well aligned with Microsoft's direction, with more than 4,300 monthly transacting MSP partners in our network and more than 4 million encryption users for a patch opportunity.
The second strategic premise underpinning our investment was that cross-sell opportunities between security, compliance and productivity are strong. During Q4, the Zix team closed nearly 11,000 Office 365 mailboxes, up from 3,300 in Q3 and 1,500 in Q2. Those numbers speak for themselves, and the takeaway is clear. As customers move to the cloud, they want the Office 365 productivity suite and security and compliance by design. During the fourth quarter, our sales team, again, added new non-encryption products to nearly 45% of new customer add-ons in the quarter, which is similar to Q3 and and is up from 40% in Q2. In addition, AppRiver partners and customers completed more than 600 trials of encryption and archiving in Q4, up from 70% -- up 70% from approximately 350 in Q3 and up from 150 in Q2. We think that is extraordinary.
The third premise supporting our acquisition was that two leading email security companies would be better together. Putting it in simplest terms, we've exceeded our top-line guidance for three consecutive quarters, delivering year-over-year organic revenue and ARR growth of at least 15% each quarter. Zix-AppRiver together have created a solution where security and compliance are integrated with productivity by design. Our focus on solutions and on service for our partners enables them to think forward and deliver more value for their end customers. It's these validating points that give me high confidence in saying that AppRiver was the right deal at the right time for us. There's still a lot of work ahead, but we have the right team in place to realize our vision in the years ahead.
Now before I talk about our growth drivers and outlook, I'd like to turn the call over to our CFO, Dave Rockvam, to provide more details on the financials for this quarter. Dave?
Dave Rockvam -- Vice President and Chief Financial Officer
Thank you, Dave, and good afternoon, everyone. As our performance for the quarter and full year demonstrates, we're continuing to realize the financial benefits and operational efficiencies that come from being a fully integrated organization at scale.
Now let's talk about the numbers in more detail. At the end of the fourth quarter, our ARR totaled $209.7 million, up 177% from Q4 of 2018 and up 16% on a purely organic basis. On a combined company basis, cloud-based ARR now makes up 81% of total ARR. For the fourth quarter, we had just over 101% net dollar tension, which represents our renewals, plus our new sales into the installed base, divided by the renewals that were available at the beginning of the quarter. Our strong gross dollar retention of over 90%, growth in new customers and continued success in cross-selling drove yet another quarter of record ARR.
Total revenue for the fourth quarter increased 173% to $50.4 million from $18.4 million in the same quarter of 2018. With $50.4 million of revenue, we exceeded our guidance for the quarter. Total organic revenue growth across Zix and AppRiver was 15% during the quarter, which once again, was at the high end of our implied growth guidance from the time of the AppRiver acquisition. For the full year of 2019, total revenue increased 146% to $173.4 million from $70.5 million as of the same date last year. On an organic basis across Zix and AppRiver, revenue for the full year was up 15% compared to 2018.
Our adjusted gross profit for the fourth quarter was $29.2 million or 58% of total revenue, which was an improvement on a dollar basis from $14.6 million or 79.3% of total revenue in the fourth quarter of 2018. This means we doubled our gross margin dollars from Q4 2018, demonstrating the positive gross margin dollar generation ability of the combined company and the true ability to continue our profitable growth trajectory. For the full year of 2019, our adjusted gross profit was $104.7 million or 60.3% of total revenue, which was an improvement on a dollar basis from $56 million or 79.5% of total revenue in 2018.
The acceleration of Office 365 led to a continued mix shift in our gross margin percent in Q4. Those of you who have been following our story know that Microsoft's productivity suite carries lower margins than our productivity, proprietary solutions. We are pleased with our success and are willing to trade off gross margin percentage for a long-term EBITDA dollar expansion as we continue to acquire a substantially larger customer base and attach our proprietary solutions. Going forward, we believe the migration of mailboxes to the cloud provides us with a highly effective, low-cost lead generation tool for our higher-margin security portfolio.
Our adjusted R&D expenses for the fourth quarter of 2019 were $4.3 million or 8.6% of total revenue compared to $2.4 million or 13.1% of total revenue in Q4 of 2018. The year-over-year dollar increase for both the quarter and year was primarily due to the inclusion of AppRiver. Our adjusted selling and marketing expenses for the quarter were $11.5 million or 22.7% of total revenue compared to $4.9 million or 26.7% of total revenue in Q4 of 2018. Selling and marketing expenses were over $1 million higher than our internal plan in Q4, primarily due to commission expense in Q4 related to ASC 606 for AppRiver.
For the fourth quarter of 2019, our adjusted general and administrative expenses were $4 million or 7.9% of total revenue compared to $2.6 million or 14% of total revenue reported in Q4 of 2018. As you can see from our operating expense numbers, we are achieving and will aim to continue to achieve great synergy from the acquisition of AppRiver, which should continue to deliver lower opex as a percentage of revenue and continue to drive our adjusted EBITDA growth.
On a GAAP basis, we recorded a net loss attributable to common shareholders of a loss of $5.2 million or a loss of $0.10 per fully diluted share. This compares to net income of $9.2 million or $0.17 per fully diluted share in Q4 2018. For the full year of 2019, net loss attributable to common shareholders totaled a loss of $24.6 million or a loss of $0.46 per fully diluted share compared to $15.4 million or $0.29 per fully diluted share in 2018. Our net loss for the fourth quarter and full year 2019 included the higher-than-previously projected expenses in Q4 related to the finalization of certain integration projects, stocks compliance, retention bonuses associated with the acquisitions and severance expenses. The majority of these integration efforts and related expenses were completed by the end of the year, and we don't expect to carry any significant integration-related costs into 2020.
Our fourth quarter non-GAAP adjusted net income before deemed dividends and excluding deferred tax was $6.7 million or $0.13 per fully diluted share. This compares to $4.6 million or $0.09 per fully diluted share we reported in Q4 of 2018. For the full year of 2019, non-GAAP adjusted net income before deemed dividends and excluding deferred taxes totaled $23 million or $0.43 per fully diluted share compared to $17.5 million or $0.33 per fully diluted share reported in 2018, an increase of over 30%.
And finally, our adjusted EBITDA for Q4 2019 totaled $11.5 million, an increase from $5.6 million we reported in Q4 of 2018. As a percentage of total revenue, adjusted EBITDA for Q4 2019 was 22.8% compared to 30.2% in Q4 of 2018. For the full year 2019, adjusted EBITDA totaled $39.5 million or 22.8% of total revenue compared to $20.1 million or 28.6% of total revenue reported in 2018. It's worth mentioning that we would have been within our Q4 adjusted EPS and adjusted EBITDA guidance if the impact of the $1 million of additional expenses, primarily related to the commissions from AppRiver, were excluded.
Cash flow from operations for the fourth quarter of 2019 was $6 million, an increase of 22% over Q4 2018. At the end of Q4, we had $13.3 million in cash, and our total debt position was $178.3 million, which includes the five-year $175 million term loan we entered into as part of the AppRiver acquisition and the $10 million delayed draw loan related to our acquisition of delivery slip in Q2 2019.
We are forecasting approximately $11.5 million in interest expense on our term loan in 2020. We continue to believe we have ample room to pay down this debt while still investing in the Company's growth and executing on our long-term vision. This objective is supported by our strong cash flow generation ability, projected adjusted EBITDA growth, significant net operating loss carryforwards and a step-up in the depreciable tax basis we received from the AppRiver acquisition.
Capex and other intangibles for the fourth quarter 2019 were $3.8 million, which consisted primarily of normal business capital purchases and capitalized internal use software development. We expect capex and other intangibles to be approximately $13 million for the full year 2020. We also expect adjusted depreciation and amortization to be approximately $10 million for the full year 2020. Our backlog at December 31, 2019, was $89.4 million, which was up 22% from $73 million at the end of Q4 2018. For the fourth quarter of 2019, total gross billings were up 12% organically to $49.3 million from $44 million in Q4 2018.
Now turning to our financial guidance for the first quarter and full year 2020. For the first quarter of 2020, we currently expect revenue to range between $52.2 million and $52.7 million. On the cost side, the first quarter typically includes a slight decline in profitability and cash flow for the Company as our first quarter includes increases in costs associated with payroll taxes, sales and marketing investments for the year and timing of the payment of the Company's annual bonus program and retention bonuses associated with our acquisitions.
With this in mind, we are forecasting fully diluted GAAP loss per share attributable to common shares to be in the range of a loss of $0.04 and a loss of $0.03. And non-GAAP adjusted earnings per share before deemed dividends and excluding deferred tax expense or benefit to be in the range of $0.12 to $0.13. The per share guidance figures are based on an estimated basic share count of 53.3 million for Q1 2020. We expect adjusted EBITDA to be approximately 23% of total revenue in Q1 2020.
For the full year, we are currently forecasting revenue to range between $220 million and $225 million, representing an increase of between 27% and 30% compared to 2019 and 16% to 18% on an organic basis. We expect fully diluted GAAP earnings per share attributable to common shares to range between a loss of $0.10 and a loss of $0.07, and non-GAAP adjusted earnings per share before deemed dividends and excluding deferred tax expense or benefit to be in the range of $0.56 to $0.58. The per share figures are based on an estimated basic share count of 53.5 million for 2020.
Adjusted EBITDA is forecasted to be in a range of $51 million to $53 million, or approximately 23% to 24% of total revenue. We also expect ARR at the end of the fiscal 2020 to be in the range of $243 million to $247 million, representing an organic growth rate of approximately 16% to 18% compared to ARR at the end of 2019. Looking ahead, we are confident that our financial performance in 2019, coupled with building sales momentum, will allow us to maintain steady revenue growth of 14% to 16%, and adjusted EBITDA growth of 11% to 15% in our three to five year model.
This completes my financial summary. For a more detailed analysis of our financial results, please refer to today's earnings release as well as our 10-K, which we plan to file by March 10. Also visit our Investor Relations website to view a more recent investor presentation.
Dave?
David Wagner -- President and Chief Executive Officer
Thanks, Dave. Now I'd like to review our Q4 execution in the context of our three primary growth drivers. After which, I will provide an update on our integration initiatives and our outlook for 2020 before opening the call for questions. As a reminder, our three primary growth drivers are; one, new orders to new customers; two, sales to existing customers; and three, increased retention.
Starting with new orders to new customers. As I remarked earlier, it is clear that our go-to-market efforts and sales channels are gaining traction. During the fourth quarter, we saw strong demand for all of our solutions from customers of all sizes in a wide range of verticals. On the Zix go-to-market side, three of our top five new customer wins were in healthcare. One was in government and the other in finance, traditionally our strongest verticals. Our largest new customer in the quarter was a six-figure win with a Canadian government entity that purchased our new large file transfer solution. This customer was in a pilot deployment and went to a full competitive RFP this fall, which we won for 4,000 seats. They are exploiting the full range of this product's robust features, and we scored a remarkable 97% on the technical portion of the RFP.
The second largest deal was equally remarkable as we closed our first stand-alone phenomenal support sale in the quarter with a 7,000 employee healthcare organization. Phenomenal support is a premium support SKU for Office 365. We expect larger enterprise customers to continue to buy Office 365 directly from Microsoft, but this deal shows the value we can bring to enterprise customers with phenomenal support to enhance their Office 365 experience. These two wins further demonstrate how tightly we've already integrated as Zix and AppRiver presale, sales and post-sales teams work side-by-side as one cohesive team to win these deals. The third largest deal was for Office 365 and advanced threat protection in the finance vertical and the last two deals were in encryption and threat in healthcare. These three deals averaged two solutions per customer.
On the partner side, we increased our total number of monthly transacting MSP partners to 4,338 in the quarter. Some of the large and new partner additions were in the U.K. As an example, we added an MSP with more than 100 customers that has already added 3,500 users of Office 365 and our advanced threat solution. They are assessing encryption and archiving as well. A new Irish partner added Office 365 and evaluating threat of a competitive displacement as well as encryption and archive as new services. In North America, we won the headquarters location of a 200 location IT franchise business, locations we hope to penetrate in the coming quarters.
Moving on to our second growth driver, which is sales to existing customers. Three of the top five add-ons we secured in the fourth quarter were in healthcare, one was in real estate and the other in government. All three cross-selling motions were represented, which includes our Office 365 advanced threat and archiving solutions. Only one of the top five add-ons was encryption-only. In total, this group also averaged two solutions per customer. On the partner side, I already mentioned the 70% increase in trials from Q3 to Q4 for encryption and archive.
More specifically, in North America, our largest MSP agreed to standardize on our advanced threat offer for their basic package and has agreed to add encryption and archive to their better and best packages, respectively. We also added encryption to a healthcare-focused MSP that expects to standardize on encryption to all their existing healthcare accounts in Q1 and has added encryption as a mandatory feature for all future new healthcare accounts. In the U.K., a partner added earlier in 2019, agreed to standardize our advanced threat solution for 4,500 mailboxes displacing a competitor.
Now let's look at our results for the fourth quarter by solution area. While we believe this ARR by solution information is helpful to investors, it's important to note that we do not manage our business by solution category. Increasingly, our sales are made as bundled solution. This means we have to use management judgment to allocate value to each solution area. That having been said, productivity ARR increased 9% sequentially to $96 million, which represents an increase of 27% year-over-year. Net of churn, we added more than 77,000 mailboxes in the quarter, as I mentioned earlier.
Encryption ARR was $73 million, which is essentially unchanged from last quarter and is up 7% year-over-year. Our encryption seats declined by less than 1%, or about 30,000 seats from Q3. This decrease is primarily the result of the ZCT end of life. ZCT is our former OEM product with Cisco. As previously disclosed, these customers will migrate to either our core product or to Cisco. When they stay with us, our seat count is unchanged, but our price per seat more than doubles. When they go with Cisco, we lose the lower-priced OEM fees. And that's what happened with a couple of accounts last quarter.
Our seat count is up 20% year-over-year, and we do expect to continue to grow our core encryption business. However, it will not be surprising to have intermittent small dips like this one. Advanced threat protection ARR was $23.4 million compared to $22.8 million last quarter. We continue to gain traction from our cross-sell into the Zix space as well as AppRiver's selling motion with partners. Our seat count was up nearly 8% year-over-year, while we have increased our annual recurring revenue by 25% as we continue to add more value for our customers in this area. And finally, our emerging category grew 5% quarter-over-quarter to $18 million of ARR, driven by growth in both our archiving business and in total defense, our consumer endpoint business.
Moving on now to our third growth driver, increasing retention. Our total Company net dollar retention was 101%, which was down slightly from last quarter. We were down just a little bit in both AppRiver and Zix' net retention, which, of course, was offset this quarter by higher sales to new customers. For the full year, we finished over 102% with both Zix and AppRiver ending both Q4 and the full year at over 100%. Increasing retention is one of the key drivers of our increasing overall revenue and annual recurring revenue, and we are really pleased with the success we're having to date, and we expect to continue to build on this success. We also successfully transitioned hundreds of customers over the past two quarters into the AppRiver platform, and with the new launch of our SecureCloud in early Q2, which I'll talk about more next, we expect our net dollar retention to begin to accelerate further.
Closing out the revenue section, I would like to highlight the addition of our new Chief Revenue Officer, John Di Leo. John was a sales leader at NCR for nearly 20 years, leading teams in various product lines, with revenues up to $2 billion annually, and in various geographies, including a several year assignment in the United Kingdom. He moved on to Datacard, where he led the sales and service team there as they grew from $300 million to more than $600 million in revenues over five years. Dave and I worked with John for two years at Datacard as we integrated Entrust into Datacard. John brings a wealth of go-to-market knowledge across many products, geographies and sales motions. We expect his experiences and his expertise to be invaluable as we focus on scaling Zix to the next level. John consulted with Zix in various roles over the past 18 months, but just joined as our permanent Chief Revenue Officer effective February 1.
As I mentioned earlier, one of the most impressive things I've seen since bringing Zix and AppRiver together is the level of collaboration and commitment across the organization in key functional areas. Our teams are closely aligned around our major new product launch planned for early Q2 2020. This release will place every one of our products into a single platform called SecureCloud, where our customers will have one pane of glass, that means one login and one unified interface across their cloud applications for productivity, security and compliance.
There are three components to make up our SecureCloud and make it so uniquely powerful. One is the deep suite of offerings; two, the cloud native platform architecture that undergirds them; and three, the intelligent technologies like analytics and machine learning that improve them both continuously. It's a complete offering that continuously makes employees safer, freer and more productive. It delivers a level of efficiency that doesn't just translate into advantage for the information technology and security teams. It's a whole business advantage. I'm really excited to see this culmination of our integration play out for our partners and customers in the coming quarters.
I should also mention that the unification of our formerly separate technologies have -- for advanced threat, has progressed better than expected. Our development team is unifying the best aspects of both advanced threat solutions into a single email security solution more tightly integrating our core IP and completely modernizing and refreshing the user interface, look and feel for a best-in-class experience. While this launch accelerates our transition on a visual and a product level, it will also bring even greater value to our partners and customers. For many of our customers, this transition will be a multi-step, multi-year process, but we are aiming for the majority of new customer onboardings to be in the new cloud platform, SecureCloud, by Q4 of this year.
In closing, 2019 was an extraordinary year for Zix as we grew annual recurring revenue by 177% from $76 million to nearly $210 million. Our scale increased our operating leverage and has led to improving sales and better overall execution, which is best exemplified by our 106% year-over-year adjusted EBITDA improvement in Q4. Taken together, our success integrating our solution and our teams has us entering 2020 with significant operating and financial momentum. We believe we are well positioned to augment our current cross-selling success, which should lead to continued revenue growth and profitability improvement into 2020 and beyond. We are confident that our building sales momentum will allow us to maintain steady growth while also enabling us to achieve our three to five year vision of profitably scaling into the leading cloud-based email security, compliance and productivity solutions provider in the marketplace.
That concludes our prepared remarks. Gigi, we're ready to open the call for questions.
Questions and Answers:
Operator
[Operator Instructions] And our first question comes from the line of Daniel Ives from Wedbush. Your line is now open.
Daniel Ives -- Wedbush -- Analyst
Yes, thanks, and great quarter, great finish to the year.
David Wagner -- President and Chief Executive Officer
Thanks, Daniel.
Daniel Ives -- Wedbush -- Analyst
So when you're seeing, especially on the Microsoft side. And obviously, you had the vision, and it seems like it's really starting to really execute. I mean, what's the biggest thing that you're seeing as you're hearing from customers and maybe the cross-sell opportunity that may be surprised you on the -- maybe on the positive side in terms of what you're seeing in terms of numbers from where we were maybe three to six months ago?
David Wagner -- President and Chief Executive Officer
Yes, that's a great question, Dan. And we're not totally surprised, but we are really pleased with the acceleration in the marketplace around the cloud, around Office 365. We had done careful work in advance of the acquisition, and we've passed the -- a survey passed the thesis that our partners and customers wanted a partner to help them make this migration. The thing that I would say, surprised me to take 7,000 seat healthcare account that we're looking for an enhanced support and service solution around their Office 365 implementation. That's something we didn't expect to see.
And then that Gartner report that I highlighted in my opening remarks, it's not a complete surprise, but we're really pleased with where Microsoft has taken their go-to-market strategy and really bolstering the CSP part of their business. And we think we're really now uniquely positioned to help medium-sized enterprises in addition to the more mid-market buyers that we were thinking would be applicable to our solution set. So it's coming together really well. The last thing that is a surprise that I could not be more proud of our technical teams, we talked a year ago that we thought it would be a three to five year journey to see platforms integrated. That platform integration is coming together in early Q2. It's coming together in a way that's really visually appealing, really, in my way of thinking, a really compelling value proposition because we uniquely bring together our productivity secured and compliance by design for our partners and customers.
Daniel Ives -- Wedbush -- Analyst
Got it. And when you think about before the acquisition, so on the pricing increases and things that went on. Does it feel like now, after doing all the handholding, that's really basically all in the rearview mirror?
David Wagner -- President and Chief Executive Officer
Yes. So that is in the rearview mirror, that's the really positive thing in the forward mirror is being -- is the continued growth I see in the future for our sales teams. And I talked about adding a Chief Revenue Officer just here a couple of weeks ago, when we're already seeing the benefit of bringing the teams together, collaborating more closely on training and value proposition. So we have some good learning and good work ahead of us to continue to operate better as we move forward.
Dave Rockvam -- Vice President and Chief Financial Officer
Yes. And I think if you look at -- in Q2, we'll be delivering to those AppRiver customers on advanced threats, they'll be getting a lot of new feature functionality that's coming over from the ZixProtect product, so that should help even further with retention and winning new customers and winning new partners. So we're excited about that.
Daniel Ives -- Wedbush -- Analyst
Thanks again. Great job to team.
David Wagner -- President and Chief Executive Officer
Thanks.
Operator
Thank you. Our next question comes from the line of Tyler Wood from Northland Securities. Your line is now open.
Tyler Wood -- Northland Securities -- Analyst
Sure. Thanks for taking our question. When you look at those 600 trials into the AppRiver base, how are you -- how is the conversion rate of those trending? Is it holding up versus where it was in the last couple of quarters?
David Wagner -- President and Chief Executive Officer
Yes, there was a big uptick this quarter. In the initial quarter, we saw a lot of partners trying. And then as a -- just to see how it worked. We saw a really big uptick in conversions. It's not yet where the longer-term AppRiver products, but it's edging up that way very nicely. And that, as you recall, is a 90% conversion rate from a trial, which is extraordinary from everything we can see in the market.
Tyler Wood -- Northland Securities -- Analyst
Great. And then one last one. You've mentioned Europe before on previous calls. Going off of that, could you kind of walk us through what you expect there? And kind of more broadly, the international contribution you think about when you're putting out 2020 guidance?
David Wagner -- President and Chief Executive Officer
Yes, so if -- I'm really proud of our international teams. I don't want this diminished. But it's still nascent and where it is to where it's going, so we expect to continue to see them execute well in 2020. We're still building out our localization, data localization plans throughout the course of 2020. So we look at that to be a more meaningful opportunity heading into 2021.
Tyler Wood -- Northland Securities -- Analyst
Alright, thanks. That's all from me.
Operator
[Operator Instructions] And our next question comes from the line of Nick Yako from Cowen and Company. Your line is now open.
Nick Yako -- Cowen and Company -- Analyst
Hey guys, thanks for taking my question and congrats on the strong results. Just wondering, maybe once the integration is complete. Just curious if you could provide any color around how you're sort of thinking about the go-forward product road map? And as aside to that, how do you sort of think about build versus buy?
David Wagner -- President and Chief Executive Officer
Yes, those two great questions, Nick. And so I'm really, as I said, really proud of the team as it's come together into one core platform, SecureCloud, and that is the focus of our development going forward. That will roll out into the market in April as we train up the sales force, and that will become the primary motion for the Company, and that's the motion that we really see customers wanting as they move to the cloud service provider agreement, that consumption, that true cloud consumption model, where they can add the users they have literally every day, every week and be built only for the users that they're -- that they have in the organization at that time.
It's really a powerful differentiator as you think about CSP versus EAs and increased that as you think about our encryption and archiving capabilities delivered as an integrated compliant -- security and compliance solution with those customers. So our road map is going to be focused there. We're going to continue to take great care of the legacy Zix customers and find them easy migration, upgrade path into that cloud platform. That will be a multiyear journey for some customers, and that will come together, as I said, with the OKR of having the vast majority of new customer on-boarding on to the SecureCloud by Q4.
On the build versus buy, I feel like we've done a nice job over the last four years, thinking carefully and deliberately about the technology that would help accelerate the business further. We continue to do that. And with the integration coming together well, we'll be continuing to evaluate areas we can augment the technology portfolio through both organic efforts and potential inorganic additions to the Company going forward.
Nick Yako -- Cowen and Company -- Analyst
Okay, that's helpful. And then I think Broadcom has been fairly clear that they want to focus on sort of Symantec's larger customers. Just curious if you guys are seeing any benefit from some dislocation from that deal?
David Wagner -- President and Chief Executive Officer
So we are -- we've been able to win competitively against them consistently across time. We're a little bit different than the others in the space. We have an OEM relationship, our last OEM is Symantec. And so we have -- you'd say, our OEM customers would be at risk, while we're at the same side, taking advantage of the displacement. So we're balanced, a little more balanced on that particular competitive dynamic.
Nick Yako -- Cowen and Company -- Analyst
Okay, great. Thanks guys.
David Wagner -- President and Chief Executive Officer
Thank you, Nick.
Operator
[Operator Instructions] At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Wagner for his closing remarks.
David Wagner -- President and Chief Executive Officer
Well, thank you, everybody, for joining us today, for your time and attention. Next I'm going to look forward to our next quarterly call in April.
Operator
[Operator Closing Remarks]
Duration: 43 minutes
Call participants:
Geoff Bibby -- Vice President, Marketing
David Wagner -- President and Chief Executive Officer
Dave Rockvam -- Vice President and Chief Financial Officer
Daniel Ives -- Wedbush -- Analyst
Tyler Wood -- Northland Securities -- Analyst
Nick Yako -- Cowen and Company -- Analyst
