Dropsuite Ltd

ASX:DSE

Earnings Call Transcript 2022-Q1

[Craig Sainsbury, analyst]

All right, good morning, everybody. Thank you for taking the time to attend Dropsuite's first quarter '22 quarterly results.

We have Charif Elansari, CEO and Managing Director; and Bill Kyriacou, who is the CFO, presenting today. I'm Craig Sainsbury and [ help to lead ] their investor relations.

[Operator Instructions]

So with that introduction, Charif, Bill, I'll hand across to you.

[Charif Elansari, executive]

Thank you, Craig. It's a real pleasure to be here today. I want to thank everybody for joining us. I'm very excited to present the results of the past and also giving you a hint of our future.

First of all, I want to remind everybody Dropsuite has a really simple mission. We safeguard business information and we help businesses stay in business. We are very mission critical for cyber defense and data protection. i.e., we play a key part in any IT initiative. We've been leading from a product standpoint and delivering some really high-grade products to the market and winning accolades accordingly. We are a truly global partner-focused company. We've built a phenomenal culture and team inside the company, and we've built everything around a very sound recurring revenue model.

We are solving for some real-life and pervasive challenges from a cybersecurity standpoint. You can see, for example, the cost of ransomware is expected to be $20 billion in 2022. Cybersecurity threats mostly start with e-mail. It remains the #1 attack [ vector ]. A lot of issues ensue from pure and simple human error. And on top of that, we're seeing additional regulation around data privacy and even security posture, so we play a key role in such a massive opportunity.

We are seeing ever-increasing cybersecurity budgets. A case in point would be the Australian government budget going from $1.8 billion in 2018 to north of $10 billion in 2022. We are seeing increasing government regulation, as I just alluded earlier, to make sure that data is protected and data is private; and that also bodes really well for a company like ours. We're seeing a massive, massive migration to the cloud with everything getting into SaaS. Just as a case in point, it's estimated that there are 20,000 different SaaS applications that are being used by businesses, big and small. And given the nascency of the sector, the security posture continues to be weak and leaves something to be desired.

So with this landscape, you can see that the tailwinds propelling the growth of the global data backup and recovery market continues to be really strong, with expected revenue -- or size of $22 billion in 2025, growing at a very healthy double-digit growth of 24% year-on-year until then and probably beyond. What we do is we'll take a part of that business -- or that industry and we deliver some world-class product and data protection solutions. Our main focus is on websites and databases, which is the storefront of companies of all sizes. We also have been especially focused on e-mail and productivity platform protection. And we've been really delivering some phenomenon products, especially around Microsoft 365 and Google Workspace. We deliver a beautiful user experience that doesn't only back up products, but it allows discovery. It allows search. It allows many flavors of restore and many more. We also will mention later that we're also building new products and new revenue streams, starting from the end of 2022 and beyond.

Now the way we thought about this is really simple. You've got a massive addressable market just with these 2 products, Microsoft 365 and Google Workspace. And we still have a really small section of the market of 0.2%. Keep in mind that we still have a lot of white space in this market.

Now the way we go about addressing this massive opportunity is by a partner-led business model. This business model allows us to deliver true operational leverage, as you see with our numbers. It also enables us to have a diversity of partners, which is now counting in the thousands of partners if you count both the direct partners buying directly from us or those that are buying from our IT distribution partners. All this has yielded in -- by the end of Q1, March 2022, an additional 80,000 -- or a bit more than 80,000 users that came quarter-on-quarter. And now we are broaching the 750,000 users, paid users, for that period.

Now to be able to deliver this kind of growth, we have really derived some meaningful advantages in the way we've executed. We've really perfected the partner integration. It is very, very important for us to have our products integrated into the partner workflows. And we've been building these workflows and these integrations since 2014, and we strongly believe that this is a competitive advantage. The second one that is really built into our DNA is to deliver almost a consumer-like user experience for a business product. And that's something that is really delivering a lot of accolades in the industry.

Thirdly and very importantly as well, we have built a modern stack in the public cloud that is truly cutting edge and truly scalable. And finally and perhaps most importantly, we've built a phenomenal team inside Dropsuite, and a phenomenal culture.

Now all of the above have delivered very strong results historically and also in Q1. And I will pass it over to Bill, our CFO, to take us over the results.

Over to you, Bill.

[Bill Kyriacou, executive]

Thank you, Charif. And thanks, everybody, for joining us today.

We are pleased to report continued strong growth across the key metrics for the business in the March quarter.

For ARR, we saw consistent growth by 15% on prior quarter, 71% year-on-year, to yield a AUD 17 million ARR at the end of March. For paid users, we increased, as Charif mentioned, [indiscernible] 81,000 new users for the quarter, taking us from the 649,000 to the 730,000 users. So we're up 13% quarter-on-quarter and 55% on the prior corresponding period. Our monthly ARPU for the quarter ended at $1.95, which on a floating currency basis was on par with prior quarter. On a constant currency basis, we're up 3% on prior quarter and 11% on prior corresponding period. And this is due to a [ steady ] mix shift to higher-priced and -featured products.

Our gross margin has improved by 1 percentage point in the quarter. We have implemented cost-saving initiatives in storage capacity, which have contributed to the gross margin improvement. We also expect some further improvements in subsequent quarters for gross margin.

For direct transacting partners, we have increased 3% on prior quarter from 409 to 421 transacting partners, but we also added 197 indirect MSP partners, which is a significant addition for the last quarter. Our revenue churn remains consistently low and steady at sub 3% at the end of the quarter, which is consistent with the last quarter and prior corresponding period.

Our cash flow by quarter shows where we've come from in March '22 to where we're at now -- in March '20 to where we're at now in March 2022. We can see, in December quarter, we had a positive cash flow of $231,000. And in the March quarter that we've just finished, we've gone into a cash burn of $245,000. Now the rationale behind that, and we did mention this in the prior webinar, we've invested heavily in the future growth, but we've also got the negative cash flow quarter driven by the annual bonus payment for senior staff that had come through. We've had annual insurance renewals that have gone through and software renewals on an annual basis that have gone through, plus some other one-off items during that period. You'll also note the $245,000 cash burn in March excludes payments for due diligence advisers of $270,000 in the quarter of -- the first quarter of this year.

Our cash receipts increased 9% month-on-month from $3.42 million to $3.72 million for the quarter. This is a 9% quarter-on-quarter growth and 72% prior-corresponding-period growth on a normalized basis. We had strong collections in the quarter that's just passed, but these were partially offset by the AUD appreciation against USD in the March quarter. This affects our AUD cash receipts, with the majority of the receipts collected in USD. Our [ DSO ] KPI for the March quarter actually marginally reduced versus the December quarter, so it's not a debtors issue. It's more aligned with the FX increasing [indiscernible].

Our cash payments on a line-by-line basis: We have payments for storage costs which are growing quarter-on-quarter, with March payments up 15% on prior quarter and 104% on the prior corresponding period. This has facilitated the need to implement these gross margin initiatives that we've mentioned earlier. Payments for staff have also increased on prior corresponding period, which are now up 50% on March 2021. This is due to our continued investment in staff and bench strength, including the onboarding of our CTO, our Global Head of HR and our Global Support Manager in this quarter. We also had payments for marketing that have increased circa 300% on the prior corresponding period, with increases relating to conferences and online activities and initiatives and remembering here that conferences were all canceled this time last year with the world being in lockdown. So this is the March quarter was a normalized marketing spend, but in comparison to prior corresponding period, it is a material increase there.

As mentioned, our normalized cash used in operations was a burn of $245,000 for the quarter. This is excluding the due diligence payments [ there ]. In summary, we are committed to our outlook for positive operational cash flow for 2022.

[ Thank you ]...

[Charif Elansari, executive]

Thank you, Bill, for the update.

Now let's talk more about our future growth. As Bill just mentioned, we are reiterating the profitability and cash flow generation for 2022. We are in this amazing situation where we have some meaningful enablers for growth from tailwinds, to the white space available, to the growing partner network, product leadership, the great team that we've built. And given all of these enablers and given the tailwinds that we talked about before, we want to have this flywheel where we are growing our revenue and, of course, our ARR. We are reinvesting that for growth and then rinse and repeat. The idea here is not to go back to loss, not to go back to cash burn but to stay in the black, as they say, while ensuring that we are reinvesting in the company for future growth.

Now when we think about it in the -- in terms of the next-level thinking, there are 3 main growth pillars for us: number one, existing business growth. We still have massive white space. If you look at the partner ecosystem, we have about 2% or less of the total number of partners that are available worldwide. I'm talking mostly in OECD countries. That's number one, and that's growing and continues to grow at a very fast clip.

Number two, we reiterate our commitment to introduce new revenue streams by the end of 2023 by introducing new products that can be cross-sold to our growing partner base, that would most likely also improve our revenue per user and our gross margin as we go forward, especially in 2023 and beyond. And number three, we are going to embark on accretive but, very importantly, high-conviction acquisitions when we see them; and when we find the right company that fits our product stack, our team culture and our ability to sell more and more meaningful data protection products to our growing partner base.

Now that combination of growing the existing business, introducing new products organically and then accretive high-conviction acquisitions, we have a strong belief that we'll be able to deliver very strong growth, yes, until 2025 that is definitely ahead of the growth of the market overall.

In closing. I've never been more optimistic about our future, right? You've got the tailwinds. You've got us leading from a product standpoints. We've built a great team and a great culture. We have cash in the bank for acquisitions. We reiterate our ARR growth and optimism for 2022 and beyond. And we reiterate again that we're going to be profitable and cash flow positive for this year.

With that, I conclude this section of this webinar. And I'll be very happy to receive your questions now.

Thank you.

[Craig Sainsbury, analyst]

[Operator Instructions] First question coming in, Charif, there's a few of them, just around how should we think about the range of GP margins going forward. [ Are we seeing a ] 60% to 64% range? Or we'd be expecting that to move.

[Charif Elansari, executive]

Yes, while we're not giving specific guidance at this moment on gross margin, we sincerely believe that we've turned a corner in terms of gross margin in March. And we are optimistic to see further improvements throughout the year without giving a specific guidance at this moment.

[Craig Sainsbury, analyst]

Okay, a follow-up question from that is good GP doesn't always necessarily translate into good EBIT and EBITDA margins. How scalable is the business to keep on converting that GP into EBITDA and profitability going forward?

[Charif Elansari, executive]

Yes. I mean I love this question. I mean there is a couple of things that we need to understand, first of all, about our GP. The one thing to keep in mind is that what we're doing is we have a business model that is partner led. That means we derive almost -- 95% of our revenue comes from partners. What does this mean? It means that we are enabling our partners to sell, market, support, [ build ] and provision our solutions to the end clients. In return, they got -- they get a certain discount for doing all of the above. So actually, when you look at our OpEx: We have some meaningful operational leverage because of this model because we don't have to invest that amount of money and resources in sales and marketing and support. And if you look actually at our team, 2/3 of our team are in the product and engineering team. The short answer and the bottom line is we have a highly scalable business with solid operational leverage because of this model.

[Craig Sainsbury, analyst]

Just another one on the margins. Are you able to give any color on how that progressed through the quarter? And in particular, the question is what was the exit GP margin at the end of the quarter.

[Charif Elansari, executive]

Yes. So to keep in mind -- and I think we need to do a better job. The exit gross margin, which is the gross margin of March, is the one that we highlight in our numbers. And that's what we've been doing historically since inception. Perhaps we need to add an aesthetic in the future to make it clearer [ for everyone ].

[Craig Sainsbury, analyst]

Great. And [ I'll take it onboard ] to put that into the next release as well.

[Charif Elansari, executive]

Thank you.

[Craig Sainsbury, analyst]

[indiscernible] question on revenue and the, I guess, global presence of Dropsuite. How is the revenue growth spread across key regions? Was it coming from mainly the outsourcing growth across all of the key markets you're operating in?

[Charif Elansari, executive]

That's right. Thank you. I have to say that our rising star in terms of percentage growth have been Europe [indiscernible] [ include it in ] Q1. We had an enterprise win in Europe in Q1. The business is growing at a very fast clip there. We just added a phenomenal sales executive to support the team there, who just joined us last week. So that was the rising star in terms of percentage growth. North America continues to be our biggest market, followed by Europe and followed then by South America and Asia Pacific combined. We're also very excited about Australia and New Zealand, so we're going to be starting adding resources on the ground there for the first time in our history as a company.

[Craig Sainsbury, analyst]

And there's a follow-up question from that. Can you just expand a little bit, please, on emerging markets and the growth you're seeing in those regions?

[Charif Elansari, executive]

Yes. We have taken a very specific, focused approach in growing the business. And the approach is we're going to be really focused on OECD countries without working in countries like India and Indonesia and China. Now we do this doesn't mean -- doing this doesn't mean that we refuse to do business in these geographies. It's just, when you think about feet on the ground, when you think about localization, when it comes about product feedback and requirements from partners, the OECD countries are the ones in focus. Now keep in mind that, when I counted that we have 2% of the total partner base, that was just in OECD countries, so we have a very strong belief that we need to be focused. And that means we're focused geographically on OECD companies. We're focused also on the partner ecosystem. And then we deliver the growth in a very focused and meaningful way.

[Craig Sainsbury, analyst]

Great. There's one more question on revenue. Should we be expecting to add more incremental annual recurring revenue, ARR, each quarter?

[Charif Elansari, executive]

Yes, yes. I mean we look at it from an annual standpoint, all right? When you look at the way we manage our business as a Board and with myself and with Bill, we [ look like ] trying to like maximize something specific in a quarter. So then -- I really encourage the attendees and the listeners as to really think about our business on an annual standpoint. So the short answer is we do expect meaningful year-on-year growth, with some possible fluctuations on a quarterly basis, but the bottom line is the growth is going to be meaningfully higher than the industry as we've seen in the past few years.

[Craig Sainsbury, analyst]

Great. A couple of questions from -- you, Bill. There's a few that have just come in about the cash outflow that occurred [ for the ] quarter. I think some of those questions may have been lodged before you got to your slide and talked through it, but if you could just reiterate, what drove that cash outflow during the quarter? And I guess, just a bit of an outlook, if you can, in terms of where you think the company will be from a cash flow position over the course of 2022 as a whole.

[Bill Kyriacou, executive]

Yes. Thanks, Craig, yes. So what drove the cash outflow for the quarter were in the presentation but mostly around Q1 being a historically high-cash-outflow quarter for us. We've got annual bonuses for staff. We've got insurance renewals. We've got software renewals that go through there. So they're the real key drivers there that have pushed that number [ out ] in terms of going back into a cash burn for Q1. Going forward, in subsequent quarters, we're expecting that we're going to be cash flow -- operational cash flow positive for the remainder of the year. And for the end of the year in 2022, we also reiterate that we're going to be cash flow operational positive for the 2022 year.

[Charif Elansari, executive]

This is something I was alluding to, Craig, earlier. It's that I really encourage our listeners to focus on the year. And that's how we manage our business. Like we don't try to optimize a quarter versus another quarter. So if we have big payments in Q1, so be it. As long as we have a clear line of sight about our expenditures and our -- obviously our revenue forecasts, we reiterate our outlook of positive cash flow and profitability.

[Craig Sainsbury, analyst]

Great. Now there's about 4 or 5 questions that are all around sort of the MSP network, so I'll work through these in a bunch. Can you please talk about your pipeline from a partner perspective? And what are you expecting for potential new partner additions over '22?

[Charif Elansari, executive]

Yes. I mean we continue to be building a meaningful pipeline of new opportunities. That's number one. And you heard Bill mentioning earlier about the increase in marketing expenditures. Again, within control, within budget, but there was a massive increase in Q1 because we are seeing some very nice uptick in activities that are also leading to more leads and more opportunities. That's number one. The other thing that comes on top of it is that we continue to see meaningful growth with existing partners. And that combination of seeing [ helping ] from new partners, whether it's direct or indirect, plus the fact that our existing partners are -- themselves are growing is the beautiful combination that's yielding the solid results that we're seeing on ARR.

[Craig Sainsbury, analyst]

Next question is, when you onboard a new MSP, how long does it take for them to start rolling it out [indiscernible]?

[Charif Elansari, executive]

Yes. There are multiple flavors of this, and I'll explain the 3 main flavors of how it goes. The first one is the MSP takes a strategic decision that says, "I'm going to be selling a security stack of services." And then it's going to include security, different kinds of backup, maybe Office 365. And that's going to be my bundle going forward. And let's say they have 800 users or 1,000 users across, let's say, 20 clients. You wake up next day and then you have 1,000 feet -- or 800 users [ or see it ] from that specific MSP. So that's flavor number one. Flavor number two, some MSPs saying, "We want to do this, but we're going to do it as we do our quarterly business reviews with our clients." So let's say another MSP has 2,000 users across 50 clients. They roll it over a year. So every time there's a quarterly business review, they will roll out the service to these clients. Plus, they will sell the full package, security package and backup package, to every new client that comes onboard. So that's flavor number two.

Flavor number three is purely reactive, which is basically saying I don't want to be in the business of selling solutions and bundles and stacks. I will be reactive and I will deploy the backup whenever the customer asks for it. Obviously we're focusing more on the first and second MSPs, but sometimes the business comes literally in 24 hours or 48 hours, in decent numbers.

[Craig Sainsbury, analyst]

Great. Next question: Roughly about 81,000 users were added over the quarter. Are you able to give any color on how many of those come in versus -- from existing versus new partner channels?

[Charif Elansari, executive]

Yes. I mean we haven't been splitting these numbers, but if you read between the lines on what Bill said where we added about 200 new partners direct and indirect, I believe we have a healthy mix of both. And I just want to reiterate the -- something that I mentioned a couple of minutes ago. We are really happy with the traction with existing partners in terms of themselves adding new seats as well, so I will say there was a healthy mix between existing and new partners in Q1.

[Craig Sainsbury, analyst]

All right. And were there any large migrations in the first quarter?

[Charif Elansari, executive]

Yes. As I alluded to without giving specific numbers, we did have a big enterprise customer -- becoming a customer through one of [ those ] strategic partners in Europe. And that was a very pleasing development for us.

[Craig Sainsbury, analyst]

All right. Just a question around the indirect partners: How many do you have in total at present?

[Charif Elansari, executive]

Yes. We have north of 2,000 partners transacting globally. And we -- and that's why, when I said 2% or less of the addressable market of partners, the addressable market -- I mean there are multiple measurements and analysis, but if we assume 150,000 MSPs in OECD countries -- we have less than 2% of the addressable market.

[Craig Sainsbury, analyst]

All right. And there's a few questions just in terms of how you drive those MSPs into the network. Are they coming to you, or do you go out seeking those MSPs? And the question underneath that is how many salespeople do you have focused on adding partners into your network.

[Charif Elansari, executive]

Yes. I mean, to answer your first question: We have multiple levers to drive new partners joining us. Word of mouth continues to be a very, very powerful lever that we have. We have built a really beautiful reputation. If people look at like completely un-moderated forums like Reddit, you can see our reputation being really, really high and good there. So [ referrals ] is very high, and word of mouth. Number two, we've been publishing and doing a lot of high-quality content; and that's leading to a meaningful increase to new partner leads coming through our website and [indiscernible] to become a partner. That's number two. Number three, we're -- we continue to [ work with our ] strategic distribution partners on demand generation, marketing development fronts [indiscernible]. And that also drives a demand as well. [ So we have ] 3 main levers. And then on top of them, we are becoming more active in trade shows [indiscernible] 2022. And that historically has been very good for us in terms of new lead generation and new partner business.

[Craig Sainsbury, analyst]

All right. In terms of salespeople directly engaging, [ how many ]...

[Charif Elansari, executive]

My apologies. We have a small sales team. We have about 10 people globally. So as I said, I mean, we have a team of 75 total. And of the 75, we have about 10 very capable 10 -- sales team members; and more to come in 2022 and beyond.

[Craig Sainsbury, analyst]

And that was the follow-up question. Of that number now, how do you expect that to grow over the course [indiscernible] [ years ]?

[Charif Elansari, executive]

Yes, sure. I mean, again if you'd take a page from what we talked about how scalable our business is and how we can derive operational leverage: We don't need to have like a crazy amount of salespeople because of our partner-led business model, so what I would say is expect moderate increase to these numbers in 2022.

[Craig Sainsbury, analyst]

All right. One last one on the partner network. There was an enterprise customer in Europe that came in over the quarter. Is that an area that you can see a large level of growth in, the enterprise space, and potentially just moving away from being a purely SMB-focused business?

[Charif Elansari, executive]

Yes. I mean the way I see enterprise is that it is an important part of -- obviously of the addressable market, but at the same time, I see it as the cherry on the cake, as opposed to the cake itself. We have a bull's-eye right now with this partner ecosystem combination with SMB to mid enterprise, right, so anywhere, we can service supremely well, from 1 user to like 2,000 users, all right? And you can argue that anything between 500 to 2,000 is -- becomes enterprise, right? So that's going to continue to be our sweet spot and our bull's-eye in terms of focus. And every quarter, we tend to get a couple of enterprise deals; and that's something that we expect to continue in the foreseeable future.

[Craig Sainsbury, analyst]

Got it. Moving on, there's a few questions that have come in around competitive advantage, so I'll group all of these together. Being a business that's focused on [ the single platforms of ] Microsoft and Google, what's the risk that they bring that solution in house and you see a deterioration of users from those platforms?

[Charif Elansari, executive]

Yes. This is something that -- when you look at it from -- like from the outside perspective, you see this massive 500-pound gorilla who can do anything, right, which is like a Microsoft or a Google, but then when you think about it from a first principle standpoint, what is backup, all right? Backup is when you take your data -- in this case, we're talking about data. You take your data. You completely separate it from where you're working and what's called the production environment. You take it out. You encrypt it and you save it somewhere completely different, so if anything happens to it, you have everything available to discover and recover, okay? So if you think about that, backup is one of the least likely areas -- again, I'm not saying impossible. I'm just saying it's the least likely areas for companies like Microsoft and Google to offer and compete in services there. And even if you look at their own terms of service -- I mean you can just Google Microsoft terms and (sic) [ of ] service. If you look at clause 6a and 6b, they specifically tell you they are not responsible for your data and they recommend a third-party solution for backup. Otherwise, they're going to have a huge amount of litigation coming their way.

[Craig Sainsbury, analyst]

[ Correct ]. [indiscernible] who are your key competitors. And how does your product offering differentiate from them?

[Charif Elansari, executive]

We -- when we think about competition, we're thinking mostly about the competition that's playing in the same area that we are, which is the SMB and mid-enterprise going through managed service providers, the MSP partners. The #1 competitor there is a company called Datto that just got acquired. So they are the major player there. And then there are a few others, like SkyKick as another example that does migration from on premise to Microsoft or from Google to Microsoft and few others. Keep in mind, though, that we are the premium product in the market. Even though Datto is much, much larger than we are, we are selling our products at about 25% premium versus a company like Datto.

And the way we derive our competitive advantage there is by, number one, being really focused on doing something really well. And in this case, we're talking about e-mail and productivity data protection, while Datto was doing like 25 different things. We involve our partners in our road map discussions on a regular basis. We don't have any legacy businesses to deal with. Everything is in modern cloud architecture. We have delivered definitely the best user experience in terms of combining, for example, backup with compliance and archiving, which is truly unique in the market. So we cater to disaster recovery. We also cater to compliance and lawsuits and audits by an auditor or a lawyer or an HR manager. We have the best search capabilities of any of these vendors that I mentioned, and more. And then we also add more insights and analytics to the data, making a bit more sense out of it; and more to come in the foreseeable future.

So I mean for me it's all about empirical evidence, right, if we are growing much faster than these competition while selling at a higher price, all right? Number one. And number two, getting [indiscernible] accolades like software reviews on where we stack compared to competition makes me very happy with where we are today. Now that said, you can never stand still in software business, [ all right? It is that ] we have to continuously improve and expand and continue to delight our partners and their customers.

[Craig Sainsbury, analyst]

And it's probably not a bad segue into a few questions that have been posed here around that acquisition of Datto. In particular, was the acquisition's price a little bit of a surprise for you given the earnings profile of Datto? Is there any read-through from that to Dropsuite?

[Charif Elansari, executive]

Yes, that's a great question. And I want to say it bodes well for Dropsuite on 2 different but, in a way, complementary fronts. Number one, I was truly surprised about the valuation of this acquisition. I mean the company is growing at about 19%, 20% per year. Obviously it's a much bigger company. Their ARR, I think, was about USD 600 million. And they got acquired at about $6 billion, so they were able to fetch about 10x annualized recurring revenue multiple on a company growing at 19% to 20% per annum, all right? So that gives more validation on our value [ to ensure ] shareholders and investors, but equally importantly, generally speaking, when you have 2 companies merging and both of them are in the MSP industry, Kaseya who acquired and Datto the acquired company, there is always mayhem for the coming 6 to 12 months when it comes to who's going to -- things go. Which [ product is ] going to be used? And I think that bodes well for us. And actually we're seeing a slight uptick actually in partner inquiries driven by that chaos that is inevitable in my view.

[Craig Sainsbury, analyst]

We've got 3 more questions sitting here. The first one is on acquisitions. [indiscernible] due diligence on targets still active at present?

[Charif Elansari, executive]

Yes, yes. I would say we are very active but at the pre due diligence stage. When I say pre due diligence, that means we haven't engaged lawyers and auditors yet, but we do have regular discussions with new targets or follow-up discussions with existing targets. That's progressing well, but as I said, we're making sure that we have high conviction that we have high-quality acquisitions as we go through this journey.

[Craig Sainsbury, analyst]

Great. Next one, completion of the SOC 2. Has this added any meaningful revenue into the business over the previous quarter?

[Charif Elansari, executive]

Yes. I mean keep in mind that we started with the journey with SOC 2-1 about a year-plus ago, and then we got SOC 2-2. So clearly, when you see us winning an enterprise deal in EMEA, for as an example, which is one of the largest one in the history of the company -- SOC 2-2 is an integral part of that win. And that is something that will continue improving our data privacy cadence, data handling cadence and [ skilled ] cadence and posture as we go forward. And SOC 2-2 is just one of these things that we've done, and more to come.

[Craig Sainsbury, analyst]

Great. And last question, which I think is a very pertinent one to finish on: the announcement being the federal budget [ of about that ] $10 billion being spent on cybersecurity and some of the tax incentives that you're seeing there for small businesses to take up the technology solutions. How do you think that will impact your business over the coming [ year or so ]?

[Charif Elansari, executive]

Yes. I mean this is near and dear to our heart. I mean there's a couple of things that we need to know not only in the budget but also in the regulation that was coupled with the budget. So when it comes to the budget, I think it's phenomenal, right, because the government wants to invest and wants the business to invest in improving their data protection cadence and their cybersecurity cadence, which definitely bodes well for us, including like you mentioned tax rebate for small and medium businesses. But also along the same lines, the regulation was really interesting to look at.

What the Australian government has done, and they're definitely ahead of the pack, they've identified what they call SoNS, systems of national significance, things like water, health care, electricity. And they're almost starting to regulate their security cadence. And they're allocating a certain ranking on how well is their security. And they're dictating that this security cadence and data have to be shared with the government, things like multifactor authentication, things like patching of software. When you need to patch it, you do it quickly within 48 hours. Obviously backup is 1 of the 8 things that they had listed. And I have a feeling here that this is a little bit like a seatbelt moment where seatbelt was optional and over time it becomes compulsory. Now obviously this is the very beginning of that movement, but I'm going to -- I'm expecting to see more of that happening around the world. And that surely bodes well for companies like us and hundreds of others in the space.

[Craig Sainsbury, analyst]

Thanks, Charif. That's the end of the questions, so with that, I'll just hand back to you for any final closing remarks.

[Charif Elansari, executive]

Yes. I mean I want to absolutely share my gratitude for having -- meeting shareholders and investors who've been with us on the journey. I also want to welcome the new ones who've joined us recently.

And I want to reiterate that I've never been more optimistic about our future, right? We've built the right team. We have the right products. We're grateful to be operating in the right industry, and I look forward to updating you in the ensuing quarters.

And thank you again for joining us today.