Dropsuite Ltd

ASX:DSE

Earnings Call Transcript 2023-Q1

[Craig Sainsbury]

Good morning, everybody, and welcome to Dropsuite's First Quarter 2023 results call. I'm Craig Sainsbury, Investor Relations. With me today, we have the CEO, Charif El-Ansari; and CFO, Bill Kyriacou. [Operator Instructions]

So with that, Charif, I'll now hand it across to you.

[Charif Elansari, executive]

Thank you, Craig. I want to thank everyone for joining us today. I'm very pleased to announce and discuss a record quarter -- another record quarter for Dropsuite. We've exceeded 1 million paid users. We're approaching $30 million of ARR. We've onboarded some phenomenal team members rounding up our leadership team as well with the hiring of our Chief Product Officer back in January of this year. And very importantly, we believe -- I believe we've hit our first ever positive Q1 cash flow. Q1 tends to have a lot of outgoing expenses. So I'm very pleased to see this traction.

If you go to the next slide, the backdrop continues to be very positive for a company like Dropsuite. We are in the data protection business. We're seeing continuous macro tailwinds all across the board, right? From ransomware, cybersecurity to regulation, and this is not just talking about regulation on data privacy, but even regulation on security postures should become more and more important over time. And you've got also the strain on hiring IT professionals despite some of the layoffs that you hear from the big tech companies, this continues to be a restrain for our MSP partners.

And in addition to that, we're seeing also more tailwinds coming from cybersecurity insurance, meaning that companies that would need to be eligible for cyber insurance are required to have more and more security and data protection layered into their business before they even qualify.

We are delivering products that are absolutely needed for data protection for delisting the companies and helping businesses stay in business. From [indiscernible] [ database back up ] to all [ flavors ] of email and productivity and our latest product that's going to start monetization in April that has already started, which is QuickBooks Online, and that's the accounting software backup, and that's the #1 company in North America. We've launched it with very good initial feedback from our MSP partners and our distribution partners as well. We'll update the market in the next few months as we pursue the go-to-market and the growth opportunities on this product.

The idea here is to deliver additional products in data protection to support our MSP and their end users, our partners and deliver that with a really good user experience, taking a page from our existing product lines and continuing with the same focus on expanding our partner base with new products.

This is really important to note that we are able to scale to the level that we've scaled with the amount of OpEx that we are spending and investing in this. And frankly, even if you look at the total capital that we've raised since inception, it is underpinned by a very scalable and very powerful business model, right? You've got the MSP partners, the IT [ reseller ] partners, the distributors in the middle. It's a win-win-win for everyone. The end clients win by having the data protected and they're being able to comply with regulations. The IT reseller partner is benefiting from protecting their own reputation and their own business, frankly, in addition to [ layering ] recurring revenue and profit and increasing the depth of their products. And of course, Dropsuite benefit from the scheme that I just articulated, recurring revenues and additional paid users without having to scale OpEx to a place where we would cause the company to be continuing to be in cash flow negative territory and loss. So we continue focusing on staying in the positive cash flow and the profit wisely investing for the future.

We delivered this with, again, with weaving our products into the partner workflows and to their dashboards and their portals. We also deliver this with delivering to the partners and to the end users and exceptional user experience that's underpinned with a very strong set of features that combines a backup and recovery options as well as compliance and archiving, which is quite unique in the industry. Everything is delivered in a cutting-edge cloud platform that is available in 14 different locations globally. And of course, they're underpinned by a strong team and a strong culture.

So the bottom line here is, you've got the tailwinds, you've got [ relevant data collection ] products, you've got a phenomenal business model, and we've got the Dropsuite advantage in terms of experience that we deliver to our partners and our customers. And that has delivered some phenomenal growth for us that we've been seeing for the last many quarters, and I will let my colleague, Bill, our CFO, to take you through the numbers. Over to you, Bill. Thank you.

[Bill Kyriacou, executive]

Thank you, Charif, and thanks to everybody for your time today. In the financial overview, I will present our key business metrics and cash flow improvements. As we exit the March quarter, we continue with our ARR momentum. We have double-digit growth paired with low partner revenue churn. Other key takeaways, gross margin stabilizing at 69% in the March quarter and pleasingly up 7 percentage points from the March '22 quarter. We continue to execute a range of cost mitigation measures and cloud scaling initiatives and we expect 2023 gross margin to operate in a similar range to the second half of '22, excluding any FX impacts from USD currency movements.

Operating cash flow was positive for the fourth consecutive quarter as we continue with reinvestment throughout 2023. Our paid user seats for March quarter surpassed 1 million users, representing a 39% year-on-year growth. We added 87,000 gross paid users, which were slightly offset by the deactivation of 7,000 seats from a low ARPU legacy hosting partners and users. And our ARPU had a slight improvement over prior quarter with our continued mix shift to higher-priced, higher-featured products with some benefit from the deactivation of the just mentioned lower seat. Our cash receipts for the March quarter were consistent with our ARR growth.

The graphs here truly outline the growth story of Dropsuite over the last 3 years with paid users and ARPU growth leading to ARR growth flowing to cash receipts growth and then a decrease in operating expense cost-to-income ratios.

We expect to see a similar growth trend across this year. We are pleased to report our fourth consecutive cash flow quarter in March with positive operating cash flow of $280,000, up -- greater than 150% on the cash burn quarter of March '22. Cash receipts grew 10% on the prior quarter with strong collections during the quarter. And our key collection metrics remained steady against prior year average, with no material delays or risk of doubtful debts.

Our total cash payments to suppliers increased in the March quarter by 11%. This is a lower increase compared to the December quarter increase of 14%, with March including [ rates ] and salaries growth during the quarter, which also incorporated a record number of new starters in the quarter plus a new payments for subscriptions, insurances and staff performance bonuses.

Payments for cost of sales in the quarter actually reduced on prior quarter slightly with the benefits of lower search and storage costs from our focus on gross margin improvement, continuing to reduce the cash payments for our cost of sales. We do have a natural cash hedge for USD cost of sales, salaries and supplier payments as our majority of our cash receipts are collected in USD. Thank you, Charif.

[Charif Elansari, executive]

Thank you, Bill. As we talked about earlier, the industry is actually seeing headwinds and complexities from industry regulations, privacy laws, focused on security and security posture. We talked about the cyber insurance before. These headwinds that the industry faces is actually our tailwinds. And we expect the secular shifts to continue and to continue to be really well aligned with our product strategy and our go-to-market strategy.

Now couple that with a partner-led or a partner-first business model that continues to deliver very solid results. We added about 230 partners in Q1 both direct and indirect. Direct means directly to us, indirect means going through our wholesalers and distribution partners. And that culminated in about 1 million paid users, a record number in the history of the company. So you've got the backdrop of the -- our tailwinds, the industry headwinds, you've got a very scalable and efficient business model.

Next slide Bill, please. We expect to continue taking advantage of the white space in the market, the tailwinds, the growing partner network, the great feedback received in our product, the fact that we've built a phenomenal team and leadership team included in this. The expectation here is while we continue to stay cash flow positive, we will continue reinvesting for growth. And this reinvestment will come in 3 different forms.

The first one is continue investing in the core business by protecting and accelerating the core of the business means like Office 365 Backup and archiving would be a great example of that as well as Google workspace. And of course, with that comes the focus on supporting and delighting the partners. So we continue driving this low churn that we continue to see in the market, plus some phenomenal net revenue retention on partners that we're transacting with us from 1 year back. We'll talk more about these metrics in our May Annual General meeting.

So focusing on the core business continues to be really core for us, right? The rationale is we still have a lot of white space. We don't have more than 2.5% of the MSPs globally transacting with us. And security and backup continues to be a core offering that being key to the solution stack that our partners are offering. And of course, this will translate into more ARR, more I think, transacting partners and more paid users.

The second pillar is product innovation. And the idea here is to replicate the user experience that we are and have been providing to our partners into new products. One example is QuickBooks Online Backup that we discussed earlier. Second example will be launching government -- U.S. government cloud backup for Office 365, and that is also going live very, very soon.

And here, the idea here is that again, data protection and security will continue to be a core MSP offering. We talked about the tailwinds and the headwinds earlier. The concept here is also to help our MSP partners who are always thirsty for new product offerings, so they can increase their recurring revenues and profit. And product innovation will also show up in our ARR numbers, our ARPU numbers, the average revenue per user as well as our gross margin numbers.

And then lastly, we continue pursuing high conviction accretive acquisitions. And the rationale is almost the same. We want to broaden our data protection offerings and solutions, expand the share of wallet with our existing and new partners by having them buying more and more products from us.

And again, the rationale is, we continue to believe that SaaS Protection continues to be an underserved area. And we talked about helping MSPs growing their recurring revenues and profits. And the rationale of doing acquisitions is that you have a faster path to market, right? We're not trying to invest in companies or buy companies that don't have any revenue and barely have a product. The idea here is to have companies -- the acquired companies that have a proven product that they have been selling in the market. And the idea is to integrate this into our partner, experience and then generate more layers of ARR, expand our ARPU and improve our gross margin.

With that, before I conclude the presentation, I'd like Craig to start fielding the questions. We're happy to answer any questions, and then we'll have the closing remarks towards the end. Over to you, Craig.

[Craig Sainsbury]

Thanks, Charif. [Operator Instructions] First question, can you please discuss how many indirect transacting partners you have? And how many of those do you think are yet to transact with Dropsuite?

[Charif Elansari, executive]

Yes, It's important to note that when we count the direct or indirect transacting partners, the keyword here is transacting. Transacting means that we are invoiced -- already invoicing the partners, whether direct or indirect. The second portion of the question is how many indirect partners we have. We have an estimated 50 indirect partners working with us across mostly OECD countries with few exceptions in developed countries as well. And then all of those are transacting and revenue generating. Now of course, the level of or the opportunity with each indirect partner will vary depending on their size and their success in the MSP market.

[Craig Sainsbury]

Next question is, how much of your total R&D spend today would be on same business versus new product development?

[Charif Elansari, executive]

Well, we talked about the importance of the core business. And when we talk about the core business and the existing core products, they continue to take a good part of our R&D spend. But just to be clear, when we talk about spending on core, that means enhancing the product, making it more appealing to new segments. We talked about government, as an example. We historically have talked about more appeal into the mid-enterprise [ plus ] segment. So we're talking about broadening the appeal of our product across more categories and more verticals. So in short, we continue to spend more of our R&D on existing core products, but a big part of that is to really expand the total adjustable market that we can serve as a company.

[Craig Sainsbury]

Further to that, can you just discuss a little bit, please, the uptake of the new product launches over the previous, say, 6 and 12 months?

[Charif Elansari, executive]

Yes. I mean the latest product that is live -- completely live is Google Workspace Backup and archiving, and that has been doing quite well. We don't split the product by revenue, but I can assure you that the product has grown significantly over the last year and a half. Now QuickBooks Online has just started monetization in the beginning of April. So I think it's a little bit premature to talk about the traction on that program. The important thing to note is that we are launching new products, but we are not changing the go-to-market and the channels. We'll continue to offer and launch new products within the existing partner base. So we're doing a lot more cross-selling as opposed to creating a really expensive new channel and servicing it accordingly.

[Craig Sainsbury]

There were a few questions on QuickBooks. I think you've answered it to a degree. But really around with QuickBooks, how does this place you to deliver further SaaS backups? Will it be the same cost? Or is this something to lead on to other opportunities for the business?

[Charif Elansari, executive]

Yes. So QuickBooks is used by, I would say, about north of 70% of small and medium businesses in the United States. And into it, the company that owns Quickbooks has launched QuickBooks in the MSP space late last year, and they're calling it 1 of their top 5 big bets. So the idea here is to add new SaaS data protection products in the form of an example with the QuickBooks Online backup to the channel that we offer. And that if successful, obviously, will generate more annualized recurring revenue, but it also is [ intrinsically ] higher gross margin and higher ARPU compared to the averages that you see in our numbers today.

[Craig Sainsbury]

Right. The follow-up question on that is, how is that rollout progressing with QuickBooks versus initial expectations?

[Charif Elansari, executive]

Well, we are very happy with the initial reaction from our MSP partners. Remember, this one -- this product was launched earlier this year in a closed [ beta ] and we announced this in our December quarterly update. So we see a lot of good feedback from a limited number of MSPs first, then we started a big push in very early April. And the results have been really good, I would say, above our expectations from an initial stake perspective.

[Craig Sainsbury]

Next question, it has been some very high revenue growth, higher gross profit with -- to a degree, limited marketing spend, which should see some strong operating leverage over 2023 and beyond. Does Dropsuite have a mantra around its reinvestment rate versus earnings margin?

[Charif Elansari, executive]

Yes. We, of course, we want to limit and create constraints into how we reinvest in the business. So for example, 1 of the metrics that Bill showed in the presentation is what is OpEx as a percent of revenue. And that's hovering around the 60% mark, right? So the idea here is we invest in very specific areas, right? So the product has to be in [ data protection. ] The channel has to be our indirect and direct partners, namely the managed service provider space. And then we predominantly focus on a combination of R&D reinvestment as well as sales and marketing reinvestment. Bill mentioned that we had a record number of new employees joining us in the beginning of this year, the first 3 months of this year. And the idea here is to expand our footprint and the level of activity that we do. So for example, we are expanding our sales team across locations in Asia Pacific, North America and EMEA. We're increasing the rate and level of specialization in the sales team. So the person who's doing hunting, which we call hunting, people who are really aggressive and try to get product demos are going to be different and are now different from the people who are harvesting and creating customer success and partner success from existing partners. So that's a big area for reinvesting for us. We're also -- as we mentioned earlier, we're investing in new products as well as expanding the addressable market for our existing core products as well. All that is done with focusing on remaining cash flow positive and profitable for 2023 and hovering around the 60% mark in terms of OpEx as a percentage of revenue.

[Craig Sainsbury]

A couple of questions, which I'll just group together around gross profit margins was around sort of been in the high 60%, 69% for this quarter. Is that a sustainable level or with some greater scale and growth of the business, that's a figure that we could move up into the 70s over time.

[Bill Kyriacou, executive]

I can take this one, Charif. So with regards to the gross profit percentages and how we're tracking at the moment, we believe -- this is -- we will stabilize in the current percentage range. So we've indicated that will stabilize in the same range as what we had in the second half of 2022. Now this is by us adding capacity, so in terms of new users that have come on board but also continuing with these storage initiatives to reduce the cost of our storage going forward as well. So there's a two-pronged approach in that sense.

[Craig Sainsbury]

Great. Dropsuite raised funds about 1.5 years ago for acquisitions. And you've talked a little bit about this over the past couple of results calls, but can you provide a little bit of an update on what's progressing and why that funds hasn't yet deployed to an acquisition?

[Charif Elansari, executive]

Yes, that's a very fair comment here, and I'll let [ just hats on ]. We are and have been very particular about the type of companies we are keen to acquire. We talked about how the products have to be market ready. That means they have already established contact with reality in the market. They already have a track record. We also are discussing with companies that are cash flow positive or just breakeven, right? Because we don't want to take the company back to cash flow negative territory. And trust me, if we want to acquire companies that have the product track record but are hemorrhaging cash, there are plenty of opportunities. Now we are avoiding those right now, right? So it's taking more time.

Of course, I would love to be able to announce an acquisition and work on the integration, add the annualized recurring revenue to the business, offer more products to our MSPs But because of the nature and type of companies we're acquiring, this is taking longer than we have anticipated to be completely honest. Something we continue to pursue. It's a high focus area for us. We have now dedicated people doing this starting from beginning of 2023 as opposed to yet another thing that other executives are doing, and that's one of the benefits of expanding the leadership team. So please stay tuned, but please understand also that we are being very particular in the type of companies that we want to acquire.

[Craig Sainsbury]

Next question, what does Dropsuite's sales pipeline and new contract funnel look like? And can you give a bit of an indication about the conversion rates to revenue, please, from that pipeline?

[Charif Elansari, executive]

Yes. A couple of things to note. We continue to build the pipeline. And the pipeline is built through different -- multiple sales motion. We've got the marketing motion from inbound and outbound like outbound means like hiring these SDRs and sales development reps to go and find more MSP partners and establishing rapport with them and then starting to put them in the sales funnel. You've got trade shows which is always a core component of how we generate leads. And then you've got a new one which is webinars. So we do education webinars for the MSP community. And then you've got word of mouth, which is happy MSPs referring other happy MSPs to us, and all of this is building in the funnel.

So that's 1 type of funnel building. The other type of funnel building is that we are specifically focusing efforts on acquiring strategic partners. This could be a large distributor, for example, that has a global presence or is very strong in 1 location. So for example, in Q1, we onboarded a highly strategic European distributor. We are working now with another one, which is a global distributor as well, and those are more of a biz-dev effort as opposed to sales efforts. We are doing well on both fronts. And then the other interesting thing is that as you add new products, it gives you opportunities to create more and more touch points with existing as well as, of course, new partners. So you've got the combination of both. And we are doing both with now, because we have a scaled team with different people who are specialized and accountable to different metrics.

[Craig Sainsbury]

There's a few questions around the customer mix. How has your customer mix evolved in terms of the overall demographics of that end customer?

[Charif Elansari, executive]

Yes. What's really appeasing for us is a couple of things. One, we operate across all verticals. We are vertical agnostic. And because we've also built this compliance in [ organic capabilities ], we are able to appeal for example, to health care, part of finance. Now we have government as well and of course, all the rest of the verticals. We're pretty much vertical agnostic.

The other point to note here is that it's really pleasing to see the growth in the mid-enterprise phase in the last couple of years. Two years ago, we said we're going to focus on mid enterprise, which is -- I mean, there are many ways to paint the picture of what's with enterprise, but definitely above 200 users, I would say about 500 users per organization. We went and got the SOC 2- 2 certification, which is required to be an enterprise. And we're seeing some really healthy moves towards that in terms of the revenue mix. And what we'll do probably in the next presentation, which is happening in May is that we will show the geographical distribution, the vertical distribution as well as the segment distribution by size to our investors and shareholders.

[Craig Sainsbury]

And are you seeing a greater level of growth in that mid-enterprise and larger enterprise space in the traditional SME market at the moment? Or is that relatively similar growth?

[Charif Elansari, executive]

Well, you have to think about the law of big numbers and small numbers. We started with a very low penetration in the mid-enterprise space a couple of years ago. So clearly, from a percentage growth year-on-year, it is eclipsing that of the SMB business.

[Craig Sainsbury]

A couple of questions on sort of growth and outlook. Can you please remind us of the outlook for ARPU growth for the company over the medium term?

[Charif Elansari, executive]

Yes. As you've seen, and it's presented very well in one of the slides in this presentation. We have been evolving our products and our product mix into higher ARPU higher featured product. So when -- for those of you who are following us 3, 4 years ago, our ARPU was almost $1 per user per month, right? As we introduced Office 365 Backup and then -- Office 365 Backup and archiving, which is the highest ARPU product we have, excluding the new products, which would be even higher ARPU. We continue to see a high mix shift and then a higher ARPU. This is expected to continue over the foreseeable future. But it's also contingent on the mix that we see coming from new products as well, like QuickBooks Online Backup and Government Cloud. So in short, it will still be picking up slowly over time. But over a longer period of time, it's going to be dependent on new products being introduced and generating healthy ARR.

[Craig Sainsbury]

You've mentioned in the presentation, Dropsuite's goal is to grow at 3x the broader industry. What is the broader industry growth? So i.e., what are we sort of looking at from an overall growth?

[Charif Elansari, executive]

Yes, the industry is growing in the 20% to 25% range per year, which is extremely healthy. And when we talk about industry here, we are talking about the cloud backup and recovery market, and that is growing in that range. So when we say 2x, we're talking about 40% to 50% growth in the coming 3 years. Now keep in mind that the MSP industry itself is also growing at a very healthy rate of 10% to 15%. So you've got the cloud backup and recovery market growing. You've got the MSP market growing. You've got all the tailwinds that are underpinning this growth. And I feel and the management and the Board feels that given the size of the company and the size of the addressable market and the white space, this is the right type of ambition to have for the next 3 years.

[Craig Sainsbury]

A couple of questions on staff. And you mentioned this before in terms of the growing business development staff. What areas are they been directed to in terms of, I think, both geographies but also in terms of product development or product sales.

[Charif Elansari, executive]

Yes. What we try to do is we try to equip our sales team to be able to sell all the products that we have. And please keep in mind, we don't have like 50 products. We have a few products that we sell. We enable our sales reps. We have specialists in technical support who own a product or 2, right? And they become the expert -- the subject matter experts, and they support the sales team. The idea here is to try to maximize the revenue per sales rep. And the way you do that is by equipping them to sell more than a product. Keep in mind, our products have been built to be really easy to sell, very easy demo, very impressive high conversion from demo to revenue, very, very healthy conversion, which really helps. And the idea is to have more of similar products so our sales reps can become even more productive. So we talked about specialization before, right? So the person doing customer success is different from the person who's onboarding a brand new customer or a partner. That's 1 area we're investing in, which is specialization. The other area here is to have more feet on the ground in APAC and EMEA where we have very limited staff, and we've seen very positive growth as well.

[Craig Sainsbury]

A little bit more specific question around that, in particular, growing your indirect partners. What resources are being devoted to growing your indirect partners and is there a specific business development team to do that. And are there any annual targets being set for partner growth?

[Charif Elansari, executive]

Yes, definitely. We have dedicated people. And as I said, when we talk about strategic direct or indirect partners, we have specific senior people who are focusing on getting these strategic partners. And of course, when we look at the business and we set our targets and we simulate the expected growth rate of the business. We are putting not only ARR revenue targets, we're also putting growth targets for a number of partners transacting. Now this is doubly important because we continue to see strong net revenue retention from partners. So the more partners you onboard, the more benefit you get for the foreseeable future. You've got good revenue retention, you've got flow churn and you've got a growing number of products so we can expand the share of wallet with these partners that we onboard and start transacting.

[Craig Sainsbury]

And you've talked about expanding the appeal of the core products for different industry verticals and in particular, that mid-enterprise customer base. Does this require longer-term direct sales strategy rather than the indirect partners?

[Charif Elansari, executive]

Well, there is still a significant amount of mid-enterprise business that's still taking place with a partner in the middle. And there are 2 flavors here of this partner. There is a specific set of partners that only do mid-enterprises and above. They don't do any SMBs. And we've been building more presence and more ARR with such partners. That is category #1. The other category which is equally interesting is that given the challenge with IT talent we talked about earlier, is very hard to hire IT professionals. Mid-enterprise plus customers are struggling to hire these people, and they are increasingly going to the partners to seek help and support. And what we're seeing is, some of our managed service providers that are historically focusing on the small medium businesses are going up the value chain, building capabilities to appeal to the mid-enterprise as well, and we are benefiting from 2 sides of the equation here.

[Craig Sainsbury]

Just another question on ARPU growth, and I'll read this 1 out. Does the Dropsuite offering become a critical tool for regular management? And will you embrace -- [ Sico ] analytics to help Dropsuite become an essential management tool?

[Charif Elansari, executive]

Yes, we are not looking into using analytics for [ Sico ] analytics because remember, we are selling this product via our MSP partners, right? And the MSP partners has nothing to do with these type of management groups. Now this doesn't preclude us from leveraging the data to provide useful and relevant analytics for our partners, evolving around data leakage, evolving around utilization of products, revolving around security, right? How much of the business -- how much of the email is going to junk, any weird user behavior, any weird IPs, like you see, for example, a user -- a company based in the U.S. with somebody logging in from Eastern Europe, right? So all these metrics and insights really drive well with our data protection mission as a company. And that's the kind of analytics that we are focusing on as we speak, to add more value to our MSPs and to their end clients.

[Craig Sainsbury]

I'll just have a few questions together around churn and risk, which is, can you please provide a bit of an update on customer churn? Are you seeing any differential between the segments of your market on churn? And where do you see the biggest risk in the business over the next 12 months?

[Charif Elansari, executive]

Yes. So the churn, which is mentioned at the side note and 1 of the slides, continues to be below 3% annual revenue trend. So that hasn't changed at all. We did see some churn at the hosting low ARPU side, which we talked about 7000 users lost and we saw an over 10,000 plus in Q4. Now those -- and the big scheme of things are really not material for us as a company. And we see a very stable and sticky annualized recurring revenue business, especially in the areas we're focusing in, which is the distributors, the managed service provider, which they intrinsically also have very low churn with their end clients. So the industry churn on the MSP side with the end clients is 5% to 7%. So if you think about small and medium businesses who can afford to spend quite a bit of money to be supported by an MSP, they tend to be financially stable, and they tend to be able to afford these services and need them and require.

Now in terms of risk, I continue to see cybersecurity risk and data breach risk as the #1 risk in our business. It's number one, in our risk register. We now have -- obviously, we've had, for some time, a dedicated security team focusing on internal risk. We do quite a bit of pentesting with some of the best companies in the world. There's only 2 companies recommended by Google to do pentesting. We use 1 of them to do that. we're looking into doing even more activities around data breach protection and resilience as we go forward.

The 1 thing that we continue to watch for is will we eventually be affected with any macro headwinds on the economy, the recession and the inflation. So far, we're doing well. The MSPs have been resilient even in the global financial crisis in 2008. I've checked with people who have been in the industry for a long time. Yes, there has been an impact, but the impact has not been massive, and they continue to grow even in the worst of times. So net-net, we continue to be very optimistic. We expect to see the tailwinds continue. We expect to see double-digit growth, as we outlined earlier. But we also continue to be vigilant on how we spend our money in terms of data breach and resilience there as well as we go forward and reinvesting in the business.

[Craig Sainsbury]

A couple of final questions. Cost of staffing in the first quarter of '23 looks to increase substantially. Just wondering, Bill, if you can give any comments whether some one-off fees or bonuses, et cetera, in this quarter that led to that spike?

[Bill Kyriacou, executive]

Yes. Thanks, Craig. So we did see an uptick in the OpEx spend in general for Q1. And that aligns with our intention to reinvest for growth. As planned and budgeted, we onboarded a record number of new staff in Q1 for the company, and that includes our Chief Product Officer as well. The hiring has been as Charif mentioned, front-loaded early in 2023. So we can ensure that the team members can provide impact within the current 2023 year. The OpEx spend and growth will stabilize for future quarters as well as we go forward. Included in Q1, we did have the annual staff performance bonuses that were paid out and that has that inflated that Q1 figure, which is in line with prior years, where we generally pay our staff performance bonuses in Q1.

[Craig Sainsbury]

Last question here. Has the heightened visibility of both domestic and offshore cyber issues led to an increase in inbound inquiry and an increase in the pipeline for Dropsuite?

[Charif Elansari, executive]

Yes. I mean you can see this trend going on for almost 4 years now, right? You see these events and then you see the increase and heightened interest in data protection services. This is something I would say, continues all the time. Today, you have the data breach in Australia; tomorrow, you have one in Canada, the next day you have one in the U.K., the next day you have one in the U.S. So this is a continuous type of, I would say, business as usual for us, where we're seeing all these tailwinds, we're capitalizing on them and that's how we're able to grow.

Now the brand is a different story, right? The brand is really how do we stand out as a company, and that is something that I'm very pleased to say that we are a very well-loved brand in the MSP industry, especially in North America, now we're building more presence in ANZ and in Europe as well. And this is something we want to continue nurturing as we go forward because it's really important to build this not only a good product, but also a well-loved brand, that's underpinned by high-quality products, high-quality sales teams and high-quality support organization as well.

[Craig Sainsbury]

Thanks, Charif. Thanks, Bill. That's the end of the questions. I'm sure if I'll just turn it back to you for any final comments.

[Charif Elansari, executive]

Well, I want to thank our shareholders, our investors, the attendees. I also want to share -- really thank our partners for helping us to be successful. I want to thank our employees as well. We have built a very strong business, highly scalable, highly resilient, operating in a place where there's lots of white space and a massive addressable market. Please stay tuned for further updates as we go forward. And I look forward to our AGM presentation in the next month, and I look forward to meeting some of you in person as I'll be in Australia at this point of time. Thank you.