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Carbonite Inc (CARB) Q1 2019 Earnings Call Transcript

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Carbonite Inc  (NASDAQ: CARB)
Q1 2019 Earnings Call
May. 02, 2019, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Carbonite First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode.

(Operator Instructions)

I would now like to turn the conference over to your host, Mr. Jerry Sisitsky, Sir, you may begin.

Jeremiah Sisitsky -- Vice President of Investor Relations

Great. Thank you, Valerie, and welcome everyone. With me on the call today are our President and CEO, Mohamad Ali, and CFO, Anthony Folger.

Any forward-looking statements in this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Expressions of future goals, including financial guidance, outlook, anticipated results and similar items including, without limitation, expressions using the terminology may, will, believe, expects, plans, anticipates and expressions which reflect something other than historical facts are intended to identify forward-looking statements.

Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors sections of our Form 10-K and 10-Q. Actual results may differ materially from any forward-looking statements. And the company undertakes no obligation to revise or update forward-looking statements except as required by law.

All the financial figures discussed today are non-GAAP financial measures unless it is stated that the measure is a GAAP number. A reconciliation can be found in our financial results press release, which is available on our IR website. Also posted to our Investor Relations website is our quarterly financials in an Excel version, as well as a slide deck that accompanies our financial results conference call.

With that, I'll turn the call over to Mohamad.

Mohamad Ali -- President and Chief Executive Officer

Thank you, Jerry. And welcome, everyone. We delivered better-than-expected revenues in the first quarter, driven by strong performance of our Carbonite data protection solutions, as well as the benefit of having closed the Webroot transaction a few days before the end of the quarter.

In addition to delivering better-than-expected revenue, we also exceeded our adjusted EBITDA guidance and reported strong earnings per share and free cash flow.

In the first quarter, we announced and closed the largest transaction to date in the history of Carbonite, acquiring Webroot, a leading cybersecurity platform for approximately $618 million.

Combined, Webroot and Carbonite will address a top vulnerability for businesses, the endpoint, with a comprehensive approach to protection through cloud-based cybersecurity paired with cloud-based data protection.

Webroot significantly increases our addressable market and creates an opportunity to accelerate growth. Our customer bases are similar. And in this segment of the market, buyers are the same for backup and recovery and endpoint security. With complementary routes to market, we believe there are excellent cross-selling, channel expansion and market penetration opportunities.

Webroot is a very well-run organization and has a strong team that we are thrilled to welcome to the Carbonite family. We are excited that John Post, formerly Webroot's CFO, is now the General Manager leading the Webroot organization. John's background and history with Webroot makes him a perfect choice to lead this area.

Chad Bacher, Senior VP of Products, is also joining my team and is already contributing to the product roadmap of the combined organization.

We have already made progress from an integration perspective, immediately unifying certain back office functions like our legal and tax teams.

While still early in the integration, we are excited about the great conversations we are having and the early progress to date. Employees are energized to be part of the combined team. Customers are equally excited and we have an extensive-and we've had extensive conversations with our partner community, the thousands of VARs and MSPs we collectively partner with to deliver backup and recovery and endpoint security solutions.

Webroot has successfully gone to market with their MSPs and RMM relationships. And Carbonite successfully executed with a robust network of VAR relationships. Both Carbonite and Webroot partners are enthusiastic at the prospect of having a unified solution that solves a critical customer challenge and of a simplified experience from working with fewer vendors.

Our ongoing analysis indicates that there is not much overlap from a customer and partner perspective, which would suggest over time a meaningful opportunity for revenue synergies.

We are excited to share more details as our integration efforts continue. However, the early feedback and insights from employees, customers and partners has further validated our rationale for the acquisition.

The Mozy integration is also going well. We have accomplished much from an integration perspective, with the migration to a single endpoint platform going very well. We continue to take a phased approach to the migration and, at this point, more than 80,000 Mozy customers have opted to migrate to the Carbonite platform, putting us ahead of our initial migration plan.

I remain confident than, over the course of 2019, the overwhelming majority of Mozy customers will choose to migrate, setting us up for additional expense synergies in 2020.

In the first quarter, we continue to execute our strategy of shifting resources from direct marketing acquisition spend to invest more behind our growing set of channel partners. And we are starting to see results from our investments in partner recruitment, onboarding, training and enablement.

In February, we announced a new reseller partnership with Veritas. This partnership enables Veritas to resell and distribute Carbonite endpoints to their entire customer base for life.

With our investments in partner events, such as our significant presence in Dell Technologies World this week and our planned participation at Microsoft Inspire, we will continue to drive awareness within the partner community and energize our base of partners with events and education.

These efforts are yielding early results across the board with a greater number of new partners joining the ecosystem, more active partner participation and educational webinars and surfacing more cross-sell opportunities within customers.

During the first quarter, we successfully closed several larger customer transactions and we continue to see large deal momentum in the pipeline, primarily on the data protection side of the business.

The ease of use and the power of our solution, combined with our award-winning customer service, creates an opportunity to serve these larger customers while we continue to focus on our core end market, which is small and midsize business.

I want to take a moment to highlight a few customer case studies as I think they're powerful examples of the value we provide and why a broad range of customers choose Carbonite solutions.

At one rural Pennsylvania school district, backup is one of the core IT needs for their school. Teachers rely on shared lesson plans and other documents stored in Windows file, SQL and Exchange Servers.

Additionally, some students create more resource-intensive files like AutoCAD or Adobe files. And those files are stored at local physical and virtual servers. Losing any of these critical files would be a problem for the school district and, in their words, "impact student achievement."

The IT team for the school district now backed up 2 terabytes of its school's most critical data using Carbonite Server, configured to save backups both locally and in the cloud. They were up and running fast and scheduled their initial backup around the school day, with regular backups running in under an hour. They chose Carbonite for the ease of use and also the strong track record and reliability of the company.

One professional sports league that had been a Carbonite customer for years recently upgraded to the newest version of Carbonite endpoint. On any given day, their laptops may contain critical data like player stats, sponsorship information, contact information for referees, or details behind their 1,000 plus game schedules.

Ease of recovery, global deduplication for encrypted data and remote wipe and device tracking were all key features, making Carbonite endpoint the perfect choice.

We have the right product portfolio to serve the broadest set of businesses, like these two great organizations, and we have the incredible product ease of use that businesses have come to know and expect.

Our focus continues to be on bringing all of our products together under the unified data protection platform that continues to deliver great value to the market. And we'll be sure to update everyone as we make progress throughout 2019.

So, with that, I'd like to hand it over to Anthony to discuss our financial

results and guidance. Anthony?

Anthony Folger -- Chief Financial Officer and Treasurer

Thanks, Mohamad. Thanks, Jerry. Revenue for the first quarter was $83 million, well above the high end of the guidance range that we provided back in February. This overperformance was driven by better-than-expected sales of our Carbonite data protection solutions and the contribution from Webroot, which closed a few days before the end of the quarter.

When we examine our data protection business, excluding the results of Mozy and Webroot, subscription revenues grew slightly ahead of our expectations. This was driven in part by success selling into larger customer opportunities, as Mohamad mentioned.

Our non-subscription revenues were slightly lower than our expectations and the net result for the quarter was that Carbonite, on a stand-alone basis, grew revenue in the low-single digit range year-over-year.

Adjusted EBITDA was $24.9 million or 30% of revenue, $3.4 million above the high end of the guidance range that we provided. Our gross margin was 79.5%, up 340 basis points over the year-ago quarter. This gross margin improvement was driven by efficiencies realized in our data centers, lower customer support costs, and the continued benefit from previously enacted pricing impacts and adjustments.

Research and development spend was $14.8 million or 17.8% of revenue compared to 18.2% of revenue in the year-ago quarter.

Sales and marketing spend was $20.6 million or 24.8% of revenue, down 480 basis points from the year-ago quarter. We expect to continue to drive efficiencies across the business. however, sales and marketing is one area where spend may show a sequential increase in the coming quarters as we invest more behind our partner efforts.

G&A spend was $9.5 million or 11.4% of revenue as compared to 13.6% of revenue in the year-ago quarter. And on the bottom line, our Q1 diluted net income per share of $0.44 increased 62% over the year-ago quarter.

CapEx for the quarter was $2.8 million or 3.3% of revenue compared to 5.1% of revenue in the year-ago quarter.

Webroot historically has more modest CapEx needs than Carbonite and we generally expect CapEx to trend in the range of 3% to 4% of revenue on a go-forward basis.

Our adjusted free cash flow was $19.7 million for the quarter, more than eight times our adjusted free cash flow for the same period last year of $2.4 million.

Our Q1 free cash flow performance gives us increased confidence in our ability to quickly delever the company and pay down a substantial portion of our outstanding debt.

During the first quarter, we closed $550 million term loan priced at LIBOR plus 375 basis points or approximately 6.3%. The seven-year facility was rated B2/B. Demand for the debt was quite strong and we're pleased that the pricing improved from where we initially launched the offering.

Principal repayment schedules call for us to repay 1% of the original principal balance per year. However, it is our intent to pay down outstanding amounts under the loan at a far more aggressive pace.

In addition to the term loan, we entered into a new five-year revolving credit facility of up to $130 million with an interest rate of LIBOR plus 325 basis points or approximately 5.8%. Presently, this facility is undrawn.

As a result, we had total indebtedness of $694 million, which includes our $550 million term loan and our $144 million in convertible notes. Keep in mind that our balance sheet will reflect only $645 million of debt because we've capitalized the debt discount and issuance cost on the term loan and a portion of our convertible notes are reflected in equity.

As of March 31, our balance sheet reflects $252 million in cash. However, I would highlight that $124 million of that cash was acquired as part of the Webroot acquisition and was paid out on April 5. So, the cash position on a pro forma basis is approximately $122 million.

Now, turning to our outlook. As I think about the growth profile of our data protection business, I continue to expect low-single digit revenue growth in 2019, with growth in subscription revenue partially offset by a decline in our non-subscription revenue.

Consistent with our prior outlook, I expect our endpoint security business to continue growing in the low-double digits. Combined, that should produce mid-single digit revenue growth in the near-term with the opportunity to accelerate, driven by additional focus on investment in our indirect channels, successful cross-selling and realizing revenue synergies from our combination with Webroot.

For the second quarter, we expect GAAP revenue to be in the range of $119 million to $123 million. This includes

the impact of purchase accounting adjustments on deferred revenue.

Non-GAAP revenue in the range of $133 million to $137 million, with the large sequential increase driven by a full quarter of Webroot contribution and adjusted EBITDA in the range of $34 million to $36 million.

For the full-year 2019, we are adjusting our guidance upward, in part because the Webroot acquisition closed a few days earlier than initially contemplated in our guidance.

We now expect GAAP revenue in the range of $457 million to $471 million, down from our prior guidance, the decrease being entirely driven by a change in purchase accounting for Webroot's deferred revenue.

We expect non-GAAP revenue in the range of $491 million to $505 million, which is an increase from our prior guidance of $488 million to $502 million.

Non-GAAP gross margin will remain consistent in the range of 80.5% to 81.5%, adjusted EBITDA in the range of $132 million to $137 million, up from our prior guidance of $129 million to $134 million.

We expect to incur approximately $25 million in cash interest expense this year associated with current loan and $3.6 million in cash interest expense associated with the convertible notes.

For the full year, we expect our effective tax rate on a non-GAAP basis to be approximately 22% and we're using a weighted average share count of approximately 35.8 million for the full year.

With that, I'd like to open the call up to Q&A.

Questions and Answers:

Operator

Thank you.

(Operator Instructions)

Our first question comes from Saket Kalia of Barclays Capital. Your line is open.

Saket Kalia -- Barclays Capital -- Analyst

Hi, guys. Thanks for taking my questions here.

Mohamad Ali -- President and Chief Executive Officer

Sure. Great to hear from you, Saket.

Saket Kalia -- Barclays Capital -- Analyst

Yeah, yeah. Great to be back on the call. Maybe, Mohamad, starting with you, realizing it's still very early days on Webroot, can you just talk about some of the anecdotal feedback that you've gotten from their MSP channel on some of the cross-sell opportunities. And maybe just going one level deeper, I know that MSPs have some pretty in-depth dashboards to manage their customers. Clearly, the economics for both you and the MSP partners makes sense, but there's a lot of things that have to to happen in order for that to take place. So, can you talk about how long do you think the MSP channel can be enabled to really start building Carbonite into those dashboards if that make sense?

Mohamad Ali -- President and Chief Executive Officer

Yeah. Great question. It's one of the very, very exciting parts of this acquisition, right? So, they have -- as you know, they have 14,0000 MSPs that use the Webroot product for security. They have the number one endpoint security position with the MSP community, which is a total of 120,000 MSPs and they have 14,000.

Carbonite never really invested in the tooling to participate in this community. And in 2018, we built a set of APIs for all of our products. And then, in 2019, as you know, our intent was to use those APIs to integrate all the products together under the (inaudible) Carbonite Data Protection Console.

But the other thing that it allows us to do is integrate them with the RMMs, which are these dashboards that the MSPs use. So, we're starting that work. The combined Webroot and Carbonite teams are kicking off an initiative to integrate the Carbonite products into the dashboards. That's going to take some time. I don't expect that we're going to be able to have that integration complete until 2020, right? So, it's going to be at least 12 months, and then we'll be able to start selling to this community. So, it's a very exciting opportunity, but we do have to do the work to get there.

Now, in terms of anecdotally and it's been a lot of fun actually, I personally, over LinkedIn and other sort of social media, have been reached out to by a number of MSPs. And one of them -- and these MSPs sort of hang out in communities and there's one of them in particular that is an MSP and also part of a community of 3,000 MSPs. And he actually is deciding. (ph) I wanted to get him into a car to Connecticut and drive to Boston and visit me. And it was actually wonderful. Very, very excited about us including Carbonite in his solution set. And his message to me was that there was much interest in his community of 3,000. We've also had the RMM vendors reach out the last few -- to start working with us to integrate.

So, it is clearly an (ph) easier , clearly an opportunity. But it will take a little bit of time for us to do the work to take advantage of that opportunity.

Saket Kalia -- Barclays Capital -- Analyst

Got it. That's really helpful, Mohamad. Maybe if I could squeeze another one in for you, Anthony. If we think about the core Carbonite business, right, so excluding Webroot, particularly the business subscription bookings -- I know we're not breaking out that reporting yet. But it felt like we exited last quarter with, what I'll just call, some general softness, which it felt like the team really tried to incorporate into the 2019 outlook. Again, this is just in the core Carbonite kind of business subscription business. And so, the question is, now that you've had another quarter under your belt, any revised thoughts just on a postmortem, on sort of that core performance last quarter?

And the follow-up to that is, have you sort of thought about that general environment in your 2019 guide, if that makes sense?

Anthony Folger -- Chief Financial Officer and Treasurer

Yeah. Yeah. Thanks, Saket. It's a good question. And I think we -- as we continue to sort of evaluate the business and look at our performance, we did put a lot of products into market last year. A new DRaaS offering, a Carbonite Server Virtual Edition, new data protection console, the new version of our endpoint products, there was a lot that we did. As we got into the back half of the year, we certainly saw challenges in our non-subscription business. But I think we just also had execution challenges with our subscription business. And part of it was just processing all of these products and being able to effectively drive demand and close deals.

And I think we saw a little improvement. I think Q1 was a little bit better than what we had expected coming in on the subscription side. But on the non-subscription side, it was actually a little lighter than we would have expected. So, net-net, I think that core Carbonite business segment is kind of where it was in Q4. And we really did not consider taking that number up for 2019 as we thought about our guide. So, I guess, I would say as we look out for the remainder of 2019, the inputs on the core Carbonite side are probably the same as they were a quarter ago when we gave our initial guide.

Saket Kalia -- Barclays Capital -- Analyst

Super helpful, guys. Thanks, very much.

Mohamad Ali -- President and Chief Executive Officer

Thank you, Saket.

Operator

Thank you. Our next question comes from Chad Bennett of Craig-Hallum. Your line is open.

Chad Bennett -- Craig-Hallum -- Analyst

Hi. Thanks for taking my questions, guys. So --

Mohamad Ali -- President and Chief Executive Officer

Sure. Good to hear from you, Chad.

Chad Bennett -- Craig-Hallum -- Analyst

Yeah. You too, Mohamad. So, Anthony, is there any way that you can, I guess, just actually give us the contribution from Webroot in the quarter since we didn't really expect anything coming in?

Anthony Folger -- Chief Financial Officer and Treasurer

Yes. I'll say $3.5 million to $4 million, Chad. In that range from a non-GAAP revenue perspective.

Chad Bennett -- Craig-Hallum -- Analyst

Got it. Perfect. And then, just in terms of how you characterized the growth rates of the core Carb business and then your endpoint security business and then combined them at a mid-single digit growth rate, I guess, have your expectations on the Webroot business changed, obviously, now that you own it and have three more months just in terms of doing the work behind the scenes and then owning it for a grand total of maybe a little over a month? That business, I think, was (ph) $215 million annually at least as of the end of June. But the segments of the business, the enterprise piece, was growing like 30% and then the consumer piece, I think, was mid-single digits. I guess, has your thoughts about that type of mix in growth rate changed for that Webroot piece?

Anthony Folger -- Chief Financial Officer and Treasurer

Chad, I think we're still consistent with our expectations for Webroot. I think we would sort of carry forward what we have communicated previously in terms of the makeup and the growth rates in the business. There haven't been any surprises post-close. I think to Mohamad's point, we're really encouraged with the team. It's an exceptional team. I think there's a lot of like-minded people in terms of how they manage their business. And so, I think that the team has just executed very well in a lot of fronts, but especially in that MSP channel and their SMB business overall. And I think we're pretty upbeat and pretty optimistic on the deal still. I think we're really upbeat on the opportunities we have to drive synergies through the channels. And I think we're still consistent with how we thought of the business and how we came to our outlook for the year.

Chad Bennett -- Craig-Hallum -- Analyst

So, you haven't seen any real deceleration in -- from what we were thinking previously, is that safe to say?

Anthony Folger -- Chief Financial Officer and Treasurer

Yeah. I think that's safe to say.

Chad Bennett -- Craig-Hallum -- Analyst

Okay. Thanks, guys. Nice job on the quarter.

Mohamad Ali -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from John Difucci of Jefferies. Your line is open.

Joseph Gallo -- Jefferies -- Analyst

Hey, guys. This is Joe on for John. Thanks for the question. If I do the math based on $4 million in Webroot, you still beat by $1.5 million in the quarter, which is great. But then, it feels like you've guided down about $1 million for the core Carbonite business for the year. I just want to be crystal clear, you kind of touched on it already, but is that all the perpetual business based on softness here? And I think you had talked, Anthony, last quarter about it being down about 10% for the year. Is that still an approximately right way to think about it for 2019?

Anthony Folger -- Chief Financial Officer and Treasurer

Yes. It's a good question, Joe. And I think quick answer is yes. It's largely driven by our outlook on the perpetual side, it was down in Q1, probably more like 14% (ph) was down . So, it's down a little bit more, which -- it has an impact. It's not core for us anymore. It's a much smaller piece of the overall business. At this point, on a combined basis, it's going to be well below 10%, but still those bookings flow to revenue immediately in the quarter. And so, to the extent we see any gyrations there, it does have an impact.

So, I would say yes. I don't know that we necessarily looked at the Carbonite business and wanted to guide it down. I think we try to keep our thought process the same as it was when we guided for the year. We may have built in a little bit of conservatism as we sort of looked out and thought about, we've got to walk along with Webroot, we're still transitioning Mozy customers on to the Carbonite platform and all those things. So, maybe a little bit of conservatism, but still looking at kind of single-digit growth on the Carbonite side.

Analyst -- -- Analyst

Okay. That's great. Thank you for the color there. And then, just as a follow up, I think last quarter you had said you want to get to know Webroot a little bit better. But just how to think about, one, the core Carbonite platform, retention rates and also the Webroot ones now that you've gotten another quarter under your belt there? And then, have we seen any cross-sell or dollar net retention increases already?

Anthony Folger -- Chief Financial Officer and Treasurer

We had no cross-sell or net dollar retention increases.

Mohamad Ali -- President and Chief Executive Officer

(ph) Only had two weeks.

Anthony Folger -- Chief Financial Officer and Treasurer

We only had, like, five days in the quarter. So, it would have been magical if it was.

But we did -- I'll be honest with you. We did hit the ground quickly and we had started campaigns in the month of April. And so, we intend to get moving as quickly as possible with cross-sell between Carbonite and Webroot, and I think we're encouraged.

As it relates to retention rates, on the Carbonite side, we continue to hold pretty steady from a customer retention rate. We're still, call it, 86%, 87% on the business side and probably close to 90% on the consumer side. The dollar retention rates for Carbonite are probably still in that low 90s.

And I think, from a Webroot perspective, in particular, on the business side, we do see probably consistent customer retention and better dollar retention. I think, overall, dollar retention on the business side is going to be north of 100% largely because of the MSP channel and the land-and-expand model, which is another reason why we really love that model.

And on the consumer side for Webroot, I think the net retention rates are more in the low 80% range which, for a consumer security play that's doing a lot of business through retail, I think those are actually pretty solid net retention rates. So, we've gotten to know them a little bit better, but I think they, like all other things that we've found with the team over there, they're pretty disciplined around retention, pretty focused and I think they've done a good job of managing the business.

Mohamad Ali -- President and Chief Executive Officer

Yeah. And one thing I should mention is that if you're either a Carbonite customer today or a Webroot customer today, you may have already gotten a cross-sell email. I know I've gotten two of them. And if you haven't yet, and you're a customer who wanted to, you'll likely get one. And I just want to encourage everyone who gets one of those to click and buy.

Joseph Gallo -- Jefferies -- Analyst

That's great to hear. Thanks, guys.

Mohamad Ali -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Matt Hedberg from RBC Capital Markets. Your line is open.

Please make sure your phone isn't on mute. One moment please.

Matt Hedberg -- RBC Capital Markets -- Analyst

Hey, guys. Can hear me now?

Operator

Yes, Sir.

Matt Hedberg -- RBC Capital Markets -- Analyst

Sorry about that, guys. It's really good to hear the success in large deals on the data protection side. I would imagine some of that's due to the unified data protection platform. But, I guess, can you put a finer point on sort of the success there and maybe sort of how you think about the pipeline of these larger deals because I mentioned some of the sales cycles could be a little bit longer there? But can you give us a little bit more color on sort of how you're thinking that side of your business?

Mohamad Ali -- President and Chief Executive Officer

Yeah, I'll tell you a little bit and then Anthony can add to it. So, actually, these larger deals are Carbonite endpoint deals typically. As Anthony mentioned last year, we launched a new endpoint product. And this endpoint product gives us scalability (ph) unlike anything that we had before. The product that we had previously really was a fit for a company up to 25 employees. Beyond that, there were scalability issues and mostly deployment and manageability issues. It wasn't built for large scale, centralized management mostly. This new product that we have out there has excellent features up and down, right, and sort of has everything that you need. that you need and it's a product that does core backup, it does ransomware protection, it does legal hold. If you lose the device, you can locate on a map. If you lose the device, you can remotely wipe it. So, it's really a full feature product. And it can scale up to a business of up to 2 million customers. It's extremely, extremely scalable. It's globally deployable. So, if you're a business with operations in 50 countries, it can be deployed.

And so, what we've seen is that some of these newer partners that we've brought on board, like Dell and some of the other ones, that have access to a customer set that ranges from the SMB to the enterprise, they are bringing to us some of these larger deals and they're exciting and we're using the same products to fulfill those deals. But you're right. Those do have longer sales cycle and we've put a small team in place to work those longer sales cycle deals.

But at the end of the day, though, the product sets that we have, our focus is really on the SMB market. And I think with this particular product, it does scale up and down and we do have a channel that can sell it. So, it's exciting in that regard. Does that answer the question?

Matt Hedberg -- RBC Capital Markets -- Analyst

Yeah. It does, yeah. And then, maybe as somewhat related question, you mentioned channel partners a couple of times in your answer. Given Webroot is focused more on the MSP side and you guys have a channel focus, you highlighted additional partner investments you guys are making. I think you even highlighted Veritas. How do you kind of think about, from a spending perspective, the balance between leveraging MSP, sort of a business that you're still trying to probably get your arms around, but also sort of investing in channel. Is there sort of like a trade-off of trying to balance the two?

Mohamad Ali -- President and Chief Executive Officer

Yeah. Great question. So, at the high level, you can think about Webroot as having a channel of 14,000 MSPs and Carbonite having a channel of 10,000 VARs or resellers, and some of them happen to be very big, like a Dell or CDW or Veritas, and some of them are very small. So, we continue on the data protection side, the Carbonite side, to invest in those channel partners because we're seeing good returns from those channel partners, especially now that we have the new portfolio of products. And in 2019, we will be unifying them under the console.

So, now that we have the portfolio where we're putting the dollars to enable the partners -- in Q4 -- I think one of the things that happened in Q4 was that we had a lot of new products, but we probably didn't spend enough to enable the partners. And now, we're investing behind those partners, so they are enabled. And we are seeing the pipeline build quite nicely around those partners. But those are not MSP partners, right? I'd call them all VARs of some sort or the other.

Once we have -- now, those VARs are actually interested in selling Webroot. And so, the enablement that we're doing behind those partners on the data protection product will be extensible to enabling them to sell Webroot security products, right? And Webroot has multiple security products. It has the endpoint security, but also has security awareness training, it has DNS, it has Wi-Fi. So, they have four products there that, at the right time, could go into the VAR portfolio.

And then, on the flip side, as we enable Carbonite endpoint and Carbonite server -- integrate that with the RMM dashboard, the MSPs will start being able to sell that in 2020. So, the investments that we're making on the channel partners on the data production side is important for the new products that we've brought to market, but it will also pay dividends once we enable them on the Webroot product.

Matt Hedberg -- RBC Capital Markets -- Analyst

That's super helpful, guys. Thanks again. And good luck.

Mohamad Ali -- President and Chief Executive Officer

All right, thank you.

Anthony Folger -- Chief Financial Officer and Treasurer

Thanks, Matt.

Operator

Thank you. Our next question comes from Eric Martinuzzi of Lake Street Capital. Your line is open.

Eric Martinuzzi -- Lake Street Capital -- Analyst

Yeah. A question on the competitive landscape and specifically on the data protection side. Just wondering, as you entered the year here, it would be typical for your competitors-and I'm talking the Barracudas and the Dattos and the Zertos of the world to also be investing and trying to gain channel mind share. Have you seen anything early in 2019 that sees maybe heightened levels of aggression from competitors on the data protection side?

Mohamad Ali -- President and Chief Executive Officer

Yes. So, let me break the data production market into two categories. Endpoint and server. I think, on endpoint, we are very, very strong and I think we've risen really sort of to the top of the other competitive set there. And I think we also have the most resources to pursue that market.

On the server side, it is much, much more competitive. There are the folks you mentioned. I'll add one to that, Veeam, right? Veeam is very, very successful. And I think everyone is -- the ones you mentioned, right, Datto is growing very fast, Zerto is growing very fast, Veeam is growing very fast, Barracuda is growing. So, clearly, there's a market opportunity and these folks are taking advantage of it and they're investing in the channel.

So, the competitive dynamics exists. We focus on our differentiation, right? So, we're direct to cloud. I think, really, the only one here that is a meaningful competitor with respect to direct to cloud is Datto, but we have a more full portfolio that spans everything from endpoint to server and then, within server, from backup to high availability to the cloud. So, we have some meaningful differentiation, and that's a big part of how we're engaging and how we're enabling and how we're training the partner set. But, yes, I sort of -- I'm starting to look at this in terms of the endpoint opportunity, which I think we are very, very well positioned and where I would consider as kind of the leader in that category and in the server market which has all the competitive dynamics that I just described.

Eric Martinuzzi -- Lake Street Capital -- Analyst

Understand. So, as far as where you're spending your attention, is that a comment to say, hey, let's point some of the channel support, channel investment at the lower-hanging opportunity, maybe a mid-year course correction type of comment? Is that what you meant?

Mohamad Ali -- President and Chief Executive Officer

Yeah. We have to sort of pick the places to put our dollars that are going to have the highest return on investment. I think it's pretty -- on the endpoint side, it's much clear and we're actually seeing some quite nice returns on that. And then, the server side, just like we've always done, right, we sort of segment the marketplace and determine where we are strong or others are strong and then we invest behind where we are strong.

Eric Martinuzzi -- Lake Street Capital -- Analyst

Understand. I appreciate the insights.

Mohamad Ali -- President and Chief Executive Officer

Absolutely.

Operator

Thank you. Our next question comes from Sarkis Sherbetchyan of B. Riley FBR. Your line is open.

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

Good afternoon, guys.

Mohamad Ali -- President and Chief Executive Officer

Good afternoon.

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

So, just kind of looking at the outlook here, I know we're going to get a full quarter of Webroot. Just trying to understand, if we kind of try to break apart the revenue and maybe even some of the OpEx expectations to get to EBITDA just from Webroot?

Anthony Folger -- Chief Financial Officer and Treasurer

Yeah. Hey, Sarkis. So, I think Webroot's business as far as sort of our our history of ownership, the business continues to run at probably a 26%, 27%, 28% EBITDA margin and that's really what's factored into our outlook. We saw, I think, better-than-expected profitability on the Carbonite side this quarter, which certainly was positive. I think we also signaled that we may continue to invest in sales and marketing to sort of get our growth rates up on the Carbonite side. But Webroot really has been pretty consistent with their margin profile. I guess I would think of it as a gross margin business in the mid to high 80% range and an EBITDA margin business that's going to be 26%, 27%. I think, over time, both Carbonite and Webroot are going to see improvements certainly at the EBITDA line, but I think it'll be fairly gradual through '19 and '20.

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

Good. That's helpful and seems to be consistent with what you communicated during the acquisition call. And then, I guess, if I can kind of think through just the cost synergies communicated previously, I believe the number was about $20 million. Can you remind us the timeline to get the cost synergies?

Anthony Folger -- Chief Financial Officer and Treasurer

Yes. We had communicated just north of $30 million and I think that was over a four-year period. And I would expect we're going to see synergies really coming from some of the back office work that we will consolidate. And so, we need to get some of our system consolidations done and that takes a little bit of time. So, we didn't have really an aggressive cost synergy assumption in 2019. They really start to show up more in 2020 and sort of scale up in the back half of 2020. And I really do think that a lot of this comes from unifying systems and a lot of the business applications that we use internally and being able to take cost out of the business that way. So, I think we still expect to hit that synergy plan. Again, no surprises post-close. I think the business is what we thought and we're pretty encouraged.

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

All right. That's all for me. Thank you.

Mohamad Ali -- President and Chief Executive Officer

Great. Thank you.

Operator

Our next question comes from Michael Berg of JMP Securities. Your line is open.

Michael Berg -- JMP Securities -- Analyst

Hi. I'm on for Erik Suppiger here. Thank you for taking my question. Real quickly on the billings front, are you guys not going to provide billings metrics anymore?

Anthony Folger -- Chief Financial Officer and Treasurer

Yeah, I think that was was part of a challenge. Obviously, folks will be able to count the billing numbers. But we use bookings really as a -- as part of our guide and it was little bit more integral on the Carbonite side. Webroot really is a business that runs on annual recurring revenue, and so ARR is their key metric. And it's going to take us a little bit of time to unify, but I would expect that, on a consolidated basis, we move toward ARR as opposed to bookings. I think it's just going to be a more useful metric for our business.

And so, I think there will be some disclosure on bookings and billings in our actuals and I think folks will be able to roll that. But it's not something that we're really going to guide on or focus on on a go-forward basis just because the Webroot business doesn't really use bookings or billings as a sort of a predictive metric or use it really to evaluate performance of the business. And so, it just wasn't something that, on a consolidated basis, we could put out with any sort of comfort or conviction as a result.

Michael Berg -- JMP Securities -- Analyst

Okay. On that same note, how would I calculate the billings for the quarter? If I'm trying to do, like, deferred revenue calculation, I see -- if I look at the balance sheet, it clearly looks like that the earlier closing of the Webroot acquisition impacted deferred revenues quite a bit. Should I just do the billings calculation or deferred revenue by the simple change in deferred revenue? Or is there some adjustment I should make?

Anthony Folger -- Chief Financial Officer and Treasurer

Yeah. You've got to back out the acquired deferred revenue. And I think that may be a little bit more evident in our Q when we file.

Michael Berg -- JMP Securities -- Analyst

Okay. Then I will take out the billings from model. That's it for me. Thank you.

Operator

Thank you. Our next question comes from Tim Klassell of Northland Securities. Your line is open.

Tim Klassell -- Northland Securities -- Analyst

Hey, guys. Thanks for taking my questions. Just a couple of them here. First, sorry, I got on a minute or two late, but on the consumer side on the data protection, how did that do? And I think, Mohamad, you hit a little bit earlier on on doing some cross-selling there with Webroot. But are you concerned about -- gee, Mozy is now part of Carbonite and now we want to sell you Webroot. Are you concerned about any sort of churn or confusion in the customer base? Thank you very much.

Mohamad Ali -- President and Chief Executive Officer

Sure. And, Tim, just let me make sure I understand the question. Are we concerned about churn on the Carbonite side or the Webroot side?

Tim Klassell -- Northland Securities -- Analyst

On the Carbonite side. On the data protection side. So, the traditional --

Mohamad Ali -- President and Chief Executive Officer

Okay. Yes. That consumer base is very, very sticky. I think we might have mentioned that last year. We had done a price increase and we saw almost no attrition. So, it's a very sticky customer base. We've also had a tremendous amount of success -- just a remarkable success with migrating Mozy customers to Carbonite. I mentioned over 80,000 have already migrated and a lot of those are (ph) single customers. And so, we expect similar stickiness with those customers. And with that joint customer base on the data protection side, it's an even larger base for us to sell Webroot into and vice versa.

So, I'll tell you, that consumer business, when I joined about four years ago, we were about $100 million in revenues in 2014, right, a little over that. Today, we're about $500 million combined. But that consumer business was the bulk of the business. And I remember, on these calls, Tim, you might have been on these calls, there is always a question of what's happening on that business. That consumer business has just been remarkably predictable over the four plus years I've been here. And I expect that consumer business will be equally predictable going forward. And there may be some interesting opportunities now as we cross-sell Webroot and Carbonite into that consumer base.

Tim Klassell -- Northland Securities -- Analyst

Great. And then, with selling the Carbonite data protection into the MSP arena, clearly, they have been using something. I haven't gotten a read on one large competitor out there. As you sell into that, who is your number one competitor that the MSPs are using, particularly on the endpoint? And what do you think we will be able to attract to get them to switch over to using Carbonite? Thank you.

Mohamad Ali -- President and Chief Executive Officer

Yeah. On the MSP, it's very, very fragmented as to what they use. And on the endpoint side, there really is no standard. And we feel that once we integrate our endpoint, given the strong, strong position we have on endpoint -- we are the largest endpoint provider, backup provider today, and it's a very, very attractive product -- we should be able to make good progress there. We do have to integrate it and that's going to take some time. So, we won't be able to start selling that until 2020. On the server side, some of the folks previously mentioned are there. You've got Veeam, You've got Datto. Datto is particularly strong in the MSP channel. But, again, very, very fragmented. There are lot of server backup customers -- providers. And so, we will be one of several in that pool. Having said that, there is, I think, real opportunity for us to, number one, differentiate on our feature, differentiate on our direct to cloud, differentiated on the fact that we have endpoint and server and differentiated on the fact that we can combine this with the security products they're buying from Webroot, which are endpoint security, security awareness training and DNS security.

And so, there is a meaningful propensity by the MSP to try to reduce vendors. There was a study that -- I think we may have included a couple of charts from the study in our last call that indicates that the number one and number two things that MSPs are buying and providing to their customers are security, primarily endpoint, but some server, and backup and recovery. And they're looking to buy as many of the things on their list from a few vendors as possible. So, we think, on the server side, there is really a meaningful opportunity. And then, on the endpoint side, I think there is a particularly strong opportunity.

Tim Klassell -- Northland Securities -- Analyst

Okay. That's very helpful. Thank you.

Operator

Thank you. I'm showing no further questions at this time. I'd like to turn the conference back over to Mohamad Ali for any closing remarks.

Mohamad Ali -- President and Chief Executive Officer

Great. Well, thank you. In closing, we want to thank everyone. And I do want to share that -- it's been quite the four years that I've been here. When I joined the company in 2014, our revenues were just over $100 million -- $123 million, in particular. Now, we expect to do substantially more revenue in the second quarter of 2019, just one quarter, than we did it all of 2014. It's been quite the transformation for the company and we've effectively grown 5x and there's been a lot of changes. I have to thank everybody in the company for everything we've done over these four years. And more to come over the next four.

So, we continue to focus on building a great business that will withstand the best of time. We are doing this by continuing to deliver meaningful value to our customers and our partners and expanding the portfolio of solutions that we offer.

I'm even more confident in our long-term prospects today than when I first joined the company. I am confident we are on the right path as we drive toward $1 billion in revenue in the years to come. So, with that, thank you and good night.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.

Duration: 55 minutes

Call participants:

Jeremiah Sisitsky -- Vice President of Investor Relations

Mohamad Ali -- President and Chief Executive Officer

Anthony Folger -- Chief Financial Officer and Treasurer

Saket Kalia -- Barclays Capital -- Analyst

Chad Bennett -- Craig-Hallum -- Analyst

Joseph Gallo -- Jefferies -- Analyst

Analyst -- -- Analyst

Matt Hedberg -- RBC Capital Markets -- Analyst

Eric Martinuzzi -- Lake Street Capital -- Analyst

Sarkis Sherbetchyan -- B. Riley FBR -- Analyst

Michael Berg -- JMP Securities -- Analyst

Tim Klassell -- Northland Securities -- Analyst

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