Q3 2019 Earnings Call
Time, all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program chasing gold cornerstones, Vice president of financing corporates develop.
Please go ahead.
Good morning, everyone and welcome to cornerstone Ondemand third quarter 2019 earnings call.
Before I read the obligatory safe Harbor disclaimer I'd like to point out that in the letter we've outlined our investor relations calendar for the quarter, including the conferences, we will attend and when we plan to enter into our library, we'd like to participate in anywhere scheduled events. Please feel free to reach out.
And now for a disclaimer our press release and shareholder letter books furnished to the NCCN a form 8-K filed on Form 10-Q for the third quarter prior to the deadline on November 12.
You can access the shareholder letter press recently or lead investor materials, including detailed financials on our Investor Relations website.
As a reminder to these calls being recorded and a replay will be made available following the conclusion of the call.
Collection will include forward looking statements, including but not limited to statements regarding the expected performance of our business or future financial and operating performance, including our GAAP and non-GAAP guidance strategy long term growth and overall future prospects.
Forward looking statements involve risks uncertainties and assumptions these risks uncertainties assumptions as well to other factors that could cause actual results could differ materially from those campaigns are forward. Looking statements are included in our most recent 10- Q1 0-K as well as subsequent periodic filings with the FCC.
During the call, we will be referring to both GAAP and non-GAAP financial measures all financial measures discussed today, our non-GAAP unless we see that the measure is a gap number reconciliation of our GAAP to non-GAAP information is provided in our shareholder letter and in our press release with that I'd like to turn the call over there.
[laughter].
Thanks, Jason Good morning, everyone.
I think about our performance for the first three quarters of 29 team I'm quite pleased with what our team has accomplished and feel good about our transformation in our positioning for the future.
Despite some recent noise in the macro economy globally or outlook for the balance of the year remained solid and we've raised our guidance across all metrics accordingly.
Over the past few quarters, we've talked a lot about how we think the combination of our learning suite and our emerging content offering has started to create a flywheel effect, which we believe distances odds for more traditional competitors.
We've also talked about the benefits we get from the immense volume of data we have collected over the years from all the online courses that flow through our platform.
Massive dataset provides us with the insights to optimize our content strategy enables both personalization and effective machine learning.
The output is an ability to serve the right content to the right employee at the right time, driving employee engagement, reducing turnover and improving productivity.
But we haven't talked about much though our three things one cornerstone originals to our approach to skills management.
And three the opportunity to leverage our base.
Let's first talk about cornerstone originals.
One of the real benefits of our Grupo acquisition was the creation of cornerstone studios.
Sure allows us to produce original content to meet the needs of our client base and further differentiate our content anytime subscriptions.
Cornerstone originals, we're able to address important topics, which are not currently met by existing portfolio of leading content providers.
We have figured out how to make unique content in a repeatable and scalable way.
That engages learners and leads to better retention of the subject matter the most traditional courses.
We're particularly excited about our newest original content series D N day, which will be exclusively part of our professional skills content anytime subscription.
What's so special about DNA.
Digital natives advancement.
Is how powerful way it addresses the emerging needs that so many of our clients out.
That is to help the youngest workers thrive in the business world today.
The next generation of the global workforce.
GNC has grown up with multiple screens and with social networks all around them.
But haven't yet been taught the norms and interpersonal skills that happened in the workplace.
We built a series of 92nd courses on topics that manage.
How in employee should behave in the workplace how to manage up how to communicate with your boss and even had a dress most appropriately for work.
The whole series is designed to be binge watch on a mobile phone in the early feedback we're getting from our clients has been very positive.
One big client told us that they'd be willing to buy or professional skills cotton anytime subscription just to get access to this series validating the entire concept.
So the opportunity with cornerstone originals is clear.
Our clients expressed a need.
We surveyed the content landscape and saw that nobody else was building that need and we acted accordingly building the series and under six months with extremely limited budget and big potential return.
The second thing I'd like to touch on its our approach to skills management.
We've discussed at least how skills or the new digital currency and how companies globally, we'll need to help upskill in Reeves skilled workers if they plan to remain competitive over the next few years.
To help our clients with this immense challenge.
We are building a universal ontology of skills that maps to our universal taxonomy of subjects that will enable us to both identify gaps in the skills of employees and teams and then recommend trainings to specifically address those gaps.
By leveraging the massive data set we have we can also provide a highly personalized how an experience that supports employees throughout their entire career journey.
Whether they'd be new to a company or roll seeking to gain mastery of their position.
We're preparing to transition to a new role where management position.
Skills management also helps organizations to better identify potential internal candidates to fill open roles and it provides employees with enhanced tools for effective career pathing.
The third area I'd like to highlight is the opportunity that we have to leverage our install base.
To continue growing our revenue.
Today, we have over 40 million users on the cornerstone platform.
And while we've talked about the massive opportunity that exists to sell content back into this space. It's also worth reminding you that we have over 1500 clients that do not have our broader talent management tools.
We see a tremendous opportunity to leverage the relationships, we've built with our learning customers to expand our footprint and increase our revenue.
And to some extent this is already happening.
You can see it and how our annual recurring revenue in and revenue subscription revenue have grown nicely without a commensurate increase in our new client count.
Of course.
We're always focused on bringing new clients, but it's important to point out that are focused on leveraging our base has already begun to bear fruit.
Our products team is constantly evaluating the competitive landscape and developing new features and products that keep us ahead of the competition.
In both performance and recruiting we continue to develop new capabilities to keep setting us up for success.
Turning back to the quarter for a moment during the third quarter. We had some notable wins that organizations like boom on health Rico in Cupertino electric.
Our SMB team had a particularly strong third quarter as did our U.S. public sector team, which closed towards seven figure deal with the United States census for recruiting product.
With the skills divide making news almost every week the need for companies to re skilling upskill their workforces has never been greater.
Is this continues to gain traction we think we're extremely well position to capitalize on this macro trend.
I feel really good about our strategic positioning and the opportunity that sits before us as a leader in both the learning and talent management.
The onus is really upon us to deliver.
And while the road may not always always be linear and will surely encounter some minor bumps along the way our strategy is clear and I'm really excited about our future.
I'll now turn the call over to Brian to provide a few comments on our financials.
Thank you Adam and good morning, everyone. Since we provided a very thorough overview of the quarter and our updated guidance and the shareholder letter I'm going to keep my comments today brief as you can see we had a good third quarter and accordingly, we chose to raise our guidance on several metrics are scripts subscription revenue grew to 137.
$1 million, which is just over 17% year over year growth in constant currency or 16% on a reported basis as a result of our strong air our performance over the course of the past 12 months.
We're also very pleased with our operating margin of nearly 17%, which grew over 300 basis points year over year and with the highest in the company's history due to solid expense control and leverage across the entirety of our operating expense line items.
Finally, our unlevered free cash flow margin of 15% while down from nearly 24% in Q3 of 2018 was comfortably above our high single digit margin guidance due to strong collections and solid overall performance as a reminder, during last year's third quarter, we had an unusually strong.
Cash flow, primarily due to earlier than anticipated collections.
We expect a positive trends we saw in our operating cash flow margins to continue not just in Q4, but into 2020 .
We did mentioned in the letter that some of our Q3 deals slipped into Q4.
However, a majority of that have already closed and we expect the rest to close in November and December .
Well, we drive our sales team teams on air are and that measure remained solid the timing of these deals does have some minor ripple through effect to both revenue and cash flow.
Our professional services business is now what we think is a normalized run rate and we will soon anniversary our intentional exit from the service delivery business.
While quarterly professional services revenue will continue to vary from quarter to quarter, we except we expect the drag from the decline in the services business to soon abate.
What this means is that our total revenue growth rate should start to accelerate and converge towards our subscription revenue growth rate.
I'd also like to make two comments related to the detail we provide them a letter about our annual dollar retention rates.
The first is that although we're of course happy with the very large deal we signed in Q3 with the United States Census Bureau, and our success with that program. We would expect a meaningful portion of that to churn over the next couple of years as the census winds down.
The second relates to our 2019 renewable base and how gets growth over 2018 has been a factor in our expectation that we will experience a modest decline in our 80 our rate in 2019, it's important to understand that is the size of the renewable base increases there is natural pressure on our.
HDR, even if the renewal rates remained flat.
And finally as we've discussed on prior core calls we expect to achieve the rule the 40, which we define as the sum of constant currency subscription revenue growth and Unlevered free cash flow margin in 2020 and expect to do so in a manner that shows unlevered free cash flow margins to be at larger contributor to that.
Metric and constant currency subscription revenue growth.
This is expected to result in approximately $150 million of Unlevered free cash flow next year and Furthermore, we also expect that absent any new reinvestment opportunities or other non operational changes such as higher cash income taxes, our dollars of Unlevered free cash flow will continue to grow in 22.
21 and beyond.
Like Adam I'm very proud of the team for what they've accomplished so far this year and I'm excited about what lies ahead.
With that we will now take your questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one and you touched on telephone. If your question has been answered and you'd like drew move yourself from the Q. Please press the pound key and we'd like to ask that you. Please limit yourself to one question and one follow up you may get back into queue. As time allows our first question comes in a line of Scott.
From Needham and company your question please.
Hi, Adam and Brian Congrats on the quarter. Thanks for taking my questions.
Adam I wanted to start with the North American Enterprise business, you called it out in your shareholder letter sounds like those deals closed in the fourth quarter, but any commonality across those deals in terms of why they move periods.
Those deals in particular were weighted towards health care, and Latin America and.
In both those sectors as well as some of the larger enterprise deals. The timing is often difficult to predict in this particular case, we had a fairly backend loaded quarter that sometimes happens in Q3, because our clients are out on vacation in July and August and so you tend to.
To have more the deals closing in September then in the other two months and in this particular case.
Some of the deals literally signed two days after the quarter ended and so you have a.
Summing issue it wasn't necessarily sales execution issue and obviously, we won the deal it's just timing.
Got it helpful and then Brian Youre.
I guess, we commitment maybe that's right word in terms of the rule 40 next year. It does imply a healthy jump in in your Unlevered free cash flow market margin can you help us maybe give a little more granularity on the visibility into that in terms of maybe it's the capex spend into next year or some of the operating margin leverage.
Just help Gil comfort there were no. Thank you.
Yeah. So I mean, just a couple of data points, we're obviously going through our 2020 detailed budgeting processes now so I'll have more to comment I think on that Scott certainly over the next call, but just a couple of data points. One we would expect lower Capex next year as you know we've had some real estate projects. This year that we will be completed and we do not expect them to repeat next year.
The other thing I would point out is that sequentially from Q2 to Q3, we've been very mindful and managing headcount and you actually see our head count down about two points or 2% sequentially.
And we're just being very mindful of Backfills, where we're hiring to help support.
That that that margin expansion as we go into 2020.
So we're feeling really good about it again, we're going through some detailed model detailed planning, but but our head count plans more or less are locked through the end of next year and it's really about reallocating head count and make sure we're investing in the write off areas and not cutting off and growth opportunity.
Very helpful. Thanks, and congrats again.
Thank you are.
Next question comes in the line of Brad Sills from Bank of America Merrill Lynch. Your question. Please.
Okay. Great. Thanks, guys for taking my question I wanted to ask about the focused on selling into the into the base are there any particular.
Modules that you think are underpenetrated and maybe some low hanging fruit there across the stack of it that you might see some some near term traction.
Yeah, I mean I've talked about this before obviously when we look at things like recruiting and Chr.
In both cases are penetrated far below 50% of the client base.
So we believe there's big upside opportunity from that perspective.
And we believe there's still opportunity to further penetrate performance.
Today, it's a little over half our client base with performance, but that number could be bigger and as we do more and more work around the linkage between skills in training it allows us to deepen the.
Fective Ness of our performance tools, and our learning tools simultaneously, making them both more attractive.
And then lastly, we see a very big opportunity, our content, which isn't quite a product module, but we think a bit as our fifth product.
And the content anytime subscriptions also have relatively low penetration to date in our client base. So all four of those have significant potential upside.
Great. Thanks, Adam and then any color you could provide on some some of the.
Actual wins this quarter with with content anytime.
Maybe library that that was sold or.
Domain use cases.
Deal sizes.
Any color on just the continuity type business this quarter. Thanks again.
Yeah, I mean, it's still it's still early days, so I would say, it's all over the map. It's every geography. It's every vertical it's all different size companies were selling.
Get today, we have five subscriptions all five of those subscriptions are being sold.
Where we think we have tremendous upside opportunity going into Q4, and certainly into next year is our professional skills subscription and that's why I was talking about DNA data original content is driving people to that professional skills subscription.
In much the same way that back in the day house of cards in Orange is the new Black drew people to purchase a subscription to Netflix or the handmade stale got people to buy who I think you're seeing a similar effect here now when we.
Show some of this original content to our client base to get really excited it's very unique and it literally gets them excited enough to take the whole subscription down so even though it's only one series in a subscription that that has over 1000 titles that.
Series drives interest to the for subscription, which then converts into more content anytime business.
Got it thanks Adam.
Thank you.
Thank you. Our next question comes in the line of Corey Greendale from first analysis. Your question. Please.
Hey, good morning, congratulations on the quarter.
First question is just I understand the dynamics around the census deal I was hoping you might be able to give us a little bit more on the size of that deal I'm just trying to understand what the effect will be on on churn once that does roll off.
Yes, so I mean, it was a multimillion dollar deal Korea, but I would say high single digits seven figure kind of deal.
And that was just be up sell or that this quarter. We've obviously they've been a client for several years as you know we've talked about them before in terms of exactly how what churn.
We don't know exactly quite frankly, but we do believe over the course of the next two to three years there'll be some some some large portion about the will churn as the census ramps up to the ramps down. So we were obviously working with the census on that and more to come as we know more.
Thank you. Our next question comes the line Rishi Jaluria from D.A. Davidson Your question. Please.
All right guys. Thanks for taking my questions.
First I wanted to ask about some of the cornerstone originals I know we're early in the process, but maybe just wanted to understand.
Well the margin implication to be we should we expect higher than that kind of 50% gross margins that that you've talked about what the content business before given that you're not doing any revenue sharing theoretically that I've got a quick follow on for Brian .
Yes, two points there. So one is on the gross margin, obviously, it's higher than 50% because we own the content. So there is no royalty payment to any third party.
It also has.
Higher operating margin because we have the higher gross margin and that will flow through I think there's some concern out there that we're going to increase our capex because of this original content. That's not the case. All this is already baked into the budget. This is operational spend.
Part of the flow of how our content studios work, which are producing significant content not just content originals, but the four grow library and the co produced content. So all three brands are being produced by that studio is part of our normal operations.
Cadence.
And we've just gotten pretty good at it and it's a very efficient model.
Great. That's helpful. And then yes, sorry, Thanks, and then Brian just wanted to maybe drillable that down.
And to your commentary and the shareholder letter on the dollar retention and seeing that number kind of come down slightly this year relative to last year.
We take that into consideration and also look at the fact that you've raised guidance on air all are I mean, you're essentially implying that your air or your new air are so to say that that you generate this year relative last year, it's probably going to growing at a slightly maybe in line to maybe even slightly faster than we've seen.
Same subscription revenue, Greg maybe be can help us kind of bridge those and how we should be thinking about Neely air are in light of.
Annual dollar retention coming down thanks.
Yeah. So I'll, we obviously once we close out the year will come in a lot more that's on the end of the year. We report the actual HDR and on the fourth quarter call Ricci I think what you're saying.
Makes sense and so I think you're thinking about at the right way. We are growing new air are this year, which is good the teams have executed very well in that regard.
The 80 our.
There's lots of moving pieces that impact the architects on the support base, whether it's the renewal rate on what's up for renewal. There's obviously other churn reasons that go into the overall.
The final number but I think the way to think about it we know we've been pretty specific on air our growth. This year, obviously quantitatively on the guidance and the next year, we obviously talked about the rule 40, and we expect cash flow to be a larger contributor that subscription revenue growth next year constant currency subscription revenue growth. So as we close up year, we'll finalize the guidance and then give you some more.
Quantitative.
2020 book on the next call, but you're right basic arithmetic if.
Hey are is going up.
And churn is slightly elevated then it means your new a our sales are also higher.
Thanks, that's helpful. Thank you.
Thanks, you aren't next question comes the line of Raimo Lenschow from Barclays. Your question. Please pay congrats from me as well.
And I'm on the content can you just help us understand the little bit like where are you seeing Q1, two kind of come up with the original versus partnering like whats your criteria Dear.
Yes, so we have a very specific strategy there we want for each of the subscriptions that we offer for cotton anytime we want to have at least one original content series and at least one co produced content series example, today being set the sale.
As content anytime subscription has content that's been coproduce with Sandler training, which is one of the top training providers out there for salespeople.
And each of the subscriptions will have at least one original series in one co produced series, which makes the subscription even more exclusive because you're not going to be able to get that content from any other subscription service on top of that we have a broad range of.
Content from a number of content providers in each and every subscription that our global providers. We're also making sure that every subscription is localized.
We obviously as you know have a big business in Europe . So we're very attentive to French German in Spanish content right now we will expand that lifts later, but.
The content will be in four different languages that means also that there will be different content providers meeting the subject matter for each subscription in each language. So for example, some of the top German content will come from German content providers that might not.
Have content in French or Spanish, but rather in German and perhaps English and so it will be a mix of providers mixup languages, and a mix of full partnerships.
Original content and Coproduce content in each of the subscriptions.
Okay makes sense and then.
Yes, we would just discussing in Europe . The you have to comment around Europe , and your shareholder letter and and if you look at this space at the moment. There is like two types of companies just some that see okay does Europe . This issues I'm fine and you're calling decent reads like that a little bit and then it appears that actually kind of have impact on numbers are ready.
I kind of take their right conclusion, there could you just acknowledging that something out there, yes, the former but as you know back in 2016, we got burned by Brexit. So we we still view it as a potential risk it's been highly mitigated both by the fact that weve reduced concentrate.
Nation risk of the UK versar broader EMEA business.
And the fact that we now multiple data centers not only in the UK, but also in France, and Germany, and we've de risked the way we handle currency. So we treat the pound separate from the euro separate from the dollar whereas before.
We had some translation risk as well so for all those reasons the risk is much lower in our case and we have not seen any impact, but it's out there and I think it's a fools errand for anybody to predict exactly what's going to happen based on Brexit or based on some of these tariff wars that are going on so.
We're taking that into account when we think about guidance.
But we have not seen any impact to date.
Okay, perfect Hey, congrats on a great quarter. Thank you.
Thank you. Our next question comes from the line of Nandan Amladi from Guggenheim. Your question. Please.
Hi, good morning, Thanks for taking my question.
Adam you talked about the three growth factors, the original Cisco's management and leveraging installed base.
How did these layer in over the next say two or three years.
Yes, so the originals like I said is starting to happen now I think certainly going into next year, we're going to see the impact of DNA and the incremental content that we produce so we think thats part of what's going to accelerate our content business and the growth there with regard to skills management, that's something we're working on very.
Actively and could have an impact as early as next year and even early in the year.
Because of some things we're doing from a product standpoint.
Both with regard to the products that we actually bring to market and with regard to how the products work today.
And.
There's there's other factors as well I mean, the opportunity to up sell the installed base has been not only thoroughly discussed in the past, but is now fairly well documented with the growth in air our that we've seen.
And the last spectra and talk about is obviously international we still feel good about the opportunities in a PJ in Latam we've seen good results already from some of the parts of Europe .
That are maybe further out from some other companies so whether we're talking about the nordics or Benelux or central Europe , We're southern Europe , I mean outside of the UK, France, and Germany, we're seeing good results there.
And lastly, we've seen a real uptick in our SMB business, we've grown our inside sales teams. We've built out another center for that operation in Salt Lake City, and we think Theres a lot of upside in that segment as well, it's predominantly greenfield and not a whole lot of competition.
Segment.
I think kind of quick question, a follow up if I might attract deck. There were lot of your LMS traditional LMS competitors.
Also making dispatch about connecting the LMS to performance management and making it.
You know more more actionable.
More directly measurable.
How does how does your solution differentiate.
Yes, I would say, it's not a new thing right the Holy Grail in HR Tech is the linkage between jobs and skills and training.
Because if I could connect all three of those things I know, which people have which skills what jobs, they're most appropriate for I know if I want to move you from job aided job B, what skills, you might be missing and I know, we're training you need to remediate those skills gaps so its a.
Very powerful comp.
A combination if you can do all three.
And this has always been a data science challenge at the end of the day, obviously data science technology is improving machine learning is improving but they don't all have the kind of datasets that we have they don't all have the kind of data science talent that we have they don't all have.
The machine learning platform that we have and so that puts us in a fairly unique situation. We see there are startups in the space that are doing interesting things from that perspective, all of which enables us to have a competitive advantage in this area and abhi.
Finally, we have very not only deep data, but a deep set of training content that allows us to the extent, we identify the gaps to remediate them in a way that others simply care.
So I wouldn't say this is a new idea. This has been around for almost as long as I've been in the space, which is quite a while now but it is something that's closer to reality than it's been in the past generally and for us specifically much closer in reality.
Thank you.
Thank you. Our next question comes on line of Chris Merwin from Goldman Sachs. Your question. Please.
Okay. Thanks for taking my questions.
He called that some recent successes in SMB is that I know, it's early is that starting to become a more meaningful driver of the business and maybe can you just talk about what's what's driving that improvement. There I think you mentioned an investment and the sales team and anything else you're doing there in terms of.
Price that product.
Just some some more color there would be great. Thank you.
Yes, so we brought in new leadership.
About 18 months ago at this point and that combined with investment in the team combined with how we.
Reorganized our midmarket operations and split it between SMB and enterprise.
Build out of the inside sales teams the change in our go to market strategy for SMB or marketing effectiveness around SMB and our our general product capability for small businesses. All have led to very significant growth in that segment for.
Yes, it is still relatively small, but becoming increasingly substantial and by next year will be a meaningful contributor to our growth.
And when we think about kind of leveraging the existing base I mean at same time, you've got this opportunity for new logos down market with with with SMB and Midmarket customers I mean, it could we see a reacceleration there and logos them into to the extent that theres more more more wins there just.
No not mutually exclusive but just as we're thinking about the metrics going forward curious, how we should think about that thanks.
He said again sorry.
To the extent, you're focusing more on SMB and midmarket, presumably there's an opportunity to start adding a lot more logos, especially if they're they're smaller customers and.
I think we've seen a bit of a deceleration in the customer growth. While you continue to to leverage the basis of enterprise customers and expand within those so just.
Look at the overall metrics is there an opportunity to reaccelerate customer growth as you as you went more new logos in SMB and Midmarket, 100% I think part of the change you've seen as a combination of both our focus on upselling growing installed base strengthening our penetration rates would.
Any install base combined with the disruption we had in our Midmarket operations.
Has that has settled down I think you will see an uptick in client count I know thats a metric that some people look at.
And we think that metric will go back to improving over time. The other thing that has continued is our overall user base continues to grow at scale and we.
We don't disclose that quarterly but the numbers continue to rise.
From that standpoint.
Great. Thank you.
Thank you and as a reminder, ladies and gentlemen, if you have a question at this time. Please press Star then one.
Our next question comes on line of Citi.
Mizuho your question please.
Hey, Thanks for taking my question.
Just for 2020, you guys talked about teen subscription growth just wanted to on this and little bit more your expectation from this to the segment the SMB.
Versus enterprise segment heading into 2020, and also expectation from North America versus Libya.
The second one fairly straightforward EMEA contributes close to 30% over our business. That's been true now for several years and we expect that to continue to be true the non us non AMEA portion of our business continues to grow and so it's difficult to quite.
Five that exactly right now for 2020, but that is a growing part of our business. We also think of the US itself as two different businesses, we have Americas commercial which also includes Canada, and Latin America, as well as Mexico and.
We have already us public sector business, which has grown nicely. So we think of this as really four separate theaters and then SMB is the fifth that's how we go to market. That's how we organize our sales operations and it's how we think about our business overall, so we have seen Asia.
Shifting mix amongst those five different groups as our business continues to expand and we expect that shift to continue overtime.
Obviously, the public sector business has grown quite well and it's become a much more significant part of our business overall, the SMB business is growing and as I. Just mentioned is becoming more substantial especially going into the next couple of years.
And as Jay we view as a really big growth driver of the business and Thats something that has historically been a very small portion of our overall mix. So we have multiple vectors of growth from that perspective, as well as from a product perspective, and that's part of what gives us confidence into the.
Feature.
Thanks for that color.
Thank you. Our next question is a follow up from the line of Corey Greendale from first analysis. Your question. Please.
Hey, I apologize my line cut off of that the I'll just follow up offline, but did I get enough for the question I think we're able to answer there say ask it again.
We didn't hear the question or if you could say again.
The other question with Jeff.
The magnitude of the census contract just trying to get a sense of how much is contributing to growth now and what we said that spectator turn.
That when we answered yes, I didn't answer that core and it's in the transcript that what I did answer.
Okay.
Thank you.
My question is just on the more broadly on churn.
Is our contracts still typically three years to get a sense of what the dollar return and kind of a renewable base is and you just comment on what if you just look at out and renewable dollars, if there's any movement and what's happening on the churn.
Yes, so I talked about over the last six quarters, our renewable base grew significantly in 18 versus 17 continues to grow in 19 generally our contracts are still three years, but duration does move around the other thing to keep in mind as Adam mentioned, we've obviously had great growth and some very large logos in the public sector those deals traditionally our one year renewable deal.
Generally get renewed but contractually theyre just one year deal. So there has been some impact on duration somebody just where we grow the business specifically in the public sector, but in general most of our new logos and at most to our deals in general are still three years, that's we strive for.
And Brian if you just look at the renewal base is there any movement on renewed the percentage of renewable dollars that are renewing as opposed to that impacted the change in that in the size of the base. Yeah. It's gone up in fact in 18, our renewable rate was up over 17, obviously Nike did not over yet we'll talk about it next quarter and in the future, but but we actually reduce.
More dollars, both as a rate and as a percentage in 18 versus 70 80, our did come down because the whole size of the renewable waste went up so much.
Yeah got it and one other quick question Adam there was that sentence in the shareholder letter about the balance sheet and the ability to pursue opportunities that can help achieve meaningful growth now I wasn't clear how much that was intending to signal M&A, but can you just comment on whether that's that's to be M&A and what your thoughts on M&A.
Yes, our objective is to drive shareholder value.
By any means necessary and so that includes.
Organically growing that includes.
M&A opportunities so inorganic growth.
And it includes.
Return of dollars to our shareholders, which has recently taken the form of the share buyback.
So all three or possible.
As you know, we're going to have even more free cash flow going forward. So we do have a large and growing balance sheet, which allows us to pursue all three approaches to driving shareholder value and we'll continue to.
Look at optimizing the mix of those three things.
Got it thanks very much.
Thank you and this does conclude the question and answer session of today's program I'd like to hand, the program back to Adam Miller CEO for any further remarks.
Thank you all for participating as you can tell from the call on the question and answers we're feeling very good about the business. We are confident in our ability to hit the rule 40 in 2020 and go beyond that beyond.
2020, we have a very good sense of where our expenses are going into next year based on predominantly the fact that we block our headcount plan through 2020, and we're seeing growth opportunities from a sales perspective across multiple factors both rigs with.
Regard to how we go to market and where we go to market as well as with regard.
To the product base and penetration rates of our install base.
So thank you all we will see you on the road, perhaps over the next quarter or next week at our client conference in London and.
Thank you all.
Thank you and thank you ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.