Q2 2020 Earnings Call
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Okay.
Good afternoon, ladies and gentlemen, thank you the standing by welcome to the PTT 2022nd quarter Conference call.
During today's presentation, all parties will be in listen only mode.
Following the presentation the conference will be open for questions.
I would now you're trying to comped over to jump off Ppt Senior Vice President Investor Relations. Please go ahead.
Great. Thank you very good afternoon, everybody and thank you for joining us today on Ptcs conference call to discuss our fiscal Q2 20 results on the call today or Jim Heppelmann, Chief Executive Officer, and Christian time, multiyear Chief Financial Officer.
Before we get started please note that today's comments include forward looking statements, including statements regarding future financial guidance.
These forward looking statements are subject to risks and uncertainties and of all factors that could cause actual results to differ materially from those expressed or implied by such statements.
Additional information concerning these factors is contained in Ptcs filings with the FCC, including our annual report on form 10-K, and quarterly reports on form 10-Q.
As a reminder, we'll be referring to operating and non-GAAP financial measures today during the call.
Discussion of operating metrics in items, including excluded from our non-GAAP financial measures and a reconciliation between GAAP and non-GAAP financial measures are included in our earnings press release and related form 8-K, and lastly references to growth rates will be in constant currency unless otherwise noted with that let me turn the call over to Jim.
Thanks, Tim.
Good afternoon, everyone and thank you for joining us.
I Hope you and your families are safe and well during this crisis.
Before I jump into review of our quarter I'd like to start by thanking our tens of thousands of customers around the world for their continued support loyalty.
Many of our customer relationships date back to in three decades, now which shows how important the relationships have been to both parties.
We've been through several crises together and we'll get through this one until.
I'd also like to thank PTC 6000 employees around the globe for their hard work and commitment during the crisis.
The way our team has embraced the remote work environment.
While pushing forward to strategic initiatives and leaning in to support our global customer base.
Is a testament to the great culture, we built your at PTC.
Overall, we're very pleased with our fiscal Q2 results.
We delivered 11% our growth.
25% revenue growth and 170% EPS growth.
We did experience in bookings pressure related to the pandemic in the final weeks of the quarter, resulting in new MCV bookings being down mid teens year over year.
The impact came late in the quarter in was greater in Europe, and Asia and within our smaller channel customers.
Renewals were essentially unaffected by the crisis in Q2.
Looking ahead, we're mindful of the pressure that the pandemic will place a new bookings and our guidance reflects that.
Still we continue to target double digit organic growth in our our revenue and EPS for the full year. Despite factoring in the potential of severe demand challenges and modest renewal headwinds as well I'm very pleased the PTC remains able to provide such a strong outlook given the.
Very conservative guidance assumptions that Christian will outline later in the call.
Our strong Q2 results and outlook are not due to locker happenstance, but are attributable to several successful strategic and operational initiatives weve executed over the past few years.
These actions were initially take into position PTC as a premium software company in a timeless manner.
They are proving to be particularly for to it as in the current crisis environment.
I'm, referring to our business model transition our successful expansion into high growth Aiotv an air markets.
Our recent embrace of a pure SaaS future through the on shape acquisition.
And the restructuring we did earlier this year before the pandemic arrived.
Because of these changes ptcs position to help hold up well during the downturn.
And we're very well positioned to drive even stronger growth and shareholder value creation. Once this crisis passes.
Q2, Aer our growth rates were 10% for the core business.
30% and the growth business and low single digits in the focused solutions growth.
Each business performed just modestly below the level, we would have expected without the crisis.
The data is in the prepared remarks, and there's nothing particularly notable there so instead of going deeper on Q2 results. Let me instead use my time to take you through the strategic changes we've made to transform PTC into a company that is well positioned for this downturn.
Understanding these changes will help ILLUMENATE the confidence we have in our guidance and then our longer term future.
The biggest change has been our successful transition to a subscription business model that was completed last fall as we wrapped up fiscal 2019.
Today over 95% of our software revenue as recurring.
In Stark contrast to the 2009 financial crisis with double digit bookings declined led to double digit revenue and earnings declines for PTC.
Our fiscal 2020 guidance is targeting double digit organic or our growth with even higher levels of revenue growth.
Thus expanding margins that drive strong EPS growth and solid free cash flow.
This is despite Q2, new bookings declines and the assumption of more significant year over year bookings declines in Q3 and Q4.
The recurring nature of our business model is allowing us to largely protect earnings and cash flow without materially impacting our ability to make key investments and our growth businesses to further extend our competitive positioning.
The second Big challenge over the second Big change over the past few years has been the expansion of the markets we serve.
Enabled by strategic changes in our product portfolio.
I think there's broad consensus that inside this terrible crisis.
It is digital technologies that are coming to the rescue and keeping many of us productive to avoid a much worse situation.
As we've seen with video calls anything digital that empowers the distributed workforce and embraces remote work is the most compelling of all.
Fortunately for PTC Aiotv Aer in PLM are all about remote work.
Digitizing product data and factory data and worker expertise so that it can be used by a distributed workforce is a very point of these technologies.
We expect that the new normal that follows this crisis will create stronger tailwind to the already high growth I OTN a our markets.
And we'll make PLM more relevant than ever.
Let me double click on augmented reality.
Ptcs do 40 off a our sweet allows companies to capture and digitized human expertise for purposes of collaborating with training and supporting remote frontline workers.
We've all seen zoom teams and go to meeting usage explode for knowledge workers.
But these tools don't bring any value to frontline workers.
Before he does essentially whats zoomed does but for frontline workers and there are three times more frontline workers the knowledge workers on the world.
Vuforia is a strong leader in industrially, our and PTC really stands to benefit as enterprise Iara adoption accelerates.
Here's an interesting proof point in response to the crisis, we decided to provide free access to Vuforia Chuck the entry level capability of the before your sweet.
Think of the 40, a Chuck as like a face time call that allows you to see in Mark up the real world environment.
At the frontline workers factory or Worksite.
It's incredibly helpful for remote support and problem solving.
By making chalk free for the crisis period, we eliminated sales friction and quickly introduced aer for the first time to thousands of companies who are desperate for an immediate solution.
Rockwell automation and other companies partnered with us and promoting this initiative.
Here in the US a national Association of manufacturers embraced a our is a key strategy for their manufacturing constituents and promoted our free chalk initiative.
The Nam when a step further and published a paper that professor Michael Porter and I co authored on the topic of using Aer to drive frontline worker productivity.
Which you can find on our investor website.
The adoption Chuck has been amazing in daily view for your chalk Aer collaboration traffic soared to levels 10 times higher than it was before the crisis.
These companies using chalk represent a big up sell pipeline to Brazil in Q4 and beyond.
Please checkout PTC dot com slash free Chuck to learn more including a nice case study that discusses toyota's use of chalk to provide remote support the factory workers.
So yoda incidentally is currently our largest Chuck customer.
Moving on to Aiotv from the beginning Ptcs multistory has been about remote monitoring a smart connected products and remote monitoring of smart connected factories. Many medtech companies use PTC Aiotv solutions and we've already experienced large spikes in I O T usage as several.
Medical diagnostics customers rushed to launch new smart and connected diagnostics and treatment equipment to respond to the Covance crisis.
Because I don't see any are both such strong drivers of digital transformation Thingworx and Vuforia solutions are frequently used together to allow customers to remotely monitor and diagnose assets.
And then to allow remote experts to collaboratively troubleshoot with frontline workers, even from the safety of their homes.
In a joint study that PTC and BCG recently published we found that 81% of Aiotv projects see added value in a our while 76% of projects that started with they are see real value and adding aiotv.
There is an important takeaway here aiotv and Aer together form the foundation for a new era called spatial computing.
This wave will be big but it's just starting to form.
Last week PTC launched our first spatial computing offering called Vuforia spatial toolbox.
I'm very excited about the possibilities for space will computing in the industrial world of plants factories in Worksite.
And with best in class Aiotv, and HR solutions to build on PTC has a real competitive advantage and this wave comes together.
Our wind Chill software has been a real hero during the cold and prices still.
Because wind chill has been a pure web application from the start it doesn't matter where you are what device you have you still have full access to product data and full ability to participate in the process.
We received accolades from numerous winchell customers regarding how effective the software has been in their transition to a work from home environment.
Because every manual or paper based process at their site came to an abrupt stop many customers have asked us to help seller, so accelerate and broaden their deployments because there was no hiccup in any process, where PLM was used.
PLM as more and fashion now than it ever has been.
Wall Aer Aiotv and PLM are all about remote work CAD is a different story mainstream CAD is an on premise market today with 99% of current professional can seats installed on desktop workstations.
These get environments proved more challenging in a work from home scenario because engineers were denied access to their workstation at the office to contain both their applications and data.
This situation will have to change in a new normal that embraces remote work.
Which brings me to the next PVC strategic change I'd like to highlight which is our effort to transition the engineering software industry. The full SAS leveraging our on shape acquisition.
Working from home is more difficult with CAD, because engineers don't have the big workstations at home the load this offer on.
No matter, which mainstream CAD tool they use many industrial companies have been forced to implement painful workarounds like using citrix to gain access to the CAD software and data on a workstation back at the office.
I talked last week to the CIO of a major automotive OEM. He said that he now has thousands of knowledge workers working from home and his biggest challenges have been in engineering.
His company uses a competitor's PLM system that unlike when shell has a fat clients. So even as PLM system isn't readily accessible from home.
He was exasperated by the state of Engineering software and then complete agreement that we really need to bring the engineering world to SAS. So it can enjoy the benefits we know take for granted across the rest of our business systems.
Frankly, our acquisition of on shape could not have been timelier.
If you want SaaS and engineering on shape is the only native SaaS product development platform on the market.
On shape users thrived during work from home.
Because all their functionality and data lives in the cloud at all times. They can easily access their work from home at anytime on any device, including a Mac book Chromebook phone or tablet.
It's hard to if it's hard to imagine what true SaaS means to CAD take this 15 second test.
Fire up a web browser and go to our Investor Relations website.
And then click on the on shape link you see there.
And about 15 seconds, you'll be in a full blown professional CAD system interacting with the Threed model of ventilator or robot you pick that's in the implementations done you're in production.
There's nothing like that in the industry and because it took the veteran on shape team six years and more than $100 million to build the platform PTC has a major lead as we entered this phase of SaaS acceleration.
On shapes, not a big business, yet but of all our product lines. It had the best performance relative to plan in Q2 and showed strong year over year bookings growth.
As the crisis deepen the level of on shape interest group commensurately and the pipeline is very strong going forward.
Because it's so easy to get started with more than a dozen community based emergency response programs.
Turning to develop new personal protection equipment, and ventilators adopted gone on shape globally.
These efforts typically involve some combination of academic commercial and government entities joining forces to quickly design and manufacture a novel approach to respond quickly emergency shortages.
This is a perfect fit for on shape teams discuss that we can either go implement a common can system, where we just start using on shape right now.
It's like calling a number rather than buying a car and securing a place to park in the.
The level of innovation and speed observed in these community projects is causing industrial companies to rethink their rigid supply chain strategies and instead look for technologies. They can use to encourage and lubricate impromptu collaboration.
We saw unrelated phenomenon happening the education market, many universities and many high schools have a threed CAD curriculum in their engineering or stem programs most frequently using solidworks.
Because all major CAD systems like Solidworks run exclusively on Windows workstations.
And students generally have Mac books chromebooks are I pads.
Students are forced to provide a special PC computer room on campus, where all CAD work must be done.
The computer work is or the computer room has always been a pain because a lot of extra work and money for the school and students can't work from their Dorma classroom.
But in this crisis the computer room has become a show stopper, because it's simply inaccessible.
Because skills needed an immediate work from home solution to get back on track on shape education sign ups have soared to leverage levels never seen before especially during the middle of a school year.
Likewise because of the krona virus the popular first robotics program had to cancel their physical robot building season.
Well, we worked with first to offer a virtual robots to the rescue program and more than 400 virtual student teams quickly spring back to life and join this online CAD base robot competition.
We estimate that on shape has taken five to 10 points of education market share already in the past two months and I expect things to really heat up during the summer back to school planting season.
Winning in education is really important because infusing college, new hires with the latest thinking so that they can influence the commercial companies that hire them is a proven sales and marketing approach in the cat industry.
We believe that Covance crisis will accelerate the SaaS tipping point for the engineering software industry by several years.
With this belief we've been thinking about staff more broadly for example, what about our installed customer base, what can we do there.
As we mentioned in November our acquisition thesis viewed on shape as a cat application built on a multi purpose SaaS platform.
We saw the underlying SaaS platform as Big a prize is the new CAD system and we've been investing heavily there.
We'll be shining a light on this platform at Liveworx in introducing it using the code name Atlas.
I think that Atlas will carry the PTC SAS world on its shoppers.
We're making great progress to extend Atlas more broadly across the PTC portfolio and we're deep into the work required to have a terry the for us dumb generative design capabilities and the Vuforia Aer suite I.
I expect that we'll have the first brand new Atlas based deliverables in the market yet in calendar 2020.
The long term goal at PTC is to have abroad, and seamless portfolio sharing a common SAS infrastructure.
We will have more info at Liveworx, which by the way has been converted to a virtual event that you're welcome to attend.
The bottom line is that I really like the on shape acquisition back in November, but I'd like it even more now the timing could not have been better the work from home Genie wont go back in the bottle and it's now clear that we will need to embrace a more distributed and agile workforce than we've ever known before.
That future will need SaaS based PLM, aiotv, aer and CAD more than ever and Ptcs years ahead of competition across as waterfront.
The last change I want to talk about as restructuring and cost management.
As we entered fiscal 20, we announced a restructuring plan to shift resources into our SAS initiatives.
As we executed that strategy throughout the fall and winter, we reduce costs more than the original plan, which you can see in our higher restructuring costs.
This coupled with lower travel costs.
It's an intentional slow down in hiring and cancellation of various live events like liveworx as us tracking toward a spending number that's well below our plan for the year.
Even as we continue to that continue to invest aggressively in new technologies like Hsas and they are we still expect to deliver strong operating margin expansion in fiscal 2000.
Before I wrap up I'd like to share one other piece of important knows which is the PTC just launched creo seven in the market two weeks ago. During the work we work from home period.
This is a huge release for us because it brings to market our freedom generative design technology. It adds fluid dynamics to the Ansys live simulation capabilities and lays the groundwork for the mainstream aim simulation suite to ship with Creo. This fall.
It introduces multi body design and has a host of improvements related to added to manufacturing and more.
Well I'm excited about our opportunity and take share in the transition to SaaS. That's a long term strategy in the meantime, Creo seven is a big advancement in terms of our ability to continue to win and renewed creo customers with this flagship product line.
In summary, because of the tough decisions PTC previously action to change our business model to expand into growth markets like I don't see any are to launch into SAS with on shape and to work on our cost structure, we're very well positioned to performed during the downturn and to thrive in the new normal.
I will turn around will bring.
It's a difficult market out there, but I couldn't be more pleased with ptcs positioning in it.
With that I'll turn it over to Christian to take you through the quantitative results.
Thanks, Jim and good afternoon, everyone.
Before I begin our before I review our results I'd like to note that I'll be discussing non-GAAP results and guidance and all growth rate references will be in constant currency.
Let me start off with a brief review of our second quarter results and then spend the balance of the call on our outlook for the remainder of the year.
Due to a our our was 1.18 billion, representing 11% year over year growth, which is consistent with the guidance commentary, we provided last quarter and slightly better than on our March 10th business update call.
Similar to other software peers, we did see a deterioration in new bookings in the last few weeks of the quarter.
However, due to factors such as backlog and timing of start dates we still achieved strong new HCV growth.
And as Jim mentioned earlier Q2 churn came in essentially on plan. So the net result of all that was 11% error our growth.
Q2 revenue of 360 million was up 25% year over year, driven by 35% recurring revenue growth.
Operating margin of 29% increased 1400 basis points over Q2 of 19, and lastly, non-GAAP EPS of 59 cents increased almost 200% year over year.
Q2 free cash flow of 82 million was within our expectations and included 18 million of restructuring payments primarily associated with the workforce.
Reduction actions, we began in Q1, 20, and 2 million of acquisition related payments.
Moving onto our balance sheet.
We ended Q2 with 1.6 billion of debt, including 1.5 billion of senior notes and 148 million outstanding on our revolving credit facility.
And we had cash and marketable securities of 884 million.
As you know in January we announced that we will redeem the 500 million of 6% notes due in Twentytwenty for on May 15th of this year.
Following this redemption.
We will have 1 billion of senior notes with a weighted average cost of debt of 3.8%.
It's also worth noting that the maturity dates on these new notes extended to 2025 and Twentytwenty eight respectively and will have approximately 350 million of cash and marketable security.
We believe this is a very attractive and stable.
Capital structure, especially in light of the current economic backdrop.
Now turning to guidance.
Let me begin by providing some context on our outlook and our underlying guidance assumptions for the balance of the year.
As Jim discussed earlier, while we were pleased with our Q2 results. We did see some pressure on new bookings in the final weeks of the quarter.
Conversely renewal activity was strong throughout Q2. In addition, the majority of our Q3 renewals take place during the first month of the quarter in April renewal rates were largely on track.
Given the uncertainty around the duration and depth of the current economic slowdown we've revised our fiscal 20 outlook to assume continued deterioration in the demand environment for the remainder of the year.
From a demand perspective, you'll recall that a certain portion of our new ACB as backlog, meaning it was previously committed in the prior period, and therefore, not really impacted by a macroeconomic induce downturn.
And our new bookings assumption relates only to the new boot business that has not been.
Yet committed.
At the same time only the contracts that are up for renewal in any given period can experience churn not the full a our our base.
Well, we do not share the specifics of new deals sold or proportion of expiring contracts I do think it's important to outline. This nuance. So you can understand how our guidance range contemplates end market demand at both the high and low end of the a our range.
So with that as a backdrop, let me share with you are thinking on a are for the remainder of the fiscal year.
At the low end of the range, we assume we assume a severe disruption in new bookings growth in Q3 in Q4 with both quarters down approximately 50% year over year.
To be clear this level of deterioration is not what our internal forecast is calling for but given the uncertainty of the environment. We wanted to provide an appropriately conservative outlook for the low end.
The midpoint of the range assumes new bookings are down about 30% in the back half.
This is in line with the commentary you provided on March 10th.
As well as in line with our performance in fiscal 2009.
But is also well below what our internal forecast is calling for the high end of the range assumes new bookings were down 30% year over year in Q3, and a modest sequential improvement in Q Q4, but still down about 20% year over year.
Again this scenario also modestly below.
Turnover expectation.
In addition to account for the possibility of lower retention rates in the back half of the year, we've increased our churn rate assumptions on both the low and high end of the range now instead of assuming a modest year over year improvement in churn, we're factoring in a churn rate of approximately 8% for fiscal two.
20.
Through Q2, approximately 20% of our churn was related to customer loss, primarily smaller customers in the channel with the remainder of the churn related to downgrades.
Lastly, we're anticipating our professional services business will face headwinds over the next few quarters, we're seeing regions like southern Europe, where projects are being paused or postponed and industries like automotive and retail in footwear and apparel are more heavily impacted on the positive side.
Our professional services teams in most geographies are able to continue their work remotely. So the slowdown is primarily related to new implementation, where the potential deals are being pushed out into a lesser extent a temporary pause for ongoing projects.
We also struck saw strong move of training to a virtual format.
Even in more conservative areas, such as the CAD and PLM markets and in countries like Germany and Italy.
What is particularly noteworthy as Jim mentioned earlier is that the strength of the recurring business model could not be more evident even with these declines in new bookings and increased churn.
We're still targeting double digit a our our growth for the year.
Now for the specifics, we're expecting fiscal 20, a our our of 1.22 to 1.26 billion, that's a growth rate of 9% to 12%.
Relative to Q2 are a our our guidance includes approximately 7 million of negative FX impact.
And we expect Q3, a our our growth to be in the high single digits with a our our growth accelerating in Q4.
This increase is driven primarily by both normal seasonality of our business and our backlog of new deals booked in prior periods.
Now turning to free cash flow for fiscal 20 were expecting to deliver approximately 200 million, which is down about 30 million from our prior guidance and includes 10 million of additional restructuring charges related to our reorganization in the first half and a $5 million negative FX impact.
And even though we havent seen a material change in customer payment activity. We've also built some caution into our collections forecast for the back half of the year.
For the full year free cash flow guidance includes 45 million restructuring costs.
Approximately 10 million of acquisition related payments 65 million of interest payments and Capex investments in the low to mid $20 million range.
Now.
Turning to the PML guidance.
We are expecting fiscal 20 revenue of 1.4 to 1.43 billion a decrease of about 70 million.
At the midpoint of guidance.
Uh Huh again revenues are somewhat funny concept for an on Prem subscription company under FC success, six so while our A.R.R., which is essentially our subscription and support billings on a trailing 12 month basis is down.
About 45 million at the midpoint revenue will be down 70, reflecting an additional 17 million reduction in professional services 5 million reduction in perpetual license revenue and shorter expected contract durations as we're seeing more customer opt for one year term given the macro backdrop.
The resulting revenue range is growth of 11% to 14%.
Uh Huh as I mentioned earlier to ensure we can mitigate the impact of lower topline growth on earnings and cash flow, we're taking additional steps beyond our early restructuring actions to control expenses by limiting new headcount additions to critical roles in our growth businesses that.
In conjunction with lower travel expense lesser spend on events, such as live works and lower expected variable compensation expense sets us up well to deliver on the margin front. Despite a 70 million reduction in revenue at the midpoint.
The result is that we expect a tighter operating margin range of 27% to 28% compared with our previous guidance of 26, 29%. This is an increase of seven date hundred basis points year over year.
Non-GAAP EPS is now expected to be $2.20 to $2.35, which is only a decrease of 12 cents at the midpoint of guidance and represents 34% to 43% growth year over year.
So to sum up we feel our guidance has an appropriate and prudent amount of conservatism.
Considering all the current exhaustion as factors, we've taken measures to control expenses and protect earnings without impairing our ability to make key investments in our growth businesses and to further extend our competitive position.
And lastly.
We have a strong and stable capital structure to support our profitable growth strategy going forward.
Well, we're not providing fiscal 21.
Guidance at this time it is worth noting that even under a scenario of.
Economic softness, we still expect a our our to grow.
And with spending control that ptcs demonstrating for many years, we also expect to generate free cash flow growth.
Bear in mind, there will be some free cash flow tailwinds in fiscal 21.
And while we expect the Capex will continue in the same mid Twentys ballpark interest expense is expected to the decrease roughly 25 million compared to the fiscal 20 outlook given the debt structure, we put in place and assuming no new restructuring, we would expect approximately 30 million.
The last of.
Restructuring payments and assuming no acquisitions and other approximately $10 million less avax with acquisition related payments in fiscal 2001.
So wrapping up we had a solid quarter, but recognize the market is changing rapidly. We believe we're well positioned to perform during the downturn and continue delivering significant value to our customers, which will in turn drive A.R.R. and free cash flow growth well into the future.
So with that I'd like to thank everyone for the time and I'll turn the call over to the operator to begin QNX.
Thank you.
Ladies and gentlemen, like that the question. Please press Star then one on your pets from telecom.
I'd like to anyone PQ Bloomsburg capacity.
Please stand by low compared with 70 lastly.
Our first question conference.
Probably a Barclays capital your line is open.
Okay, Great Hey, Jim Hey, Christian Thanks for taking my questions here.
Can we maybe first for you.
Can you talk a little bit about the pipeline in the Aiotv business I think we said in the prepared remarks, clearly not a lot of big deals being signed there in this environment, particularly.
Good closer to the end of the March quarter, but how about interest slash pipeline for Aiotv for the remainder of this year.
Yeah, a second you know just this morning actually we did go through the pipeline kind of in preparation for the call and.
The Aiotv pipeline is pretty strong you know the question for US is close right.
And and that the risk that some of that.
Some of that pipeline pushes back a quarter or whatever from Q3 to Q4 Q4 to Q1. So we have plenty to work with plenty to support a forecast that as Christian said is well above the guidance range. We've given you.
We're being conservative around close rates in the forecast and being double conservative in the guidance.
Because.
We're we're worried about software that has to be implemented.
In in bigger ticket purchases might get delayed I doubt, it's going to get cancelled.
But it's just what we saw at the end of the quarter was if you needed device offer you had to implement but everybody is being sent home and you don't know how to implement it will then launches wait until we all come back to the office and buy it then and so that to me as the rest, but it's not really a question of pipeline. That's really a question of close rates, that's generally true across the board.
That makes a lot of sense.
[noise] Christian maybe maybe for.
For my follow up for you.
Can you just talk a little bit about the slightly higher churn assumption you talked about sort of where that comes from downgrades versus versus.
Versus smaller customers, but I'm curious as you think about that assumption in the guide are you starting to see any headcount reductions at your customers that would maybe contribute to that forecast or is that maybe another element of conservatism.
Oh.
Yeah. So again here, we haven't really seen major a head count reductions in our.
Customer base.
But in an effort to again provide a prudent and conservative outlook. We thought that was the right thing to do so to factor in some extra churn.
It's a dicey market environment.
Yeah Christian said this but the reentering, we've not seen coven related churn thus far.
Got it very helpful guys. Thanks, very much the color.
Thanks second.
Thank you.
Our next question houses Joe borrowing of Baird. Your line is open.
Hey, Joe.
Hey, Hello, everyone.
Just wanted to be clear on that I guess in guidance versus internal expectation. So are your internal expectations that you referred to closer to what you're actually seeing in the market today and guidance presides.
Dramatically I'll say worse scenario ultimately is that a fair characterization.
Yes, I mean, we have a forecast that's our internal expectation.
Keep in mind you know.
New bookings were down 16% last quarter going forward, our forecast would have a down more than 16%.
But still above the entire range that Christian.