Q3 2020 Earnings Call
Thank you for standing by this is the conference operator welcome to the open text Corporation third quarter fiscal 2020 conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask a question.
Enjoying the question Q simply press Star and one on your Touchtone phone.
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I would now like to turn the conference over to Harry Blow Senior Vice President Investor Relations. Please go ahead.
Thank you operator, and good afternoon, everyone.
The call today is open text, Chief Executive Officer, and Chief Technology Technology Officer, Mark Jay Baron shape, and our executive Vice President and Chief Financial Officer Madu ranking.
We have some prepared remarks, which will be followed by a question and answer session.
This call will last approximately 60 minutes with the replay available shortly thereafter.
I would like to take a moment indirect investors to the Investor Relations section of our website investors Dot open tax dot com, where we have posted two presentations that will supplement our prepared remarks today.
First our strategic overview titled Open text Investor presentation April 2020.
And the second titled Q3, Oh, why 20 financial and business results includes information and financial specific to our quarterly results, notably our updated quarterly factors on page 10.
In May and June open text management is pleased to virtually meet with investors at the following conferences.
Ses technology and innovation conference on May 13.
Barclays America Select franchise conference on May 14.
Needham's technology immediate conference on May 19th.
Bernstein strategic decisions conference on May 29.
And bank of America's Merrill Lynch Tech Global Technology Conference on June four.
Please feel free to reach out to me for the IR team for additional information.
Now I will proceed with the reading our safe Harbor statement.
Please note during the course of this conference call. We may make statements relating to the future performance of open text that contain forward looking information.
While these forward looking statements represent our current judgment actual results could differ materially from a conclusion forecast or projection in the forward looking statements today.
Certain material factors and assumptions were applied in drawing any such statements.
Additional information about the material factors that could cause actual results to differ materially from a conclusion forecast or projection in the forward looking information as well as risk factors, including a relation to the current global pandemic that May project future performance results of open text are contained in open text reason.
Forms 10-K, and 10-Q as well as in our press release that was distributed earlier this afternoon, which may be found on our website.
We undertake no obligation to update these forward looking statements unless required to do so by law. In addition, our conference call May include discussions of certain non-GAAP financial measures reconciliations of any non-GAAP financial measures to their most directly comparable GAAP measures may be found within our public filings and other much.
Cereals, which are available on our web site and with that I'm very pleased to hand, the call over to Mark.
Thank you very.
Good afternoon, everyone and thank you for joining today's call.
After the Opentext community, we honor the brave women and men, who are serving on the front lines of this pandemic.
Our health care professionals first responders infrastructure on cloud expert food processors.
And other essential workers, who are keeping us healthy safe and productive.
Our hearts remain heavy with the loss of life and hardship.
And during these difficult times, our spirit, our uplifted, but hope.
Acts of kindness encouraged.
The health and wellbeing of our employees as our first priority as well as our customers and partners.
I'm pleased to highlight the the Opentext community is doing exceptionally well.
The pandemic impacts every aspect of our work in lives as we sang Canada, all together or twos ensemble.
Inspired every day by the resiliency in innovation on my colleagues.
I'm, so proud of the Opentext leadership, our employees their dedication to customer experience operational excellence and the resiliency during this pandemic.
While there remain and it's still a long journey ahead for all of humanity, we look forward to our in person camaraderie returning said.
Opentext is a unique platform a very strong company and we are well positioned for the seminal moments in time.
We will come out of the stronger than we went into it.
Let me spend a few moments on our Q3 financial highlights.
We delivered record total revenues of 815 million up 13% year over year or 820 million in constant currency.
This is our 24th consecutive quarter of total year over year growth in constant currency.
We had record annual recurring revenue of 662 million up 21% year over year.
Our annual recurring revenue they are our was a record 81% of total revenues.
Cloud revenues of 340 million up 42%.
With a 590 that margin increased to 63%.
Record customer support revenues up 323 million up 4%, what the margin up 90%.
Our renewal rates remain strong and upper quad tile, both cloud and off cloud.
Americas was 63% of our business AMEA, 29% and a P.J. was 8% with a stronger shift to the United States.
We generated 260 million of adjusted EBITDA dollars or 31.8%.
Record operating cash flows of 330 million and trailing 12 month operating cash flow of 904 million.
We ended the quarter with 1.4 billion in cash net leverage ratio of 2.25 times.
We expect our net leverage ratio to decline in the coming quarter.
We advanced our business during Q3, and let me highlight a few key areas and more details to follow in my script notable customer wins and critical infrastructure industry gets included Nestle.
The United Health Services General Motors Continental biopsy Diamond Pharmacy services and pass those lab testing.
We announced new partnerships with Amazon and Dun <unk> Bradstreet.
We acquired X media, a data and voice solutions provider with an installed base of over 50000 that expands our A.R.R. and on demand messaging.
We formed a do open text U.S. public sector group, bringing together all our U.S. public sector activities within one group civilian defense intelligence state local and National laboratories.
We published two Webroot reports on cyber threats and consumer security behaviors.
We announced a suite of cutting edge, a new cloud capabilities at enterprise World Europe digital with cognition 20 dock too.
Our new citizen developer site based on OTI too.
His life at developer that open tax dot com.
The ability to rapidly build new content work flow forms based applications is essential for digitalization.
And we completed successful refinancing in early Q3 that extended our debt maturities into 2024 and lowered our coupon.
We seamlessly transition to a work from home environment and drove a solid Q3.
We are engaging with customers and products the prospects in our scaled up open text digital zone.
The Opentext digital selling enables events demos architectural design session pilot support deployments and customer operations Opentext Enterprise will jump was conducted in the digital is on last month, and we have had over 10000 engagements so far.
When you bring us all together here is the main point I want to highlight as I commented on in previous calls.
Our business is transformed.
In 2011.
Hey are our was approximately 54% of revenue we had no cloud business.
License was 26% of revenue and our adjusted EBITDA margins were on the Twentys.
Last quarter in Q3, a our was 81% of revenue cloud was our largest segment license was 10% of revenue and our adjusted EBITDA was in the Thirtys.
By all measures, we have reshaped our business into a cloud business with high recurring revenue.
Well always honor Hell customer wants to purchase subscription license and how they want to deploy cloud off cloud or hybrid.
With that said, we are transformed and we are well positioned to weather the short term challenges and for long term growth.
The pandemic is massively accelerating discussions on digitalization cloud the edge, but also impacting overall demand, especially in those industries that are already already heavily invested in such as auto airline hospitality oil travel retail.
But the pandemic has also strengthened our purpose to help companies transform.
I said, a few quarters ago. This moment this movement to the cloud is a once in a 20 year opportunity. This remains so and it will accelerate even faster now once we get through all the demand challenges consider the need to digital type to digitize. This more urgent moving to the cloud as contact list.
For most customers businesses.
The edge is as important as the cloud remote work is here to stay.
Working from home is an essential part of the new equilibrium.
Home School, Jim place of retreat or worship, all combined into one physical space in that space needs data and information and threat protection.
All worked and live at the edge of the network and we are really delighted to be in this business, what our Carbonite acquisition.
Building on our building knowledge economies and collaboration is essential when you cannot be physically in an office person to person and it's harder to build new relationships.
Stellar customer experiences overall, then, especially with contact list retail direct to consumer accelerate even faster and finally.
The need for digital agile and rapidly adaptable supply chain platform.
We have over 2 million trading partners and 60000 customers are running on our trading but those customers on our grid have a large competitive advantage as they can change their manufacturing output within days, we held numerous companies transition to people eat in Q3 at record speed just as an example.
I'd open text, we see any changes and behaviors and long term structural shifts as opportunities to help our customers automate and transform their businesses with our software and expertise.
Leveraging our new OTI to services and 20 dot to cloud additions for content services business that work digital experience and cyber resiliency.
Particularly proud of how open tax has supported the global response, the pandemic and helping our customers through the seminal event health care in patient care, what the Eni AI D. NHS, Cerner, Mckesson, CBS, and Cardinal health biotech and pharmaceutical Novartis and Novo Nordisk.
As I mentioned defense NATO, U.S. Deo de government Canada.
Energy PGT BP Sempra Chevron.
Financial services, the PCB Bank of England via they wells JP Morgan.
Critical manufacturing B. Braun Bosch, GM, Siemens Philips food and agriculture, Nestle Morris Cargill, Telecommunications 80 in T., and Verizon Transportation Logistics Union Pacific Nights Fedex, Yes.
We are all together with our customers through the seminal point in time.
Let me transition to the pre Emptive choices, we have made it open text to weather the shorter term uncertainties and the new realities of are turning to work.
We believe it is better to be decisive and clear not flow an incremental.
Our preemptive choices include continuing to focus on total growth.
Regarding Oh, we're going to continue to make investments for future organic growth for our cash position and be in a position to deploy capital for the right opportunities.
Strengthening already durable and resilient business model.
Our our was 81% in Q3, our high they are present in the history and with the launch of the cloud additions. We expect the ship from license to cloud to continue and to grow a are being centered on strong operating cash flows regardless of the macro environment.
To that end, we're announcing today, a set of cost control measures and a restructuring program.
This is a single decisive action not the first the multiple rolling actions the cost control programs are temporary.
While the pandemic process the restructuring programs are permanent.
The temporary programs include we are reducing our anticipated cash payroll expenses for the last 45 days a fiscal 20 and for fiscal 21 basin variable. The Fios total by 63% board of directors fees by 15% the executive leadership team by 15% managers by 10% and our van.
You'd contributors by 5% what some exceptions in India in Philippines, We have also reduced discretionary spending narrowed hiring to exceptional difference makers.
And institute at other cost matter.
The permanent restructuring programs include our work from home has been amazingly productive given this we decided not to reopen approximately 50% of all of our offices.
And Institute a hybrid model, what some employees continuing to work from home. These are smaller offices, and we'll call and we will close them immediately and permanently and that's only affects about 15% of our workforce.
Our corporate offices, our centers of excellence innovation centers and country had offices will remain open when we're able to do so.
Conjunctive with this we commenced a rebalancing program that will reduce our workforce, but up to 5%.
We expect the workforce rebalancing and the strategic change and return to work place to reduce annualized expenses by 65 billion to 75 million a year.
Maintaining a very strong balance sheet is always a priority. We ended the quarter were 1.4, a 1.4 or 5 billion in cash and a 2.25 times leverage ratio and that ratio will decline as we build more cash redrew 600 million of our revolver preemptively and with our refinancing in July.
<unk> in early February we extended our maturities and lowered our coupon our first debt maturity is now four years away and 2024.
Let me provide some highlights on carbonite.
Our strategy and industrial logic on Carbonite on the carbonate acquisition was to extend the open text influence into cyber resilience.
Data and information protection and to enable.
Information and work at all endpoints.
While our customers operate at the edge of the network the edge in the cloud need to work together with the rapid expansion work from home and this long term structural shift carbonite products become even more important for the enterprise SMB and the consumer.
Carbonite had a solid first quarter of operations and we're on our internal business case for the acquisition.
Carbonite delivered 110 million of revenues and its first quarter and in its first quarter was immediately accretive to adjusted earnings and cash flows you'll see in our investor materials that we had expected carbonite, we expect carbonite to exceed our previous second half fiscal 2000 range of 190 million to 200.
Millions.
Carbonite contributed to our cloud growth the combined operations improved our cloud margins into the low sixtys and the integration on the business of the business remains on track.
We're also watching closely SMB closures spending caught spending cuts and potential bankruptcies in Q4, we did not see an impact.
Let me spend a moment on the road ahead and given the environment and in given the environment, we expect some variability.
And the first half of our fiscal year, we had positive organic growth.
Year to date, and including Q3 and constant currency, we had positive organic growth in a our our with two months to go our full year organic growth will be challenged due to the pandemic and the macro events out of our control.
For the full fiscal year 20, we are expecting total revenue growth in the mid to high single digits. We're also expecting strong cloud growth and the low 20% range and low single digit customer support growth.
License NPS should each declined year over year as we continue our transition to the cloud and and and customers and highly invested industries navigate the pandemic.
We are keeping our fiscal 2000 target model in place while updating a few ranges today.
Our our increasing to 76% to 78%.
Adjusted EBITDA margin decreasing slightly to 35% to 36% and capex, reducing to 72 million to 77 million.
We are maintaining our dividend program and today's dividend announcement is consistent with our previous practices at 17 point 46 cents per share.
Open text believes strongly and returning value to its shareholders and intends to maintain its dividend program.
For our usual cadence will update you in August on our fiscal 2021 plan and our three year long and our three year long term aspirations as a note starting in August we plan to shift our discussion away from most CF and shift that discussion to FCF moving from operating cash flow to free cash flow.
No.
If our queue for we are modeling and expecting an effect headwind a 14 million approximately 14 million.
Revenues flat to slightly down sequentially court over a quarter and adjusted it but dollars flat to slightly up sequentially quarter over a quarter.
Let me summarize my prepared remarks.
We are shaped by our experiences and our minds view of what we envisage our new equilibrium to be.
I lived in work through the Dot com boom and bust 911, the great recession, and my near death experience with acute myeloid leukemia, and subsequent bone marrow transplant.
Through my cancer treatment I lost my immune system, three times and was isolated for over 100 days.
Well none of these experience can fully prepare one for a pandemic and a great lockdown. They can inform your approach to actions communications and transparency.
We were being preemptive with our choices at open Tech.
We're going to lead as the best information management company in the World.
We're going to help customers accelerate their transformations through our platform.
Digitalization clout, the edge cyber resilience and supply chains, we're going to lean into the new workloads use cases and structural ships across the marketplace last summer I talked about doubling our sales coverage for the global 10000 over the next three years and investing 2 billion, an r. and d. over the next.
Five years, and we remain committed to that level of innovation.
Innovation is the underpinnings of future organic growth.
Our software is hybrid and so we'll be all work as we intend to lead the way in remote work and the return to the workplace.
Will continue our focus on growing recurring revenue and cash flow in cash we operate with a strong balance sheet will be ready to report capital using our ROIC driven value based play book.
The right opportunities and we'll maintain our commitment to shareholder returns dividends transparent communications and direct and ongoing engagement.
I'm pleased to what our solid two or three baseline why all man, it's through the seminal moment.
The leadership team is committed to work smartly selflessly and tirelessly through this priceless.
Come out of this pandemic stronger than we went into it and <unk> because of the preemptive choices we have made.
Altogether.
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In my primary marks here and what that it's my pleasure to turn the call over there Madu ragging, often opentext Chief financial Officer Madu.
You think you Mark and think you as a joining us today.
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And it continued to focus in a balance sheet.
Child of the D.N.N.
The text as we continue to optimize the cost structure initiate an <unk> preemptive costs measures.
With a strong balance sheet and highly efficient operating same look their best position to address the shorter term challenges sends on but.
And before I share my commenting on Q3, Keith note that I updated <unk> model is included in acutely invested presentation posted on the I.R. website and was the adjusted my common.
Similar to pack waters. My documents is would be the millions of U.S.D. and compared to the same period in the price just yet.
He's talked with revenues and.
<unk> 814.7 up 13.3% or 14.1, okay on a constant.
Foreign exchange continues to be meaningful there was a 6 million ethic unfavorable impact is avenue in Brooklyn.
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Yet to date gap earnings per share denuded was 77 them down some 79 cents.
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<unk> totals Avenue in the court with America's 63%, Yeah me, 29% and A.P.G. eight.
And you'll just cutting that with 662.3, <unk>, 20.6% or up 21.3% on a constant.
Yeah today, Yeah, ours was 1.8 Indian up 11.1% or upload point to put them on a constant cut into basis.
Onions, or cuttings avenues addictive bent towards that.
81% for the quarter awesome, 76% and the pie yours, and 78% yet to date optimum 75% of the pie period.
I plugged revenues are particularly strong at three point at 339.5 up 42.3% or 42.8% in a constant cut them to basis.
To date clouds of use with 825.1 up 23.9% or opt, 24.7% and a constant cut into basis.
I plugged in new as H. remains in the midnight.
<unk> that 322.9 up 3.9% or 4.8% and a constant cut into big.
To date customer support revenues and 950.7 up when 9% or up 3.3% on a constant.
A customer support to new updates remains in the low nine.
A license avenues that 81.1 down 17.9% or down 17% on a constant cut into basis, primarily due to the pandemic impact than a license business.
During the quarter, yet to date, a license avenues, a 297 down 3.7% or down 2.3% on a constant currency basis.
Professional services 70, 71.3, appointee person or up 1.5% in a constant cut into basis.
To date professional services avenues that 210.3 down two person or down 0.4% in a constant.
Turning to margin gap little small I did with 65.4% down 130 basis points again, primarily due to the incremental impact of intangible amortization some carbonite.
You have to date gastro small did with 67.5% up 20 basis points.
Adjusted gross margin was 73.3% up 30 basic one year to date adjusted gross margin, 74% down 10 basis points. During both period adjusted gross margin is well within the range o'clock fiscal 20 target more.
Also on an adjusted basis cloud modular 62.5% of 210 basic ones improvement from cute too 'cause can 20 and up from 56.6% locked yeah, you have to date called Majid with 59.7% up from 58%.
I suppose modular 90.1 person up to 89.9% yet to date customer support margin with 90.5% up some 90.1.
A license margin was 96.9% down from 97.3% Yeah. Today Tyson's margin was 97 points people thing up from 96.7.
That conservatives margin with 21.2% optimum 20.9% Yeah to date professional services margin was 22.2% up from 21.7%.
Adjusted either dealt with 259.5 down, 0.9% or opt, 0.5% and a constant cut as the basis.
And why this shepperson 31.8 button down some 36.4% yeah to date and just to keep it dealt with 830 points set up 1.8% or 3.5% in a constant cut into basis.
Margin wise this represents 36.4% down some 38.5% at the the Minder, both the quarter and you have to teachers also include a full quarter of carbon exponential.
I, just a net income with 166.2 down 3.9% or down 2% on a constant cut into basis.
To date adjusted net income was 566.8 read the pen or 5.4% and a constant currency basis.
Net income was 26.
I'm, 64.3%, primarily due to 48 million of Incrementing impact intangible amortization from Carbonite, yet you date gap net income with 207.9 down 2.7%.
Turning to operating cash.
<unk> 329.6.
Increase or 15.2%.
You have to date operating cash for the 674.3 or four points.
Two three to flex continue solace upon.
Integrated working capital thing, but we had record collection Q.P.D.F., though was 51 days and improvement of nineties compared to keep the fiscal 19, all not standing there had been to the pandemic during much.
<unk> well working capital.
Despite up to three strings their minds at all and close me watching the short term challenges ahead.
So a balance she perspective, we ended the quarters with approximately 1.4 or 5 billion in cash given strong passionate performing and 600 million from honorable drawn at the pre emptive measure in the current environment.
Proceeds from that of all go to presented within cash and cash equipment.
Refinancing announced in February but distinct end up out she position extending up odious maturity to 2024 and the latest Doctor 2030, a consolidated <unk> remains at 2.3 time.
And it Carbonize update Q3, as I said first quarter with <unk>.
In integration is going well and read the main on shock to our target operating model by the end of fiscal 21 soon.
The acquisition to me that Creed annual decoding Lebanese cloud margin adjusted EBITDA and working capital.
On the restructuring plan today, we announced a restructuring plan that would impact of global workforce and consolidate <unk>.
As a result of the pandemic more than 95% for employees up cut and people working from home and we're making plans for the highs this to to the turn to work place strategy.
Currently have approximately 120 offices that on the world and I intend overtime. It through the use of the 50 per cent about global opposites impacting approximately 15% one five <unk>.
Estimated cost of the the elected facility restructuring is expected to be living to 65 to 80 million.
We have also approved and begun executing of work towards the balance and program across various quatmann in order to for the the U.R. coffee in light of economic constructed.
Estimates seven's costs to be in the range of 15 to 20 minutes.
The total cost of restructuring, including workforce and facility.
Expected to be approximately 80 to 100 million.
We expect to encode that he starts Unix and doing queue for up to six can be.
Once completed we anticipate analyze it can savings.
Approximately 65 to 75 million.
Q for savings would be minimal and expect a substantial realization of savings during Cisco 2020.
But also taking a number of additional preempted measures, including deduction indiscriminately spend and temporarily that using the salaries of executives senior leadership and other employees as well as a board of directors.
On the corner of these factors at me summarize and regenerates. According to factors, we anticipate for upcoming coupons.
As we look at where F.X. Ray talked today as one of the geographical components about business. We noticed that the effect had been fiscal 20 year to date with 26 million to that.
We expect approximately 40 million annual effects had been for the full disclosure 2020.
A more expect q. photos avenues to be flat to like him down compared to keep the 20 expect adjusted EBITDA dollars to be slots and slightly compared to keep the.
Compared to keep the 20.
On the target operating Martin let me highlight the following changes.
Annual recordings Avenue is being increased 100 base, it's going to a range of 70, 678%.
They may not changing our target range for life and 70, we do expect to decline in fiscal 20 compared to Puskas 19.
Just to keep it the margin is lowered by 100 basis going to a range of 35, 36% and primarily the affecting the anticipated impact of the pandemic during a fourth quarter.
Capital expenditures to arrange to 72 to 77 million, we continue to see efficiency, they're not capital spent.
All other elements about fiscal 20 target market that means unchanged.
A long time aspirations, if not mentioned we will update you on a fiscal 2021 flat and I were locked him aspiration during that just because you're in Poland. Early August for our usual keaton, including it just to keep it does and it's shift to free cash flow from operating cash.
Oh, the tax update the eye out as much of it still in the face and other dogs remains strong as we continue to because it's to defend deposition.
Dividends and finally, turning dividends program today, we announced a quarterly dividend of 17.46 cents per share <unk> on June 19 2020.
Arrangements to think based on a target up distributing approximately 20% by trading 12 month operating cash flow.
In summary, yuppies without cutesy results with strong kashmoula solid balance sheet initiating a number of preemptive measures in light of the cut and global pandemic, all of which would enable us to come in highly focused on delivering against such older girls challenging.
The strength of our people <unk> and system, but on food display in the cutting environment quarter and demonstrated the durability and resilience in our organization.
We remain confident in continuing to benefit from this model as we look ahead.
Would like to extend that special thank you to the teams that open text, but they're successful to that an incredible efforts during the quarter.
Thank you to our shareholders.
Constructing confidence we greatly value and finally I'd like to wish everyone. A few an abundance of health and safety I.
I would now like to turn to call over to the opera to for questions open.
Thank you.
We will now be asking the question and answer session.
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If you're using a speaker phone. Please ensure you lift the handset before pressing any keys, if you wish to remove yourself from the question Q. He may pressed star and too.
Anyone who has the question may pressed star than one at this time.
Our first question comes from Raymond Shoe of Barclays. Please go ahead.
Thank you curse on a great to.
Q free in the hopes York stay healthy and our fourth or with you guys as well. The question for you market you've seen kind of downturns before so like if you think about the current situation. What's still you can you talk a little bit about what's your kind of looking out for in terms of iver like conversion rates versus.
Pipeline billing.
This churn, especially now that your own carbonite with more <unk>, just kind of out but a little bit understand like how you're trying to o. Wilson and minutes for the current situation.
I have a follow up <unk> yeah. It very good rental thanks for the question, we are well and and and wish you in in your extended family the same.
What are they get the end of the day, the guiding principle is going to be bite industry.
The every industry is gonna be different.
It's going to be different than retail, which is going to be different than than healthcare and hospitals.
So we're taking an approach to understand our our business.
The patterns in in any structural chef industry by industry. So so that's sort of kind of an over approach that that that or taking there's no doubt that in general there's an acceleration in a transformative discussions.
We highlighted the ones that we're seeing digital cloud remote work cyber supply chains.
You know when we add up you know our revenues.
I'm into those industries. We think that are most are challenged here in the short term you know, it's up or two about 20 per cent of our of our revenues.
Now that balanced by expansion discussions that we are having in and healthcare pharma industrial manufacturing and government. So it's you know when you're kind of translate although short term effects together you know for R.F. 20.
<unk> expecting to grow mid to high single digits, but before before Cove. It expected a slightly higher growth rate, so you're there or taking a look at it by industry industry by industry. You you have places where across the board there's accelerated discussion, but there are more.
Challenge and this is a certain industries and accelerants and others as related to S.M.B. or clearly monitoring it.
No the carbon I business isn't all S.M.B. a good portion that the enterprise. There's a good portion that Oh, we which is enterprise.
Consumer direct business or was actually a on an uptick m. Q3 and of course, there's the S.M.B. portion of the business before no effects and Q3.
<unk> work or or clearly monitoring it very very closely so let me pose there and I think you said you might have follow on a second part to your question.
It's we're in kind of <unk>, we are in in familiar but we also an uncharted territory in a little a little bit in this kind of the situation can you talk a little bit of of what are the the the signal. So the metric said you guys could go into focus on most in terms of kind of managing edge and just kind of making decision in terms.
Like changing behavior or changing something I mean, you took very kind of decisive action already know, but like so what's the guiding principles for you here now I should go for the crisis.
Yeah. So we're currently being preemptive on our choices.
You know didn't we know that nor script, we think it's better to be a decisive averse slow and incremental book I learned out through my cancer treatment I learned that through the great recession right.
And you you just gotta prepared a whether other challenges look I you know, we're gonna <unk>, we're going to follow like most in in or out in the market well I call. The three g.'s right, we're going to track casting we're going to track tracing and we're going to track treatment [laughter].
The general market and you know, we're gonna track industry by industry. You know, we're going to look Oh, we get good insight through our business network on many industry trends and remove the best I think I can highlight right now yes, you have the usual pipeline and other metrics, but we're going to take.
Very industry by industry view.
In each industry, you know without going through every industry here.
What we're gonna or going to track and trace if you will the the detailed industry metrics <unk>. This this recovery is going to happen in industry at a time.
Okay <unk>, thank you could like.
Thank you.
Our next question comes from Paul steep of Scotia capital. Please go ahead.
<unk> could you talk to me by Baltimore, Hi, Claude growth in the corridor, maybe measures are taking whether you've done anything to actually accelerate the transition towards the cloud and sort of pushed even harder towards that direction beyond the acquisitions that we talked a bit earlier.
Well it's.
You know as.
You know kind of pre Cove. It you know, we we did yeah, we didn't make structural changes coming into the fiscal year, we certainly put leadership and management priority on it.
But all the the pandemic is an accelerant.
To the transition to cloud.
You know customers, who are not able to me, we're very blessed and fortunate to have invested for many years in a very strong technology platform role information management technologies.
And we think about how <unk>, how we operate a 15000 person company today working from home.
Look we processed trillions of commerce through our trading grid over the last hundred days and the conversation to accelerate to the cloud to accelerate or the conversations up of cloud and digital or simply being accelerated dude due to the pen pandemic.
And and we're going to be here, all together to help our customers make that transition rapidly whether it be consolidated content services to build knowledge economies, whether it be leveraging our trading grid to rapidly adapt supply chains.
We had numerous customers who we helped in in Q3 that we're going from traditional industry manufacturing, who had an onboard 2000, new suppliers thousands and thousands of new parts to build the platform to be able to move to P.B.E. manufacturing and we were able to do that.
In record time, so they could go reconfigure the physical manufacturing space.
So the the the pandemic is is accelerating these conversations we haven't had a chain structurally our cop plans or anything like that to do this.
Great and then just quick follow up on it maybe put context for people in the coal around what movie in the team is done with today's announcement now that you've out at the other major.
Load service provider in the public side, and and helped alliance or whether clients have sort of pull June two words, you is your L.D.W. us. Thanks, yeah.
Yeah sure sure thing, so <unk> and expand it relationship with A.W.S. today.
And you know, we've previously announced our relationship with S.A.P., a Google we've always partnered with Microsoft does well.
20 dot to our cloud additions or cloud first they are native cloud applications are completely containerized.
And we really have kind of complete at the tax dock and now the business relationship side to give full choice to our customers. So for customer has sorta standardize on A.W.S., if they've standardize on Google they've standardized on your we we can seamlessly support their business to.
Visions and they're operating decisions as far as our tech stocks. So about 20 dot too important step native cloud cloud first.
W.S. really is a a one the last big pieces for us.
To firmly support as I like to say completing the need and the choice for our customers.
Great textbooks.
Our next question comes from Stephanie price of C.A.B.C. Please go ahead.
Good afternoon, and congrats on the corridor.
Yeah. Thanks.
<unk>.
You too things to the color on what you've seen so far is just wondering if you could talk a little bit of but we've seen in the first couple of weeks of April and maybe a related question you know as region start to open up a prospective customers you know picking up where they left off or how how quick are they to engage.
Yeah. It's.
You know software is.
Still unusual where you sort of get fee.
<unk> quarter activity and you know look I I couldn't be more pleased that we've completed the transition from you know license business really into a cloud business in a highly recurring revenue business.
You know I I've I look at all we have the transactional work, we do and then we have the network work that we do.
And you know on the network side, you know it seems to be.
Sort of stable coming into April I would say you know you you you had the end of last year <unk> and a lot of calendar year, you had January a bit down you. You you had February a little lower down February she'll be March a little lower down and.
In April seems to be sort of a a bit more of a steady state right now it's too early to to declare anything but I'd say here in the first month to the quarter. It seems to have a kind of been studied to where we <unk> from from end up.
Search.
If we just go around the World you know China has certainly begun begin to return to workplace.
Southern Europe has begun to return to workplace I think it's still too early for western Europe in in the in North America, yet and they're still places that are not plateaued, you know whether it be in the or or or South America.
But from what we can see in our business.
We have the transactional piece, we have the network piece.
The network piece is sort of stable to where it was at the end of end of March, but but I'm just going to notice still just.
You know too early to make any predictions [laughter].
Okay that makes for that color and then they differ to do just on the club margins. This quarter, obviously very very strong you can elaborate a pet on the strength isn't all related to the Carbonites integration should it be kind of see this as the new run make going forward.
Yeah, it's a great minutes a good question I would say think about it in two parts like one so I'm certainly be continued to optimize from an open tech cloud perspective are costing book and you said, we seem to benefit of that and Carbonite about yourself with quarter and dominance of Carbonites of combat driving is odd.
In fact men in the cloud and I also spoke about the Catholic efficiency, but seeing so I would say all three factors definitely contributed and we've talked previously about being in the low to mid sixties right and you should definitely the two after being in the Indian and those 60 has to look ahead as well.
Great. Thank you very much.
Thank you.
Our next question comes from Paul <unk> RBC capital markets. Please go ahead.
Oh, thanks, very much and good afternoon.
With the global move to work from home you know across a number of organizations you know it seems structure on permanent no as you're experiencing it firsthand. What do you think is perhaps least understood about you know that the challenge and transitioning including I.T. and moving to work from home.
And then you know as you think strategically you know how do you think that Oh, how would that help you further reshape open Texas software portfolio to dress that going forward.
Yeah, Yeah. Thanks for the question.
<unk>.
I think many of US many of US you know tech companies are very tech oriented businesses.
<unk> you know if if I walked into went off if I walked into my management team meeting you know last year and Monday morning, and sat my team down and said look.
We're we're going to go sent everyone at home.
For the next two months they let us see how it goes you know they I would've I, probably would've got locked out of the room.
Yeah, we've all now experiment to that scale.
Many of US have experiment to that scale of of having our Workforces telework.
And I think many of us have been surprised at how the effect of it is and in some cases productivity is off and it works.
So you know for for US, we we see it as an opportunity to think differently about what the the the new return to workplace looks like Oh, we're not going to be constrained in certain market. This will open up some talent pool for us to think more widely about other.
Talent, we we can bring on board.
And I also think it will reinvent content services by content of services at at Heart is a knowledge platform.
I don't think about how you do our remote close how how you how you do many major protest fees. When you have a remote workforce. If you don't have knowledge bases or knowledge economy says I call them, it's very hard to work.
So I think on one hand, many of US have been surprised just how productive it has been none of US would have experiment. It like this on our own either you're going to see some permanent changes.
In that hybrid work I think it's going to and a lot of ways reinvent reinvigorate content services.
And these are some of things out that that <unk>.
The thing so that they yeah. Just another question for me in regards to carbon I you know a quarter was you know significant above our expectations and then you know under one right basis, you know above your your prior outlook.
It does you upside in the quarter does that specifically relate to work from home demand and you did see or was or another driver that drove the up side there.
I I would say a few things one is a good integration and execution.
As well as you know there's gonna be those places that are somewhat as we talked about challenged auto airlines traveled hospitality oil.
But as as the workforce moved home.
And home is more than just home it's home office.
School gym, [laughter] and many people at home, we we did see a high renewal rate.
And a strong interest in.
In our kind of direct business to.
<unk> consumer and prosumer, so I'd say it was a bit of the integration and execution as well as an uptick in [noise] and opportunity due to the work from home.
[laughter] six Sigma questions.
[noise] once again, if you know the question. Please press start then one.
Our next question comes from Richard C. of National think financial Please go ahead.
Yes. Thanks, So I understand there's there's certainly a potential for acceleration probably on the other side particular and cry, but as a this current crisis kinda uncovered any specific product areas that you can actually see outsize pick up in interest here, but you weren't really seen before.
Richard Thanks, Thanks for the question.
Look I I think the areas of.
Of of focus and more conversation or around consolidation of content services.
Our our core clap collaboration sweet any signature lots of conversations.
And the protection of of the home and end points.
<unk>. These are things that are certainly in the in in in the Green column for US you know more so than they were <unk>.
Okay.
And you mentioned a bunch of different verticals like auto airline hospitality.
Obviously, those are very very challenge verticals, but yet when you throw looked at the rain or the year you still seem pretty optimistic. So are obviously, that's pretty impressive. So you know if you were to say you know.
<unk>, yeah organic gross okay for him to talk about what that would've been under kind of a normal conditions.
Well as I said, you know as I said on that or earlier.
We're not going to talk about fiscal 21, yet right now will stay on our usual cadence and we get to August we'll talk about fiscal 21.
As we as we usually do.
For hearing, which got I'm, just gonna talk at the fiscal year level, Richard So for fiscal 20.
You know, we're expecting to see another growth here. So total growth in the mid to high single digits cloud growth in the low twenties.
Relation to organic growth, which I think we should question you know the first half a 20, we had organic growth you're to date.
<unk> organic growth and they are.
<unk> two months ago organic growth will be challenged probably due to cope it.
And you know, whereas.
We have some you know there there are heavily invested industries that have pressure as we all know <unk>, we have expansion discussions and other industries health care farm on industrial manufacturing. This does translate into short term effects for us.
As I said in my prepared remarks, right R.R.F. 20 growth is expected all in or 20 girls expect to be in the mid to high single digits and before call that we expected higher growth. So we're still going to have a growth here.
So expecting a growth here.
But we we clearly have girls impacts because of <unk>.
Okay, and it's got one quick ones for me, though a last question in terms of a acquisitions.
Maybe talk about the ability to pursue acquisitions here in the next few quarters and you see you know a change Ah here Oh, those extra recorded in terms of evaluation of course thanks.
Yeah. Thanks, Thanks, Richard so.
It it's.
We remain.
We remain in the market pursuing opportunities. So there's no doubt that the pandemic is going to affect valuations downwards.
For the markets that we you know we seek assets and we continue to build a strong balance sheet 2.25 times leverage and declining.
But we're going to continue to pursue opportunity the right the right opportunity at the right time, clearly any any buyer has to understand the effects of the pandemic on that business.
And it requires a yet another part of a of a play book to do the diligence you know we're going to seek.
Time to seek you know to the C. companies and your core markets.
That you already know.
And that are just <unk> strong brands.
With high recurring revenues I don't think it's a time to kind of get out of your wheel house.
So you know what what what would that well, we're we're continuing to pursue opportunity.
Speak with companies build our pipeline I'll continue to do a a deep discussions and for the ride opportunity and the right to do a right to deliver staff that will be prepared.
Thank you.
Our next question comes from <unk>.
No capital markets. Please go ahead.
Good afternoon market can you speak to what you're sitting in your transaction driven businesses like the trading grads, given everything going on our transaction volumes generally <unk>, if they are down to where it shouldn't be a contractual minimums that my <unk>.
Yeah <unk>.
I'm not going to I'm not going to translate try to go traffic doesn't necessarily translate directly into.
Into revenue right, we have over which is we have under under it.
Under which is some contracts are or yearly averages.
So it's not a director of relationship.
The there are places, where we've seen increase traffic.
Well, if we look at some ER pharmacy healthcare.
Actually certain industrial manufacturers as well.
We've also seen areas that have a much lower traffic of course retail.
M.C.P.G. auto.
You add the the pluses and minuses the traffic is down overall, but doesn't translate directly into kind of you know kilo character down doesn't translate that into it you know a dollar down if you will.
So we factored that all in to how we look at the year.
You know again for fiscal 20 were expecting mid to high single digit grow all all n.
But overall the answer your question. The traffic is down we're places that are positive. Many places that are negative, but yeah, the positives and negatives, it's still equals a negative.
And Doug you don't we think it's a short term short term issue and and we'll wait to see the other side.
Great, Thanks, and and the current climate are you seeing any pressure on dsos with customers asking for longer payment terms or for that matter, our existing customers pushing me for concessions on <unk> pricing or not to date.
Yeah, I think it's safe to say every industry is going to talk about longer payment terms that every industry is going to talk about a renewal rates you know, we experienced and Q3 very strong renewal rage.
And look we're in a great position, because we offer sweeter products.
<unk> or able to offset those conversations.
With more product more services consolidation opportunity.
And looked at you know the the maintenance and features in the service is what's running a lot of these essential industries. So I think we're in a great position to be able to.
Maintain upper qual tile renewal rates Bowl cloud and off clouds.
Given we take a platform product portfolio approach consolidation approach.
<unk>, we're <unk>, we all the platform that is central in many businesses. So I I feel really good on our on our on our renewal on our on our renewables.
Every company is everyone's asking for longer payment terms, we're going to do what's right and fair here in the short term and as everyone should or as we say all together, what we we'll do what's right and fair for those industries in customers, who need our help in our <unk>.
<unk> also help offset anything and and and you saw that kind of all together spirit actually Craig record cash flows and Q3.
They can click the question and answer session I will now hand to call back over to Mr Bear in shape or closing remarks.
Okay, well. Thank you everyone <unk>. The this was certainly a very unique time and assemble sent them a seminal moment to to have an earnings call. Our solid Q3 puts us in a great position to whether the short term challenges ahead.
We 21 consecutive quarters of your your grossing coffee currency record revenues record air already 1% record clouded 30, 340 million up 42%, we're maintaining our dividend invisibility and our hearts and minds are with all those affected by this.
A series of events and pandemic. Thank you for for joining today's call and we'll see you on our conferences and the quarter. Thank you very much.
Mm.
This can clip today's conference call you may disconnect here lives.
For participating and have a pleasant day.
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