Q3 2020 Earnings Call
Thank you for standing by its just a 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 questions.
To join the question Q simply press Star and one on your Touchtone phone should anyone need assistance during the conference call. They may signal, operator by pressing star and zero on their telephone.
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 on the call today is open text, Chief Executive Officer, and Chief Technology Technology Officer, Mark a bear in shape, and our executive Vice President and Chief Financial Officer, The Dragon age.
We have some prepared remarks, which will be followed by a question and answer session.
This call will last approximately 60 minutes with a replay available shortly thereafter.
I'd 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 Twentytwenty and the second titled Q3, That's 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 tax management is pleased to virtually meet with investors at the following conferences.
She I'd be Ses technology, and innovation conference on May 13.
Barclays America's Select franchise conference on May 14.
Needham's technology immediate conference on May 19.
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 tax 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 reach.
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 website and what that I'm very pleased to hand, the call over tomorrow.
Thank you very.
Good afternoon, everyone and thank you for joining today's call.
How can be open text 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 or keeping a healthy safe and productive.
Our hard for me heavy with the loss of life and hardship.
And during these difficult times, our spirit, our uplifted, but hope.
Acts of kindness encourage.
The health and wellbeing of our employees is our first priority as well as our customers and partners.
I'm pleased to highlight the the open text community is doing exceptionally well.
The pandemic impacts every aspect of our work in line.
We think Canada, all together or twos ensemble.
Inspired every day by the resiliency in innovation on my colleagues.
I'm so proud of the open text leadership, our employees their dedication to customer experience operational excellence and their resiliency during this pandemic.
While there remain and it's still a long journey ahead for all of humanity, we look forward to walk in person camaraderie returning seven.
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 like 24th consecutive quarter total year over year growth in constant currency.
We had record annual recurring revenue up at 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 bips margin increased to 63%.
Record customer support revenues of 323 million up 4% with a margin up 90%.
Our renewal rates remain strong and upper quad, Kyle both cloud and off cloud.
Americas was 63% of our business.
Me, a 29% and a P.J. was 8% with a stronger shift to the United States.
We generated 20 to 60 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 and net leverage ratio of 2.25 times.
We expect our net laboratory ratio to decline in coming quarters.
We advanced our business during Q3, and let me highlight a few key areas and more detail to follow in my script notable customer wins in critical infrastructure industry is included Natalie.
Health services General Motors Continental biopsy to 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 to 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 behavior.
We announced a suite of cutting edge, 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.
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 Digitals on enables events demos architectural design session pilot support deployments and customer operations Opentext Enterprise World you up was conducted in the digital zone last month, and we have had over 10000 engagement so far.
When you bring it all together here's the main point I want to highlight as I commented on in previous calls.
Our business is transformed.
And 2011.
They are was approximately 54% of revenue we had no cloud business.
Jason was 26% of revenue and our adjusted EBITDA margins were in the Twentys.
Last quarter in Q3, they are our was 81% of revenue cloud was our largest segment.
Since what 10% of revenue and our adjusted EBITDA was and the Thirtys.
By all measures, we have reshaped our business into a cloud business what high recurring revenue.
Well always honor how old customer wants to purchase subscription license.
Now they wanted to point cloud off cloud or hybrid.
With that said, we are transformed and we are well positioned to weather the short term challenges and for a long term growth.
The pandemic is massively accelerating discussions on digitalization cloud the edge, but also impacting overall demand, especially in those industries. There 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've got 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 is 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 and that's eight neither data and information and threat protection.
We all work and live at the edge of the network and we are really delighted to be in this business, where 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, and then especially was 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 P.P. eat in Q3 at record speed just as an example.
I'd open to actually 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 to Cloud addition for content services business that were digital experience and cyber resiliency.
Particularly proud of how open tax has supported the global response depend on <unk> and helping our customers through the seminal event health care in patient care, what the and I I D. NHS, Cerner, Mckesson, CBS, and Cardinal health biotech and pharmaceutical Novartis and Novo Nordisk.
As I mentioned defense NATO U.S.P.L.D. government, Canada.
Energy PGT BP Sempra Chevron.
Financial services the E C B bank of England via they well JP Morgan.
Critical manufacturing B., Braun Bosch, GE and Siemens fill up.
Food and agriculture definitely more Cargill telecommunications 80 in T., and Verizon Transportation Logistics Union Pacific Night 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 in 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.
They are our was 81% in Q3, our high <unk> percent in the history and what 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 setup 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 program our 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.
<unk> Institute at other cost Matt.
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 office it.
And Institute a hybrid model, what some employees continuing to work from home. These are smaller offices, and well 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.
Conjunction with desk, 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 over 1.4, a 1.4 or 5 billion in cash they 2.25 times laboratory shell and that ratio will decline as we build more cash we grew 600 million of our revolver preemptively and with our refinancing Angie.
A lot in early February we extended our maturities and lowered our coupon.
First debt maturity 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 actually the network the edge and 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 operation and we're on our internal business case for the acquisition.
Alright 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 20 range of 190 million to 200.
Yes.
Carbonite contributed to our cloud growth.
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 and Q4, we did not see an impact.
Let me spend a moment on the road ahead and given the environment and again 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 with two months to go our full year organic growth.
Well 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.
Licensing P. action each declined year over year as we continue our transition to the cloud.
And and customers in highly impacted 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 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 a CF and shift that discussion to FCF moving from operating cash flow to free cash flow starting in August again, and I note. Our trailing 12 month, Oh, Seattle was 904 million our strongest TTM in there.
And for Q. for we are modeling and expecting an effect headwind of 14 million approximately 14 million.
Revenues flat to slightly down sequentially quarter over 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 dotcom boom and bust 911.
Eight 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 integrate 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 transformation through our platform.
Digitalization clout, the bad 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 ourself coverage for the global 10000 over the next three years in investing 2 billion, an r. and D. over the next five years and we remain committed to that level of innovation.
This innovation is the underpinnings of future organic growth.
Software's 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 or ROIC driven value based play book.
Right opportunities.
And we'll maintain our commitment to shareholder returns dividends transparent communications and direct an ongoing engagement.
I'm pleased what are solid two or three baseline why all man, it's through the seminal moment.
Leadership team is committed to work smartly selflessly tirelessly through this priceless.
All come out of this pandemic stronger than we went into it and part because of the pre emptive choices, we have made.
Altogether.
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In my primary marks here and what that is my pleasure to turn the call Oder Madu ragging, often opentext Chief financial Officer Madu.
[laughter] you think you Mark and think you always the 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 that comes up.
And before I shan't, commenting on Q3, Keith note that I updated Cisco 20 target model is included in our cutesy invested presentation hosted on I.R. website and would be adjusted my common.
<unk> wonders my documents is will be the millions of U.S.D. and compared to the same period in the price.
And then he's talked with revenues and.
Oh, those avenues, 814.7 up 13.3% or up 14.1 on a constant <unk>.
Bought an exchange continues to be meaningful there was a 6 million ethic and be able to the impact of avenue in the corner.
You have to date to his opinion, but two point.
Seven point then.
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Push it.
Q3 gap funny, but she had diluted with 10 cent down from 27 cents and primarily due to the incremental impact Oh I'm at as they shouldn't do leading to the cop at night acquisition.
The non gap running for shed didn't did with 51 cent down from 50% or down to San <unk>.
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Yet to date non Japanese push engine and it was $2 910.
Or 10 cents.
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<unk> pickup totals Avenue in the court with America's 63%.
<unk>, 29% and A.P.G., 8%.
Onions are cutting that with 662.3 up 20.6% or up 21.3% on a constant.
Yeah today, Yeah ours at 1.8 billion up 11.1% or up 12.2% on a constant cut into basis.
Onions recordings avenues, Victor sent told her that <unk>.
81% put a 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.
42.3%.
Or 42.8% in a constant <unk>.
Yeah to date clouds of use with 825.1 up 23.9% or opt 24.7% in a constant currency basis.
I plugged in new as H. remains to the midnight.
<unk> 322.9, up 3.9% or 4.8% and a constant cut into this.
To date customer support revenues and 950.7.
One, 9% or up 3.3% on a constant cut.
A customer support to new luggage 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 seven music 71.3.
0.3% or up 1.5% in a constant cut into this.
To date professional services avenues that 210.3 down, 2% or down, 0.4% and a constant kind of <unk>.
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<unk> no smart 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 basic point.
Adjusted gross margin was 73.3% up 30 basis.
To date adjusted gross margin was 74% down 10 basis points during both period adjusted gross margin is well within the range <unk>.
Also on an adjusted basis cloud module, 62.5% of 210 basic ones improvement from cute too 'cause can 20 and up from 56.6% lost Yeah. You have to date called margin was 59.7% up some 58%.
I suppose margin was 90.1 person up to 89.9%.
To date customer support margin with 90.5% up from 90.1.
A license margin was 96.9% down from 97.3% yet today Tyson's margin was 97.3% up from 96.7%.
So this is margin with 21.2% optimum 20.9% yet you 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.
Marching why this shepperson, 31.8% down some 36.4% yet to date and just to keep it dealt with 830.7 up 1.8% or <unk>, 3.5% in a constant cut into basis.
Margin why does that person, 36.4% down from 38.5% as a reminder, both a quarter and your two days results include a full quarter of carbon exponential.
I guess, the net income with 166.2 down 3.9% or down two person on a constant cut into basis.
To date, adjusted netted come with 566.8 up 3% or 5.4% and a constant currency basis.
Net income was 26.
64.3%, primarily due to 48 million of incremental impact intangible amortization from Carbonites, yet you date gap and I didn't come with 207.9 down 2.7%.
Turning to operating cash.
<unk> 329.6.
Increase or 15.2%.
To date operating cash for the 674.3 up four points.
Cutesy to flex continued solace upon I know, but integrated working capital thing, but we had record collection Q.P.D.F., though was 51 days and improvement of nine days compared to keep the fiscal 19, all notwithstanding the advent of the pandemic during much.
<unk> three just while working capital and despite up to three strength your mindful of and close me watching the short term challenges ahead.
So a balance sheet perspective, we ended the quarters with approximately 1.4 or 5 billion in cash given strong Kashmir, performing and 600 million <unk> drawn at the pre emptive measure in the current environment.
Proceeds from that of all gonna presented within cash and cash equally.
Refinancing announced in February.
Strengthened about she position extending up odious maturity to 2024 and the latest Doctor 2030, a consolidated <unk> remains at 2.3 times.
And it Carbonize update Q3, as I said without first quarter with component is all the integration is going well and we remain on shock to our target operating model by the end up with 21 soon.
Listen 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 will in fact, a global workforce and consolidate <unk>.
Result of the pandemic more than 95% for employees up cut and people working from home and then making plans for the highs this future to turn to roughly strategy.
Currently have approximately 120 offices that on the world and I intend overtime that use or the 50 per cent about global opposites.
Impacting approximately 15% one five.
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Estimated cost of the elected facility restructuring is expected to be moving to 65 to 80 million.
You have also approved and begun executing of work towards the balancing program across various kaufman in order to pause it or do you are coffee in light of economic uncertainty.
Estimates seven's costs to being a range of 15 to 20 minutes.
The total cost of restructuring, including workforce in facility.
Expected to be approximately 80 to 100 million.
We expect to encode the restructuring expense during queue for up to six can be.
Once completed we anticipate analyze extend savings.
Approximately 65 to 75 million.
Two four savings would be minimal and expect a substantial realization of savings during Cisco 2021.
But also taking a number of additional preempted measures, including deduction in discretionary spending and temporarily that you see the salaries of executives senior leadership and other employees as well as a board of directors.
On the quarter of these factors at me summarize and regenerates. According to factors, we anticipate for upcoming queue for <unk>.
As we look at where effects rates up today as one of the geographical components of our 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 Cisco 2020.
Furthermore, expect you for totals avenues to be flat, it's like we don't compared to cutesy 20 expect adjust it need the dup dollars to be lots of slightly compared to keep the.
Compared to keep the twin.
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're not changing our target range for like than 70, we do expect a decline in fiscal 20 compared to this because 19.
Just to keep it the margin is lower pay 100 basis point to a range of 35% to 36% and primarily the affecting the anticipated impact of the pandemic during our fourth quarter.
Capital expenditures to arrange the 72 to 77 million, we continue to see efficiencies in our capital spent.
All other elements of of fiscal 20 target market that means I'm change.
A long time aspirations, if Mark mentioned, we will update you on a fiscal 2021 flat and our long term aspiration during that just because you're in Poland. Early August for our usual keaton, including adjusted EBITDA and a shift to free cash flow from operating cash.
Oh, the tax update the eye out as much because too many of these face and other dogs remains strong as we continue to begin to see defend deposition.
Dividends and finally, turning but dividends program today, we announce a quarterly dividend of 17.46 cents per share <unk> on June 1921.
Our rates remain the same based on a target of distributing approximately 20%.
Heading 12 month operating cash but.
In summary, yuppies without cutesy results with strong kashmoula solid balance sheet initiating a number of preemptive measures in light of the cutting global pandemic, all of which would enable us to come in highly focused on delivering against our children grow strategy.
The strength of our people prophecies and system, but on food display in the cutting environment quarter and demonstrated the durability and just really into not organization.
We demand confident in continuing to benefit from this model as we look ahead.
I can extend that special thank you to the teams that open Tex, but a successful to that an incredible efforts during the quarter.
Thank you to our shareholders.
Instructor and confidence we greatly value and finally I'd like to wish everyone. A few in abundance of health and safety.
I would now like to turn to call over to the opera to for question.
<unk>.
Thank you.
I don't think in the question and answer session.
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Our first question comes from <unk> Barclays. Please go ahead.
Thank you curse on a great.
Q free and hope y'all stay healthy and our fourth or with you guys as well do you quick question for you market you seem kind of downturns before us pro 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.
<unk> pipeline billing.
This sure and especially in order to your own Carbonite with more S. and before course, just kind of out this a little bit on the stand like how you're trying to will managed for the current situation.
I have a follow up <unk>, yeah, 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 under the day the guiding principle is going to be by industry.
The every industry is gonna be different auto is gonna 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 and the patterns in in any structural share industry by industry. So so that's sort of kind of an over approach that that or taking there's no doubt that in general there's an acceleration in a transfer.
Formative 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 challenged here in the short term.
Supper to about 20% 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.
<unk> 20.
So we're expecting to grow mid to high single digits, but before before covert expected a slightly higher growth rate. So you know 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.
Challenges into certain industries, and accelerants and others as related to S.M.B. or clearly monitoring. It you know the carbonite business isn't all S.M.B. a good portion that enterprise. There's a good portion that is all we which is enterprise or consumer direct business was actually on an uptick.
Q3 and of course, there's the S.M.B. portion of the business before no effects and Q3.
<unk>, a worker or or clearly monitoring it very very closely.
<unk> I think you said you might have follow on her second part your question.
Yeah.
Well you, it's wearing kind of <unk>, we are in in familiar but we also an charter territory and a little a little bit in this kind of the situation can you talk a little bit about what are the the the signal. So the metric said you guys could go into full course on most in terms of kind of managing ads 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 to guiding principles for you here now I should go for the crisis.
Yeah, So we're clearly 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 incremental look 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, though I call. The three g.'s right. We're gonna track casting we're going to track tracing and we're going to track treatment [laughter] as a general market and.
We're going to track industry by industry, you know, we're going to look Oh, we get good insight to our business network on many industry trends and and Remo. The best I think I can highlight right now yes, you have the usual pipeline and other metrics, but we're going to take a very industry by industry view.
And each industry.
Going through every industry here <unk>, we're going to we're 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 make sense. Thank you could look.
Thank you.
Our next question comes from Paul steep of Scotia capital. Please go ahead.
<unk> could you talk to me by Baltimore, Hi, the cloud growth in the corridor, maybe measures are taking whether you've done anything to actually accelerate the transition.
Words, the cloud and sort of pushed even harder towards that direction beyond the acquisitions, what we talked a bit earlier.
Well it's.
You know it's.
You know kind of pre <unk> you know, we we did yeah, we didn't make structural changes coming into the fiscal year, we certainly part leadership and management priority on it but Paul the the pandemic is.
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 of cloud and digital or simply.
Being accelerated.
Due due to the <unk> pandemic.
And and we're going to be here altogether 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 a platform to be able to move to P.P.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 current plans or anything like that to do this.
And then just a quick follow up on it maybe put context for people in the cold around what movie in the team is done with today's announcement now that you've out at the other major.
Code service provider in the public side, and and hoped 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 we announced the relationship 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 no 20 dot to our cloud additions.
Or cloud first they are native cloud applications are completely containerized.
And we really have kinda completed the tax dock and now the business relationship side to give full choice to our customers. So if a 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 decisions and they're operating decisions as far as our tech stocks. So about 20 dot too important step native cloud cloud first A.W.S. really is a a one the last big pieces for us.
To firmly support.
I like to say completing the need and the choice for our customers.
Great textbooks.
[laughter]. Our next question comes from Stephanie price of C.I.B.C. Please go ahead.
Good afternoon, and congrats on the corridor.
Yeah, Thanks to hear your voice.
You too thanks for 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 or where you sort of get the end of 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. If 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 sorta stable coming into April I would say you know you you you had the end of last year <unk> and have a lot 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 and and 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 of the quarter.
It seems to have a kind of been studied to where we from from end of March. If we just go around the World you know China has certainly <unk> begin to return to workplace.
Southern Europe has begun to return to workplace I think it's still too early for Western Europe, and the in North America, yet and they're still places that are not plateaued, you know, whether it be india or or or South America.
But from what we can see in our business. We had the transactional piece, we have the network peace. Other 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 needed from a do it just on the club margins. This quarter, obviously very very strong you could elaborate a bit on the strength is it 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 when it's a good question I would think about it in two parts like one 170 to continue to optimize from an open tech perspective are costing book and you said anything the benefit of that and Carbonite about yourself with quarters and dominance of Carbonites of copyright driving is odd.
In fact men in the cloud and I also spoke about the Catholic deficiencies, but seeing so I would say all three factors no definitely contributed and we talked previously about being in the low to mid sixties right and you should definitely the two after being in the Indian and low 16 does it look ahead as well.
Great. Thank you very much.
Thank you.
[noise]. Our next question comes from Paul <unk> of RBC capital markets. Please go ahead.
Oh, thanks, very much and good afternoon.
With the the global move to work from home you know across a number of organizations you know it seems structural on permanent.
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.
How to dress that going forward.
Yeah that yeah. Thanks for the question.
No I don't 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 and and Monday morning, and sat my team down and said look <unk>.
<unk>, we're going to go sent everyone home [laughter] 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 just how affective. It is in some cases productivity is off and it works so.
So you know for for US, we we see it as an opportunity to.
I'm think differently about what the the the new return to a workplace looks like Oh, we're not going to be constrained in certain markets.
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.
Kind of services out as hard as a knowledge platform.
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 shutout productive. It has been none of US would have experiment. It like this on our own or that 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 contests.
Services.
And these are some of the things that were thing.
[laughter] so that they yeah. Just another question for me in regards to Carbonite 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 he upside in the quarter, just that specifically relate to work from home demand and you did see or was or another driver that drove the upside there.
I I would say a few things one is a good integration and an 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 rates.
And a strong interest in in in our kind of direct business to to 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 do do the work from home.
[laughter] six Sigma question.
[laughter] once again, if you have a question. Please press start then one.
Our next question comes from Richard C. of National Bank Financial. Please go ahead.
Yes, thanks, So I understand there, there's certainly a potential for acceleration probably on the other side, particularly during class but.
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 <unk> collaboration sweet any signature lots of conversations.
And the protection of of the home and end points.
Yeah. These are things that are certainly in the in in in the Green column for US you know more so than they were <unk>.
[laughter], 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 that's pretty impressive. So you know if you were to say you know.
<unk>.
Gross okay for him to talk about what that would've been under normal conditions.
Well as I said, you know as I said on that a lot 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.
You know.
As we as we usually do.
For heritage and what's going on just can talk at the fiscal year level, Richard So for fiscal 20.
No we're expecting to see another girl here, so total growth in the mid to high single digits.
Growth in the low twenties.
<unk> organic growth, which I think what's your question you know the first half a 20, we had organic growth you're to date and content currency get organic growth and they are.
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 pharma 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 in or F. 20, grosses back to be in the mid to high single digits and before call. It we expected higher growth.
So we're still going to have a growth here.
So expecting a growth here.
But we we clearly have growth impacts because of <unk>.
Okay, and it's got one quick ones for me, though a last question in terms of acquisitions.
Maybe talk about the ability to pursue acquisitions here in the next few quarters and you see you know a change Ah here over those extra recorded in terms of evaluations of course thanks.
Yeah.
Thanks, Richard so it it's.
We remain.
We remain in the in the market pursuing opportunities. So there's no doubt that the pandemic is going to affect valuations downwards.
For the markets that Ah Ah Ah, we you know we seek assets and.
Oh, we continue to build a strong balance sheet 2.25 times leveraging 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 requires a yet another part of a of a play book.
To do the diligence you know we're going to seek the time to seek you know to see companies in your core markets.
That you already know and that are just <unk> strong brands.
With high recurring revenues.
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.
Until you do a a deep discussions and for the ride opportunity and the right to do a right to deliver staff that will be prepared.
<unk>. Thank you.
[laughter]. Our next question comes from <unk> B.M.O. capital markets. Please go ahead.
Good afternoon marks 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 we are down to what I couldn't get contractual minimums that my because you what she's up there.
Yeah <unk>.
Not going to I'm not going to translate try to go traffic doesn't necessarily translate directly into a 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 factor 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 and but overall the answer your question the traffic is down.
We have 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 you for concessions on because you go pricing or not to date.
Yeah, I think it's safe to say every industry is going to talk about longer payment terms at every industry is going to talk about a renewal rates.
You know, we experienced and Q3 very strong renewal rates 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.
<unk>.
Given we take a platform product portfolio approach consolidation approach <unk> <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 we're as we say altogether.
What we we'll do what's right and fair for those industries and customers who need our help in our preemptive action is also help offset anything and and and you saw that kind of all together spirit actually Craig record cash flows and Q3.
[laughter] <unk> the question and answer session.
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 two or three puts us in a great position to whether the short term challenges ahead.
We're 21 consecutive quarters of your your grossing tossing currency record revenues record air already 1% record plowed at 30 340 million up 42%, we're maintaining our dividend and visibility.
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.
This can clip today's conference call you may disconnect your lines.
For participating and have a pleasant day.
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