Q1 2021 Earnings Call

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For first quarter fiscal year 2021 conference call all participants will be in listen only about.

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Please note this event is being recorded.

I would now like to turn the conference over to Kara Bellamy Chief Accounting Officer. Please go ahead.

Hello, everyone and welcome to today's call before we begin I'd like to ensure that everybody understands that our discussion may contain forward looking statement.

There are based on certain expectations and analyses.

Such forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.

He Lady undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances. After the date difficult.

For a complete description of these risks and uncertainties. Please refer to Q 80, 10-K, 10-Q filings with the Securities and Exchange Commission.

Please also note that during this call we will be discussing non-GAAP pre tax income, which is a non-GAAP financial measure as defined by FTC regulation G.

A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in todays press release, which are posted on the company's website.

Now I'll turn the call over to our CEO Anton children.

Thank you Carl good afternoon, and thank you for joining todays call could discuss kuwaitis fiscal 21 first quarter results.

Joining me on the coal Pam Lopker, our president and Daniel lender Chief Financial Officer.

Following on from the good momentum with which we finished last year. We saw good acceleration of all subscription growth this quarter, giving guidance on a constant currency basis and up 22% compared to the same period last year.

This growth driven by a strong competitive position means recurring revenues now account for 77% about total business.

From around mid March the will change dramatically is increasing numbers of countries responded to the global pandemic with shelter in place stay at home and locked down what is coming into force.

I have to say I'm incredibly proud the way in which security team responded.

Yeah priorities first like to safeguard the health and wellbeing of our employees customers and their respective families and communities.

Secondly, we wanted to ensure complete continuity of service for our cloud customers and those with implementation upgrade projects in progress.

I'm pleased to say that we've achieved those gault, while switching almost overnight to remote working with no interruption that can support service levels.

Work on automation and digital transformation also came to the fall through this period as we changed our operating model exemplified by the adoption of our upgraded methodology performing remote professional services work for customers, who buck embrace the opportunity and gave the experience great feedback.

This continuity in project work combined with the effects of improvement initiative started last year. So a healthy growth in professional services margin to 5% come back with a negative 5% in the first quarter of last year.

That result, combined with an increased focus on expense management through this period of uncertainty helped us drive significant improvement in bottom line performance compared to last year's first quarter.

While the effects of the cobot 19 pandemic in the short to medium term remain uncertain. How business is in good shape and we're confident we remain well positioned to achieve a long term strategic targets.

I'll now turn it over the Daniel to discuss the detailed financial results. Thank you I thought.

On a constant currency basis, both subscription and maintenance revenue came in as expected.

Description margin showed a three percentage points improvement over the prior year.

Even in a challenging environment, our ability to deliver professional services business remotely enabled us to support our customers projects imposed by person margins.

Like since that's where most affected by the current environment as we saw existing customers not needing to add to users.

The expense control actuals, we implemented were successful in resulted in improvement to our bottom line profitability compared with last year.

Currency had a 2 million negative impact on total revenue.

Which compared to last years first quarter and I wanted to have another negative impact when compared with fourth quarter fiscal twentytwenty, which we used for forecasting purposes.

During the quarter and as a result, the crisis created by the Corbett 19 pandemic it wasn't material movements in currency exchanges, and we're not anticipating and we're not incorporated into our forecast.

Total revenue for the first quarter at for 21, what 74.1 million and compared to the same quarter last year declined 2 million or the result of currency movement.

And 1.1 million, resulting from anticipated declines in professional services maintenance and license revenue, partially offset in gains would subscription revenue.

Subscription revenue grew 24% on a constant currency basis to 30.8 million.

The accounted for 41% ever basis for the fiscal 21 first quarter.

The currency movements that we experienced mid quarter negatively affected subscription revenue by 500000.

On a rolling 12 month basis subscription billings grew by 18%.

With that three year CAGR of 25%.

We signed 13 cloud deals in the quarter fiber, which were conversions and eight of which won't work new customers that compares to 15 deals in the same quarter last here.

Maintenance revenue was 26.4 million.

Compared with the same quarter last year declined 800000, as a result of currency movement.

We didn't anticipate it 2.6 million decline related mainly to Clive conversions.

And our historical attrition rate, which remains consistent with prior periods.

In addition, lower ongoing sales from licenses are no longer offsetting attrition rates.

Professional services revenue totaled 15.7 million compared with 18.4 million for last years first quarter.

We're pleased to see that revenue was consistent with prior sequential quarter. Despite at 400000 negative effect from currency movements.

Acuity ongoing digital transformation and enhanced implementation methodologies.

I had already been designed around remote delivery enable our business to remain in a good footing.

Services margin, what 5% up from 2% in the fiscal 24th quarter and the negative 5% for the year I've a period.

Compared to this time last year, there was 826% reduction in the professional services organization.

We continue our strategy of expanding our partner network and improve our ability to deliver services remotely.

License revenue for the fiscal 21 first quarter equaled 1.2 million compared with four and a half million a year ago.

Given covert 19, most customers did not new users as I mentioned before which impacted license sales during the quarter and we expect license sales to remain at low levels for the foreseeable future as we continue to focus our sales efforts.

On the cloud.

Total revenue by vertical for the fiscal 21 first quarter with high Tech on industrial 36% automotive 33%.

Consumer products, and food and beverage, 16% of life Sciences <unk> another 15%.

By geography total revenue was North America, 50% Emmy, a 30% Asia Pacific, 13% and Latin America, 7%.

Our gross margin for the first quarter fiscal 21 was 56% compared with 53% last year.

Principally driven by improvements in subscription professional services margins.

Sales and marketing expense was 18.6 million or 25% of total revenue.

This is 20.9 million or 27% of total revenue for last years first quarter, the decrease mainly related to reduce travel lower severance and lower bonuses and commissions.

R&D expense was 14 million for both periods as a percentage of total revenue R&D expense was 19% for this year's first quarter and 18% for last year.

DNA expense amounted to 10 million or 13% of total revenue for the first quarter fiscal 2001, compared with 9.4 million or 12% of total revenue for the first quarter fiscal 20.

The increase primarily resulted from higher accounts receivable reserves.

Related to the adoption of a new accounting standard that requires us to consider the current and forecast that economic environment.

Stock compensation expense totaled 2.4 million for the fiscal 21 first quarter and 2.3 million last year.

This brings our GAAP pre tax income to 600000, compared with a GAAP pretax loss of two and a half million last year.

Non-GAAP pretax income was 3.3 million versus approximately breakeven a year ago.

We ended the first quarter with approximately 100, and a 40 million in cash and equivalents compared with 137 million at the end of fiscal 20.

Cash flow from operations for fiscal 21 first quarter totaled 10.9 million compared with 14.2 million a year ago.

Our accounts receivable was 46.6 million at April 30 versus 49 million at this time last year.

Our days sales outstanding use into came back method and what is 56 days for the fiscal 21 April quarter compared with 55 days from the same quarter last year.

That's a result of Koby 19, we have implemented additional monitoring over our accounts receivable.

To date, we have not experienced any significant impact credit quality or terms.

And our accounts receivable remain healthy.

In special circumstances, and as we deemed appropriate.

We did provide some accommodations relating to billing cycles or payment terms to certain customers in order to assist them in navigating through this period.

Our short term deferred revenue balance at April 30, what the Hunter and 2.3 million versus a hunter and 4.5 million a year ago.

Including a 3.1 million negative impact from currency movements.

Deferred revenue balances by category include 41.3 million of deferred subscription versus 33.3 million.

58.4 million of deferred maintenance versus 68.4 million.

I want to have line of the for professional fees versus 2 million on 100000 of deferred license another versus 800000.

Our maintenance contracts, a bill annually, while subscription contracts continue to be bold either annually or quarterly.

Our business outlook incorporates the effects of currency fluctuations experienced during the first fiscal quarter.

And assumes foreign exchange rates for the remainder of the quarter.

And consistent with the guidance provided for the fiscal 21 first quarter Q east providing guidance for the subscription and maintenance revenue for the quarter ahead as follows.

Subscription revenue of 31 million, we're presenting at 24% growth on a constant currency basis for the same quarter last year and maintenance revenue of 26 million with that I'll turn the call back to you I thought not thank you Daniel.

So with the difficulties presented in the macro environment by the covered non team pandemic, we have seen sales cycles extend someone I'm a little more caution in terms of closing on behalf of all customers and prospects.

With that said, we did close 30, new cloud deals in the quarter demonstrating that sales activity is continuing well that bookings in the quarter represented about 70% of last year's number.

Oh competitive strengths continue to attract new customers and we were very pleased to welcome eight of them to the acuity cloud, that's where an increase in the ratio of new customers to conversions in the overall cloud deal mix for this quarter, but we continue to expect the 50 50 deal next to extend into the medium and long term.

The continued improvements in all cloud margins are in line with all plans and hours. The result of on ongoing efforts to drive efficiency through automation and process improvements.

As Daniel highlighted we expect these improvements to continue over the medium said I'm driving incremental efficiency gains wants to per cent per annum.

Looking at the quota geographically sales activity was at reasonable levels in North America, EMEA and Latin America, when taking into account in the current circumstances. However, the apex sales activities more heavily impacted given that China was effectively locked down through the first two months of the quota.

You know divisions businesses. We also saw cloud momentum continues to build the steady growth in our subscription revenue when compared to the first quarter about why 20.

We do expect that as we emerged from the current situation a focus on reducing supply chain risk and increasing complexities in cross border trade will have a favorable effect on kuwaitis demand and supply chain planning and all global trade and transportation execution businesses.

As discussed on our last call.

Around mid March we were starting to see some slowdown and professional services projects and time frames extending beyond original plans.

However, as I mentioned in the opening its been pleasing to see some customers adopt the remote working methodology that we've developed some time ago. This kept momentum going across many projects and helped drive the healthy improvement in our professional services margin.

That said, we remain cautious about the short term effect on professional services revenues, especially as we look to the second half of the year.

I also mentioned on the last call, we're taking advantage of any white space in professional services to accelerate development in the use of digital transformation to support the automation many aspects of our implementation methodology and this will help shortened project timelines and reduce customer effort in the near future.

The design of our services delivery organization that manages all crowd operations with its combination of a diverse geographical spread and the ability for 100% what personnel to work remotely has allowed us to provide uninterrupted service for all cloud customers until the ongoing support from global customer base.

We've seen no different service levels, all service quality throughout the entire period.

I'll cover at 19 response management team is coordinated a consistent and global response has helped ensure the health and wellbeing of our employees customers their respective families and communities, which we operate.

We've also manage our expense base for the close eye and as a result with delivered material improvements in bottom line performance over the same period last year.

Focus has also allowed us to maintain the investments, we've made and I'll global workforce and particularly in the average of sales and marketing, where we had gained good traction coming into this year.

Focus will remain on continuing to protect that investment as we develop a pipeline inline with our strategic goals.

With all the uncertainty in the current climate, we've seen a slightly more cautious approach with customers, taking a little more time to move forward with sales opportunities.

From a vertical market perspective, it's interesting to see in almost all sectors, a mixed picture with some companies faring, well and demonstrating a high degree of resilience, while others are more impacted.

Our pipeline remains strong however, and indeed is at record levels and it's grown over 26% when compared to the same time in a prior first quarter.

With that backdrop and with 70, some 77% while business now based on recurring revenue, we feel we remain in a solid position and have reinforced the good platform a stability I talked about on a last call.

With a pipeline growth, we feel cautiously optimistic about our medium term sales prospects. We know all competitive positioning remains strong and the need for next generation solutions is only reinforced by the current situation.

I'll now hand over to pass the detail and I'll cloud bookings.

Great. Thanks, Sam time in Q1 Department, and we have 13, new cloud bookings by some conversions to the cloud and eight net new customers.

Cloud activity perspective, except for Asia Pacific, who is affected by the earliest by the pandemic all regions performed as expected from the vertical standpoint life science and see piece doesn't brambridge, where a comparatively strong.

Compared to automotive and electronics industrial.

We received a sizable order from a tier one automotive supplier in Brazil.

With that I'd like to talk a bit about localization requirements.

The complexity of local government requirements in Brazil are very significant and in our opinion by the most talent that's for companies.

The complexity comes from the multiple local tax regulations that company operate in various Brazilian state.

And that's the holidays needed to address.

Requirements around government registration of electronic invoicing and the various digital reporting a financial transactions that statement.

They are very tight controls by the government to ensure that collecting all taxes they either.

Well, Brazil represents an extreme example, we have seen a rapid increase in government regulations around the world what countries, such as India, Italy, Portugal, and many others, adding processes I'm reporting requirements, similar and that can be somewhat different to Brazil.

Hey, wait they support these requirements for 55 countries and our based product, which we continue to update and add to add additional countries on ongoing basis.

The native support allows our customers to run their global businesses in the cloud and a centralized action, but they often need for heavy hospitalization or add on third party pot.

We believe these capabilities.

Further differentiates you made these cloud offerings from our competitors and enhance our value proposition for existing customers to convert mcleod as well as for new customers to rely on to 80 for supporting their global operation.

Our ability to deliver adaptive ERP cloud solutions for our global manufacturing customers, enabling agile business processes with local country requirement.

Unprecedented levels of speed.

Writing new capabilities to both existing and new customers.

Thank you back to you on time.

Right. Thank you Pam.

So looking forward as stated earlier, we still feel confident about our ability to meet the long term goals Daniel outlined it on prior calls.

Disruption and change the new normal for global manufacturers and this current situation is set to highlight the need to be able to respond in near real time to sudden changes in demand in the supply base and in supply chains globally.

Indeed on that point I'd like to take a moment to highlight the fact that many of our customers were able to make rapid switches to business operations and models in all parts of the world.

More importantly, they were able to why the switch or supplement existing product lines in a real time rapid response to the current situation to provide much needed critical supplies to the frontline work is in the fight against covered 19 as these examples were little strike.

We have a customer in the distilling industry in the Netherlands that rapidly adopted its business to begin producing hand, sanitizer, helping lessen the effects of the shortage of supply that where the customer in Australia and I did a whole new production line brought in additional work isn't started producing personal protective equipment within a matter of weeks.

So we're very similar response from a customer in the UK.

Who responded to request for health and making a vital component in lifesaving face shields needed by the UK National Health service. We've also see many of our automotive supplies producing masks and other vital equipment.

We're very proud of what they've been able to achieve the rapid response to the pandemic in close to real time, and how the reacted and adapted to help communities globally at such a difficult time.

As we emerged from this crisis, we know that manufacturers, who want to thrive we'll have to be agile island, the extreme I'm ready to adapt and real time to change disruption and turbulence.

Our next generation adapter solutions ERP in the enterprise platform are exactly what businesses need to support that real time and rapid response to those changes.

We believe we remain exceptionally well positioned against all major global competitors, and we'll continue to grow market share as more and more new customers are attracted to the Q I'd cloud and the trend of conversions continues.

The pandemic, however materially increased risk and uncertainty for many of our customers and increased fluidity in their businesses.

This uncertainty is making it difficult for us to predict the effect on our sales and professional services projects throughout this year. However, as I said, a few times, our long range plan and the underlying fundamentals on which has been built remain sound, but the timeframe of which we achieved them likely extend as a result, but the current situation.

In summary, Prudence remains I'll watch would over the coming months, we've done well to this point, but we're not relaxing all vigilance, we continue to focus on the priorities in health and wellbeing of all in addition to supporting our customers through this difficult time.

The cost control measures, we put in place a proven to be effective and will remain in place to see us through the coming months have a strong balance sheet and a good cash position as we emerge from this crisis, we stand ready to aggressively focused on growing our cloud business.

Operator, we're ready to take questions from analysts.

[noise], we will now begin the question and answer session.

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At this time, we will pause momentarily to assemble our roster.

And our first question comes from Boston, Sorry of William Blair. Please go ahead.

Hey, guys say everybody. Thanks for taking my question, but a lot safe and well.

I what are your first touch using my question don't directly involved numbers, but but you obviously had a acceleration at constant currency basis Q1, you've guided to.

Acceleration in on the subscription lighting in called started the Q2.

Well the rest of year, I know, you're not giving guidance, but is that sort of a trajectory we're expecting to see how are you feeling good.

The deals that have played out additions you've done the layering in of the subscription revenue should drive that sort of abuse I'd love to just get some thoughts on how you got to thinking about what that well have how that how the script like lays out the rest of year given you booked a lot about rapidly earlier, so just again not projecting new deals, but let me give a sense of how that plays out.

AH Yes. This is Dan above on thanks for your question with regards to our revenue recognition with relating to deals that we book, we typically start recognizing revenue fairly quickly.

So the deal so we booked a you know towards the end of last year I'm. You know we already started recognizing revenue for those on the deal that we booked in Q1, that's a that's that's starting to drive the additional growth on a constant green <unk> on a constant currency basis that we're seeing.

For for Q2, so really the rest of the year, it's highly dependent on on the or the current environment and.

How well it how rapidly we're able to close.

The.

The larger a funnel that Anton referred to so you know clearly the opportunity there for us to to continue.

Our growth, but the environment, it's obviously quite challenging.

Timing of closing of those deals historically more difficult.

So that doesn't said you know we remain.

Caution cautiously optimistic you know over over the medium term.

Well I got its helpful. Then it everywhere and John as you look at your business you talk about sort of pressures in Asia Pac largely due to China, but maybe other verticals side I'd love to understand where you're seeing the cloud adoption from a birchall perspective that broad based obviously the health care guys. One of your budget customers early adopters.

It's on the small budget guys that'll wanted and the on premise, but would love to understand sort of you know as the customer has had a few months I just more of the potential impact just whereas the appetite for the base a cloud solutions from a vertical perspective and is there any discrepancy that vertical makes thank you.

Thanks for that Yeah, I'd say you know we've seen I'm just from an effect perspective, it's a real mixed picture across all the verticals.

You know so if you take a life Sciences for example, you know.

If you're in the business of supplies for elective surgery, then you probably struggling right now if you doing anything that provides p. or anything along those lines. Then you know you're going well.

And that kind of different mix is going across the entire vertical segment basis, Although you know automotive.

Hurting a little bit more than than some of the others from a cloud adoption perspective, you know, we're seeing that across the board. So it continues to be attractive to life Sciences companies. You know, we've got we make it very easy for those companies to get validating their environment with a lot of certification around that but I think this car.

And situation also just highlights the robustness in the resilience of having a systems with Q 80 cloud on where we're taking care of them you'll have to worry about your staff and who's our pride in Minnesota. So so I'd say notwithstanding what I said about the timing of these deals the fall continues to grow when it can grow it was kind of proportionally.

Equally across all those different verticals.

Got it one of them I squeeze one and quickly one last one for me.

You talked about the partners. That's what are the shift your partners love them sense, how is that playing out because of the expectations that slowed down a little it could be environment, well actually seem to partner step up given the environment and say Hey, you know, we're seeing a slowdown in other work and there's not been area. We can start out into training, maybe even starting conversations.

Customers, maybe started building RFP responses or maybe you know for six months out just love turns out how to partner channel on that investment is playing out. Thank you.

Yeah sure so quite a few a range of activities across that part of community. So we're certainly in conversation with a number of you know potentially new partners that will be coming on board over the coming months.

Of course, those conversations can continue in the current context.

With existing partners, we've been taking the opportunity to.

Make sure that skilled up with you know our adaptive ERP and the latest version of that we starting to drive out certifications through them now as well so the picking up that and so yeah. You know I think that's sitting a very similar thing like we all with you know many projects continue but some a slowing down sorry.

Uncertainty about the second half of the but there's still plenty of activity going on we are taking advantage of that white space to do some of those on training and certification programs thus far.

Great. Thank you guys. Thanks, taking my question.

Thanks, Matt Thanks.

Our next question comes from Zach Cummins of B. Riley FBR. Please go ahead.

Oh, Hi, good afternoon, Thanks for taking my question.

When it comes to retention rates I was just curious if theres any particular concern cross your verticals as you look across the customer base in terms of retaining customers and the challenging environment.

Yes, hi back yes, so far our experience has been very consistent with what we've seen in past quarters.

You know, our we more vigilant in terms of what's happening across our customer base with regards to our arc, our customers financial well being a fourth absolutely.

But we are a critical system to their businesses.

So generally speaking what we have seen in this environment, so far and in prior situations, where we've experienced some significant downturn the.

The attrition rates really don't vary that much it's usually on their under extreme circumstances where companies.

We'll take a different course.

Understood. Okay. That's helpful. And then in terms of your mix of a cloud funnel have you seen an uptick at least in the near term with conversions with with many customers maybe potentially considering the cloud given the disruption they seem to their business over the past couple of months.

I would say, it's not hugely significant at this stage I think the conversations all happening.

But I think people a focused on immediate stability.

But there's definitely more interest and to that point, we've been running a series of Webinars, obviously, it's hard to get out in front of customers right now.

And probably unwise to try and do so so we've been running a whole series of Webinars globally, and we've seen record attendance at those and we've got a lot of interest in follow up afterwards. So I think we are expecting to see you know that interest continue to Mount and then as we emerge from this situation I think that will help.

Boost the pipeline, which as you know already growing pretty well.

Even further.

Understood and in terms of the Twoq guidance.

Really appreciate the recurring revenue outlook, but similar to Q1 can you give us a sense of percentage that recurring revenue should account for total revenue or how you're thinking about that.

Yes, I mean shouldn't it shouldn't be all that different from what we're saying what we so in in Q1, no I think that.

You know we do expect are our professional services business to go on I mean, with I think we've shown the ability to be able to deliver our professional services on a remote basis.

We have to be quite a bit more in our toes with regards to some of these because customers priorities are changing more rapidly than normal so we need to be a a little bit after their and you know licenses I think are little bit harder to two per day, although we're not at this point in time, we don't expect those to account for as much.

Our revenue overall.

Got it and then final question for me in terms of your approach to expenses, how should we think about your areas of investment versus somebody there is that you're focusing on for cost savings here in the next couple of quarters.

Yes, So I you know as I said earlier I think you. We as you know we've put a lot of investment an athlete in time in small cells and marketing organization over the past sort of 18 months or so.

And you know, we're very keen obviously to protect that.

We've seen that good pipeline growth as an indicator that that investment was starting to pay off and we saw the momentum coming into this year.

So I'll focus on expense management is really making sure that we protect that investment and so it's things like you know travel is obviously being helped by the fact that.

No on hardly can travel so that's put big Denton and we've taken some other actions in other areas of the business that discretionary spend and purchases and so on and that that's allowing us to protect that investment in that workforce that we've done.

Understood. That's helpful. Thanks, again for taking my questions and best of luck in Q2.

Thanks. Thanks.

Our next question comes from Kevin Liu of Cailloux Enco. Please go ahead.

Hi, good afternoon.

First question here just on professional services I think last quarter. There was an expectation that maybe you'd see some deferrals, though given the current environment. What's been your experience. So far has most customers have been willing to adopt kind of the remote implementations and then maybe talk a little bit about what's the backlog we have as it would go from any sort of delays in projects.

Yes. So you know we were cautious.

So and we've been pleased to see actually that a good portion of our customers have continued.

And actually we've gotten great feedback on the remote working model on how effective it's been an hour helpful. It's been for customers that were critical stages of projects that said, we have seen a few that of delight.

And those are for different reasons, sometimes it's a business reason.

Or places closed down.

We've had for example in Europe, some customers had to delay because workers councils couldn't agree how to get work is back into the factory, but the business still wants to do the project and so little bit of a mixed picture at that end, but our utilization has held really well and that's helped to drive that.

Good performance in margin, but as we said you know there's a lot of fluidity in customers businesses right now and and these things can change fairly rapidly. So we are cautious about the second half of the year and and we continue to keep a very very close eye on whats happening that.

Got it and I know in Q1.

More kind of new clubs.

Conversions are you expecting lucky changed much as we go into the next few quarters here, just given that it should be easier to engage with existing customers or do you still think plenty of appetite.

Prospects.

No I think you know this this particular quarter, we didn't quite get a 50 50 balance I mean, I think over the medium to long term, we expect to continue to see that that balance had him there's plenty of opportunity inside of our installed base. So we're very focused on continuing the conversions.

But you know clearly a significant portion of our final going forward is for new customers as well so.

No I think overall that 50 50 mix, it's what we kind of expect to see in the foreseeable future.

Understood and then on doesn't like in line.

With that being down significantly sequentially and year over year curious how much of that was reflective of just no control.

On discretionary items.

An ability to travel versus other factors like head count reductions or any kind of caught.

Yeah, no Fortunately, we'd really didnt have to do any sort of headcount reductions or anything or anything along those lines, we were able to.

You know managed a lot of the reductions through you know tightly monitoring a lot of discretionary spend.

Obviously.

Given the they lower a level of activity from a sales perspective, as a result of cobot or the amount of variable compensation across the company.

Came down accordingly, so that the you know we do have.

You know at pay for performance type of model in place so that that that definitely help. They are they're also until it was mainly driven by those factors.

No rather than you know any any you know I four pads, we we do think maintaining.

Our our our our employees is really important is very expensive to.

Go through reductions the workforce is very expensive to hire people and then having them trained and be effective afterwards.

So we believe we're in a very good position.

You know, obviously things deteriorate significantly we have options available to add to what we can do bite at the moment you know our plans is too you know not make any short term decision that would.

Materially impact our future prospects.

Got it and just lastly from me Daniel can you talk a little bit about kind of the Q2 subscription revenue guidance in particular curious how much of the incremental headwind.

Next is on a sequential basis and then if you've seen anything along the lines as customers are requesting a reduced.

More discounts or anything of that like that would impact the sequential growth of subscription revenues.

Yes, so with regards to foreign exchange you know what we saw in Q1 was a 500000 dollar effect roughly in terms of headwind.

That that really impacted about.

Half the quarter. So you know we're expecting about.

Double that for Fourq, you too from a from a headwind standpoint.

With regards to you know rate reduction of of revenue, we're not expecting you know any significant amount. There I'm you know we have been as I mentioned earlier flexible with customers who truly need some help during this period of time, it's mainly around cash flow. So.

In certain situations as I mentioned, we've given them you know slightly longer payment.

In terms in other situations may be we split some of the invoicing to rather than the invoicing them on an annual basis. We've done you know quarterly invoicing.

And so forth. So those are mainly the impacts from that standpoint, there were saying.

Great. Thanks for taking my questions and hope you all see Hello.

Thank you thanks, Kevin.

Our last question will come from is the key CEREC of Sidoti <unk> co. Please go ahead.

Hi, Good afternoon, guys. A couple of questions from me and Daniel you touched on this I just last on Kevin's question now was formed a on the customer.

Mentioned that you know you're extending terms to someone to customers who might.

A face some issues, but do you expect maybe some of that.

Oh, Yeah, our two maybe.

Not be collectible that someone in the future or do you think that is not the issue that you guys.

You know I I mentioned during during my prepared remarks, you know we have instituted additional monitoring.

To our accounts receivable. So we are we're monitoring you know you know through lots of lots of different areas.

We have not seen a deterioration of of credit quality and so forth I did say that we have increase our reserves and that's mainly due to a change in accounting methodology.

That now entering new standard requires us to look at the economic outlook in also.

So.

Generally speaking you know we feel we feel good about the overall health of our receivables.

And you know from a.

From an overall standpoint, or as I mentioned, our dsos were up one.

No one day versus last year, so in terms of timing and people you know paying their bills on time.

They are you know that's a that's proceeding as normal as well.

No, but obviously with the current environment, we are keeping a very very close eye on that.

Got it got it gets that's very helpful.

Switching over to the you know verticals.

You briefly touched on that life Sciences, and CPG are doing very well I can you comment maybe a little bit more from a geographic standpoint, I know, our China opened up as well as some of the other countries any.

Commentary regarding maybe with geographies are doing well with respect.

Yes, I mean, maybe I'll jump in that respect so.

You know China's obviously, you know further along the journey. The many other parts of the will then certainly from our own perspective, we're seeing activity start to pick up there, but I think it's going to be you know a little while while we re gather momentum there if you like and start to see sales increasing their again.

So, but we are out and I know I'm, a proving travel in China. So I know, what's going on and were visiting customers. The.

Interestingly you know we're seeing in other parts of the world now businesses start to ramp up so.

Yeah, we monitor sort of transaction volumes across some walkie cloud customers.

And certainly you know that they flagged that they were reopening plants in North America for example.

A few weeks ago, and those transaction volumes have been steadily ramping up and down close to be back, let's say pre covert levels within the next couple of months I would say so you know it's it's a mixed picture right now in terms of weather activity is coming back it's not isolated to one country or geography.

And a lot of it depends on the actual business and the industry the customer himself as into.

Got it and any color with respect to which vertical is doing well.

You know as I said earlier I think we've got a.

A mixed picture in many so yeah. If you just take life Sciences, we've got some customers that have increased volumes and a growing and that that they're doing well in the current circumstances, but we've got others that are serving you know sectors of life sciences that it may be more depressed right now because.

People aren't going to hospital unless they absolutely have to for example, and so if you. If you have supplying syringes and all I was kind of things and so on the you know just helping with elective surgery or elective treatment. Then those businesses are suffering a bit and I'd say, it's similar when you look inside each vertical segment, we see some that are doing well in consumer package goods for example.

Something they're not doing so well you know assembly true on the industrial side.

The one area where is that there are less bright spots I would say is probably automotive you know where nobody is driving at the moment and hardly anybody buying cause. So that's that's certainly having an effect.

Got it thank you so much.

[laughter] taxation.

This concludes our question and answer session I would like to turn the conference back over to Anton Shelton CEO for any closing remarks.

Thank you well, thanks for listening and everybody to todays call and we look forward to updating you is off Q2 results in August.

Thanks, everybody.

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.