Q2 2021 QAD Inc Earnings Call
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Good day and welcome to the queue I'd be incorporated financial results for second quarter fiscal year 2021 conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this evening.
It is being recorded I would now like to turn the conference over to Kara Bellamy. Please go ahead ma'am.
Hello, everyone and welcome today's call before we begin I'd like to ensure that everybody understands that our discussion may contain forward looking statements that are based on certain expectations and analyses.
Such forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially from those anticipated.
Q 80 undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances. After the data. This call for a complete description of these risks and uncertainties. Please refer to kuwaitis 10-K, and 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 FCC regulation G.
Operation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release, which is posted on the company's website.
Now I'd like to turn the call over to our CEO and time Sheldon.
Great. Thank you Karen and good afternoon, everyone and thank you for joining todays call to discuss kuwaitis fiscal 21 second quarter results.
As usual joining in on the call Pam Lopker, President and Daniel lender Chief Financial Officer.
I was very pleased particularly in the current context to see a solid sales performance in our second quarter. Our sales team was able to match the performance of the same quarter last year, both in terms of value and number of deals.
Our strong competitive position has maintained on momentum and sees our cloud transformation journey continue a pace as we hit guidance for the quarter with a 20% growth in subscription revenue over the prior year quarter, which when combined with maintenance revenue puts our recurring revenues approaching 80% of our total.
As the global pandemic continues to dominate headlines and we and our customers and prospects navigate through these challenging times, our pre our priorities remain consistent.
The health and wellbeing for all community at large complete continuity of service for our customers and protecting the investments in our global workforce or areas of focus and we continue to perform well in each of them.
With the current macro conditions, we have maintained a strong focus on prudent expense management and that's helped sustain a solid bottom line performance.
While the effects of the cobot 19 pandemic sustain the uncertainty over the medium term future al business remains in good shape, and we're still confident and achieving our long term strategic targets.
Ill now turn it over to Daniel to discuss the detail of the financial results well. Thank you on top.
Our second quarter results were solid.
Subscription and maintenance revenue met guidance and we generated pretax profitability.
Subscription margins improved three percentage points from last year.
Professional services margins remain positive from last quarter, a 3% as we continue our strategy of building and utilizing our partner network.
The increasing contribution or from higher margin subscription revenue and the expense expense control axles. We've implemented helped drive an improvement in our profitability compared with last year and last quarter.
Currency had a 1.4 million negative effect on total revenue compared with last years second quarter.
In a negligible impact compared with last quarter.
Profitability was negatively impacted by 300000 compared with the prior year no impact compare with the prior sequential quarter.
Total revenue for the fiscal 21 second quarter was 74.1 million compared with 76.4 million for the same quarter last year.
In addition to the impact from currency movement. The performance decrease of 900000 resulted from anticipated declines in professional services maintenance and license revenue.
Partially offset by gains in subscription revenue.
Subscription revenue grew 22% on a constant currency basis to 31.1 million and accounted for 42% of our business for the fiscal 2001 second quarter up eight percentage points from last year second quarter.
Currency movements negatively impacted subscription revenue by 400000.
On a rolling 12 month basis subscription billings grew by 17% with a three year CAGR of 25%.
We signed 22 cloud deals in the quarter split evenly between conversions and new customers versus last year's second quarter, where we tend to 24 cloud deals.
Looking at the total annual contract value of the deals.
This quarter was almost identical to last years second quarter.
Maintenance revenue was 26 and a half million.
Of the 3.1 million declined from last year about half a million was the result of currency movement.
With the remaining 2.6 million decline related to cloud conversions, and our historical attrition rate, which remains less than 10%.
Professional services revenue totaled 13.5 million compared with 17.4 million for last year's second quarter.
Half a million of the decrease was attributable to currency movements. While the remaining 3.4 million decline was attributed to attributable to the completion or extension of certain projects.
We also continued our strategy of expanding our partner at work and further enhancing our ability to deliver services remotely.
Which resulted in services margins of 3% up from negative 4% in the same period last year and down slightly from fiscal 2021 first quarter.
License revenue for the fiscal 21 second quarter equal 3 million up from 1.2 million last quarter due to expiring licenses at one customer.
We expect license sale to remain at low levels for the foreseeable future and we'll continue to focus our sales efforts around the cloud.
Total revenue by vertical for the fiscal 21 second quarter was high tech and industrial 36% automotive, 30% consumer product and food and beverage 18% on life Sciences another 16%.
By geography total revenue was North America, 53%.
28, 29% Asia Pacific 13, and Latin America, 5%.
Gross margin for the second quarter fiscal 2001 was 68% a 5% improvement over the 53% last year, principally driven by gains in subscription and professional services margins.
Sales and marketing expense was 17.4 million or 23% of total revenue versus 20.2 million or 26% of total revenue for last year's second quarter.
The decrease mainly related to reduce travel and savings incurred as a result of the cancellation of our annual explore customer event.
R&D expense was $13.2 million compared with $13.9 million for last year's second quarter.
R&D as a percentage of total revenue was 18% for both periods the reduction in R&D expense related to a one time payroll tax credits received in Europe.
DNA expense amounted to $10.3 million or 14% of total revenue for the second quarter fiscal 2001.
Compared to 10.4 million also 14% of total revenue for the second quarter fiscal 20.
Stock compensation expense totaled $4 million for the fiscal 21 second quarter and 3.2 million last year, the increase related mainly to equity awards issued at higher stock prices.
This brings our income from operations to 2.3 million compared to a net loss from operations of 4.2 million last year.
Other expense of 1.8 million related primarily to foreign exchange losses in the quarter, mainly due to the effect on our cash balances from the appreciation of the euro.
Which brought our GAAP pre tax income to 500000, compared with our GAAP pretax loss of 3.4 million last year.
Non-GAAP pretax income was four and a half million versus breakeven a year ago.
We ended the second quarter with approximately $141 million cash and equivalents compared with 137 million at the end of fiscal 20.
Cash flow from operations for the first half of 21 totaled 16 million compared with $4.3 million for the same period last year.
Accounts receivable was 42.3 million at July 31, 2020 versus 41, and a half million at the same time last year.
And days sales outstanding is into combat method was 49 days for the fiscal 21 July quarter, the same as the year before.
Our short term deferred revenue balance at July 31 was $95 million versus 94.4 million a year ago.
Deferred revenue balances by category include $41.1 million deferred subscription versus 32.8 million or a 25% increase.
51.8 million of deferred maintenance versus 59.6 million 2.1 million of deferred professional services versus 1.8 million.
And 47000 of differ licenses and other versus 200000.
Our maintenance contracts are billed annually, while subscription contracts comparable either annually or quarterly.
Our business our business outlook assumes current foreign exchange rates for the remainder of the quarter.
Consistent with the guidance provided for the fiscal 2001 second quarter Acuities, providing guidance for subscription and maintenance revenue for the quarter ahead as follows.
Subscription revenue of 32, and a half million and maintenance revenue of 26 million.
With that I'll turn the call back to your on top.
Thank you Daniel.
So consistent with our first quarter the difficulties presented in the macro environment have seen some sales cycles extend and some prospects still show a little more caution in terms of closing deals.
But with that said, we did have a solid sales quarter. Both in terms of the number of deals done and the value of those deals being on a par with our second quarter of last year.
We're really happy to report that we closed those 22 cloud deals as Daniel mentioned in the quarter with a good representation of all of our key vertical markets in that cloud sales mix.
Al competitive strengths continue to attract new customers and we're very pleased to welcome 11 of them to the acuity cloud, which gave by deal count a 50 50 mix in the quarter between new business and conversions.
We continue to make steady improvements in our cloud margins in line with our plans and we expect these improvements to continue over the medium term driving incremental efficiency gains of 1% to 2% per annum.
Looking at the quarter geographically.
North America came in with a really strong performance in our cloud business and EMEA office will reasonable results given the macro context.
However in Asia Pacific The picture is a little more mixed the Australian business perform well business activity is moving at a slower pace in other parts of that region.
China or activity is picking up at a somewhat slower pace than we might have expected and it's hard to discern at this juncture, whether that's a result of covered 19 or trade relations between the us in China or some combination of the too.
With the disruptive effects of both the pandemic and trade negotiations on the global supply chain, we've seen good activity and interest pickup in our global trade and transportation execution, and our demand and supply chain planning divisions.
Both the divisions were able to add new customers to their portfolios in the quarter.
On the professional services side of the business. We're on track for the acceleration of our plan to move a larger percentage of work to apartment community.
To that and we were very happy to announce during the quarter the signing of a partnership agreement with the global IP consulting firm Infosys.
These changes together with our new proven ability to deliver services remotely and strong management around resource allocation have allowed us to sustain positive margins in the services business as revenues continue to fluctuate.
On a related note we appointed during the quarter, a senior executive to help drive momentum and expanding our partner ecosystem.
With his experience a building global partner networks, who will support the expansion of our sales agent and distributor channels as well as supporting the continued expansion of our professional services ecosystem.
From an expense management perspective, given the current macro context, and the uncertainty around how long the situation will remain we continue to focus heavily on the management and controlled costs.
In doing so we've been able to protect many of the investments we've made in our global workforce and sales and marketing capabilities.
With that protracted uncertainty, we do continue to see a more cautious approach with some customers and prospects in moving forward to 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 heavily impacted.
We all of that said our pipeline remains strong and continues to grow.
While our weighted pipeline at the end of August was up 27% compared to the same period last year, our unweighted pipeline value increased by 48% and remains at record levels.
That does suggest the timing on those deals are extended but we're pleased with that amount of growth and it shows the investments we've made in lead generation continue to yield good results.
Given all of that we remain cautiously optimistic about our medium term sales prospects, we know our competitive positioning remained strong and the need for our next generation solution is only reinforced by the current situation.
So I'll now hand, it over to Pam four bit more color on those cloud bookings.
Great. Thank you on top.
In Q2, we had plenty to gain 11, some conversion and 11 from net new customers holding a 50 50 between conversions in that new bookings, we have seen historically.
Hi, good activity perspective, all regions contributed to the quarter.
North America performing exceptionally well.
Interestingly, our automotive vertical Latin bookings and represented approximately half of our cloud bookings this quarter.
An example of this is a sizable order we received from an 8 billion dollar global leader in energy storage solution. The power of one third of the World you had called creating the most advanced battery technology for virtually every time Sensient call.
The company was spun off from the parent Alimera, approximately one year, Gao Hey, having an S&P direction.
Thank you I'd cloud purchase this quarter represents a change in that direction and include purchases.
In the class as well as conversion of existing.
On premise site to the call.
And automotive supplier has plenty of constant cost pressure from the allium as change accelerates in the cost pressures increase the bidding legacy ERP from making less than last time.
Volume that the accelerating trend towards E reduction yen from high end demand DDIC held that and autonomous vehicles on the horizon. We believe the industry has seen a tipping point.
Ladies blooded complex rigid legacy ERP systems will simply not see tolerated anymore.
We are winning because we offer an alternative that and adapting the ERP system built from the realities of today in the uncertainties tomorrow.
You will find Q 80 years, and 52% as a major eyes automotive suppliers.
And 46% of the major TV automotive supplier, resulting in 93 of the top 100, best selling cars and the Warhol being made with part manufactured.
Okay.
Our wins in automotive this quarter further consolidate our position as a leading player in this highly dynamic every changing market. Thank you back to you and Tom.
Thanks Pam.
Okay. So looking to the future we remain confident about meeting the long term goals published earlier in the year.
The need to deal with continuous disruption in change continues to grab the attention of global manufacturers and this ongoing a protracted situation serve to highlight the need to be able to respond in real time to sudden changes in demand in the supply base and in supply chains globally.
Thats, what QLT adaptive ERP and our solutions were designed to support a rapid response to change in near real time.
On that note I'm pleased to announce it on September 22nd we're very excited to be hosting a virtual thoughtstream event, we're calling Q I'd tomorrow.
This is in recognition of the challenges global manufacturers face in being prepared and ready to deal with whatever it is tomorrow throws out.
We'll be talking about our observations on the characteristics exhibited by these enterprises, who are adaptive proactively dealing with the uncertain on the unforeseen and how Q I'd and our adaptive ERP and solutions can help customers react to change efficiently and effectively.
We'll also be highlighting some of the customer success stories I mentioned in our last call as they change business models in real time to cope with the new reality and also to support that communities in the fight against a pandemic.
The protected situation with this pandemic continues to drive uncertainty and challenges for many of our customers. This into that makes it difficult for us to predict the effect on our sales and professional services projects throughout the remainder of the year.
However, with our strong pipeline and the global manufacturing PMI now at just over 50, we feel we're in good shape for strong finish to the year.
Our immediate focus now is on pulling forward some of those deals forecast for later in the year into the current quarter.
In summary, we continue to be vigilant around management costs than in monitoring the trends in our sales cycles.
Our priorities remain consistently focused on the health and wellbeing of all in addition to supporting our customers through this difficult time.
The prudent approach to managing the business has proven to be effective to this point and will remain in place to see is through the coming months.
Our balance sheet and cash position remains strong and we remain well positioned to get back on track and drive aggressive cloud growth once we emerge from the current situation.
Okay, operator, we're ready to take questions from analysts please.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys withdraw. Your question. Please press Star then to at this time, we'll pause momentarily to assemble roster.
Our first question will come from Kevin Lu with Cailloux and company. Please go ahead.
Hi, Good afternoon, guys and congrats on solid performance in this environment.
First question, obviously on a sequential basis things started to pick up for you guys on the likely side and it sounds like on the cloud bookings side as well with curious if as you kind of look forward in your pipeline and just how your sales cycles are progressing whether you feel like the worst of kind of this pandemic impact is behind you have theres still any sort of lingering concerns.
Hi, just in terms of your customer's ability to close business.
Sure. Thanks, Kevin, Yes, I'd say, yes, good good performance by the sales team this quarter.
As you say our pipeline is very strong.
But if you if you look at that difference between the unweighted effected.
Sorry, the fact that will weighted pipeline and then the unweighted pipeline.
It's much bigger growth in the weighted which means that some of those deals or an earlier stages. So I told there about having a strong finish to the year.
And our focus now is pulling some of those deals into our third quarter.
So there's definitely still an effective of the koby 19 on caution on moving forward at a sluggish pace than in the past.
So we remain bullish about the medium to longer term, but.
But still a note of caution in terms of.
The immediate future and of course.
Nobody knows when this all is going to be over and so that adds to that that notion out of caution that too.
Got it and certainly there have been significant expense savings thus far as you look into the back half of the year are you guys seeing opportunities.
Either we allocate or redeploy some of those savings in various marketing events or do you feel like you'll continue to go and as you have it kind of the first half of fiscal 21, and keep kind of a tight rein on expenses.
Yes, we were obviously being very prudent.
Yes, while we've made savings and Daniel alluded to in the commentary.
We obviously didnt run off our global customer event explore this year in may.
And so instead weve diverted some of the energy and effort that into this thoughtstream event that we're going to be running on September 22nd.
Obviously be different and as we virtual and much shorter.
We're not going to run the virtual eventful for three days for example.
But.
Yes, so it's things like that we continue to do a lot of webinars activities and so on.
So I think from that side.
We are diverting effort and energy there aren't necessarily pushing our expenses up higher.
But making good use of the time that we saved from putting in planning and executing on some of those events.
Understood and just lastly from me on a sequential basis that services were down a bit I know that might be just normal seasonality, but wondering could characterize how much of an impact with seasonality versus other factors and then as you look at the project backlog from here.
How we should expect that to trend.
Yes, there was not significant impact to seasonality on that on that and that Kevin. It actually came in it came in slightly lower than what we had originally anticipated that I had as I mentioned earlier, where there is a.
On a given given some of the efforts that we've done around.
Utilities utilization of our partners and also being able to.
Deliver services remotely that that helps our utilization in our ability to use people of.
Different locations and so forth, we so we're able to.
Generate.
A profit there which is was a key goal for us this year.
We do experienced some seasonality in Q3.
Mainly as a result of the August being a heavy vacation month in Europe without a lot of customers in our employee themselves goal and.
Lengthy vacations or and I guess, the some of the year that they are they're taking vacation maybe staying home.
But that's so that's that's still an effect.
But going forward, we're really not.
Thinking that the revenue the revenue level or the services side is going to vary significantly from existing levels. The co-op some quarters are down a bit and others.
Our main focus is really in ensuring that it's it's profitable.
There were providing our customers with the right level of service.
Great appreciate responses and thanks for taking the questions.
Of course, thanks. Thanks.
Our next question will come from Zach Cummins with B. Riley. Please go ahead.
Hi, This is the exact associate sandy on for Zack.
Congrats on the quarter. So the sub question on the transition to cloud.
I was wondering if you guys have seen an increase interest in making the transition to cloud within your existing base.
Yeah absolutely.
Yes.
I think the current situation has kind of reinforced that level of interest.
I think as I've said on prior call on on the protocol.
You know the Pandemics has definitely increased peoples.
Interest and desire to get to the cloud. It's one last thing they have to worry about in terms of managing the business in some situations like this.
That said, if they weren't thinking of moving.
Our pay originally then it's more a level of interest in thinking about planning for the future as opposed to.
A big rush to transition to the cloud right now.
But again with that said we were pleased with the level of conversions that we had this quarter is a good healthy number.
And so yes, we we've always felt good about the value proposition. The current situation just to reinforce that and we do expect to see an increased pipeline and part of the increased pipeline for the future. We think is attributable to to that.
Reinforcement of that value proposition in the current situation.
Got it thanks and.
So another question I had was just how we should think about the mix of.
Conversions and new cloud customers.
Moving forward.
Sure. So it for US we continue to if you look at it by deal count.
On average, we we're still expecting for the foreseeable future.
To see that that mix of 50 50.
And so the the mix by value is a little bit different.
When we do the conversions that typically coming in and switching a 100% to the cloud straight away when we acquire new customer would typically rolling out the solution. So that comes in in phases, and then catches up a little bit lighter, but yes, bye bye deal count just given the way our funnel mix is at the moment.
And how it's looking yes, we should we see that 50 50 split by count continuing.
Okay. Thanks for the color there and.
My last question I was just wondering what is the expectation for professional services in the coming quarters.
I know you guys provided a little color on.
Proactively working to push into the partner ecosystem.
Is there anything else there that we should be thinking about or.
And the any additional color there would be helpful. Thank you.
Yes, no shorten the main color.
As I mentioned earlier is really around we have.
Okay, very very keen focus on ensuring that that line of business remains profitable on a known on an ongoing basis.
And.
Our we have quite a number of efforts right now as well.
With the ability to provide services remotely to be able to.
Get utilization rates higher there.
As as the economy or when the economy starts to recover.
A bit more we do expect.
To see some.
You know more services projects.
Start to come our way.
We do believe there is still going to be very significant amount of customers I will want us to lead on those projects, even though we may be using some of.
The partners in the ecosystem to provides.
Some of those going forward so.
We would expect.
As the economy grows and the rest of business drove we would expect longer term to see professional services.
Grow as well, but not quite keep pace with with the breadth of with the rest of the business, we would expect to see that.
That number as a percentage of the overall overall company revenue to remain where it is or potentially come down overtime.
Great. Thank you.
Thank you thanks.
Again, if you have a question. Please press Star then one.
Our last question will come from both on story with William Blair. Please go ahead.
Hey, guys. Thank you my question can you May hear me okay.
Yes, yes.
Great great. So.
Congrats money in field.
Maybe on the partner side.
I'm actually pleased from the shift is happening to partners.
Couple of questions, there sort of where you in sort of that that transition.
Pardon or any color to that number consultants ramped things like that.
And then and then the second part of that another couple of questions for the second part that is.
When you look at the partners.
It's always interesting you give them leads so they sort of build a practice around it.
And then they get consultants the bench in the not you'd like they will find leads and do that with their clients or they pulled your clients with TD instead of say asset deal that others like where we must trajectory. So first any color number consumption second well enough flywheel, but it's happened for S&P, an oracle JD a with.
Et cetera, et cetera, but indeed, a big big consulting Albertsons and so just some centers, how you're thinking about where we are in the flywheel I suspect it's early but not to give some color on that.
My question.
Sure absolutely, but I'm.
So just yeah, just where are we on the let's say capacity journey.
We've been for those partners of scale that we signed in recent times like.
Yes, it's only been continuing to work on certifications and helping them come up to speed with a delay to versions of the product and adaptive ERP.
Obviously with emphasis.
They have some capability, but we're now working with them in terms of rounding that out.
So I think.
Globally at scale.
I think it would be fair to say, we're you know around double the capacity. We had this time, maybe say 18 months ago.
But our goal is to continue to to build that.
And that's I'm going to talk about that and then leading into your second question about helping with the the sales efforts that.
So a big reason that we brought in.
Anew.
Executive to help us manage upon a growth is someone who is experienced in growing sales channels on a global scale and also systems integration channels.
It has been on its been in since.
Relatively early in the quarter.
And plans are starting to come together now how do you want to share who it is maybe a little bit about the background.
Well, yes.
We just choice his name is.
I will hand Panera during his from.
Excellent so systems.
Was that quite a while and help them build their global partner network system up for one of the larger divisions.
And his entire career.
As pretty much been in that space in terms of building out systems integrations and sales agent sell distributor.
Hi relationships.
So.
The professional services initiative is obviously some way ahead of the sales initiatives, but we're looking for him to help us quickly catch that up we feel in a great position given that the adaptive ERP the enterprise platform with it we're going to be extremely attractive to partners both at scale and on a regional.
Basis too.
And indeed, we're already in some conversations around flushing that out right now and and driving that so as you said early days, but.
I think on board as plans are coming together, we're already in some of those conversations. So we'll we'll keep you updated as weak as we go down that journey.
Got it and then.
But let me talk about the pipeline the because obviously you gave us the weighted unbudgeted.
The pipeline I guess, when I had a couple of questions there.
One.
When you look at that pipeline and you tried.
Normalized maybe a question again, it's what normalized for what told it has lengthened.
How is that percentage can can you give us any sense of that just if I take all the deal that should have closed remove them from the pipeline what does that look like Jeff I'm sure you have that Linda I wonder if you'd shares on the color with us because obviously pipeline lot bigger Catskill to just length of and you commented on that I'm, saying, okay. So we try to normalize what would that look like.
Right.
I guess I'd say, it's not bigger because deals of lengthen necessarily that might have a very modest effect on that.
I think we've grown it pretty substantially because.
If we go back 18 months, we we put that investment into our business development team and our marketing and our marketing tools.
And I think that has been payoff and paying dividends.
I do believe that that's growing at a slower rate than it would had cobot not come around.
And effected the worldwide that it has.
The struggling to give you a percentage number in terms of a flawed Westwood.
I would have been.
And I guess, we'll never know getting a flag that anyway.
[laughter] it anyway [laughter].
So yeah it's.
Yes, certainly it's not helped.
And we think it would have been.
You know significantly higher.
And that said, we continue to put the efforts in our business development teams as busy as I've ever been.
And I think you're seeing a reflection of that were.
The weighted follow has grown almost to 50% it was 48% of where it was this time last year.
For the fact that the on weighted has grown by 20, some percentages. So yes, there's interest as deals there, they're just in earlier stages and they might otherwise be given the current situation.
Got it and then one last one from me for Pan maybe.
Or for you just as you look at the cloud wins on the new customers. The 11, one sort of who the competitors and you know usually every quarter, we have sort of one big.
Placements from.
The three letter company out of Germany. So just wondering sort of any competitive sense and how those deals played out who the competitors who did you displays sums up that would be really helpful. Thank you.
Yep.
Certainly happy and I'll jump in and Pam if you want to add any color to that absolutely.
Yes.
The German competitor remains the strongest.
The case, the Pam outlined with a from a company that.
At an S&P strategy.
And you know is questioning that in the value of that.
And we are today, we are in.
Quite a number of conversations with.
A large enterprises that really are.
Yeah.
Given course to ask the question about what the alternatives are given that there is no migration path from.
FCC sexual private versions to ask for Hannah and the fact that Thats, a re implementation and so that's causing them to question that and that's pulling us into.
Some conversations at scale around the world, we global manufacturers and I'd say they remain.
By a standout our largest competitor in our sweet spot, which is those global manufacturers.
Pammi anything you want to add to that.
And we have certainly been concentrating on US 80, right now because there is a attained aaron and change creates opportunity.
The other.
The other company that we kind of per up for grabs than we see a lot of replacement demand again, I guess would be the in force we now looking at.
Thousands getting old in many different places and taking competitive opportunity you know I guess the market is certainly a lot smaller and compounded the is today.
Okay.
Yes, and I did that was my last question that you have one more so obviously you had the hey, you Gotta moved to Honda by whatever date, they push that out I think it was 2020 to 2021, Joe maybe 2025 is there.
Have you seen any slowdown because of that because they extended the timeline to migrate because obviously that timeline targets on as a great driver for you, but given that push that out has that sort of make people say, let's sit back on our healed and weight RCP system is working.
I don't have to make a decision second personal decision a year or two years have you seen any of that.
No not not in the conversations we've been having because I think that the challenge remains the side.
And you know yeah. There were obviously on the pressure I think I think the dates from memory Obama.
Excuse me 2025 was the original a push to 2027 I think from memory.
Okay.
Right.
I think the challenge there is.
If they wait the still on the legacy system and with the pace of change in the right of changes happening in the world today in the requirement to respond really quickly to stuff like supply chain disruption and so on.
That's really hard with legacy ERP and so.
Yes, if you business is fairly static.
Not changing much then maybe you can afford to to white, but the company's we're talking to we're already needing to do something to respond to change and so they've got a bit more comfort I suppose that.
They can be supported for longer but that business demands are still pushing the urgency to to make that switch.
So no we're not seeing any of those conversations slowed as a result, lat if anything it would be related to covert and when's the right time to start but not to the Sep date switch.
Got it.
Thank you guys.
Thanks, John appreciate it.
Thanks, Bob.
This concludes our question and answer session I would like to turn the conference back over to answer onto Wilson for any closing remarks. Please go ahead.
Great well, thanks, everyone for joining the call today, and we look forward to channel Q3 results in November thanks to stay safe.
Great. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Good day and welcome to the queue I'd be incorporated financial results for second quarter fiscal year 2000 at 21 conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist bypassing the starchy followed by zero.
Today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded I. When I went to turn the conference over to Kara Bellamy. Please go ahead mail.
Hello, everyone and welcome to today's call before we begin I'd like to ensure the everybody understands our discussion may contain forward looking statements that are based on certain expectations and analyses.
Such forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially from those anticipated.
Q 80 undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances. After the date of this call for a complete description of these risks and uncertainties. Please refer kuwaitis 10-K attempt to filings with the Securities and Exchange Commission.
Please also note that during this call we will be discussing non-GAAP pre tax income, which has a non-GAAP financial measure as defined by FTC regulation G.
Conciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today's press release, which is posted on the company's website.
Now I'd like to turn the call over to our CEO Anton children.
Great. Thank you Karen and good afternoon, everyone and thank you for joining todays call to discuss kuwaitis fiscal 21 second quarter results.
As usual joining in on the call a Pam Lopker, President and Daniel lender Chief Financial Officer.
Hi, I'm very pleased particularly in the current context to see a solid sales performance in our second quarter sales.
Sales team was able to match the performance of the same quarter last year, both in terms of value and number of deals.
Our strong competitive position has maintained on momentum and sees our cloud transformation journey continue a pace as we hit guidance for the quarter.
20% growth in subscription revenue over the prior year quarter, which when combined with maintenance revenue puts all recurring revenues approaching 80% of our total.
As the global pandemic continues to dominate headlines and we and our customers and prospects navigate through these challenging times.
Our priorities remain consistent.
Health and wellbeing from community at large complete continuity of service for customers and protecting the investments in our global workforce or areas of focus and we continue to perform well in each of them.
With the current macro conditions, we have maintained a strong focus on prudent expense management and that's helped sustain a solid bottom line performance.
While the effects of the cobot 19 pandemic sustain the uncertainty over the medium term future al business remains in good shape, and we're still confident and achieving our long term strategic targets.
I'll now turn it over to Daniel to discuss the detail of the financial results well. Thank you.
Our second quarter results were solid.
Subscription and maintenance revenue guidance, and we generated pre tax profitability.
Subscription margins improved three percentage points from last year.
Professional services margins remain positive from last quarter, a 3% as we continue our strategy or building and utilizing our partner network.
The increasing contribution from a higher margin subscription revenue at the expense expense control actual we've implemented.
Drive improvement in our profitability compared with last year and last quarter.
Currency had a 1.4 million negative effect on total revenue compared with last years second quarter and.
In a negligible impact compared with last quarter.
Profitability was negatively impacted by 300000 compared with the prior year and no impact compare with the prior sequential quarter.
Total revenue for the fiscal 21 second quarter was 74.1 million compared with 76.4 million for the same quarter last year.
In addition to the impact from currency movement. The performance decrease of 900000 resulted from anticipated declines in professional services maintenance to license revenue.
Partially offset by growth in subscription revenue.
Subscription revenue grew 22% on a constant currency basis to 31.1 million and accounted for 42% of our business for the fiscal 201 second quarter up eight percentage points from last year's second quarter.
Currency movements negatively impacted subscription revenue by 400000.
On a rolling 12 month basis subscription billings grew by 17% with a three year CAGR of 25%.
We signed 22 cloud deals in the quarter split evenly between conversions and new customers versus last year second quarter, where we had 24 cloud deals.
Looking at the total annual contract value of the deals.
This quarter was almost identical to last year second quarter.
Maintenance revenue was 26 and a half million.
The $3.1 million decline from last year about half a million was the result of currency movement.
With the remaining $2.6 million decline related to cloud conversions, and our historical attrition rate, which remains less than 10%.
Professional services revenue totaled 13, and a half million compared with 17.4 million for last year second quarter.
Half a million dollars, but the decrease was attributable to currency movements, while the remaining 3.4 million declined with attribute to attributable to the completion or extension of certain projects.
We also continued our strategy of expanding our partner at work and further enhancing our ability to deliver services remotely.
Which resulted in services margins of 3% up from negative, 4% and the same period last year and down slightly from fiscal 2021 first quarter.
License revenue for the fiscal 21 second quarter keep up 3 million up from 1.2 million last quarter due to expiring licenses at one customer.
We expect license sale to remain at low levels for the foreseeable future and we'll continue to focus our sales efforts around the cloud.
So our revenue by vertical for the fiscal 2001 second quarter, Wasnt, Hi, Tech and industrial 36% automotive, 30% consumer product and food and beverage, 18% a life sciences another 16%.
By geography total revenue was North America, 53%, Yemen, 829% Asia Pacific 13, and Latin America, 5%.
Gross margin for the second quarter fiscal 2001 was 68%.
5% improvement over the 53% last year, principally driven by gains in subscription and professional services margins.
Sales and marketing expense was 17.4 million or 23% of total revenue versus 20.2 million or 26% of total revenue for last year second quarter.
The decrease mainly related to reduce traveling savings incurred as a result of the cancellation of our annual explore customer event.
R&D expense was 13.2 million compared with 13.9 million for last year second quarter.
R&D as a percentage of total revenue was 18% for both periods the reduction and R&D expense related to a onetime payroll tax credits received in Europe.
DNA expense amounted to 10.3 million or 14% up total revenue for the second quarter fiscal 2001.
Compared to 10.4 million also 14% of total revenue for the second quarter fiscal 20.
Stock compensation expense totaled 4 million for the fiscal 21 second quarter and 3.2 million last year, the increasing related mainly to equity awards issued at higher stock prices.
This brings our income from operations to 2.3 million compared to a net loss from operations of 4.2 million last year.
Other expense of 1.8 million related primarily to foreign exchange losses in the quarter, mainly due to the effect on our cash balances from the appreciation of the euro.
Which brought our GAAP pre tax income to 500000 compared with our GAAP pre tax loss of three point Fourmillion last year.
Non-GAAP pretax income was four and a half million versus breakeven a year ago.
We ended the second quarter with approximately 141 million cash and equivalents compared with 137 million at the end of fiscal 20.
Cash flow for operations for the first half of 21 totaled 16 million compared with 4.3 million for the same period last year.
Accounts receivable was 42.3 million at July 31, 2020 versus 41, and a half million at the same time last year.
And days sales outstanding has ended Countback method was 49 days for the fiscal 21 July quarter, the same as the year before.
Our short term deferred revenue balance at July 31 was $95 million versus 94.4 million a year ago.
Deferred revenue balances by category include $41.1 million deferred subscription versus 32.8 million or a 25% increase.
$51.8 million of deferred maintenance versus 59.6 million 2.1 million of deferred professional services versus 1.8 million.
And 47000 for licenses another versus 200000.
Our maintenance contracts are billed annually, while subscription contracts come to build either annually or quarterly.
Our business our business outlook assumes current foreign exchange rates for the remainder of the quarter.
Consistent with the guidance provided for the fiscal 21 second quarter Acuities, providing guidance for subscription and maintenance revenue for the quarter ahead as follows.
Subscription revenue of 32, and a half million and maintenance revenue of 26 million.
With that I'll turn the call back to you on top.
Thank you Daniel.
So consistent with our first quarter the difficulties presented in the macro environment have seen some sales cycles extend and some prospects still show a little more caution in terms of closing deals.
But with that said, we did have a solid sales quarter. Both in terms of the number of deals done and the value of those deals being on a part with our second quarter of last year.
We're really happy to report that we closed those 22 cloud deals what Daniel mentioned in the quarter with a good representation of all of our key vertical markets in that cloud sales mix.
Al competitive strengths continue to attract new customers and we were very pleased to welcome 11 of them to the acuity cloud, which gave by deal count a 50 50 mix in the quarter between new business and conversions.
We continue to make steady improvements in our cloud margins in line with our plans and we expect these improvements to continue over the medium term driving incremental efficiency gains of 1% to 2% per annum.
Looking at the quota geographically.
North America came in with a really strong performance in our cloud business and EMEA also saw reasonable results given the macro context.
However in Asia Pacific The picture is a little more mixed the Australian business performed well, but business activity is moving at a slower pace in other parts of that region.
China activity is picking up at a somewhat slower pace than we might have expected and it's hard to decide at this juncture, whether that's a result of covered 19 or trade relations between the U.S. and China or some combination of the too.
With the disruptive effects of both the pandemic and trade negotiations on the global supply chain, we've seen good activity and interest pick up in our global trade and transportation execution, and our demand and supply chain planning divisions. Both the divisions were able to add new customers to that portfolios in the quarter.
On the professional services side of the business. We're on track with the acceleration of our plan to move the launch a percentage of work to our partner community.
To that and we were very happy to announce during the quarter the signing of a partnership agreement with the global IP consulting firm Infosys.
These changes together with anew proven ability to deliver services remotely and strong management around resource allocation have allowed us to sustain positive margins in the services business as revenues continue to fluctuate.
On a related note we appointed during the quarter, a senior executive to help drive momentum and expanding our partner ecosystem.
With his experience a building global partner networks. He will support the expansion of our sales agent and distributor channels as well as supporting the continued expansion of our professional services ecosystem.
From an expense management perspective, given the current macro context, and the uncertainty around how long the situation will remain we continue to focus heavily on the management and controlled costs.
In doing so we've been able to protect many of the investments we've made in our global workforce and sales and marketing capabilities.
With that protracted uncertainty, we do continue to see a more cautious approach with some customers and prospects and moving forward the 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 a more heavily impacted.
With all of that said our pipeline remains strong and continues to grow.
While our weighted pipeline at the end of August was up 27% compared to the same period last year, our unweighted pipeline value increased by 48% and remains at record levels.
That does suggest the timing on those deals are extended but we're pleased with that amount of growth and it shows the investments we've made and lead generation continue to yield good results.
Given all of that we remain cautiously optimistic about our medium term sales prospects, we know our competitive positioning remained strong and the need for our next generation solution is only reinforced by the current situation.
So I'll now hand, it over to Pam four bit more color on those cloud bookings.
Great. Thank you on top.
In Q2, we had 22 new games 11 from conversions and 11 from net new customers holding that 50 50 between conversions the net new bookings we have seen historically.
Hi, good activity perspective, all regions contributed to the quarter.
North America performing exceptionally well.
Interestingly, our automotive vertical Latin bookings and represented approximately half of our cloud bookings this quarter.
An example of this is a sizable order we received from an 8 billion dollar global leader in energy storage solutions. The power one third of the world call, creating the most advanced battery technologies from virtually every time Cynthia costs.
The company was spun off from its parent owner approximately one year ago, Hey, hadn't S&P direction security cloud purchase this quarter represents a change in that direction.
And include purchases.
And the class as well as conversion of existing.
On premise site to the call.
And automotive supplier has plenty of constant cost pressure from the OEM as change accelerate from the cost pressures increase the bidding legacy ERP are making less than last.
Combined with the accelerating trend towards E reduction yen supply and demand due to colder and autonomous vehicles on the horizon. We believe the industry has seen a tipping point.
Ladies blooded complex rigid legacy ERP systems will simply not be tolerated anymore.
We are waiting because we offer an alternative and adaptive ERP system built from the realities of today in the answer to achieve tomorrow, you will find Q, maybe use and 52% as a major.
Automotive suppliers.
Boy, 6% of the major TV automotive supplier, resulting in 93 of the top 100 best selling cars in the world.
And with park manufactured.
Okay.
Our wins and automotive this quarter further consolidate our position as a leading player in this highly dynamic ever changing market. Thank you back to you and path.
Hi, Thanks Pam.
Okay. So look into the future we remain confident about meeting the long term goals published earlier in the year.
The need to deal with continuous disruption and change continues to grab the attention of global manufacturers and this ongoing a protracted situation is set to highlight the needs to be able to respond in real time to sudden changes in demand in the supply base and in supply chains globally.
That's what QLT adaptive ERP solutions were designed to support a rapid response to change in near real time.
On that note I'm pleased to announce it on September 22nd we're very excited to be hosting a virtual thoughtstream event, we're calling Q I'd tomorrow.
This is in recognition of the challenges global manufacturer is facing being prepared and ready to deal with whatever it is tomorrow throws out.
We'll be talking about our observations on the characteristics exhibited by these enterprises, who would adapt to proactively dealing with the uncertain on the emphasizing and how Q I'd and our adaptive ERP and solutions can help customers react to change efficiently and effectively.
We'll also be highlighting some of the customer success stories I mentioned in our last call at the change business models in real time to cope with the new reality and also to support that communities in the fight against the pandemic.
The protected situation with this pandemic continues to drive uncertainty and challenges for many of our customers. This into that makes it difficult for us to predict the effect on our sales and professional services projects throughout the remainder of the year.
However, with our strong pipeline and the global manufacturing PMI now at just over 50, we feel we're in good shape for strong finish to the year.
Our immediate focus now is on pulling forward some of those deals forecast for later in the into the current quarter.
In summary, we continue to be vigilance around management cost and in monitoring the trends in our sales cycles. Our priorities remain consistently focused on the health and wellbeing of oil in addition to supporting our customers through this difficult time.
The prudent approach to managing the business has proven to be effective to this point and will remain in place to see is through the coming months, our balance sheet and cash position remained strong and we remain well positioned to get back on track and drive aggressive cloud growth once we emerge from the current situation.
Okay, operator, we're ready to take questions from analysts please.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys withdraw. Your question. Please press Star then to at this time, we'll pause momentarily to assemble our roster.
Our first question will come from Kevin Lu with K Lou and company. Please go ahead.
Hi, good afternoon, guys and congrats on the solid performance in this environment.
First question for me you, obviously on a sequential basis things starting to pick up for you guys on the likes of side and it sounds like on the cloud bookings side as well.
Curious as you kind of look forward in your pipeline.
How your sales cycles are progressing whether you feel like the worst of kind of this pandemic impact is behind you or theres still any sort of lingering concerns just in terms of your customer's ability to close business.
Sure. Thanks, Kevin, Yes, I'd say.
Good good performance by the sales team this quarter.
As you say our pipeline is very strong.
But if you if you look at that difference between the unweighted effected.
Sorry, the fact that will weighted pipeline and then the unweighted pipeline.
It's a much bigger growth in the weighted which means that some of those deals or an earlier stages. So I told there about having a strong finish to the yet.
And our focus now is pulling some of those deals into our third quarter.
So there's definitely still an effective of the cobot 19 on caution on moving forward at a sluggish slow paced than in the past.
So we remain bullish about the medium to longer term, but.
But still a note of caution in terms of.
The immediate future and of course.
Nobody knows when this all is going to be over and so that adds to that that motion note of caution that too.
Got it and certainly there have been significant expense savings thus far as you look into the back half of the year are you guys think opportunities.
Either reallocate or redeploy some of those savings in various marketing events or do you feel like you'll continue to run as you have it kind of the first half of fiscal 21 might keep kind of the tight rein on expenses.
Yes.
We're obviously being very prudent.
But yes, while we've made savings and Daniel alluded to in the commentary.
We obviously didnt run off our global customer event explore this year in may.
And so instead weve diverted some of the energy and effort of that into this thoughtstream event that we're going to be running on September 22nd.
Obviously will be different and it'll be virtual and much shorter.
We're not going to run the virtual events.
Hi, guys for example.
But.
Yes, so it's things like that we continue to do a lot of webinars activities and so on.
So I think from that side, we are diverting effort and energy there aren't necessarily pushing our expenses up higher.
But making good use of the time that we saved from putting in planning and executing on some of those events.
Understood and just lastly from me on a sequential basis services were down a bit I know that might be just normal seasonality, but wondering could characterize how much of an impact with seasonality versus other factors and then as you look at the project backlog from here.
How we should expect that to trend.
Yes, there was not significant impact to seasonality on that on that and that Kevin. It actually came in it came in slightly lower than what we had originally anticipated that I had as I mentioned earlier, where there is a.
Given given some of the efforts that we've done around.
Utilities utilization of our partners and also being able to.
Deliver services remotely that helps our utilization in our ability to use people of.
Different locations and so forth, we so we're able to.
Generate.
A profit there which is what the key goal for us this year.
We do experienced some seasonality in Q3.
Mainly as a result of the August being a heavy vacation month in Europe without a lot of customers and our employee themselves goal and.
Lengthy vacations or and I guess, they some of the year that they are taking vacation maybe staying home.
But that's so that's that's still an effect.
But going forward, we're really not.
Thinking that the revenue the revenue level or the services side is going to vary significantly from existing levels theoretical go up some quarters are down a bit and others.
Our main focus is really in ensuring that it's it's profitable.
That we're providing our customers with the right level of service.
Great appreciate the responses and thanks for taking the questions.
Of course, thanks, Thanks, Doug.
Our next question will come from Zach Cummins with B. Riley. Please go ahead.
Hi, This is the exact associate sandy on for Zack.
Congrats on the quarter, which the sub question on the transition to cloud.
I was wondering if you guys have seen an increase interest and making the transition to cloud within your existing base.
Yeah, absolutely outage.
Yes.
I think the current situation has kind of reinforced that level of interest.
I think as I've said on prior call on the prior call.
You know the pandemic has definitely increased peoples.
Interest and desire to get to the cloud. It's one last thing they have to worry about in terms of managing the business in some situations like this.
That said, if they weren't thinking of moving.
PT. Originally then it's more a level of interest in thinking about planning for the future as opposed to.
A big rush to transition to the cloud right now.
But again with that said we were pleased with the level of conversions that we had this quarter is a good healthy number.
And so yes, we we've always felt good about the value proposition. The current situation just to reinforce that and we do expect to see increased pipeline and part of the increased pipeline for the future. We think is attributable to to that.
Reinforcement of our value proposition in the current situation.
Got it thanks and.
So another question I had was just how we should think about the mix of.
Conversions and new cloud customers.
Moving forward.
Sure. So it for US we continue to if you look at it by deal count.
On average, we we're still expecting for the foreseeable future.
I see that mix of 50 50.
And so that the mix by value is a little bit different.
When we do the conversions that typically coming in and.
Switching 100% to the cloud straight away when we acquire new customer would typically rolling out the solution. So that comes in in phases, and then catches up a little bit lighter, but yes, bye bye deal count just given the way our funnel mix is at the moment.
And how it's looking yes, we see that 50 50 split by count continuing.
Okay. Thanks for the color there and.
Last question I was just wondering what is.
Expectation for professional services in the coming quarters.
Hi, I know you guys provided a little color on.
Proactively working to push into the partner ecosystem.
Is there anything else there that we should be thinking about or.
And the any additional color there would be helpful. Thank you.
Yes, no short of the main color.
Yes.
As I mentioned earlier is really around we have.
Very very keen focus on ensuring that that line of business remains profitable on a known on an ongoing basis.
And.
Our we have quite a number of efforts right now as well.
With the ability to provide services remotely to be able to.
Get utilization rate higher there.
As as the economy or when the economy starts to recover.
A bit more we do expect.
To to see some.
More services projects.
Start to come our way.
We do believe there is still going to be very significant amount of customers I will want us to will lead on those projects. It even though we may be using some of the the partners in the ecosystem to provide.
Some of those going forward so.
We would expect.
As the economy grows and the rest of business drove we would expect longer term to see professional services.
Grow as well, but not quite keep pace with that with the breadth of with the rest of the business, we would expect to see that.
That number as a percentage of the overall overall company revenue to remain where it is or potentially come down overtime.
Great. Thank you.
Great. Thank you. Thanks.
Again, if you have a question. Please press Star then one.
Our last question will come from both von story with William Blair. Please go ahead.
Hey, guys.
My question can you May hear me okay.
Yes, yes.
Great.
Great. So.
Congrats starting in FY, let's start off maybe on the partner side.
I'm actually pleased from the shift is happening to partners.
So a couple of questions there sort of where you into that that transition the partners any color to that number consultants ramp things like that.
And then the second part of that in a couple other questions at the second part that is.
When you look at the partners.
It's always interesting you give them leads so they sort of build a practice around it.
They get consultants in the bench in the not utilized legal find leads and do that with their clients or they put declines.
Q a de instead of saying what other like where we must trajectory. So first any color on a number of consumables and second well enough flywheel, but it's happened for efficacy and our goal in January with.
Et cetera, et cetera, but the employees a big big consulting.
Some centers, how you think about where we are in the flywheel I suspect it's early but let's get some color on that.
Question.
Sure absolutely, but I'm.
So just yeah, just where are we on the let's say capacity journey.
We win for those partners of scale that we signed in recent times like.
Yes, it's only been continuing to work on certifications and helping them come up to speed with a delay to versions of the product and adaptive ERP.
Obviously with emphasis.
They have some capability, but we're now working with them in terms of rounding that out.
So I think.
Globally at scale.
I think it would be fair to say with around double the capacity. We had this time, maybe say 18 months ago.
But our goal is to continue to to build that.
And that's I'm going to talk about that and then leading answer your second question about helping with the the sales efforts that.
So a big reason that we brought in.
Anew.
Executive to help us manage upon a growth is someone who is experienced in growing sales channels on a global scale and also systems integration channels.
It's been on its been in since.
Relatively early in the quarter.
And plans are starting to come together now I just wanted to share who it is maybe a little bit on the background.
Well, yes.
We just choice his name is.
I will hand upon enduring he's from X of to so systems.
Was up quite a while and help them build their global partner network system for one of the larger divisions.
And his entire Korea.
As pretty much been in that space in terms of building out systems integrations and sales agent sell distributor.
Hi relationships.
So.
The professional services initiative is obviously some way ahead of the sales initiatives, but we're looking for him to help us quickly catch that up we feel in a great position given that the adaptive ERP the enterprise platform with it we're going to be extremely attractive to partners both at scale and on a regional.
Basis too.
And indeed, we're already in some conversations around flushing that out right now and.
On driving that so.
You said early days, but we've got the onboard as plans are coming together, we're already in some of those conversations. So we'll keep you updated as weak as we go down that journey.
So audits and then.
Let me talk about the pipeline the because obviously you gave us the weighted non weighted.
The pipeline I guess, when I had a couple of questions there.
One.
When you look at that pipeline and you try.
Normalized maybe a question tenants would normalize for what cold it has lengthened.
How is that percentage. He can you give us any sense of assets if I take all the deal that should have closed remove them from the pipeline what does that look like.
Sure you have that I wonder if your shares on the color with us because obviously pipeline lot bigger to appeal to just length of and you commented on that I'm, saying, okay. So we try to normalize what would that look like.
That's right.
I guess I'd say, it's not bigger because deals of lengthen necessarily.
Might have a very modest effect on that.
I think we've grown it pretty substantially because.
If we go back 18 months, we we put that investment into our business development team and our marketing and our marketing tools.
I think that has been payoff and paying dividends.
I do believe that that's growing at a slower rate than it would.
Had co that not come around.
And you know affected the world the way that it has.
The struggling to give you a percentage number in terms of a flawed Westwood.
It would have been.
And I guess, we'll never know.
But anyway.
But anyway [laughter].
So yeah, it's but yes, certainly it's not helped.
And we think it would have been.
Significantly higher and that said, we continue to put the efforts in office development teams as busy as I've ever been.
And I think you're seeing a reflection of that were.
The weighted follow has grown almost to 50% it was 48% of where it was this time last year.
But the fact that the on weighted has grown by 27% of just yet there's interest as deals that they just didnt earliest stages and they might otherwise be given the current situation.
Got it and then one last one from me for Pat maybe.
Or or for you just as you look at the cloud wins on the new customers. The 11, one sort of who are the competitors and you know usually every quarter, we have sort of one big.
Displacement from.
The three letter company out of Germany. So just wondering sort of any competitive sense of how those deals played out who the competitors who did you displays sometimes I would be really helpful. Thank you.
Yep.
Certainly happy I'll jump in and Pam if you want to add any color to that absolutely.
Yes.
The gym and competitive remains the strongest.
The the case the Pam outline was a from a company that.
I had an S&P strategy.
And he knows questioning that in the value of that.
And we are today, we are in.
Quite a number of conversations with.
Large enterprises that really are.
Given caused to ask the question about what the alternatives are given that there is no migration path from.
TCC sexual privations to ask for how to the fact that summary implementation and so that's causing them to question that and that's pulling us into.
Some conversations at scale around the world with global manufacturers and I'd say they remain.
By a standout our largest competitor in our sweet spot, which is those global manufacturers.
Pammi anything you want to add to that.
Hey that we have certainly been concentrating on a state right now because there is a attain fair and change creates opportunity.
The other.
The other company that we kind of for up for grabs than we see a lot of.
The placement and when again I guess would be the in force we are looking at.
Those getting old in many different place and taking competitive opportunity.
Yes.
The market is certainly a lot smaller and competitive than it used today. Thanks.
Yes, and I did that was my last question, but you have one more so obviously you had the hey, you got to move to Honda by whatever date, they push that out I think it was 2020 to 23, one Jim maybe 2025 is there.
Have you seen any slowdown because of that because they extended the timeline to migrate because obviously that timeline targets on as a great driver for you, but given the not push that out has that sort of make people say, let's sit back on our yields and weight RCB system is working I don't think his decision to that and personal decision a year or two years have you seen any of that.
No not not in the conversations we've been having.
Because I think that the challenge remains the side.
And you know yeah. There were obviously on the pressure I think the dates from memory bandwidth.
Let me 2025 was the original pushed to 2027 I think from memory.
Okay.
Okay.
Right.
But I think that the challenge there is.
If they wait the still on the legacy system and with the pace of change in the right of changes happening in the world today in the requirement to respond really quickly to stuff like supply chain disruptions show on.
That's really hard with legacy ERP and so.
Yes, if you business is fairly static.
Not changing much then maybe you can afford to to white, but the company's which will be too we're already needing to do something to respond to change and so they've got a bit more comfort I suppose that.
They can be supported for longer but that business demands are still at pushing the urgency to to make that switch.
So no I'm not seeing any of those conversations slowed as a result that if anything it would be related to co bid and when's the right time to start but not to the S&P date switch.
Got it.
Thank you guys.
Thanks, John.
He shared it.
Okay. Thanks.
This concludes our question and answer session I would like to turn the conference back over to ancillary Wilson for any closing remarks. Please go ahead.
Great well, thanks, everyone for joining the call today, and we look forward to channel Q3 results in November thanks to stay safe.
Great. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.