Q2 2020 Rimini Street Inc Earnings Call

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Welcome to the Remeny Street earnings call. My name is Adrian and all of your operator for today's call.

At this time all participants are in listen only mode. Later, well have question answer session. Kinda question answer session you have a question.

Please press Star then one on your Touchtone phone.

Please note. This conference is being a court it I'm not sure collar Dean Paul Vice President Investor Relations team you may begin.

Thank you operator, I'd like to walk them up going through a main street second quarter 2020, <unk> earnings Conference call.

On the call with me today right in our CEO.

When we book, while our Chief Accounting Officer.

Today, we issued our second quarter ended June Thirtyth 2020, <unk> earnings press release, which can be found on our website. A reconciliation of GAAP to non-GAAP financial measures has been provided in the table following financial statements in this press release.

Explanation of these measures and why we believe they are meaningful.

Also included in the press release.

Under the heading about non-GAAP financial measures in certain key metric.

A copy of the cross relieves some financial tables, including the GAAP to non-GAAP reconciliations and other supplemental financial information can be viewed and download it from the Investor Relations section of our website under investor events.

As a reminder, today's discussion will include forward looking statements that reflect our current outlook. These forward looking statements are subject to risks and uncertainties that may cause actual results could differ materially from statements made today. We encourage you to review our most recent AFDC filing.

Today, our form 10-Q for the second quarter of 2020 for discussion of risks that may affect our future results or stock price.

Hey, good question, well begin with prepared remarks with that I'd like to turn the call overtime.

Thank you Dean and thank you everyone for joining us today.

For the second quarter, we achieved record quarterly revenue of 78.4 million a year over year increase or 12.2% produced another quarter of net income generated 17.9 billion of operating cash flow and further strengthen the balance sheet with total cash of 73 million at quarter.

Yes.

Revenue retention rate for subscriptions, which makes up most of our revenue remained above 90% with more than 70% of subscription revenue noncancelable for at least 12 months on a rolling basis.

We ended the second quarter with 2159 active clients year over year net increase of 13.9%, which included nearly 100 Fortune 500 Fortune Global 100 companies and global government representation.

Our quarter end global employee count was 1343, a year over year increase of 14%.

Today, we issued guidance for third quarter revenue growth rates. The low end of 2020 revenue guidance and affirm our commitment to the long term goals of improving free cash flow and growing GAAP profitability.

Pandemic impact.

Prior to the pandemic, we were making investments to meet increasing global demand for our expanded product and service portfolio.

We have since accelerated our investments to take advantage of additional demand driven by the pandemic and global economic slowdown.

The pandemic is creating significant challenges for many organizations and we are the right company at the right time with the right solutions to help these organizations immediately slash IP operating cost save jobs stabilize operations and focus there more limited resources on strategic.

Initiatives.

During the second quarter, we experienced both the opportunities and the risks of the pandemic, we signed some new opportunities attributable to the pandemic and believe the pandemic has added meaningful additional pipeline opportunity for the second half of 2020.

However, we also had some are many street clients enter bankruptcy and others receive special discounts and extended payment terms to help them navigate these challenging times.

All in all based on the facts and our analysis, we still believe the opportunities created by the pandemic and slowing global economy far outweigh risks and that our strong balance sheet and cash position will provide us with business flexibility and agility to help prospects and clients with special needs while price.

Biting us protection against downside risk.

As a result of the measures that we have taken in response to the pandemic, including shifting to nearly 100% remote employee remote sales and virtual marketing models for fiscal year 2020, we are expecting savings from reduced travel canceled in person marketing events reduced office or.

Operating costs and potential rent abatements related to office closures around the world.

We expect to offset some of these savings with increased investments in new marketing programs and expanded sales staff and capabilities as well as special pandemic related bonuses to help our lower paid employees and employees who become infected.

The full extent to which the pandemic impacts our business going forward will depend on numerous rapidly evolving factors that we cannot reliably predict.

Client wins.

During the second quarter, we completed 160 geographically diverse sales transactions with new and existing clients. In addition to the many global sales went shared and press releases, including today's earnings release I want to Sharon highlight a few additional significant wins.

First as a wind with one of the largest global energy companies headquartered in the U.S. The client move their large complex Oracle database of middleware landscape to run meaning easterby.

The client is also implementing and deploying both the remaining street advance database security and remaining street advance middleware and application security solutions.

The client wanted a proven global expert technology support partner they could rely upon to provide the expertise in services needed to extend the life for their mission critical Oracle infrastructure, both with support and an innovative integrated security solution remaining street was the only vendor that could provide the solution.

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Next is a win with one of the largest global telecoms headquartered in Australia.

The client previously move their large complex Sep software landscape to us and found our service value in partnership to be excellent.

They are experienced laid the groundwork for a significant multimillion dollar expansion of our services to cover their large complex Oracle application landscape as well.

The client is looking for remaining street the benefit from a unified premium support experience across their enterprise software landscape and a better overall service value from a single partner.

Lastly, as a win with one of the largest advertising conglomerates in the world headquartered in Japan.

Decline has been interested and watching remaining streets fast paced growth across Japan, with leading companies as well as known brands and decided it was time to move its vast S&P landscape to remaining street support.

The client wants a higher level support experience better overall value and get the support needed to remain on their current products and releases and avoiding an expensive migration to S&P S. Four Honda release.

Product and service update.

During the second quarter, we delivered excellent service to clients announced even more aggressive service level guarantees and implemented artificial intelligence technology to reduce resolution times for clients and we also expanded our service offerings.

During the quarter, our global service delivery team closed over 8000 support cases across 49 countries and delivered nearly 20000 tax legal and regulatory updates to clients in 38 countries. We achieved an average support delivery client satisfaction rating of at least 4.8 out of five point.

Zero, where five zero rating is considered excellent.

Building on our current industry, leading service level guarantees today at no additional cost to our clients, we announced in a press release, even more aggressive service level guarantees. Our clients are now guaranteed a response to urging cases in 10 minutes instead of 15 minutes and our response to critical cases.

15 minutes instead of 30 minutes 24 by seven by 365 days.

Also during the second quarter, we announced the development and application of our new patent pending artificial intelligence software that was developed by our global service innovation team into sped up client case resolution by 23%.

Additionally earlier in the quarter, we announced the global availability of support for S&P has four Honda essay piece newest integrated ERP software offering and our new large complex as for Honda client hydro headquartered in Mexico.

We have been servicing S&P products since 2008, and now providing award winning proven premium support services to hundreds of clients running as safety business suite seven as for Honda applications, and S&P Honda and Sybase databases.

With respect to other offerings in our expanded product and service portfolio, we're continuing to see growing pipeline and sales.

Pipelines for our new Sep Oracle and Salesforce application management services continue to grow with second half 2020 opportunities the largest yet.

Application management services, commonly known as a mass as where we run the system for the client day to day and support services, where we provide technical support and required updates to an internal or amex team who runs the system for the client day to day.

Our early experience indicates that Amat service is off in two to three times. The annual remaining street software support fees further sales of amas to existing clients is proving that an integrated romine Street support and Amat solution is creating a unique value proposition for the client and demonstrate.

During the new Amas product line strength at a cross sell opportunity.

We believe our integrated software support and Amas combined offering is unique and valuable competitive solution in the market that provides clients for the better model better resources and better outcomes with higher client satisfaction and significant savings of time labor and money.

We are successfully delivering our integrated maintenance at application management solution to clients across a growing variety of industries and geographies.

We're also seeing growing interest pipeline that sales for our innovative advanced database security advance middleware, an application security and browser proxy interoperability solutions that more and more clients are successfully deploying and using across large server and application landscapes.

Competition.

Competition with our primary support service competitors Oracle and S&P remains fierce both software vendors are engaged in continuing efforts to force the licensees to upgrade and migrate from current stable software releases for the vendors newest immature products as part of expensive and low value.

ERP refresh project.

Oracle and SAP, you're planning to end full support of certain major product releases by 2030, leaving current licensees facing either a major upgrade or migration project or potential move to remain industry.

Accordingly, more and more companies are evaluating the cost benefit of the vendors pressured ERP refresh projects and evaluating Romine Street support solution.

Many licensees do not see the value and incurring unnecessary expenses and disruptions that do not improve their competitive advantage or contribute to their growth. In fact results from a 2019 remaining street survey found that approximately 80% of CIO respondents are not planning to move are unsure about.

Hi, grading to Oracle or S&P is new software and plan on remaining on their current systems until at least 2025 or beyond.

Today, given the added financial and economic challenges around the pandemic, we are seeing companies prospects and existing clients, who had planned to invest an expensive new ERP refreshes delaying them move off their existing stable systems to preserve cash and focus their limited budget.

On strategic investments and initiatives.

For many street is well positioned to compete.

Gartner has estimated that remaining street is captured over 80% of the global market for third party enterprise software maintenance services, and we are providing clients significant savings a more robust and responsive service offering at least 50% off maintenance fees and up to 90% total operating savings over time.

As we have previously stated we believe the hybrid environments that will integrate existing licenses, new SaaS licenses and cloud deployments will be the IP reality for much longer than expected and the majority of ERP workloads will continue to be on premises simply.

Lifted in shifted into the cloud for continued long term use with the pandemic and resulting economic challenges. We believe we will see even further extensions of use of the hybrid environment.

Recent Orca litigation developments.

With respect to Oracle versus remaining street that was filed in 2010 and went to trial in 2015. The case has run its course of all Appeals presently court action related to this case is limited to a dispute between the parties over the permanent injunction that has been in place since 2018.

Oracle filed a motion with the core contending remaining street is not in compliance with the injunction and remaining street has responded declaring that we have been and are in compliance with the injunction.

Matter is currently scheduled to be fully brief to the court. This summer and we plan to aggressively defend against Oracle's Contentions. There was no known timeline for a court ruling.

With respect to remaining street versus Oracle filed in 2014. The case, we filed against Oracle, we are still awaiting rulings on summary judgment motions submitted by both parties in December 2018.

Trial is not currently expected to occur until 2022, but could occur earlier or later.

Summary.

We believe the company executed well through the unique global challenges of the second quarter.

We intend to continue executing our 2020 plan focused on revenue growth disciplined cash management and continued GAAP net profitability and we will make adjustments to the plan for additional opportunities or challenges that may develop around the pandemic unrelated economic impacts.

Now over to use Stanley.

Thank you said.

Noted for the second quarter, we achieved quarterly revenue of $78.4 million.

But yes increased 12.2%.

Second quarter annualized subscription revenue was $311 million.

The increase of 12%.

For the first couple of 2000 and twin clients would be the United States comprise 61% of total revenue while international client contributed 39%.

Representing aggregate fotopoulos 2020 year over year revenue growth rates of 7.2% for the us and 30.4% for international clients.

The international growth is led by operations in Asia Pacific.

Gross margin was 61.2% for the second quarter compared to 6% to 4.2% for the second quarter of 2019 and above high end overall gaiden trades.

The lower year over year gross margin.

Our continued investment in an expanded global capacity to deliver new application management services for Sep Oracle and Salesforce as.

Fair enough new expanded deliberate capabilities for Sep as for Honda support services diverse accumulated solution.

In advanced technical solutions.

We do believe that gross margin for my Stably support services will continue to expand.

Helped to partially offset the bump up most of our new products and services.

Before we continue to expect a fully at 2020 gross margin to be marriage of 60% to 61%.

Sales and marketing expenses as a percentage of revenue was 34.2% for the second quarter compared to 38.5% for the second quarter of 2090.

The decrease as a percentage of revenue is due to a decrease in travel expenses.

And trade shows expenses to go do from a suits to all but your marketing et cetera.

Despite lower sales and marketing expenses in the five top of 2000 and twin we continue to expect full year 2020 sales and marketing expenses being the range of 37% to 39%.

General and administrative expenses as a percentage of revenue, which excludes outside litigation costs.

What 16.8% for the second quarter compared to 15.2% for the second quarter 2019.

The video, but yet cost as a percentage of revenue is primarily due to additional employee labor costs compared to the prior year second quarter.

In addition, we expect the cost of maintaining the recently a bid accounting standards.

Renewed internal control compliance requirement.

And plan to system implementations to put upward pressure on financial spread in 2020.

We've got substantial amount of increased cost the mitigated by lower troubling expenses in 2020.

Therefore, we will continue to expect GMI expenses as a percentage of revenue could be very good 16% to 18% for the full year 2000 at twin.

Net litigation expense was $2.9 million for the second quarter 2020.

We have to $144000 for the prior year second quarter Dray, yet included the resolution of a legal dispute with a vendor, which reduced our outer litigation cost by $1.1 million.

I would say litigation spend is more media and construct each quarter based on litigation activities.

We continue to expect litigation expense to be the range of $13 million to $15 million for the full year 2020.

Net income was $3.5 million for the second quarter of 2020 compared to prior year second quarter net income of $6.1 million.

Non-GAAP net income was $8.1 million for the second quarter 2020, compared to about non-GAAP net income of $7.3 million for the prior year second quarter.

Adjusted EBITDA was $9.6 million for the second quarter 2020, compared to adjusted EBITDA of $8.5 million for the prior year second quarter.

Dividends on the thing to say pre FID, what $3.9 million, while payment in kind dividend steadily increased shit was $1.2 million and accretion of that be five store discount was $1.6 million for the second quarter 2020.

Basic and diluted net loss per share attributable to common shareholders was five cents for the second quarter of 2020.

Bad breakeven net income per share for the prior year second quarter.

These taking into account costs non cash dividend for the CDC preferred stock.

Deferred revenue as of June 2020 was approximately $218.5 million up 6.7% from $204.8 million as of June 30 at 2019.

We ended the second quarter of 2020 with total cost of $73 million than our balance sheet up 45% increase compared to 50.3 million dollar for the prior year second quarter.

Cash from operations was $17.9 million compared to $18.4 million for the prior year second quarter.

Backlog, which include the some of your deferred revenue and noncancelable future revenue.

It was approximately a $464 million as of June 32020 up 14% from funded and $7 million. So June 32019.

No. We would expect revenue guidance. We are currently providing that quarter 2020 revenue guidance to be in the range of $7.5 million to $80.5 million.

We are also raising the low end of full year revenue guidance from $310 million to $314 million.

Currently providing fully into 2020 revenue guidance could be brings over $340 million for $320 million.

And we thought corporate up we're now take questions.

Hi.

Thank you.

I'll now begin.

We'll now begin the question and answer session.

If you have a question. Please press Star then one and you touched on phone.

If you wish to be usually Q. Please press the pound time are they asking.

If you use the speaker phone you may need to speed up the is it fair for pressing the numbers.

Once again, if you have a question. Please press Star then Brian on your Touchtone phone.

The first question Tencent, Derek leverage from Cowen and company. Your line is open.

Hey, guys nice to talk to you today.

Maybe that could be both for SAP and maybe Stanley can can chime in but I wondered why did you just talked about the quarter a little bit because deferred revenue growth was a little bit more deceleration that we had bottled. So just curious maybe how much of that was from.

Yeah, the bankruptcy impacts and or perhaps how much is from deals slipping and taking a little bit longer on the on the sales cycle and.

Stanley just curious if there was any.

On a onetime opt out clause components and deferred revenue to consider.

Sure well I'll take that first Derek and good day.

We of course.

As we talked about the coming into this quarter.

We had certainly growing pipeline run like everybody else. We did have some challenges of disruption in the first month or two of the quarter show I think like a lot of other companies.

People were swirling around and nothing really to do with opportunity had everything to do with clients being in chaos prospects being in chaos and trying to get deals done. So there was certainly a decent number of deals that teed up for the quarter that just didnt get done in the quarter and I had mentioned.

During my prepared remarks about the increase in the the buildup of the pipeline for Q3 now all that being said.

We did have some very very good back some record invoicing in the quarter.

Historically the number one when you take a look at our invoicing for customers, who who pay us a year of invoicing in advance.

That number was the highest we've ever seen in any quarter. So we did have did have good quarter.

And we had a lot of good pipeline build for the back half just because of that that timetable and of course, we do have as you know with our revenue.

We met down and we net down that deferred revenue as well for for things, where we have opt out where we have bankruptcies, where we have any kind of revenue that we're not ready to recognize we will that we will netted out and thats why even in the fourth quarter. You remember we picked up a bunch of red.

Revenue that had been cleared out and had had been ready to recognize so you're always going to have those components as well.

Okay, and Derek do onto that to a different succeed if you really look at.

No different revenue is built into the backlog, it's really grown year over year about $219 million of the backlog was defined revenue, which was 202 a year ago and two of what's going on whether we had any contingencies. We didn't have as many of those that we think will be released it was really straight line.

Standard to billings during the quarter.

Okay.

Right I guess as you think about pipeline and the second half.

Obviously, you've given revenue guidance and we can you can back into Q4, but more from a bookings perspective is that.

Is that something that's kind of what we normally see pretty more back end loaded to Q4, Q3 and I guess.

I think you had a nice government when last quarter are there any any government opportunities in Q3 and their fiscal year end the speaker.

There were there are some yes, there are some government deals as well and opportunities in the back.

That continue to grow as as a part of our business. So yes, we do have that I think in general the back half of the year Derek in terms of pipeline.

Is some of the largest pipeline we've ever seen and it may or may be reaching record levels.

And again the risks of this pandemic the risks of this economy are not as much about the opportunity I think everyone could put one in one together and say that accompany that can provide savings and extend the life of systems, while people are pushing off expensive projects and managing cash.

Cash.

Clearly, we should that we should see upside to that in a market.

The question is really around execution with a lot of these organizations and I'll give you. An example in the US we adapted to work from home and this idea of coming in going back out the shuttering. Some because this is there is a lot of disruption that comes and goes but were pretty good about me.

Managing it in places like Europe.

If you go into France, France went to home environment. They Didnt do work at home they just what home.

They refused to work from home. It was just cultural they weren't set up for it and so Europe Europe has a lot more challenge with the Covance situation ended it than longer so a lot of opportunity, but much more challenging the deals that same if you go down to Brazil, Latin America is really struggling as you.

No with the code that your way shed a lot of chaos a lot of people not equipped to work from home and that's created quite a lot of problems with getting deals done.

So while the environment or demand is high navigating some of these hot spot that that have challenges with execution, that's where you're really at the back half. So that's why you always see us take a very tempered approach demand is strong.

Execution challenges exist on a global basis, and we continue to navigate but they can cause some deal slippage is certainly can add tying to a deal and the cycles to it.

Yes, that's helpful. Thanks.

Yes.

You did mentioned that you're accelerating investment and you're seeing increased demand and bigger pipelines and then to highlight in terms of where you're accelerating I mean.

We see more TV ads for any straight.

Sure one area, you're wondering how that's going to and are you at the point, where you're you're you kind of accelerating sales capacity at or is it kind of trending at similar levels.

I think you're watching US is as we mentioned even last quarter, we think that the opportunity.

Topic, what was already growing because you know when we when we did our initial guidance for 2020, we had already come out of it was really a pre co bid guidance. So we had already seen the growth that we're turning around we went ahead and we talked about an accelerated growth in 2020 coming off the bottom end to that.

Her.

Starting to re accelerate as a percent of revenue.

In terms of the growth side, we saw co that add to that.

We're going to continue to I think you accelerate and expand our investment in the revenue generating engine of the business as I went through in the prepared remarks, you when we've been making significant investments in product service portfolio building out and even talking about how you see us upsizing existing CLI.

Science with major wins I wanted to give you some sample of that and I think that the combination of which gives us good tailwinds for growth and we're going to we're going to get an investment more in sales heads were going to put it in more marketing you seem to television advertising. Its global we're also we launched a brand new website, if you haven't.

Going out there, it's a completely new platform.

It goes along with our passing for specific roles that we're selling too. So we're making a lot of big marketing investments to reach out the phone is ringing and I can tell you. We have the highest website volume and visits we've ever had so that is that is showing a great trend the phone is ringing.

More than it ever has so I think that all of that is showing that the marketing investments. We're making are paying off the execution now is really about working through the co bid world and making sure that we can execute on all the opportunity out there and like I said, there's pockets of challenges at.

And we're going to continue to push and work through it but we think it's all very positive for the back half.

Good good last one for me.

So you guys announced a new seat COO.

What are some of the initiatives that you'd like to see him push forward.

Well I think as most people know first you took 12 direct reports for me, which is a great thing and we're excited to have them. I mean, he had Gerard has as youve seen in his in his bio a lot of experience unit for Brac space and HP and he is taking on the field.

Operations, So thats, allowing me to free up on a lot of other things as you can imagine taking over that number of direct reports.

And as doing very very nice job, he's a seasoned executive in operations and he'll he'll be able to spend more time and focus on field execution, which is again ramping sales reps building out the revenue operations focused on retention.

CLI and working with our global clients executives to make sure that our clients are our even happier buying more all those things are falling into Gerard space as well as overseeing the sep and Oracle product lines and the as lot of experience in that area. So it's great to have them onboard he is making.

The difference already and and we're just excited to keep building out the executive team and as you know Derek I mean this is all about scaling as remaining street move from.

Hundred million to 250 million to target pushing through 300 million as we continue our acceleration to 500 million an ability and we have to adding additional executives.

Two again focus on that scaling and that is a global scaling initiative.

Very good thanks for the color.

Thank you.

And our next question comes from Brian Kinstlinger fairly hyun global partner.

Well, Brian makes so much.

How are you.

Great.

So you mentioned.

Condemns question several contract for teed up.

Didn't happen given the pandemic that mean, the customer January we opt for a year with the OEM and those opportunities for those specific customers are now pushed out by a full year.

I would say that some some of them did but again very unusual times with this would be the pandemic.

A lot of those deals we're able to push into the third quarter without re upping with the software vendor.

Interestingly enough something we hadnt seen before.

In terms of any kind of trend, but a lot of the customers decided to go self support on an interim basis, because the reason they didnt get the contracts done where their internal operations and they figured that it would take them maybe a few more weeks, maybe another bond and they decided rather than.

With the vendor.

Good number of Im just decided to go without any support and try to wing it themselves for a few weeks and you know with US out there is certainly an emergency backstop, because we're working with them to complete contracts. So I think it's a different kind a scenario, where they're working to get it done they just need more time to get through all.

The cycles.

For it so I think that again that bode well for a good number those deals to just simply slip over the line.

Into the next quarter.

Great. Thanks, that's helpful. And then if I look at your press release, all the no new logos you when were part of eight packing and I think your comments highlighted the strongest growth rates were in.

Asia Pacific.

Can you talk about the success, you're having there to what do you attribute attribute the accelerated growth rate is it better home work from home infrastructure is it more salespeople.

Smaller numbers.

I think Asia Pacific has just been a machine.

And they have we've continued to expand out there I think also you know what I'd put that to some of this Brian as they have cope with co bid better than a lot of parts of the world because they went through Sars et cetera. So you know deals in Taiwan were Taiwan is operating well, we're not talking about core China.

Here, but.

We're talking about you know down is Singapore, Malaysia across Korea, where were very strong Japan very strong. So I think a lot of it had to do with their ability to execute through sort of the global chaos, but it's been an up and coming at theater for us and has been leading.

Global expansion for a while.

Now our friends in Europe of course, one of the challenge that they want to they want to grow they have the opportunities to grow there just now I'll try and as I mentioned, especially France and a few other countries, yes, very hobbled, where we do a lot of business traditionally very hobbled by the fact that businesses are closed and and they're not working.

From home and that makes it really hard to get a lot of deals done there right now and it's taking months due to really get back to any kind of functioning normal for places like brand. So Europe Europe has to deal with some of those challenges, but they are coming along their growing their operation Latin America with our new.

We saw announcement, we put a new GM in charge of Mexico, and Central America lot of opportunity in that region as well, but hampered by coven right now so again opportunities and challenges you get through it. So I think your unit going to continue to see a pack.

Probably lead for a while because things are just easier to get done over there right now, but I think you're you're going to watch the rest of the global community, which is them fairly well pick up as as they normalize through the cobot situation.

Great and then can you highlight the demand you're seeing total relatively new applications management service offerings I know you commented on it.

What percentage is maybe a revenue is it today and has that could pandemic hurt helped or had no impact.

Do you think on this offering.

I think am mass is a is a very service revenue stream to come.

And you know, we've always talked a whopping before we that you're not before we Brian and I am very conservative about these big new product introductions, they are going well.

It's a very happy but service.

For delivery to the value that we wanted to and we wanted to make sure that all those things work the way we expected them to before we go in large scale execution.

And I've also talked before about the fact that it's a it is a different sale to different sales motion than our current support and we're still working through some of the go to market on a global basis, as we pick up new countries and weve expand into new countries, providing the service, but theres still work to be done.

And so we're taking a very carefully and where that's why we're not breaking it out yet we're not guiding anything we're going to provide additional.

Information with press releases with client case studies that will help everyone understand that but we're still we're still in more of a launch phase then a full production phase because it's a pretty extensive product line and you've seen that we've been adding people thats one of the reasons to gross margin primarily is down as.

Because we've added a lot of bodies into the am mass side and that will continue to suppress gross margin on a blended basis, while of course, our existing support product continued to improve gross margin as an offset.

But yes, we've got that we've got to pay our way into it for a little bit and but I'm I'm still very very bullish on the product line and and I think you'll hear more about it from us coming up quarter over quarter.

Great last question I have is on price clearly you've had to get some concessions to help struggling customers out there.

Assuming those customers survive and stay with you will price be a a couple of point benefit next year can growth does do those prices come back when those customers are stabilized. So do you think will remain a little bit lower.

I think we've been taking a pretty good approach.

To to the way we've handled it what we did with our team. So as we laid out just like everybody else and I'm sure every other company you're talking to every every one is beating up their vendors to get some discount in this day in and Thats just the way it is whether they needed or not they're doing it and we set out a very rigorous program.

Always had a rigorous renewals and price management program, which has allowed us to manage that kind of margins and delivery that we have now when it comes to helping clients, we set out a list of.

Priorities and we tell them.

First let's talk about what is the issue is a cash flow right now if its cash flow right now, maybe we give them quarterly payments for this year.

But we don't try to amend contracts for long term periods, we really say how can we help you right now with your current emergency situation do we need to delay the payment do we need to just give you quarterly to help with cash flow and we work our way through it without trying to get to any kind of discount to the product because it.

Again, this time will pass and what we don't want to do a set low watermark some change pricing and then find that when the economy comes back two years later, you're set at that low watermark. So we're very very good about that and so we will work closely to find the best matters. The other thing. We do is we will work to get.

Something in exchange for something our team is very good about that and so if we're going to give quarterly payments or we're going to do something to help them through this we will ask or something in return often an extended contract and we have increased the extended contracts as you know.

We have.

70% is non cancelable for at least 12 month now we have added a lot of multiyear agreements in return for some of that help. We also will last for case studies, we will ask for special referenced the things that help us sell additional customers. So I think because of that just because we take a little bit a hit maybe in the.

Tony or some of the cash flow as you've seen were at record cash numbers, because we're very diligent on collecting cash in managing cash. So I think the combination of what we've done will yield big benefits for us and I think you're not going to see long term impact because of the helper, giving clients today.

Great. Thanks, so much for all your time.

Sure.

And your next question comes to Mark Schappel. Some benchmark your line is open.

Hi, Good afternoon. Thank you for taking my question sorry repaired remarks, you mentioned that the competition from S&P and Oracle remains fierce I was wondering if you're seeing discounting from these vendors above and beyond the norm as they try to keep their customers on maintenance.

I would say yes.

There is always been despite denials from from them.

In a certain amount of.

Discount and it often gets bore frantic as the customer.

Reaffirms that they plan to move to us so theres a theres been a long history of that that we have.

Had in the sales cycle.

I see meager discounting more aggressive I think it's on the deal by deal basis as some of the deals we took in the quarter.

The multi multimillion dollar deals for these guys and and that gets a lot of attention.

Within the software vendor and I would say on those deals they they work very hard to try and keep them with additional discounts as part of the mix.

Obviously, we were were very good it at helping clients understand that even if they drop their prices, even if they matched our prices on a on an annualized basis, because they require migrations and upgrades they can't get the kind to support that we're offering.

Nation of which is even for the same money we offer a better overall return value and I think that's that's key because they have come in and occasionally they have tried to match our price exactly if you can imagine that coming 50% off and.

The clients say no we prefer the value mix and and we think we're still getting a far better return on the investment by going to remaining street. So that's that's all part of our sales process.

Great Thats helpful. And then I realize the company continues or vessel sales capacity.

Particular, as we go occur as you go after your remark opportunity, but what's the thought on our on margin expansion or operating margins.

Going forward.

I think in terms of expansion.

We've given the guidance in terms of the range, we're gonna be bringing down overall, we're going to be bringing down sales and marketing expenses. We said sort of the mid term vision is that mid thirtys number, we're bringing down gionee and over that 12 to 14 type number I mean.

These are all we know where we want to go we have to make some investments now and I think as you well recognized because we had been held back so long on sales and marketing investment just due to covenant on the price on the prior financing that were released only in in 18.

2018 mid year.

We're still in the process of catching up to get the the growth engine back to where it was and I think you go back and you look at a few years and numbers and you look prior to that that financing, where we got constrained down to 31% sales and marketing it takes a little while still to build up and reignite.

Engine, and I think you're going to you're seeing the numbers already reflecting results.

From that process and I think the goal here is to continue to make the investments to take advantage of the market. I mean, we do have we are over 80% of the as a third party market. We want to continue that expansion. We want to continue that growth and I think we're doing the right thing and continue that investment now good long.

Term will hit that mid Thirtys. So I think we're we're going to have the right mix of costs and flow a lot more money to the bottom line as we've been committed to doing.

Great. Thank you Thats all from it so.

Sure. Thank you.

And as a reminder to ask a question on to the Q. Please press Star then one and you touched tone sounds.

I went on to the Q.

Hi.

And we have no further questions I'll turn the call back over to the presenters for final remarks.

Great. Thank you very much and thanks, everyone for for attending the call today.

Look forward to our next call. Please stay safe out there obviously this is.

A dangerous constantly changing situation in the world and we look forward to add to having another call and hopefully it with better time. So thank you very much everybody I appreciate the time today.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating as you may now disconnect.

[music].

[music].

Welcome to the room in the Street earnings call. My name is Adrian and all of your operator for today's call.

Hi, all participants are in listen only mode later, well have question answer session.

A question answer session. If you have a question. Please press Star then one on your Touchtone phone.

Please note. This conference is being recorded I'm not sure collar Dean Pope Vice President Investor Relations, Dan you may begin.

Thank you operator, I'd like to walk.

Second quarter 2020, <unk> earnings conference call.

On the call with me today right in our CEO, Dan We book, while our Chief Accounting Officer.

Today, we issued our second quarter ended June Thirtyth 2020, <unk> earnings press release, which can be found on our website. A reconciliation of GAAP to non-GAAP financial measures have been provided in the table following financial statements in this press release.

An explanation of these merger why we believe they are meaningful is also included in the press release.

Under the heading about non-GAAP financial measures in certain key metrics.

A copy of the cross released its financial table. According to GAAP non-GAAP reconciliations and other supplemental financial information can be viewed and download it from the Investor Relations section of our website.

There is buster about.

As a reminder, today's discussion will include forward looking statement that reflect our current outlook. These forward looking statements are subject to risks and uncertainties that may cause actual results could differ materially from statements made today. We encourage you to review our most recent updates the filing.

Today, our form 10-Q, but the second quarter of 2020 for discussion of risks that may affect our future results or stock price.

Hey, good question, well begin with prepared remarks with that I'd like to turn the call overtime.

Thank you deem it thank you everyone for joining us today.

For the second quarter, we achieved record quarterly revenue of 78.4 million a year over year increase or 12.2% produced another quarter of net income generated 17.9 billion of operating cash flow and further strengthen the balance sheet with total cash of 73 million at quarter.

Yes.

Revenue retention rate for subscriptions, which makes up most of our revenue remained above 90% with more than 70% of subscription revenue noncancelable for at least 12 months on a rolling basis.

We ended the second quarter with 2159 active clients year over year net increase a 13.9% which included nearly 100 Fortune 500 Fortune global 100 companies and global government representation.

Our quarter end global employee count was 1343, a year over year increase a 14%.

Today, we issued guidance for third quarter revenue growth rates. The low end of 2020 revenue guidance and affirm our commitment to the long term goals of improving free cash flow and growing GAAP profitability.

Pandemic impact.

Prior to the pandemic, we were making investments to meet increasing global demand for our expanded product and service portfolio.

We have since accelerated our investments to take advantage of additional demand driven by the pandemic and global economic slowdown.

The pandemic is creating significant challenges for many organizations and we are the right company at the right time with the right solutions to help these organizations immediately slash IP operating cost save jobs stabilize operations and focus there more limited resources on strategic.

Initiatives.

During the second quarter, we experienced both the opportunities and the risks of the pandemic, we signed some new opportunities attributable to the pandemic and believe the pandemic has added meaningful additional pipeline opportunity for the second half of 2020.

However, we also had some remaining street client center bankruptcy and others receive special discounts that extended payment terms to help them navigate these challenging times.

All in all based on the facts and our analysis, we still believe the opportunities created by the pandemic and slowing global economy far outweigh risks and that our strong balance sheet and cash position will provide us with business flexibility and agility to help prospects and clients with special needs.

Joining us protection against downside risk.

As a result of the measures that we have taken in response to the pandemic, including shifting to nearly 100% remote employee remote sales and virtual marketing models for fiscal year 2020, we are expecting savings from reduced travel canceled in person marketing events reduced office or.

Operating costs and potential rent abatements related to office closures around the world.

We expect to offset some of these savings with increased investments in new marketing programs and expanded sales staff and capabilities as well as special pandemic related bonuses to help our lower paid employees and employees who become infected.

The full extent to which the pandemic impacts our business going forward will depend on numerous rapidly evolving factors that we cannot reliably predict.

Client wins.

During the second quarter, we completed 160 geographically diverse sales transactions with new and existing clients. In addition to the many global sales when shared and press releases, including today's earnings release I want to Sharon highlight a few additional significant wins.

First as a wind with one of the largest global energy companies headquartered in the US the client move their large complex Oracle database of middleware landscape to run meaning Easter.

The client is also implementing and deploying both the remaining street advance database security and Romine Street advance middleware and application security solutions.

The client wanted a proven global expert technology support partner they could rely upon to provide the expertise in services needed to extend the life for their mission critical Oracle infrastructure, both with support and innovative integrated security solution remaining street was the only vendor that could provide this solution.

[music].

Next is a win with one of the largest global telecoms headquartered in Australia.

The client previously move their large complex S&P software landscape to us and found our service value and partnership to be excellent.

Their experience laid the groundwork for a significant multimillion dollar expansion of our services to cover their large complex Oracle application landscape as well.

Client is looking for remaining street the benefit from a unified premium support experience across their enterprise software landscape at a better overall service value from a single partner.

Lastly, as a win with one of the largest advertising conglomerates in the world headquartered in Japan.

The client has been interested and watching remaining streets fast paced growth across Japan, with leading companies as well as known brands and decided it was time to move its vast S&P landscape to remaining street support.

The client wants a higher level support experience better overall value and get to support needed to remain on their current products and releases and avoid inexpensive migration to as say piece as for hotter release.

Product and service update.

During the second quarter, we delivered excellent service to clients announced even more aggressive service level guarantees and implemented artificial intelligence technology to reduce resolution times for clients and we also expanded our service offerings.

During the quarter, our global service delivery team closed over 8000 support cases across 49 countries and delivered nearly 20000 tax legal and regulatory updates to clients and 38 countries. We achieved an average support delivery client satisfaction rating of at least 4.8 out of five point.

Zero, where five zero rating is considered excellent.

Building on our current industry, leading service level guarantees today at no additional cost to our clients, we announced in a press release, even more aggressive service level guarantees. Our clients are now guaranteed a response to urgent cases in 10 minutes instead of 15 minutes and our response to critical cases.

15 minutes instead of 30 minutes 24 by seven by 365 days.

Also during the second quarter, we announced the development and application of our new patent pending artificial intelligence software I was developed by our global service innovation team and the sped up CLI case resolution by 23%.

Additionally earlier in the quarter, we announced the global availability of support for S&P has four Honda Sep is newest integrated ERP software offering and our new large complex as for Honda client hydro headquartered in Mexico.

We have been servicing S&P products since 2008, and now providing award winning proven premium support services. The hundreds of clients running as safety business suite seven as for Honda applications, and S&P Honda and Sybase databases.

With respect to other offerings and our expanded product and service portfolio, we're continuing to see growing pipeline in sales.

Pipelines for our new S&P, Oracle and Salesforce application management services continue to grow with second half 2020 opportunities the largest yet.

Application management services, commonly known as a mass is where we run the system for the Clyde day to day and support services, where we provide technical support and required updates to an internal or amex team who runs the system for the client day to day.

Our early experience indicates that Amat service is off in two to three times. The annual remaining street software support fees further sales of amas to existing clients is proving that an integrated romine Street support and Amat solution is creating a unique value proposition for the client and demonstrate.

During the new Amas product line strength at a cross sell opportunity.

We believe our integrated software support and Amas combined offering is unique and valuable competitive solution in the market that provides clients for the better model better resources and better outcomes with higher client satisfaction and significant savings of time labor and money.

We are successfully delivering our integrated maintenance at application management solution to clients across a growing variety of industries and geographies.

We're also seeing growing interest pipeline that sales for our innovative advance database security advance middleware, an application security and browser proxy interoperability solutions that more and more clients are successfully deploying and using across large server and application landscape.

Competition.

Competition with our primary support service competitors Oracle in S&P remains fierce both software vendors are engaged and continuing efforts to force licensees to upgrade and migrate from current stable software releases. So the vendors newest immature products as part of expensive and low value.

ERP refresh project.

Oracle and SAP, you're planning to and full support of certain major product releases by 2030, leaving current licensees facing either a major upgrade or migration project or potential move to remaining street.

Accordingly, more and more companies are evaluating the cost benefit of the vendors pressured ERP refresh projects and evaluating remaining street support solution.

Many licensees do not see the value and incurring unnecessary expenses and disruptions that do not improve their competitive advantage or contribute to their growth. In fact results from a 2019 remaining street survey found that approximately 80% of CIO respondents are not planning to move are unsure about.

Hi, grading to Oracle or S&P is new software and plan on remaining on their current systems until at least 2025 or beyond.

Today, given the added financial and economic challenges around the pandemic, we are seeing companies prospects and existing clients, who had planned to invest an expensive new ERP refreshes delaying them move off their existing stable systems to preserve cash and focus their limited budget.

On strategic investments and initiatives.

Remaining street is well positioned to compete.

Gartner has estimated that remaining street is captured over 80% of the global market for third party enterprise software maintenance services, and we're providing clients significant savings a more robust and responsive service offering at least 50% off maintenance fees and up to 90% total operating savings over time.

As we have previously stated we believe the hybrid environment that will integrate existing licenses, new SaaS licenses and cloud deployments will be VIP reality for much longer than expected and a majority of ERP workloads will continue to be on premise or simply.

Lifted in shifted into the cloud for continued long term use with the pandemic and resulting economic challenges. We believe we will see even further extensions of use of the hybrid environment.

Recent Oracle litigation developments.

With respect to Oracle versus remaining street that was filed in 2010 in what the trial in 2015. The case has run its course of all Appeals presently court action related to this case is limited to a dispute between the parties over the permanent injunction that has been in place since 2018.

Oracle filed a motion with the core contending Romine Street is not in compliance with the injunction and remaining street has responded declaring that we have been and are in compliance with the injunction.

Matter is currently scheduled to be fully brief to the court. This summer and we plan to aggressively defend against Oracle's Contentions. There was no known timeline for a court ruling.

With respect to remaining street versus or call filed in 2014. The case, we filed against Oracle. We are still awaiting rulings on summary judgment motions submitted by both parties in December 2018.

Trial is not currently expected to occur until 2022, but could occur earlier or later.

Summary.

We believe the company executed well through the unique global challenges of the second quarter.

We intend to continue executing our 2020 plan focused on revenue growth disciplined cash management and continued GAAP net profitability and we will make adjustments to the plan for additional opportunities or challenges that may develop around the pandemic unrelated economic impacts.

Now over to use Stanley.

Thank you said.

Noted for the second quarter, we achieved quarterly revenue of $78.4 million.

But yes increased 12.2%.

Second quarter annualized subscription revenue was $311 million.

Well the increase of 12%.

For the first couple of 2020 clients CBD Megan states comprise 61%.

Total revenue.

International client contributed 39% representing I do get Fotopoulos 2020 year over year revenue growth rates of 7.2% for the yours.

30.4% for international clients.

International growth led by operations in Asia Pacific.

Gross margin was 61.2% for the second quarter.

Up to 64.2% for the second quarter of 2019 and above high end overall guidance range.

The lower year over year gross margin reflects our continued investment in an expanded global capacity to deliver new application management services for S&P Oracle and Salesforce.

New expanded deliberate capabilities for Sep as full Honda support services device security solution and advanced technical solutions.

We do believe that gross margin from I stop you support services will continue to expand and helped to partially offset the bump up most of our new products and services.

Therefore, we continue to expect a fully at 2020 gross margin.

60% to 61%.

Sales and marketing expenses as a percentage of revenue was 34.2% for the second quarter compared to 38.5% for the second quarter of 2000 in 90 days.

The decrease as a percentage of revenue is due to a decrease in travel expenses.

And trade shows expenses to go do you from a speech to all but your marketing et cetera.

Despite lower sales and marketing expenses in the top of 2000 and twin we continue to expect full year 2020 sales and marketing expenses being the range of 37% to 39%.

General and administrative expenses as a percentage of revenue, which excludes outside litigation costs.

What 16.8% for the second quarter compared to 15.2% for the second quarter 2019.

Yes, I video, but yet cost as a percentage of revenue is primarily due to additional employee labor cost compared to the prior year second quarter.

In addition, we expect that both still maintaining the recently updated accounting standards continued internal control compliance requirement.

And planned system implementations to put upward pressure on financial spread in 2002, and we've got substantial amount of increased cost the mitigated by lower troubling expenses in 2020.

Before we will continue to expect GMI expenses as a percentage of revenue could be that age of 16% to 18% for the full year 2000 at twin.

Net litigation expense was $2.9 million for the second quarter 2020, compared to $144000 sort of prior year second quarter.

Right yet included the resolution of a legal dispute with a vendor, which reduced our outside litigation costs by $1.1 million.

I would say litigation spend is not media and contract each quarter based on litigation activities.

We continue to expect litigation expense to be the range of $13 million to $15 million for the full year 2000 and twin.

Net income was $3.5 million for the second quarter 2020, compared to prior year second quarter net income of 6.1 meter in dollars.

GAAP net income was $8.1 million for the second quarter 2020, compared to non-GAAP net income of 7.3 million dollar for the prior year second quarter.

Adjusted EBITDA was $9.6 million for the second quarter 2020, compared to adjusted EBITDA of $8.5 million for the prior year second quarter.

Dividends on that you can say pretty flat what $3.9 billion payment in kind dividend set are being prepared ship was $1.2 million, an accretion would that be thoughtful discount was $1.6 million for the second quarter 2020.

Basic and diluted net loss per share attributable to common shareholders was five cents for the second quarter of 2020 compared to a breakeven net income per share for the second quarter.

This takes into account costs non cash dividend for the CDC preferred stock.

Deferred revenue as of June 32020 was approximately $218.5 million up 6.7% from $204.8 million as of June 32019.

We ended the second quarter of 2020 with total cost of $73 million than our balance sheet, 45% increase compared to 50.3 million dollar for the prior year second quarter.

Cash from operations was $17.9 million.

Reighteen point $4 million for the prior year second quarter.

Backlog, which include the some of your deferred revenue and non consumable future revenue.

As approximately a $464 million from June 32020.

Up 14% from funded and $7 million. So June 2019.

No. We did expect revenue guidance. We are currently providing that quarter 2020 revenue guidance being the range of $78.5 million to $80.5 million.

We are also raising the low end of full year revenue guidance from $310 million to $314 million.

And kind of you're providing fully into 2020 revenue guidance to be brings up $340 million to $320 million.

We thought operator, we'll now take questions.

[music].

Thank you.

We'll now begin.

We'll now begin the question and answer session. If you have a question. Please press Star then one on your Touchtone phone.

If you wish to be you, mostly Q. Please press the pound time are they asking.

If you use the speaker phone you may need to be to answer first for pressing the numbers.

Once again, if you have a question. Please press Star then one on your Touchtone phone in their first question comes into precluded from Cowen and company. Your line is open.

Hey, guys nice to talk to you today.

Maybe this could be both for SAP and maybe Stanley can can chime in but what I wanted to just talked about the quarter a little bit.

Because.

Deferred revenue growth was a little bit more deceleration that we had modeled so just curious.

Maybe how much of that was from.

Yeah, the bankruptcy impacts and perhaps how much is from deals slipping and taking a little bit longer on the on the sales cycle and.

Stanley just curious if there was any.

On a onetime opt out clause components and deferred revenue to consider.

Sure I'll take that first Derek and then good day.

We of course.

As we talked about the coming into this quarter.

We had certainly growing pipeline run like everybody else. We did have some challenges the disruption in the first month or two in the quarter show I think like a lot of other companies.

People were swirling around and nothing really to do with opportunity had everything to do with clients being in chaos prospects being in chaos and trying to get deals done. So there was certainly a decent number of deals that teed up for the quarter that just didn't get done in the quarter and I had mentioned.

During my prepared remarks about the increase in the the build up of the pipeline for Q3 now all that being said.

We did have some very very good back some record invoicing in the quarter.

Historically the number one when you take a look at our invoicing for customers, who who pay us a year of invoicing in advance.

That number was the highest we've ever seen in any quarter. So we did have we did have good quarter.

We had a lot of good pipeline build for the back half just because of that that timetable and of course, we do have as you know with our revenue.

We met down and we net down that deferred revenue as well for for things, where we have app, that's where we have bankruptcies, where we have any kind of revenue that we're not ready to recognize we will we will netted out and thats why even in the fourth quarter. You remember we picked up a bunch of red.

Revenue that had been cleared out and had had been ready to recognize so you're always going to have those components as well.

Okay, and Derek do onto that.

Yes.

Seed if you really look at <unk>.

Deferred revenue it into the backlog is really grown year over year about $219 million of that backlog was defined revenue, which was 202 a year ago and to have questioned whether we had any contingencies. We didn't have as many of those that we think will be released it was really straight line.

The standard to billings during the quarter.

Okay.

Right I guess is as you think about pipeline in the second half.

Obviously, you've given revenue guidance and we can you can back into Q4, but more from a bookings perspective is that.

Is that something that kind of what we normally see pretty more back end loaded a Q4 Q3 and I guess.

I think you had a nice government when last quarter are there any any government opportunities at Q3 and their fiscal year end the speaker.

There were there are some yes, there are some government deals as well in opportunities and been back.

That continue to grow is as a part of our business. So yes, we do have that I think in general the back half of the year Derek in terms of pipeline.

Is some of the largest pipeline we've ever seen in it make baby reaching record levels.

And again the risks of this pandemic their risks of this economy are not as much about the opportunity I think everyone could put one in one together and say that a company that can provide savings and extend the life of systems, while people are pushing up expense of projects and managing cash.

Cash.

Clearly, we should that we should see upside to that in a market.

The question is really around execution with a lot of these organizations and I'll give you. An example in the U.S., we adapted to work from home and this idea of coming in going back out. The shuttering. Some does this is there is a lot of disruption that comes and goes but were pretty good about me.

Managing it in places like Europe.

If you go into France wouldn't brands went to home environment. They Didnt do work at home they just what home.

They refused to work from home. It was just cultural they weren't set up for it and so Europe Europe has a lot more challenge with the Covance situation ended than longer so a lot of opportunity, but much more challenging the deals that same if you go down to Brazil, Latin America's really struggling as you.

No.

That duration a lot of chaos a lot of people not equipped to work from home and Thats created quite a lot of problems with getting deals done.

So while the environment or demand is high navigating some of these hot spot that that have challenges with execution, that's where you're really at the back half. So that's why you always see us take a very tempered approach demand is strong.

Execution challenges.

Just on a global basis, and we continue to navigate but they can cause some deal slippage is certainly can add time do a deal and the cycles to it.

Yes, thats helpful. Thanks.

Yes.

You did mentioned that you're accelerating investments and you're seeing increased demand and bigger pipelines.

And then.

To highlight in terms of where you're accelerating I mean that way.

More TV ads for any straight.

Sure let area sure I'm wondering how that and are you at the point, where you're you're kind of accelerating sales capacity at or is it kind of trending at similar levels.

I think you're watching US is as we mentioned even last quarter, we think that the opportunity.

On top of what was already grown because you know when we when we did our initial guidance for 2020, we had already come out of it was really a pre co bid guidance. So we had already seen the growth that we're turning around we went ahead and we talked about an accelerated growth in 2020 coming off the bottom end of.

Correct.

Starting to re accelerate as a percent of revenue.

In terms of the growth side, we saw co that add to that.

We're going to continue to I think you accelerate and expand our investment in the revenue generating engine of the business as I went through in the prepared remarks, you when we've been making significant investments in product service portfolio building out and even talking about how you see us upsizing existing CLI.

Science with major wins I wanted to give you some sample of that and I think that the combination of which gives us good tailwinds for growth and we're going to we're going to get an investment more in sales heads were going to put it in more marketing you seem to television advertising. Its global we're also we launched a brand new website, if you haven't.

In out there, it's a completely new platform.

It goes along with our passing through for specific roles that we're selling too. So we're making a lot of big marketing investments to reach out the phone is ringing and I can tell you. We have the highest website volume and visits we've ever had so that is that is showing a great trend the phone is ringing.

More than it ever has so I think that all of that is showing that the marketing investments, we're making are paying off.

The execution now is really about working through the co bid world and making sure that we can execute on all the opportunity out there and like I said this pockets of challenges and we're going to continue to push and work through it but we think it's all very positive for the back half.

Good good last one from me.

So you guys announced a new seat COO.

What are some of the initiatives that you'd like to see him push forward.

Well I think as most people know first you took 12 direct reports for me, which is a great thing.

And we're excited to have them I mean, he had Gerard has as youve seen in his and bio a lot of experience for Brac space in HP and he is he is taking on the field operations. So thats, allowing me to free up on a lot of other things as you can imagine take.

Turning over that number of direct reports.

And is doing very very nice job, he's a seasoned executive in operations and he'll he'll be able to spend more time and focus on field execution, which is again ramping sales reps building out the revenue operations focused on retention.

Hi, working with our global clients executives to make sure that our clients are our even happier buying more all those things are falling into Gerard space as well as overseeing the SAP and Oracle product lines and he has lot of experience in that area. So it's great to have them onboard these making.

The difference already and and we're just excited to keep building out the executive team and as you know Derek I mean this is all about scaling as it remains street move from.

100 million to 250 million to.

Pushing through 300 million as we continue our acceleration to 500 million in a billion we have to adding additional executives.

Two again focus on that scaling and that is a global scaling initiative.

Very good thanks for the color.

Thank you.

And our next question comes from Brian Kinstlinger fairly hyun global partner.

Hello, Brian Thanks, so much.

How are you.

Great.

So you mentioned.

Condemns questions several contract for keyed up.

Didnt happen given the pandemic that mean, the customer generated we opt for a year with the OEM and those opportunities for those specific customers are now pushed out by a full year.

I would say that some some of them did but again very unusual types with this.

With the pandemic.

Lot of those deals, we're able to push into the third quarter without re upping with the software vendor.

Interestingly enough something we hadnt seen before.

In terms of any kind of trend, but a lot of the customers decided to go self support on an interim basis, because the reason they didnt get the contracts done where their internal operations and they figured that it would take them maybe a few more weeks, maybe another bond and they decided rather than.

With the vendor.

Good number of them just decided to go without any support and try to wing it themselves for a few weeks and you know with US out there is certainly an emergency backstop, because we're working with them to complete contracts I think it's a different kind a scenario, where they're working to get it done they just needed more time to get through all of.

Cycles.

For it so I think that again that bode well for a good number those deals to just simply slip over the line.

Into the next quarter.

Great. Thanks, that's helpful. And then if I look at your press release, all the no new logos you when were part of eight pack and then I think your comments highlighted the strongest growth rates were in.

Asia Pacific can you talk about the success, you're having there to what do you attribute to attribute the accelerated growth rate is it better work from home infrastructure is it more salespeople is it.

Smaller numbers.

I think Asia Pacific has just been a machine.

And they have we've continued to expand out there I think also you know what I'd put that to some of this Brian is they have cope with co bid better than a lot of parts of the world because they went through Sars et cetera. So deals in Taiwan were Taiwan is operating well.

We're not talking about core China here, but.

We're talking about you know down it Singapore, Malaysia across Korea, where were very strong Japan very strong. So I think a lot of it had to do with their ability to execute through sort of the global chaos, but it's been an up and coming a theater for us and has been leading.

Global expansion for awhile.

Now our friends in Europe of course wanted to challenge that they want to they want to grow they have the opportunities to grow there just now, let's try and as I mentioned, especially France and a few other countries, yes, very hobbled, where we do a lot of business traditionally very hobbled by the fact that businesses are closed and and they're not working.

From home and that makes it really hard to get a lot of deals done there right now and it's taking months due to really get back to any kind of functioning normal for places like brand. So Europe Europe has to deal with some of those challenges, but they're coming along their growing their operation Latin America.

Our new we saw announcement, we put a new GM.

Margin, Mexico, and Central America lot of opportunity in that region as well, but hampered by coven right now so again opportunities and challenges you get through it. So I think you're going to continue to see a back probably lead for a while because things are just eat.

Year to gets done over there right now, but I think you're you're going to watch the rest of the global community, which is done fairly well pick up as as they normalize through the code that situation.

Great and then can you highlight the demand you're seeing put a relatively new applications management service offerings. I know you commented on it.

What percentage media revenue is it today and has that could pandemic hurt helped or had no impact.

Do you think on this offering.

I think am mass is a is a very service revenue stream to come.

You know.

What we've talked a whopping before we did you not before we Brian and I am very conservative about these big new product introductions of they're going well.

It's a very happy but service.

Bill.

Value that we wanted to and we wanted to make sure that all those things work the way we expected them to before we go and large scale execution.

And I've also talked before about the fact that it's a it is a different sale to different sales motion than our current support and we're still working through some of the go to market on a global basis as we pick up new countries and we've expanded to new countries, providing the service, but there's still work can be done.

And so we're taking a very carefully and that's why we're not breaking it out yet we're not guiding anything we're going to provide additional.

Information with press releases with client case studies that will help everyone understand it but we're still we're still in more of a launch phase then a full production phase because it's a pretty extensive product line and you've seen that we've been adding people. That's one of the reasons to gross margin primarily is down there.

Because we've added a lot of bodies into the mass side and that will continue to suppress gross margin on a blended basis, while of course, our existing support product continued to improve gross margin as an offset.

But yes, we've got that we've got to pay our way into it for a little bit and but I'm I'm still very very bullish on the product line and and I think you'll hear more about it from us coming up quarter over quarter.

Great last question I have is on price clearly you've had to get some concessions to help struggling customers out there.

Assuming those customers survive and stay with you will price be a.

Couple of point benefit next year can growth do those do those prices come back when those customers are stabilized or do you think will remain a little bit lower.

I think we've been taking a pretty good approach.

To to the way we've handled at what we did with our teams who as we laid out just like everybody else and I'm sure every other company you're talking to every every one is beating up their vendors to get some discount in this day in and Thats, just the way that whether they needed or not they're doing it and we set out a very rigorous program.

Always had a rigorous renewals and price management program.

Which has allowed us to manage that kind of of margins and delivery that we have now when it comes to helping clients, we set out a list of.

Priorities and we tell them.

First let's talk about what is the issue is a cash flow right now if its cash flow right now maybe we give them quarterly payments for this year, but we don't try to amend contracts for long term periods, we really say how can we help you right now with your current emergency situation do we need to delay the payment due.

We need to just give you quarterly to help with cash flow and we work our way through it without trying to get to any kind of discount to the product because again. This time will pass and what we don't want to do a set low watermark some change pricing and then find that when the economy comes back two years later, you're set at that low.

Watermark. So we're very very good about that and so will work closely to find the best matter. The other thing. We do is we will work to get something in exchange for something our team is very good about that and so if we're going to give quarterly payments or we're going to do something to help them through this we will ask or something.

And return often an extended contract and we have increased the extended contracts as you know.

70% is non cancelable for at least 12 month.

We have added a lot of multiyear agreements in return for some of that help. We also will last for case studies, we will ask for special referenced the things that help us sell additional customers. So I think because of that just because we take a little bit a hit maybe in the money or some of the cash flow as you've seen where at record cash.

Numbers, because we're very diligent on collecting cash and managing cash. So I think the combination of what we've done will yield big benefits for us and I think you're not going to see long term impact because of the help or giving clients today.

Great. Thanks, so much all your time.

Sure.

And your next question comes to Mark Schappel from benchmark. Your line is nothing.

Hi, Good afternoon. Thank you for taking my question suck.

Shared remarks, you mentioned that the competition from S&P and Oracle remains fierce I was wondering if you're seeing discounting from these vendors are above and beyond the norm as they try to keep your customers on maintenance.

I would say yes.

There's always been despite denials from from them, there's always been a certain amount of.

Of discount and it often gets more frantic as the customer.

Reaffirms that they plan to move to us so there's a theres been a long history of that that we have.

Add in the sales cycle.

But do I see mager discounting more aggressive I think it's on the deal by deal basis.

Some of the deals we took in the quarter.

Multi multimillion dollar deals for these guys and and into that gets a lot of attention.

Within the software vendor and I would say on those deals. They they worked very hard to try and keep them with additional discounts as part of the mix.

But obviously we were were very good at helping clients understand that even if they drop their prices, even if they matched our prices on a on an annualized basis, because they require migrations and upgrades they can't get the kind of support that we're offering.

Nation of which is even for the same money we offer a better overall return value and I think that's that's key because they have come in and occasionally they have tried to match our price exactly if you can imagine that coming 50% off and on the clients say no we prefer that.

Value mix and and we think we're still getting a far better return on the investment by going to remaining street. So that's that's all part of our sales process.

Great Thats helpful. And then I realize the company continues with us and sales capacity in particular as we go occur as you grow after your remark opportunity, but what's the thought on on margin expansion or operating margins going forward.

I think in terms of expansion.

We've given the guidance in terms of the range, we're gonna be bringing down overall, we're going to be bringing down sales and marketing expenses, we said sort of the mid term vision is that mid thirtys number.

We are bringing down gionee and over that 12 to 14 type number I mean these are all we know where we want to go we have to make some investments now and I think as you well recognized because we had been held back so long on sales and marketing investment just due to covenant on the price.

Prior financing that were released only in an 18 2018 mid year.

We're still in the process of catching up to get the the growth engine back to where it was and I think you go back and you look at a few years and numbers and you look prior to that that financing, where we got constrained down to 31% sales and marketing it takes a little while still to build up and reignite.

The engine and I think you're going to you're seeing the numbers already reflecting results from that process and I think the goal here is to continue to make the investments to take advantage of the market. I mean, we do have we are over 80% of the as a third party market, we want to continue that expansion.

We want to continue that growth and I think we're doing the right thing and continue that investment now good long term will hit that mid Thirtys. So I think we're we're going to have the right mix of cost and flow a lot more money to the bottom line as we've been committed to doing.

Great. Thank you that's all from it.

Sure. Thank you.

And as a reminder to ask a question entered the Q. Please press Star then one and you touched on some.

I wanted to enter the Q.

Hi.

And we have no further questions I'll turn the call back over to presenters for final remarks.

Great. Thank you very much and thanks, everyone for for attending the call today.

Look forward to our next call. Please stay safe out there obviously this is.

A dangerous constantly changing situation in the world and we look forward to add to having another call and hopefully better times. So thank you very much everybody appreciate the time today.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating as you may now disconnect.