Q4 2021 QAD Inc Earnings Call
Good day and welcome to the QAD financial results for fourth quarter fiscal year 2021 conference call. All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone withdraw. Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to care of Bellamy. Please go ahead ma'am.
Hello, everyone and welcome to today's call before we begin I'd like to ensure that everybody understands that our discussion may contain forward looking statements that are based on certain expectations and analyses such.
Such forward looking statements are subject to risks and uncertainties.
Could cause actual results to differ materially from those anticipated.
QAD 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 to Qad's 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 pretax income, which is the non-GAAP financial measure as defined by SEC regulation G.
A reconciliation 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'll turn the call over to our CEO Anton Chilton.
Thank you Kara.
Good afternoon, everyone and thank you for joining today's call to discuss QAD fiscal 'twenty, one fourth quarter and financial year results.
Joining me on the call Pam Blocker, <unk>, President and Daniel lender Chief Financial Officer.
Building on the momentum carried over from our third quarter I'm delighted to report another set of good results across the board.
Our growth in subscription of 24% when compared to the same quarter last year improvement in our subscription gross margins of 70%.
Moving professional services margin to 11% on moving up our overall margins of 62% were particularly pleasing to see.
Those improvements compounded on the performance in prior quarters drove a substantial increase in earnings for the full year.
While our annual cloud bookings were at 87% of last year, given the context of the macro level, we feel of our sales performance for the year was strong and we posted our second highest cloud sales result on record.
I'm proud of the close of the year, we were delighted to announce the acquisition of allocation network.
Best of breed provider of supply management solutions based out of Munich in Germany.
A great addition to our integrated supply management capabilities, which I'll talk more about later.
And one of the most difficult and challenging as we've ever seen keeping sales momentum going driving our sales pipeline to record levels delivering implementation of an upgrade projects remotely and making margin improvements across the board was impressive and I'm exceptionally proud of what the QAD team has managed to deliver.
I'll now turn it over to Daniel to discuss the details of the financial results.
Well, thank you on top.
Our solid fourth quarter results rounded out a successful year in spite of the challenging environment subscription and maintenance revenue came in ahead of our expectations in part due to currency tailwind.
Pre tax profitability grew substantially from last year's fourth quarter and from the fiscal 'twenty, one third quarter as the result of our initiatives to expand margins and continued focus on cost controls.
Subscription margins improve the another three percentage points from the same quarter last year to 70%.
And professional services margin improved nine percentage points to 11% driven by our ability to deliver remote implementations our focus on managing white space.
And the ongoing strategy of building and utilizing our part of network.
Currency had an approximate $1 5 million of positive effect on total revenue compared with last year's fourth quarter.
And $1 2 million of positive effect compared with the third quarter of fiscal of 2021.
Profitability was favorably impacted by 300000 versus prior quarter by the words, a negligible impact versus prior year.
Due to fluctuating currency during the year there was a positive impact to total revenue in the fourth quarter, but of negative $1 2 million impact for the full year revenue, including the three Henry the negative impact on subscription revenue.
Total revenue for the fiscal of 'twenty, one fourth quarter grew to 83 million from $78 6 million last year.
As a result of higher subscription revenue, partially offset by lower professional services maintenance and license revenue.
For the full year total revenue was $308 million versus $311 million.
The current revenue accounted for 78% of total revenue for our fiscal year.
Subscription revenue growth continued to accelerate improving 24% to $35 5 million.
Subscription revenue now accounts of 43% of our full business up seven percentage points from last year's fourth quarter.
For the year of subscription revenue increased by 22%.
I will now review our annual cloud metrics.
FY 'twenty, one annual bookings were 87% of the prior year bookings.
While the first three quarters of fiscal 'twenty, one we're on par with the prior year, we were not expecting to match our fourth quarter bookings from last year as those were exceptionally strong.
The level of new customer deal affect the bookings as we talked about it earlier in the year sales cycle for new customers were impacted the most during the pandemic and as a result of those cycles, we're linked debt.
New cloud deals for fiscal 'twenty, one were 95 include.
Including 48 from new customers and 47 from convergence income.
In comparison on the prior year, including 119, new cloud deals.
New cloud deals for the fourth quarter were <unk> 32 versus 37 in the prior year, new customers were 14 versus 'twenty and conversion of 18 versus 17.
Subscription billings grew by 18% for the fiscal year with the three year CAGR of 21%.
Our short term deferred revenue balance included $56 3 million of deferred subscription.
Versus $45 7 million of the prior year on increase of 23%.
Annual subscription revenue grew to more than $131 million.
Our net dollar retention rate, which we calculate by comparing the revenue of each customer from a year ago to the revenue of the same customer in the current year was 105% for the fiscal 'twenty one as.
As we expected on discussed early end of the year the rate of add on sales to existing customers slowdown due to the pandemic.
Retention rate continues to be nexus of 95%.
Maintenance revenue was $27 2 million for the fiscal 'twenty, one fourth quarter and $1 6 million declined from last year the.
Related mainly to cancellations on client conversions.
Our maintenance retention rate remains in excess of 90%.
However, I remind you that because some of our customers were and continue to be impacted by the pandemic. We did see some increase in maintenance cancellations or maintenance revenue reductions, particularly early in the pandemic.
For the full year maintenance revenue declined 9%.
Professional services revenue totaled $15 1 million versus $15 9 million for last year's fourth quarter.
The up slightly on a sequential basis.
For the full year of professional services revenue declined 15%.
This revenue decline was planned and consistent with our focus on building, our partner network and improving and sustaining margins.
Our services margins were stable throughout the year, reaching the high of 11% for the fourth quarter and 7% for the year.
License revenue for the fiscal 'twenty, one fourth quarter was $5 2 million versus $5 3 million in last year's fourth quarter with sales, primarily coming from existing customers purchasing new seats or modules.
For the full year license revenue declined 33%.
With our sales efforts focus on the cloud, we do not expect a meaningful increase in year over year of license revenue in the foreseeable future.
Total revenue by vertical for the fiscal 'twenty, one fourth quarter.
On the automotive, 28% high tech and industrial of 37%.
Life Sciences, and other 18% and consumer products on food and beverage 17%.
By geography total revenue was fairly consistent to last year with North America at 48%.
EMEA of 31% Asia Pacific, 13%, and Latin America, 8%.
Gross margin for the fourth quarter of fiscal 'twenty, one improved to 62% up from 58% last year, primarily driven by improved subscription and professional services margins.
Sales and marketing expenses totaled $18 4 million or 22% of total revenue versus $21 3 million or 27% of total revenue for last year's fourth quarter.
The majority of the decline was due to reduced travel on bonus expense.
R&D expense equaled $14 7 million compared with $13 2 million of four of last year's fourth quarter.
The increase in R&D expense, mostly related to higher personnel expense due to higher head count.
As a percentage of total revenue R&D increased to 18% from 17% for the last year's fourth quarter.
G&A expense was $11 million for the fiscal 'twenty, one of the fourth quarter compared with $10 4 million from last year's fourth quarter. The increase in G&A expense, primarily was due to higher stock compensation and professional fees.
As a percentage of total revenue G&A expense declined to 13% from 14% from last year's fourth quarter.
Stock compensation expense totaled $4 1 million for the fiscal 'twenty, one fourth quarter and $3 million last year. The increase was partly related to higher PSU achievement.
This brings operating income to $7 3 million compared with 350000 last year.
For the quarter GAAP pre tax income grew to $5 9 million from 800000, a year ago on non <unk>.
GAAP pretax income was $10 1 million compared to $3 8 million last year.
For the full year GAAP pretax income was $10 8 million compared with $3 $6 million GAAP pretax loss of last year on non-GAAP pre tax income rose to $25 5 million from $8 4 million a year ago.
We incurred a tax benefit of $2 3 million in the fourth quarter of fiscal 'twenty, one we reversed our valuation allowance of our German subsidiary during the quarter as the result of the acquisition of allocation network.
Providing us with the ability to use existing nols to offset taxes out.
We ended the year with approximately $143 million in cash and equivalents compared with 137 million at the end of fiscal 'twenty our.
Our cash balance remains very strong even after the completion of the allocation network acquisition in the quarter.
Cash flow from operations for fiscal 'twenty, one total $32 9 million compared with the with $17 million last year, the increase directly related to our improved profitability.
Accounts receivable was $82 6 million as of January 31, 2021 versus 81 million at the same time last year.
Day sales outstanding using the Countback method was 47 days for the fiscal 'twenty, one fourth quarter versus 45 days for the prior year quarter.
Our short term deferred revenue balance on January 31 was $125 7 million per.
The $118 4 million a year ago.
Now I'll provide an update on guidance for next year.
As a result of COVID-19, we implemented a number of cost saving initiatives. The resulted in significantly reduced travel expense the cancellation of in person customer events and reductions in discretionary spending throughout fiscal 2021 as the.
The global economy to emerge from the pandemic, we do expect to see travel on customer related events to pick back up but not to the historical levels.
We and our customers have adapted quite effectively to engaging remotely during the sales cycles and implementations of our solutions.
We will continue to monitor the cost containment measures, we put in place during the pandemic focusing on improved profitability going forward.
Given the stabilization of the environment, we are reinstating our prior practice of providing both quarterly and yearly guidance.
For the first quarter of fiscal 'twenty, two we expect subscription revenue of $36 5 million maintenance revenue of $26 million breakeven operating income, including stock based compensation expense of $3 7 million.
For the full fiscal 2022 year, we expect subscription revenue of 160 million maintenance revenue of $102 million in the operating income of $12 million, including stock based compensation expense of $17 million.
In addition to our first quarter guidance. We have also updated our five year strategic targets and have posted them on our website.
Our long term model calls for 27% to 30% three year CAGR in subscription revenues.
Subscription margin improvement between 70 and 72%.
The improvement in total gross margin to between 61 and 63%.
Efficiency gains in sales and marketing expense to between 18 and 20% of total revenue R&D.
R&D expense to between 14 and 15% of total revenue.
G&A expense of between 9% and 10% of total revenue and this would result in adjusted EBITDA of between 20 and 22% of total revenue.
And we assume a long term tax rate of approximately 25%.
Now I'd like to turn the call back to you on upon alright. Thank you Daniel.
So you might remember from our last call. We reported success in our goal of pulling forward cloud deals from a fourth quarter into our third quarter.
That success combined with the longer sales cycles for new customer deals related to the ongoing challenges on the macro environment men of fourth quarter bookings as we expected came in lower than prior year.
Nevertheless, given the exceptional strength of the prior year quarter and in the current context, we consider it a strong sales performance for the year and as I said earlier allowed us to post the second highest ever cloud bookings results.
Consistent with our third quarter, we saw a representation of each of our key vertical markets in the cloud sales mix and it was good to see healthy levels of activity in all our focus verticals they're on.
We're still a few sub segments in those vehicles that are having a tough time, but those tend to be companies, serving the travel and hospitality industries Pam as usual defied some more color on some of those details shortly.
A good indicator on the continued recovery as the lessening of pressure from negatively impacted customers on maintenance renewals through the last quarter on retention rates are still above 90%.
From a geographic perspective, North America continued with good sales performance and had a solid quarter on cloud bookings, our EMEA region posted good sales too, especially in light of the Lockdowns, which occurred in many parts of that region midway through the quarter.
Asia Pacific and Latin America had quiet quarters, and the slow pace of business activity in China was still a pattern of.
As discussed on the last call. It remains unclear whether this is as a result of COVID-19 or trade relations between the U S and China or some combination of the true and we continue to monitor the situation on the ground very closely.
On precision on Don assist Division finished the year strongly both in terms of sales and a growing pipeline of for FY 'twenty two.
The pandemic continues to highlight the importance of logistics and supply and demand chain planning.
While our overall results and sales was strong we nevertheless maintained our vigilant focus on management of expenses across the entire business.
This continuous effort helped us improve our profitability, yet again and as highlighted opportunities to extend deficiencies in our business post the pandemic.
As discussed in prior calls, we do not anticipate Richard enterprise spend levels in travel and also see opportunities to reduce our office footprint over time.
With cloud margins improved yet again, reaching 70% up 3% over the same quarter last year, we've hit all state of target and done so ahead of plan.
The professional services side of the business continued the long run of positive margin results, which improved again to 11%.
We also saw an increase in activity over the early of part of the year and we were particularly busy in Europe through the holiday period.
Our focus remains on working closely with the partner community and continuing to drive improvements to our bottom line.
Looking at future opportunities, our competitive strength continue to attract new customers to the QAD cloud and while the number of new cloud customers closed in the quarter was not as high as the prior year due to long sales cycles. As a result of the pandemic new customers are strongly represented in our sales funnel.
I was delighted as I said earlier to announce at the end of the year our acquisition of allocation network based in Munich, Germany.
With the customer portfolio across a broad range of verticals, including companies like BMW Rosa, adding a vice Brough, Samsung Siemens and folks of organ. This best of breed provider of supply of management solutions really rounds out our capabilities in this area and is hugely complementary to existing solutions portfolio.
The pandemic and its effect on supply networks has put in sharp relief the need for manufacturers to have robust integrated supplier management capabilities.
With the addition of allocation network, we're excited about our prospects in this space globally and also it's on how have a much stronger direct footprint in Germany.
Our sales pipeline continues to develop strongly with our weighted pipeline at the present time up 33% when compared to the same time last year.
Unweighted pipeline value is now more than double what it was this time last year, increasing by almost 110%.
Both weighted add on weighted pipelines of our organic new record levels, indicating a healthy medium to long term sales outlook as a result.
What is also really pleasing is that within those increases on new customer pipeline has grown by 90% continuing to demonstrate the value of the investments we've made in lead generation and the new business area.
With the vaccine rollout programs now underway in most major economies and with the global manufacturing PMI of $53, two and output now having risen for the eight straight months, we're increasingly bullish about the medium to long term prospects for the business.
We finished our fiscal 'twenty, one very strongly and given all the indicators we feel good about fiscal 'twenty, two and our long term targets.
I'll now hand over to Pam for more detail on color on our cloud customers.
Thanks, Tim Tom Q4, always the good third quarter, particularly the cloud with 32, new cloud bookings.
From conversions.
The team from net new customers.
While the quarter was more heavily weighted towards the comparison, we believe we will continue to hold the 50 50 between comparisons of net new bookings.
We've seen historically.
We spend the next few quarters.
All of the activity perspective, all regions contributed to Q4 bookings with North America, and Europe, performing exceptionally well.
In Q4, all verticals, providing booking lab revenue with industrial electronics led the way followed by honestly by lifestyle.
Given we are reviewing our year end I thought I would take a bit of time to talk about ex cloud customer base.
Several years ago industry analyst told us the most manufacturing in the enterprises, especially larger one.
Not consider moving their ERP to the cloud.
Operations are mission critical and need to be.
Often times 24 of <unk>.
Well, we agreed with the mission critical requirements. We also felt that due to the global nature of manufacturing enterprises, most companies either of Ronnie and internal private cloud are considering moving Sean.
So moving to the QAD cloud would be of logical step. We believe our success has proven us right now.
Looking at our customers no customer represents more than 10% of our cloud revenue, while many customers are increasing their spend with that day.
Moving to the overall growth and addition of new customers. We expect this will continue into the future, but no customers going forward, representing more than 10% of our clients.
Revenue.
Our top 25 revenue customers represent to all of US on further calls with Ottoman all of that followed by life science and industrial the largest percentage by count the half.
Company revenue.
Top 25 customers, there's 12 billion per year certain line. These are large global companies.
The small smallest 50 customers also represent all of verticals with life science being the largest percentage by count of 35%. Many of these life science companies are in the pre products stage the.
The average company revenue for our small as 15 customers is $22 million per year heavily weighted by these life science companies, many with zero or very low.
On the revenue.
Manny from vaccine company.
On the insurance or government entities as manufacturers Brown, they tend to grow globally opening manufacturing sales and distribution centers and more and more of locations in the countries.
Global companies have complex requirements, including support of local laws business organization also signed joint venture of integration since.
Carroty share services and ease of M&A and divestitures all of the pledge QAD handled very well and our cloud offerings. The.
Only constant is change and the pace of change is accelerating and talking with prospects and customers. We highlight the decreased longevity of companies on the S&P 500.
The key point here.
It is no longer of criteria for survival and in fact maybe of liability.
The companies are often hard to move and to Austin legacy ERP hold them back.
Every large company that falls off the S&P 500.
Place with the smaller company that is growing well.
Well there is a liability to be in bed smaller companies face other challenges there would be a mistake to think smaller means simpler smaller companies need to compete against the larger component company competitors and the complex global marketplace and the cross similar supply chain bottlenecks.
The resources.
This makes the need to efficiently manage their business more and more critical going from one to two site is comparatively more challenging things all line from 50 sites. The 60 sites. Likewise, the same is true from going global the first acquisition the first divestiture the fair.
<unk> New line of business is comparatively more challenging and subsequent line. These are all areas that QAD and help those customers then have lots of established services engagements in that area.
Doing something for the first time in the global environment, not only requires the capabilities of the lion share businesses that have done it before but that also requires a greater level of the process and system flexibility.
I'll focus on manufacturing QAD.
It can deliver the EBIT capabilities to both large and smaller companies without the complexity and systems alone debt more than often.
Becomes overwhelming.
Of our welding and limits.
I think we have proven that by looking at our success in our customer base, but it's very small and very very large companies using the QAD com back to you Anton.
Alright, Thanks Pam.
Alright, so looking to the future we're growing increasingly confident about on long term goals and have taken another solid step towards them with our fourth quarter and full fiscal year results.
Last year, we did set out on long term goals putting of heavy emphasis on cloud growth, while improving bottom line performance and it's pleasing to see our investments and efforts in those areas continue to pay off.
Our pipeline growth, especially in the context of the pandemic demonstrates that our lead generation strategy has legs and reinforces the growing attraction of events price cloud solutions from manufacturers on the global scale.
From a product and professional services perspective, we remain committed to delivering enterprise cloud solutions to global manufacturers the support the needs to deal with change uncertainty and disruption on a continuous basis.
Our acquisition of allocation network underpins that commitment.
Following on from the success of our virtual full extreme event QAD Tomorrow last September and our launch of the adaptive manufacturing enterprise vision, we will be hosting of second event in may focus specifically on the challenges global manufacturers face in today's complex supply chain.
As the disruption brought about by the pandemic and issues such as the recent global shortage and chips that share.
All of cannot potato has demonstrated manufacturers' need real time visibility on agility across the entire networks and instead of individual suppliers, that's exactly what the event we'll focus on.
While COVID-19 cases, spike sorry case spikes continue to occur in various parts of the world short term uncertainty does remain a lingering but diminishing factor.
We remain vigilant of course on continued to keep a close eye on the key business trends and new business sales cloud conversions from renewals with existing customers.
But as things stand right now without eight months of growth in global manufacturing on a strong pipeline, we feel increasingly positive about the year ahead and in good shape to drive another year of concrete progress towards our goals.
Operator, we're ready to take questions from analysts.
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 youre using a speakerphone. Please pick up your handset before pressing the keys and to withdraw. Your question. Please press Star then two and at this time of a pause momentarily to assemble our roster.
And the first question will come from Bhavan, Suri with William Blair. Please go ahead.
Of any of you on mute.
Just checking.
Moving to Brad.
Chuck why don't we weighted to the next question.
Got it excellent. Thank you and then we'll get back a lot back on next.
Okay. Our next question will come from Brad Reback with Stifel. Please go ahead.
Great. Thanks very much on.
Thanks for all of that color on the cloud really helpful.
As you look at your five year target of 227 at 30%.
Subscription or cloud CAGR.
Should we think about the acceleration there from where we are today is that going to be a combination of.
Conversions and new customers or do you see it skewing, one way versus the sort of 50% the fifth.
The 50, we've seen historically.
Alright, Thanks, Brad Yeah, I'd say.
<unk>.
For the short to medium term, we do expect that sort of 50 50 mix by deal count to continue of course.
So the time.
Of converted more and more of our existing customer base and so.
Medium term so lets say.
18 months two years out we should start to see a bigger skew towards the new customers.
And that's what we'd expect to see.
That's why we've been investing in lead generation around new business to make sure of that pipeline is really strong by the time, we get to that point that we needed to be.
Okay and on that latter point in time have you seen the complexion of confer conversions begin to change at all over the last several years, obviously you've been at this very successfully for a long time I'm. Just wondering if customers today that are moving look different meaningfully then those debt moved three or four of five years ago.
Yes, I think so I think there is.
A few things there I'd say, Brad so first of all.
The cloud.
It really took off the first of all in North America that was followed by EMEA and then more laterally by Asia Pacific and Latin America.
And so there's still I'd say the momentum is really strong in North America continues to be so.
And so from that perspective, we might be closer to the top of the S curve if he likes on.
Say in other parts of the world, but there's still a long runway the.
And then EMEA kind of is a bit behind that and so on so yes, we think.
Moving forward.
Pandemic is also underpinned I think the.
The benefits of having the systems in the cloud you don't have an ITT on that needs to look after the new guys. You worry about datacenter staff on the availability and all of that stuff's taken care.
For you and then you think about security complications and those continue to Mount shop, and become more of more complex and having someone else deal with that I think is.
On a real benefits of those customers too and of course finally, just recognizing that they can then focus on their business of running their business and adapting to all of this change in supply chain disruption and so on.
Put all of those together I would say there is momentum building there.
Which encourages more and more of the existing base to consider moving to the cloud for the foreseeable future.
That's great thanks very much.
Thanks, Brad.
The next question will come from Bob on theory with William Blair. Please go ahead.
Hey, guys. This is Charles again can you hear me.
Yes.
And on getting on Pam. Thank you so I actually wanted to touch a little bit on the large deal activity on the <unk>.
The ability.
If the law of do you like to hear the great strength from guidance.
Just on the signing larger deal like what was the driver there I'd love that.
We've talked about cross sell and we've talked about the.
The adaptive ERP like what is driving yet from the larger labs the.
Spans and then how should we think about the ability to screen that I was the ability to keep volume going forward.
Yes, thanks for that.
So I'd say first of all.
Certainly global manufacturers recognize the challenge of working in today's world.
With the speed of change adapting business model and so on.
I'd say.
The older generation ERP is not really help them.
Move systems of pace with business model changes and certainly with QAD adaptive ERP they get that opportunity.
So that's one driver.
The other is when competitively many global manufacturers of always considered SAP.
In the past as the first choice.
With the activity of.
The launch of basketball of Hunter, if he is ago no migration passage of full implementation.
The candid look for alternatives and viable alternatives in QAD on a global scale is one of the very few of those and so we've definitely had some success there.
That is compounded by.
The realization that the economics and the time to benefit of choosing QAD solution over a larger competitive like S&P.
Orders of magnitude better so the.
Ability to roll out much more quickly get that time to benefit and subsequently keep that application of up to date is all driving that and.
A lot of those customers the Pam talked about made decisions for the reasons I've just spoken about and many of those that were on our site strategy you have of long term goal of replacing.
Their footprint.
Footprint with QAD, and we will continue to drive that so we feel like we've got a lot of runway in that space, both with new customers looking for an alternative on existing customers that continue to drive out into new divisions and expand that QAD footprint.
I think that's really helpful. I think the question is that the banks for a follow up as well.
Where do you think the SAP the forced migration ends up being a tale of let me talk levels on the MBR.
On the earnings calls.
It will be I was hoping of doing a force migration.
And it's been a tailwind on how do we quantify that tailwind the UN Pam talked about it seem has seen the shift.
Help us think through what that means number one per quarter of year over the next three to five years. What do you think that plays out as for the cloud growth from the business for new logos.
Yeah, I think it's going to be a significant portion of our gross.
I.
Don't want to give you a percentage of at this point, but I think for two reasons.
Sean.
I could share Daniel staring at me as very intensely right now sure.
Yes.
So yes, I think a couple of things that are going to drive that right. So first of all just building on the back of our existing success and then getting that story out there and then you know.
More and more of the manufacturers that it may be today, postponing that decision to move from ACC, six and thinking and planning about what they do well every year that goes by that as of yet.
<unk> system is all of the more customization the more issues with it on so I think we will see this double whammy in our favor of <unk>.
More and more success more and more awareness of what QAD can do and the.
Then the sort of burning platform, if you like in the and the need to get off all of the systems as times goes time goes by.
I appreciate the candor.
Ultimately, we think about this cloud transition that you guys are well positioned I think on both tailwind the interesting and I. Appreciate you youre not willing to give color on the 200 bps of three of those but.
It's something as you guys.
We thoughtfully.
All of us to get color on thanks for Canada I appreciate it. Thank you for taking my questions.
Thanks, Bob.
Okay.
Again, if you have a question. Please press Star then one our next question will come from Kevin Liu with K <unk> Company. Please go ahead.
Hi, good afternoon, and congrats on the strong finish to the year.
First question I had here was just in terms of sales cycles have you seen those start to return back to kind of the cadence that you saw pre COVID-19.
Is there still some hesitation out there amongst your customer base.
Pursue some on larger transformational deals.
Yes, thanks, Kevin.
Certainly as we talked about in the fourth quarter.
I think particularly not exclusively but particularly given.
<unk> K spikes in a number of countries in Europe.
We saw some hesitation and therefore, some lengthening of sales cycles.
The good news as those of the lengthened rather than completely cut child.
And so I think there's still good opportunity there.
If we look geographically first of all then I would say business activity has been strongest in North America and the desire to keep transactions moving has been strongest.
And so.
The the effect is diminishing more quickly in North America, followed by Europe and the.
Then Asia Pac of Latin America, which.
It seems to be growing at a slightly slower pace.
But we have seen increased levels of activity in the Asia Pacific region.
Over the last couple of months and so we take that as a positive sign that the that's starting to catch up now too.
If you look them vertically.
There is good activity across all of our vertical markets with the exception of some narrow sub segments within each of those I talked about those earlier sort of anybody that serving the transportation or certain elements of the transportation industry or certain elements of the hospitality industry day might be struggling we expect that to continue for some time until really the whole vaccine <unk>.
Graham is substantially complete on a global basis, but outside of that yes, we see a lot of positive momentum.
Got it and just maybe related somewhat to the private question on SAP, but I. Just wanted you to talk a little bit more about the doubling in kind of the unweighted pipeline. What are some of the drivers around that is that really just kind of that force migration that spread and a lot more interest or you know as the pandemic.
Prompted the folks.
Look a lot more on kind of digital transformation across the board.
And then more specifically to the organization given the size of the pipeline and where you're still you're still seeing in terms of the sales cycles. How are you feeling about the size of your go to market organization, whether you should be investing more aggressively in the.
Across the year.
Great. Okay. So few questions on so we think about sort of pipeline growth, it's really a combination of factors. So.
As we talked about a few minutes ago.
More and more customers are encouraged by the benefits of cloud and so existing customers make up a good portion of that pipeline.
Thinking about moving from their on premise of QAD environment to the cloud.
A good portion of our lead generation focus that we invested in over the last sort of 18 months two years.
Has been around new business and so I think we're seeing just a combination there of the fact that we are out and we're putting real effort into finding leads and opportunities together with some of the examples you use some of the pandemic has really highlighted a whole range of reasons why cloud in cloud ERP and <unk>.
General make sense from manufacturers.
<unk> chain disruption. So you got a lot of interest in our supply chain products today.
Things like the mass supply chain planning global trade and transportation execution.
Playa management as part of that.
That's all fueling that sort of thing as well.
So it's really a combination of all of those factors coming together.
<unk> helped that increase.
In terms of go to market model, we're pretty comfortable with where we're at I think we made statements last year that we were investing in that we're seeing those investments start to pay off so we now see of more proportional response to growth.
In terms of scaling up the organization versus getting sort of investing ahead of the curve so to speak so.
From a ratio perspective, we do foresee becoming more efficient over the next couple of years and that's baked into those long term targets the Daniel talked about earlier.
Okay, and just lastly on the acquisition of allocation of that where it kind of it.
Any insight you can provide in terms of just the expected contribution to either total or recurring revenue for this year and then anything you can offer from the growth or margin profile of historically.
Yes, Kevin So with regards to acquisition network, we're incorporating them straight into the <unk>.
Our overall results were not going to be reporting on them on a separate basis that actually <unk>.
Significant leverage and the significant reason why we acquired them is because.
We believe that many of our customers on a global basis will be in the need for it. So a lot of that product is going to be actually sold.
Directly.
By our sales force around the world.
They will continue or some of the.
Some of the.
Of the people that are now QAD employees from from acquisition net quarter. They will continue to sell.
Mainly inside of Germany inside of their existing contacts on install base.
And the.
Are not making any material.
Impact to the P&L.
Up or down so there is really.
No impact there.
Understood. Thanks for taking the question.
Thanks.
The next question will come from Bob <unk> with William Blair. Please go ahead.
Hey, guys.
The bill on Decker here actually I wanted to just touch on too.
From the partner investments that you guys have focused on here and kind of the updated long term targets maybe.
Really early stage from a partner perspective.
But it's been a key kind of focus on investment area.
How should we be thinking about.
Partners kind of layering in contributing more meaningfully to growth maybe not not here in calendar 'twenty, one, but as we look kind of end of that three to five year kind of type of timeframe.
Yes, thanks for that so.
As you say relatively early days for us on the focus right now has been putting that foundation later on in place.
Making sure that we have the.
The the processes and systems in place to support the accuracy of the acquisition the on boarding of partners.
And growing and scaling that and to that point actually we've.
Got into agreements with four new partners in Latin America over the last few months, which is really pleasing to see.
In terms of the effect on the business in a material contribution to growth.
I don't think youll see that until sort of midway through next year.
Get them on board of go to get them trained up helped them with lead generation of building their pipelines, but yes.
Yes.
Got that baked into our plans on other say sort of 18 months out of so we should start to see that flow through.
Great. Thanks, guys.
Okay.
Thank you. The next question will come from Matthew <unk> with Sidoti. Please go ahead.
Hey, good afternoon. Thank you for taking my questions.
Can you comment on the sensitivity of the full year maintenance and subscription guidance against your pipeline of conversion activity.
Yes from from.
From a guidance guidance perspective, I mean some of.
Some of that.
We will be coming from from conversions.
One one statistic that anthem didn't mention is we've now reached about a quarter or install base or.
25% have converted.
From a perpetual environment to the cloud.
So there is still a significant amount.
Out there for us.
So for this year I think we're still likely you're going to be counting on about a 50 50.
The mix.
So there is there is some sensitivities of that but also of the Anton mentioned there has been a significant growth to our new cloud customer pipeline, so quite of bit of that growth as well will be coming from that.
Got it.
Yes.
Yes, no debt that was helpful and then.
I think you touched on some traditional business travel expense of maybe starting to return on maybe now it's around business development I'm not quite sure I might've missed the details about that but I think you said it wasn't returned to historical levels can you just go back over that and just kind of specifically, what's coming back and part of the limitations on sort of one of the balance.
On on what.
What the new normal looks like.
Kind of from a practical perspective on how that sort of flows into the P&L. Thanks.
Sure there is.
We do expect some travel to to return.
Obviously, the timing of that.
That will be dependent on.
How.
We in the United States.
Everywhere around the world.
Get out of the pandemic.
<unk>.
We believe most of the travel thrived during.
This fiscal year.
We'll stemmed from sales activities some of the new customer sales that we talked about earlier.
On the lengthening of the sales cycles to a degree of.
As is hinging up all of the fact that it's hard to meet with new customers on the face to face basis saw some some level of travel is always helpful. When it comes to.
Getting those deals in place so we do expect to see some there.
And so so the the sales and marketing expense.
We'll see.
And the increase there, but again, we have and our customers have learned how to.
Conduct a lot of these meetings have before needed to be face to face in some cases with large groups of people, meaning relocation face to face.
Doing the remotely so on a more long term basis, we don't believe that the level of travel will be returning to prior levels with the other area, where we will see some increase in travel will be with some of the implementations of Theres still some pieces of the implementations that sometimes are easier to conduct.
On site.
A lot of the travel that happens on implementation is actually rebuild back to the customer.
You won't necessarily see that affecting directly the bottom line the rest of the business travel.
Around the other areas, we still expect that it will be quite minimal.
But.
I think debt this year, we will definitely see some of that increase.
Alright, thank you.
Great. Thank you.
This concludes our question and answer session I would like to turn the conference back over to Anton Chilton for any closing remarks. Please go ahead Sir.
Well. Thank you for joining today everybody that concludes our call. We're looking forward to updating you in may with the results of our fiscal 2020 to first quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
And the dividend.
Okay.
Net.
Yes.
The team.
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Yes.
Yeah.
Thanks.
The revision.
Yes.
[music].