Q2 2021 Progress Software Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the progress Software Corporation, Q2, 2021 Investor Relations call.
At this time I will turn the conference over to Michael Mitchell K, Vice President of Investor Relations. Please go ahead.
Thank you Keith good afternoon, everyone and thanks for joining us for progress software second quarter 2021 financial results conference call with US today is Yogesh Gupta, President and Chief Executive Officer, and Anthony Folger, Chief Financial Officer before we get started I'd like to remind you that during this call we will discuss our.
Our outlook for future financial operating performance corporate strategies product plans and cost initiatives, our integration of chefs and the impact of the COVID-19 pandemic on our business and other information that might be considered forward looking this forward looking information represents progress software's outlook and.
As of today, only and is subject to risks and uncertainties for a description of risk factors that may affect our results. Please refer to our recent SEC filings and particularly the section caption risk factors and our most recent form 10-K.
Software assumes no obligation to update the forward looking looking statements included in this call.
As a result of new developments or otherwise. Additionally on this call. The financial figures. We discussed are non-GAAP measures unless otherwise indicated you can find a reconciliation of these non-GAAP financial measures for the most directly comparable GAAP numbers and are for.
<unk> results press release, which was issued after the market closed today and is also available on our website.
This document contains the full details of our financial results for the fiscal second quarter of 2021, and I recommend you reference it for specific details. We also have prepared a presentation that contains supplemental data for our second quarter 2020 results, providing highlights and additional financial metrics. Both the earnings release and this presentation are available on the investor.
<unk> section of our website at investors day progress Dot com.
Also today's conference call will be recorded and its entirety and will be available via replay on the Investor Relations section of our website with that Yogesh and I'll turn it over to you.
Thank you Mike.
Welcome everyone and thank you all for joining our Q2.2021 financial results Conference call.
We'll be pleased with our second quarter performance, which exceeded our guidance across the board.
We again benefited from increased demand and investment and high Tech and infrastructure software projects.
The positive momentum we carried over from Q1 into Q2 is a validation of our strategy and confirmation of the strategic mission critical nature of our comprehensive product portfolio.
With growing confidence and the strength of our business and 2 consecutive quarters of strong results under our belt in fiscal 2021.
We are again raising full year guidance for revenue operating margin EPS and cash flow.
I will provide a summary of the second quarter and some comments on how we're executing on our strategy.
Paul or Glen and ended up discussion of our results and outlook by Anthony.
Demand for our solutions was again strong in Q2.
We saw a continuation of improving demand and all markets and which you can do business and across nearly every product line.
Our customers and partners continue to invest and systems built on progress technology to run their businesses.
As more companies shift to cloud first and mobile for strategies for their applications data and content or.
Yes open edge sites any day data direct Dev tools and moving products provide key technologies to address the challenges and support their efforts.
What's more the role of developers continues to grow in importance and complexity within the enterprise.
Our application development Dev ops, and data and infrastructure management products.
Developers to develop deploy and manage mission critical applications through their entire lifecycle.
We're proud to serve this critical ecosystem of over 3 million developers, who rely on other products for their ongoing needs.
And those of our topline performance in Q2.
Openness and once again led the way as the main steel for our revenue.
Driven by continued strength.
Many ISC.
Partners and direct sales efforts.
Our other core products saw strength as companies like news and data giant Thomson Reuters and global shipping company MSC made meaningful additional investments and all.
Our Dev tools products.
While our revenue performance for this quarter was again driven primarily by Corp products.
Led by opening and the Ipswich products, moving and works for gold.
Our year over year top line growth was driven primarily by the continued success, we're seeing with chef.
With the tremendous growth in Dev ops and does take off spaces.
<unk> landed and expanded key relationships with marquee customers.
New customers for our chefs products include a competitive win at a major U S insurer and several significant renewals and expansions with customers and financial services and manufacturing industries as well as cloud native companies, such as Yahoo, Japan Rocket M S.
Z and Pinterest.
I'm very pleased that we've already reached the goals we set for expense synergies for chefs. Several months ahead of the timeline, we set for the integration when we announced the acquisition.
Our progress to date validates our total growth strategy, which I will discuss in detail and a moment.
Before doing so I'd like to spend a moment talking about annual recurring revenue and net dollar retention rate.
As you may recall.
We introduced a RR and net dollar retention based metrics last quarter to provide investors better visibility into the recurring nature of our revenue and to provide more insight into our underlying performance.
<unk> for $437 million.
It was up 23 per cent year over year on a constant currency basis, driven primarily by shifts.
Our net dollar retention rate.
Exceeded 100% this quarter driven again in large part by contributions from shifts as well as Dev tools and open edge.
These metrics highlight the strength stability and durability all hubs.
Turning to our total growth strategy.
Actively evaluating dozens of opportunities and the infrastructure and software space.
As we have discussed and other forums.
Our bid pipeline is very strong.
Although we recognize that the market is competitive and valuations remain high.
Despite these headwinds we are pleased with the size and sourcing and breadth of our pipeline.
With the activity of our corporate development team.
And with the activity of corporate development team is generating.
We remain confident that our M&A strategy is the right strategy for us.
I also want to mention that during Q2, we took an important step towards improving our competitive positioning and M&A.
In April we completed an offering of $360 million for senior unsecured convertible bonds.
Which further strengthened our balance sheet and made us even more competitive and nimble and our corporate development efforts as it eliminates the uncertainty around financing.
I wanted to least weight debt.
We remain committed to finding the right acquisition opportunities.
And he target we consider must meet our strict financial criteria and include complementary products with a substantial mix of recurring revenue and high retention rates.
We have demonstrated that when we deploy capital find acquisition.
We maximized Siri cash flows optimized expenses and margins and price solid shareholder returns in excess of our cost of capital.
We remain committed to the strategy because we believe it will allow us to compound shareholder returns well into the future.
In addition to remaining patient and disciplined with our total growth strategy, we're committed to increasing shareholder value for <unk>.
Focused capital allocation.
Which balances M&A with a shareholder friendly capital allocation strategy.
When we're not deploying capital for acquisitions, we use our significant free cash flow to return value directly to shareholders.
For example, 1 of the few software companies, who pays a dividend.
We also have in place and meaningful share repurchase program.
And as Anthony will explain upon the execution of the convert we purchased capped calls to minimize the potential dilution to current shareholders.
Consistent with our focus on shareholder value, our ESG efforts remain very important to us it progress as we recognize their growing importance.
<unk>.
We continue to monitor and evaluate new global standards for sustainability metrics measurement and reporting Richard.
Enhanced our already noteworthy corporate social responsibility progress.
In fact, 2 weeks ago, we announced the addition of a new chief inclusion and diversity officer, who will lead our inclusion and diversity efforts and programs around the globe.
I'd like to close my formal comments by acknowledging the entire progress team for their superb execution, while at the same time preserving the inclusive culture and a positive environment that makes progress a great place to work.
And I'm, so proud of and recognition we've received very recently.
The Boston business Journal highlighted progress was 1 of the best places to work and Massachusetts.
This game on the heels of progress being named by Forbes magazine, as 1 of our medical and best midsize employers.
And for the second time and a little for.
It shows progress as the best employer, and Bulgaria, but more than a quarter of our employees are based.
Have you seen from new little.
Additional awards, which you highlighted in the investor deck on our website.
And we're immensely proud to have received a 'twenty 'twenty 1 Stephen.
For our progress for Tomorrow, and corporate social responsibility program.
And all it was an excellent second quarter and.
Another proof point of the success of our total growth strategy.
We're continuing to execute well and see strong demand across industries product segments and geographies.
The World begins to move past COVID-19.
With that I will let Anthony provide the details of our Q2 financial performance as well as our outlook for Q3 and the remainder of 2021.
Anthony.
Thanks, Yogesh. Thanks, Mike Good afternoon, everyone and thanks for joining our call.
Q2 wasn't deed another strong quarter for progress.
Our results reflect the continuation of the improving demand environment and we mentioned in Q1.
And again in Q2, we saw stronger than expected results across virtually all of our product lines.
Total revenue for the second quarter was $129.2 million.
Reflecting 26% growth over the year ago quarter, and was $6.2 million above the high end of the guidance range, we provided back in March.
On a year over year basis share is the biggest contributor to our gross.
However, many of our other product lines also contributed to gross.
Most notably our open edge and Ipswich products move it and what's up gold.
In addition, we closed the second quarter with approximately $437 million and annualized recurring revenue.
Representing growth of 23% on a constant currency basis and.
And 3.1% on a pro forma basis.
Pro forma results include chefs a RR in all periods.
Our Q2 growth and a R. R.
Although not as significant as our Q2 revenue growth.
Was still better than expected.
And primarily driven by our chefs open edge sites entity and Dev tools products.
The mission critical nature of the applications we power.
And our consistent focus on improving the customer experience have resulted in a very stable and durable top line.
At the end of Q2.
Our trailing 12 month net retention rate was slightly above 100%.
With improvement coming from multiple products, including open edge Dev tools and chef.
Turning now to expenses.
Our total costs and operating expenses were $79.5 million for the quarter and.
And increase of $16.6 million compared to Q2 of 2020.
This year over year increase is the result of 2 primary factors.
First is the addition of chef to our business, which makes up more than half of the year over year increase.
And second our variable costs, such as commissions and bonuses that are associated with our performance on the topline.
Operating income was $49.7 million for the quarter up approximately 26% compared to the year ago quarter.
And our operating margin was approximately 38%.
Impaired to 39% and a year ago quarter.
On the bottom line our earnings per share of <unk> 82 cents for the quarter was 8 cents above the high end of our guidance range.
And approximately 30% above our earnings per share of $60.63, and the year ago quarter.
Moving on to a few balance sheet and cash flow metrics.
I'll start with an overview of the convertible notes offering that we completed during the quarter.
The total offering amount, including the over allotment option was $360 million.
The notes carry an interest rate of 1%.
5 year maturity.
And with privately negotiated capped call transactions, they have and effective conversion premium of $89.88.
Or 100% of the closing price of our shares on a per lake.
The net proceeds from the offering and capped call transactions are $306.1 million.
We utilized 20 million of these proceeds to repurchase shares.
And then used 83, and a half million dollars to repay our existing revolving credit facility. After the transaction closed.
I'd also like to mention that our ending debt balance for Q2.
And does not reflect the early adoption of it.
The issue 2020 O 6 the new convertible accounting debt standard.
Because of our November 30th fiscal year and were.
We're precluded from adopting this standard in fiscal 2021.
As a result fair value of the conversion premium on the notes will initially be classified a shareholders' equity.
And over time will flow through our GAAP P&L as noncash interest expense and at the same time gradually increase the face value of the debt on our balance sheet.
We expect to adopt ASU 2020 O 6 using the full retrospective method on December 1.2021.
And expect the updated standard will have the effect of reducing our GAAP net interest expense in our income statement.
And increasing the carrying value of our convertible debt on our balance sheet.
2 the principal value.
Less any unamortized debt issuance costs.
Adoption of the new standard and fiscal 2022.
We will have no impact on our reported non-GAAP net income.
For cash flow from operations.
We ended the quarter with cash and short term investments of $363 million and.
Having paid down our revolving credit facility. During Q2, we also have approximately 100 million and untapped capacity for total liquidity in excess of $460 million.
DSO for the quarter was 44 days and improvement of 3 days compared to Q2 of last year.
Adjusted free cash flow was $55 million for the quarter.
Up $17 million or 44% from Q2 of last year.
The increase and free cash flow was driven primarily from increased profitability.
And improved collections in the quarter.
As mentioned previously we repurchased $20 million of stock during the second quarter.
And at the end of Q2 at $155 million remaining under our current share repurchase authorization.
I'd now like to turn to our outlook for Q3 and for the full year 2021.
Okay.
For the third quarter of 2021, we expect revenue between 129 and $132 million and.
And earnings per share of between <unk>, 81, and 83 cents.
For the full year 2021, we are increasing our revenue guidance to be between 529 and $535 million.
The increase is largely due to Q2 strength.
And our confidence and the remainder of the year.
We are raising our operating margin outlook to be approximately 39%.
And an increase of 100 basis points from our prior guidance.
We are projecting adjusted free cash flow to be between 158, and $162 million and increase of $2 million to $3 million from our prior outlook.
And we are increasing our guidance for earnings per share to be between $3.46 and $3.50.
With the increase driven by continued top line strength and.
And confidence in our ability to manage costs.
Our annual EPS estimate.
Content played for tax rate of 20% to 21% and.
And approximately 45 million shares outstanding with no additional share repurchases for the rest of 2021.
In closing.
We're thrilled with our Q2 results and the resurgence of our that our business has demonstrated.
We are well positioned for the balance of 2021 and feel we can continue to execute our total growth strategy with great results.
With that I'd like to open the call for Q&A.
Thank you, ladies and gentlemen, if you would like to ask a question you may do so by pressing star 1 on your telephone keypad for using a speaker phone. Please make sure. Your mute function is turned off to let your signal and reach our equipment.
And again, please press star 1 to ask a question, we'll pause just a moment to assemble our phone queue.
We'll take our first question from Ken Wong with Guggenheim Securities. Please go ahead.
Great. Thanks for taking my question and solid quarter guys.
I guess, the first first thing I'm not sure if I yogesh or Anthony that makes more sense for either of you guys, but you highlighted chef tracking ahead of schedule and both growth and profitability just wondering kind of anything you've seen and the last couple of quarters that would potentially steer you and the direction of maybe fueling a little more growth or potentially.
Kind of digging in and and extracting more leverage any any color there would be would be great.
And so I'll I'll I'll start Ken and thank you and.
And.
And I will have and.
Anthony follow up.
From our perspective.
We've said.
We've actually accomplished.
Accomplished the Ah.
Expense synergies that we were targeting Ah.
With the chef acquisition and and of course originally the target was that we would get to that.
And get to those synergies by end of this fiscal year.
Got him to them sooner for.
Our perspective going forward, Ken as you know our overall business.
The news to be flattish and that's where you characterized it right and we might have sometimes and we do a little bit better than flat and sometimes and we do a little bit worse than flat, but and jumbo. It is a flattish business I don't think debt over the long haul at least at this point.
You know, we see any any reason to change that we are tremendously confident of the way the rest of the year is shaping up.
But I think that's about all.
I would like to say on that topic and Anthony I don't know, whether whether you have something to add.
Yeah, No I think that's right Yogesh I think we.
No we've kind of been on the positive side of flattish this year, which you know, we'd certainly prefer to be on that side.
And Seth has certainly been a contributor to that but as have some of our other products like open edge and and some of the Ipswich products.
So I think we're continuing to execute our plan with chefs.
No. It's a it's a really good quality asset. It's you know it is.
Got some growth characteristics. It's ahead of plan on profitability.
I Wouldnt say that were necessarily deviating in any way with what we had originally set out to do there.
Got it okay Super helpful and.
And then perhaps just wanted to dive in a little bit on on net revenue retention.
Net come in above 100% debt.
And quite positive a nice step up from last quarter.
We think that that particular metric has a lot of volatility or and.
And just any color on what you think kind of the right ranges for that for that number.
Yeah. It's a good question, Ken we've been a.
Pretty consistently let's say and you know I would say 97 to 100 per cent.
There hasn't been a lot of volatility maybe it's Ben.
Improving a bit over the past couple of years.
So I think youre right the way we calculate it it is a trailing 12 month number so there won't be a lot of quarter to quarter volatility, but you know obviously, if the trend changes I think that'll be apparent and the numbers.
But you know and the flip side I think from a business perspective, it's been a very deliberate effort, even since before I got here to to invest and our technology to invest and customer experience and and those types of investments are things, we're going to continue to do.
And you know I think we're seeing some some results from that in terms of some slightly better retention rates. So.
I don't expect.
Wild swings and the number.
And you know I think we feel pretty good about the investments we've made to get the number where it is.
Got it and and then if I could just squeeze in 1 more and then I'll pass the mic to my peers here.
Yogesh, just wondering as far as kind of the business or the other product segments benefiting from just a return to normal on a macro basis are there any particular areas that you would say are still lagging that we could potentially see some sort of a tailwind as we look to the back half of the year.
So you know Kim.
We have said right actually the last the first 2 quarters of this year the first half we've seen.
And really outperformance across the entire product portfolio right. It has been a really sort of interesting to see that as businesses have.
Gordon their head out of the of the challenges of trying to deal with COVID-19, and started looking forward as to how they want to invest and they're longer term.
I T projects and we've.
Seem to benefit across the board.
We are confident that we will continue to see that I don't think there's any particular area that is more or less obviously.
Open edge is our biggest.
Products. So so from a actual individual dollar perspective, it has been the biggest contributor but overall across.
Across the board, we're seeing interest and and we're seeing interest.
And whether it is the non network management product with Whatsapp gold.
As you know and 1 of the competitors has had some security challenges there and and.
And that has opened up the market for other products like ours.
And and I think so so just it has been a set of tailwind around around our products as people move to the cloud as people go mobile first they're modernizing their applications and.
No.
And I want to reiterate Anthonys point right over the last 5 years, we have talked about the fact that we invest in R&D. So that our products are ready so that when our customers want to move forward with.
Our products that are available and <unk>.
Ready to help them move forward and and that investment whether it was an open edge 12 or or whether it is a day 3 releases that we do every year with the Dev tools or we're now treating things as we do every share with chef and and all those things are really and our investments and if switch products such a move at and what's the goal.
They're all sort of demonstrating that we have kept top products.
Current and and and made it so that.
They truly benefit and and address the challenges that our customers and user space. So so I think it's and across the board.
Oh, good conditions and.
And then and good demand for our products I don't think there's any specific.
Area that I would highlight for them.
Great. Thanks, a lot guys.
Thank you Ken.
We'll take our next question from Daniel Ives with Wedbush. Please go ahead.
Yeah, Thanks, and great quarter and guide.
Talk about your.
Yeah. So can you just talk about.
With chef I mean, what what surprised you so far so it does obviously it seems like it's been coming out of the gate.
It is really work and a lot better than maybe even you thought so you're talking to customers, where you're hearing from the field I mean.
And just give us some sort of anecdotal what youre here.
Sure. So I think I think a couple of.
Really positive surprises I shouldn't say surprises, but really sort of positive anecdotes that I want to highlight.
You know, 1 well and acquires the company like chef chef has and it is an open source product theres, a large community out there of.
For consults developers debt do a phenomenal job of continuing to innovate and the ecosystem and so what other concerns. We had was how would vote for the community of our customers and the community of that open source community hub and they react to progress and on both those fronts.
We have been very pleased that those communities have embraced.
Progress is taking over chefs.
Some of the larger customers who.
We've had the pleasure of speaking with I mean, they are all really really happy that chefs and all backed by a publicly traded software company that we are a profitable business that debt that they know that we invest in R&D debt.
And we'll continue to invest and and chef and debt, we will continue to invest and the open source community as well.
And so really phenomenally positive things I mean, I think you know by the way just I think 1 of the.
He is a very large user of.
And of our chef and I think they publicly put out a blog that says that there are 11 million assets and the clouds and when I say clouds, I really mean little cloud for SAP and they are and every cloud you can imagine including Sap's zone.
And so that and like 5 or 6 different clouds.
They're managing 11 plus million assets and and they have really really you know.
And excited about the fact that debt progress supplier.
Sure. So I think to me that part has been really positive and I think the open source community I think we had and open source community event.
And just about a month ago phenomenal success are the open source contributors, our country and continuing to contribute aggressively so I think there and I'm really happy both on the.
And so the customer facing side as well as on the on the product side. The last part that I wanted to touch on it and I know that this is the this quite often is ignored in the and it is our people that make this happen and and the team that has come over from chefs and.
And the team that we have and progress that is working with them and the combined teams the new join chefs team at progress that has done an amazingly wonderful job across the board so I.
And I think to me, it's just been a very very positive experience for us and that has allowed us to do things like we said you know get the synergies continue to do well on both customer retention as well as winning new customers and saw.
No no may ask Christian and does this set.
A pretty high bar for Anthony and the M&A team to make sure. It continue and match it sounds from your next 1.
Does that mean for the next 1 and I feel like the bar is pretty high.
Is there a little more pressure on that Anthony and team.
Yeah.
The good news is Dan and I think what you will.
And.
And we've got Jeremy Siegel, leading the the M&A group and Jeremy is fantastic I think that the entire team is disciplined around.
What the requirements are and and sort of what the financial criteria are for us.
To close.
On a deal and so I think the company is aligned around it.
And I think we will be patient, we will find the right asset and.
And the team has done a great job really building out the pipeline and so our ability to source the number of companies we are tracking.
You know Theres, just been dramatic improvement and all of that over the past 12 months. So the bar is high but.
And I think we've certainly got the team to get over it.
Great.
Thanks again.
Thank you Dan.
Thanks, and we'll take our next question from.
And yes, so does from Sidoti and company. Please go ahead.
Hi, and thank you for taking my kids and man.
Congratulations on and I think we.
Quanta.
And so on.
And I have follow up on debt, Jeff success and.
How much of that is do you think is attributed to share specific and.
Drivers rather than your play but being more assigned.
Having done other acquisitions before chess.
So I think Anya you know the 2 aspects of it right on the expense synergy side and.
Getting them getting to them as quickly as we did that as obviously you know.
Our core competence.
And we will refine that we do.
Ipswich, we did a really good job at that we're constantly refining expense and we were able to do it with chef as well and and get it done faster and so I think that's what we bring to the table and I think there's also a core competence that progress around a certain interesting areas like you know how we do.
Marketing and demand Gen and so on and so forth.
That said I think the shifting it itself.
Really remarkably good and strong.
And and they have done a great job and and it's been a good market right I mean, the Dev ops and desk Tech ops market.
It's a market that is growing.
It is a market where we see continued demand is a market where you know as people move to the cloud.
And tried to deploy.
Their mission critical systems and the cloud.
Products like <unk>, and and we have and amazing products. So I think it's a combination of things on new I think week.
Progress and can take some price that we are bringing some things to it and I think the folks that came over from chassis and can take price that they are bringing some something for the table and and we happen to also have an asset in a really good market. So so I think it's an all round.
And really good good asset for us.
Okay. Thank you and I saw and in terms of that M&A environment.
Have changed from the past couple of months and like with them.
And of that Moran.
Warning about the inflationary environment, and and things like that has that effect and that M&A pipeline at all.
I'm not sure I understood. The last part of your question on what part of the environment.
No it's not.
And that if there's going to be a more sustainable and patient inflationary environment is that affecting your M&A pipeline and all and how.
How has it evolved over the last couple of months.
Yeah. So I think you know is as we said earlier right the.
<unk> continued to be high.
And so you know what that means is that you know, we continue to be disciplined and and and.
It's kind of an interesting thing right.
This is 1 of the reasons why we feel confident about our strategy we have.
Strong pipeline.
And we have a team that is doing a great amount of deal flow and and continuing to nurture and grow that pipeline.
And at the same time as Anthony mentioned.
Shifting that is truly disciplined around making sure that we stick to our criteria and that we are we deliver.
The shareholder returns that our investors expect from us and I think that's really the key so we.
We will continue to be patient, we will look for the right assets and we will make sure that we.
When we find the right asset that we execute on it with the same level of rigor that we have with chef lately.
And if searching for that.
Okay. Thank you and then just last 1.
The other thing you can call out in terms of them.
And that performance and Samsung and the.
And the different geographic regions.
Yes.
And again, we saw strong performance across geographies and I.
I think if if there is if you think about it right. The U S. I think is actually probably and the best shape when it comes to.
Moving beyond Covid.
Ah I think Europe is coming along.
I think Paul.
Parts of Asia Pacific are still a little bit.
Behind in terms of timing and and I think Latin America is probably the slowest to recover because I mean.
I'm sure everyone's heard the.
The challenges in Brazil, and and in Brazil is the single largest technology market and in life.
And in medical for progress. So so I think but overall I think we look across the board I think we see improvements happening everywhere.
Okay. Thank you and I was out for me.
Thank you and yet.
We will take our next question from Mark Chapell with benchmark. Please go ahead.
Hey, guys.
Hey, Mark Thanks for thanks for taking my question and nice job again on the quarter yogurt, starting with you with respect to the open edge strength and the quarter was principally driven on the ISP side of the business.
And again Mark it on both sides.
Of course, these had a continued strength as well, but even even the direct side of the business.
It's an interesting thing Mark what is happening right I think and I think businesses are recognizing that debt.
They have.
A day a mission critical application sitting in AR.
And on a platform that is truly.
You know <unk>.
Is lowest cost platform, the most efficient platform and a platform that we have continued to evolve and.
And and and keep modern and and and so what we're seeing is I think to some degree I think actually you know COVID-19 made people look at their sort of investments and say where is it that you have investments that are truly delivering great results and and maybe we should do a little bit more with that.
And so we're seeing both direct and and I asked me is of course Isps are doing well.
So that's always wonderful, but we're also seeing strength and direct.
Okay, great. Thanks, and then switching to chef if I recall correctly and when it was acquired it was a mid single digit grower and based on the good <unk> results as it for.
Fair to assume that the schuff continues to grow with it and at least that rate.
And we as we know more.
Yes.
Go ahead, Anthony and I was just going to say, yeah, we don't break it out separately, but it's.
And the trend line really hasn't changed and the chef.
<unk> continues to.
And to perform well and so on a year over year basis.
Yes, I don't think we've seen a change and the trend line there.
Okay Super and then.
Shifting gears a data direct for a little commentary about the direct and if at all and the prepared remarks any color on that business and maybe you could add so for example renewals coming and as planned.
Absolutely, yes, yes, performing very much as planned.
And as you know mark with with data direct debt or the quarters are lumpy because of alright.
Alright, and the fact that our multiyear contracts with large Isps right and so in that sense. This was a you know.
Relatively straightforward quiet quarter.
And well.
But nothing nothing to sort of highlight 1 way or the other.
And we by the way you know and in Q1 right.
We had actually 1.
A couple of new customers on the day direct side.
And on the direct enterprise customers for data direct so the debt, which was a positive surprise and you talked about it this quarter, but it's just a normal pretty straightforward quarter down the middle.
Okay, Great. That's all for me thanks, good job again.
Thank you again, Mark I appreciate it.
We will take our next question from Ty Kedron with Oppenheimer. Please go ahead.
Thanks, guys great quarter, very nice performance there I just had 1 question for you Anthony on the free cash flow great quarter, great performance there.
But your annual guidance it.
Suggest a big deceleration here into the second half of the year. So help me think about the puts and takes off for your annual free cash flow guidance.
Yeah, Hey attack.
It's a great question.
The free cash flow and the quarter was really strong and.
Obviously for the first half of the year, we've delivered about $102 million and free cash flow, which as you know.
Heck of a lot.
And further along than we thought we would be.
And a little bit of that is is sort of better collection activity.
And I think when we look out to the back half of the year.
Probably a little bit more cautious assuming that we may get back to things like travel and get back into the office a little bit. So we felt comfortable taking that guide up a little bit.
But probably also holding a little bit back just wanting to see.
How much of the travel comes back and how much of the in office operating expenses come back. So you know if it's a.
If it's not sort of a linear move maybe with margin or something like that and think that's really the reason 1.
Got it so it sounds like you're expecting I guess margins too.
Paul are you actually raised your and your outlook on margin actually for the years out for 39 and Soma.
It doesn't sound like you're modeling much and your assumptions is the decline of operating margin in the second half over there.
Yeah, no not from where we are now, perhaps a little bit relative to where the back half of 2020 margin shook out.
Got it very good thanks.
Thank you.
Ladies and gentlemen, this does conclude today's question and answer session. At this time I'd like to turn the conference back to Yogesh Gupta for any additional or closing remarks.
Thank you.
Thank you for joining our call today.
And I'm genuinely excited about our performance in Q2, and I'm pleased to share our confidence.
And the outlook for the rest of 2021 with you.
I'm, especially proud of the dedication of our entire organization and their continued hard work, which really positions us well as we continue to execute our total growth strategy.
I look forward to talking to you all soon thanks again and goodbye.
Ladies and gentlemen, and this does conclude today's conference. We appreciate your participation you may now disconnect.
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And then.
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