Half Year 2021 Micro Focus International PLC Earnings Presentation
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Good morning, and good afternoon, everyone.
This earnings call covers the 6 month period to the purchase of April 2021.
I'm joined today by Stephen Murdoch, Chief Executive Officer.
Massage Lee, our new Chief Financial Officer.
In a moment Stephen will provide a short presentation about the book all performance in the period.
Slides from the presentation, we presented as part of the webcast facility accompanying this call.
But they were supposed to surprise from buy side. The webcast on the slides can be accessed from the front page of the Investor Relations section of the micro focus website.
After a short presentation, we look forward to cover and as many of your questions. As we have time for a recording of this call on the slides will be available shortly after this call finishes.
I would now like to hand over to Stephen to provide an overview of our performance in the last 6 months.
Thank you Ben.
As today as much sports day, as CFO I will be covering both the financial and operational elements of todays call.
The first 6 months of FY 'twenty 1.
Been another period of solid progress.
As we deliver on the recovery plan, we shared with you all 18 months ago.
I will provide more detail in the coming slides, but in summary.
We generated revenues of $1.4 billion in the first half, which represents a constant currency decline of 4.6% year over year.
This compares to consensus view of approximately 7% decline.
This combined with our cost and efficiency actions resulted in an adjusted EBITDA of $36.4 per cent compared to stop the 5.7% consensus.
Our cash performance in the period was in line with our expectations.
With free cash flow totaling $139.5 million in the first 6 months.
Free cash flow. This year has been impacted materially by a number of 1 time events and I will therefore provide additional detail later in the presentation.
We've had a very positive period in terms of building collaborative partnerships with other key players in the industry, notably the strategic partnership with Amazon Web services and exciting new agreements with Microsoft Azure Daily M. C I'm snowflake.
These partnerships demonstrate the value our technology brings in complementing the offerings of some of the largest technology companies in the world. So I stick together, we deliver more complete solutions for customers.
As well as representing additional growth opportunities for the company.
I'm delighted to confirm that we've noticed transitioned the business onto a single unified it platform as planned.
We moved the first group of employees in January and transition the remaining 60 per cent of our people to the new systems in June.
This is a critical step for the company and another significant proof point and the execution of our plant.
And finally, we confirm that we will pay an interim dividend of 8.8 cents per share consistent with our policy of paying a dividend which is covered by approximately 5 times adjusted earnings.
To summarize we're pleased with another period of solid progress in most areas of our business.
Product investments and operational changes, we are making are beginning to deliver performance improvements.
Value propositions are increasingly resonating with customers and partners.
I never want to spend some time, providing more detail on our financial performance firstly focusing on revenue.
To do this I thought it would be most useful to look at both by stream on product portfolio.
So on the left hand side of the slide you will see revenue performance by product group and then on the right. We have provided analysis by stream.
Clearly the timing of the onset of COVID-19 last year had an impact on seasonality, but despite this underlying progress was good.
We're very pleased to return to growth in license with revenue growing almost double digit in the period.
Clearly, an initial step, but significant and encouraging.
Sales execution was strong with key metrics, such as sales conversion rates being 3 to 4 percentage points higher than previous periods with improvements being broad based on a number of key customer transactions closing earlier than expected through better customer engagement.
Maintenance revenue declined by 8%.
This was below our expectations and what we believe is attainable.
This remains a critical priority for the company, but.
But we have been consistent that this will take multiple periods to fix.
We have a comprehensive action plan in place to deliver this.
It is broad based but also prioritized on the 4 sub portfolios that are most impacted.
I will spend more time discussing the action plans for improving performance here and specifically customer retention later in the presentation.
SaaS revenue declined by $5.4 per cent, but the trajectory continues to improve.
No starting to see an improvement in the underlying metrics, we use to run our sauce business.
This gives us confidence that revenue performance will continue to improve.
Consulting revenue was no trending flat on a sequential basis betsy's H to FY 'twenty.
More importantly, this parts of our business is no well positioned to deliver the type of projects, which add value to customers through supporting faster more effective deployment of our software.
No totaling 2 product group performance.
In E M C. The big change is the new strategic partnership with AWS.
Disagreement on the mainframe.
Free modernization opportunity more broadly.
Give us confidence that our M C product group can deliver sustainable revenue growth well into the future.
This particular agreement will not generate product revenues until the backend of FY 'twenty 2.
We'll ramp each year thereafter.
At this stage, we're limited in what we can discuss but we look forward to providing more details later this calendar year.
Looking beyond the AWS agreement the mainframe modernization market is increasing in size and maturity.
We already maintain a thought leadership position and we believe the opportunity here is significant.
Secondly security.
In aggregate, we're pleased with the progress made in the period.
We delivered growth across the majority of the portfolio, but there remains 1 key area, which is providing a headwind, particularly in terms of maintenance renewal performance.
This is a primary focal point for the actions I will cover later.
In the last 12 months, we've made extensive changes to the product and use us capabilities.
We know how the comprehensive and competitive portfolio and are increasingly confident in our ability to drive growth here, which we're seeking to accelerate into FY 'twenty 2.
Alright, I am in G portfolio is made up of 3 distinct parts, including our big data solutions.
So focusing on big data, we have begun to shift to subscription based revenue models and have launched our as a service solution, which again strengthens the competitiveness of our product.
We're encouraged by progress, but no need to accelerate.
E D. M. We have made progress but are still performing below our expectations.
Improving performance and maintenance and with tolling sauce to growth other key priorities in this portfolio.
We've made progress in sauce in terms of product development and in modernizing delivery infrastructure to improve scalability security and reduce total cost of ownership.
This has enabled us to begin to transition that delivery of the solution to be public cloud based with all new bookings being on this new infrastructure.
Leadership changes.
Improvements to the product portfolio and our SAS offerings gives us a foundation from which to drive improved performance.
Finally, I tome, where we have seen a material improvement.
In the rate of decline year on year.
Encouragingly, we delivered growth in new license sales across the majority of the portfolio, but remain focused on improving maintenance performance as the critical imperative.
We've made a number of leadership changes in the first quarter and while still early days, we are seeing improvements in operational effectiveness and overall product positioning.
We are cognizant that the compare here is weak, but the customer wins and associated feedback the underpinning the stronger performance demonstrates that when we execute well the products remain central to our customers' infrastructure.
Overall, we feel more positive about the portfolio now than we did 12 months ago.
In summary, we are increasing levels of a conviction that at a group level, we can deliver on our revenue growth ambitions.
This will be underpinned by growth in our AMC <unk> and security portfolios combined with a continued focus on moderating decline rates in EDM entitled.
Turning now to slide 8.
Alongside the improved revenue trajectory, we reduced our cost base by 2.6% net whilst also funding the increased investments in product previously communicated.
The focus here was simplification and removal of inefficient structure and as a result on a gross basis, we have removed approximately $70 million of cost.
We have further opportunity here that we will pursue it piece once we can lay for each of the new systems.
The combination of revenue and cost actions delivered an adjusted EBITDA performance of 519 million, which represents an adjusted EBITDA margin of $36.4 per cent.
Exceptional costs within the income statement totaled 143 million.
Within which the 2 largest components of the it spend on the new systems of $29 million.
Under $75 million provision in respect of the Wap patent infringement dispute.
The remaining exceptional spend.
It relates to our integration programs and the restructuring of the group as previously communicated.
Turning now to cash Mike.
Micro focus continues to be a highly cash generative business.
In FY 'twenty..1 this is being suppressed by a number of 1 off concho flaws and some timing differences within working capital.
To demonstrate the impact I want to provide a bridge from our free cash flow in the first half of FY 'twenty 2 the amount we generated in this period.
In addition, there is further detail included as an appendix to this presentation.
NH, 1 'twenty, we generated $305 million with free cash flow and $140 million in each 121.
There are 2 key factors impacting this change.
Firstly, we had a $63 million swing in our working capital excluding the impact of exceptional items in the period.
In the previous financial year, we focused on the collection of aged receivables.
There was an element of catch up here, which totaled approximately $28 million, which obviously does not repeat.
Secondly, we have made some material cash payments, which are not expected to repeat specifically a $33 million payment for U S payroll taxes, which related to previous periods.
And a further $44 million in respect of the EU state aid tax ruling in the U K.
Together with a number of other UK companies. This is subject to appeal and our current expectation is that this will reverse once the appeal process is complete.
Finally, we have the remaining exceptional spend.
NH 121 in cash terms this reduced by $27 million when compared to the first half of last year.
And we will reduce further as the integration programs come to an end.
In total our cash cost for exceptional spend in the period was $63 million after adjusting for the tax benefit from these items.
On the right hand side of this graph, we have presented an adjusted free cash flow number of $247 million.
Which takes the impact of exceptional items.
And EU state aid into accounts.
And we believe provides a more accurate representation of the underlying free cash flows of the business.
Further this number does not include the payroll tax payments I mentioned previously which are also not expected to repeat in future periods.
In the second half of FY 'twenty, 1 we expect to continue to face headwinds in free cash flow.
As we conclude the remaining aged issues that are 1 offs relating to tax.
Deal with any potential developments in the Wap patent disputes.
On monies through potential operational impacts as we ramp the new systems.
I would like to finish this slide by reiterating that the delivery of sustainable levels of free cash flow is a key strength of the business day.
Current year's cash performance includes the settling of a number of historical 1 off items.
Going forward, our expectation is that we will remain a highly cash generative business.
The final financial slide covers the group's gross debt and leverage profile.
Since October 2019, we've reduced our net debt in absolute terms by approximately $500 million.
Our leverage on the stock to you from April 2021 was 3.6 times.
Our reduction in leverage over the medium term remains a key target, but this will increase from the short term due to the impact of the 1 off cash flow items I have referenced earlier.
As a reminder, the next tranche of our debt is not due for repayment until June 2024.
In this next section I will cover the key operational priorities for the next several periods as we continue the execution of our plants.
In February 2020, we provided a summary of our turnaround plan.
Since then we've made significant progress against this plan and have multiple proof points to demonstrate this.
Last year, we successfully delivered the first stage of our go to market transformation.
<unk> made significant investments in certain areas of our portfolio.
In addition, we invested in a SaaS infrastructure to ensure that we had an appropriate platform from which to build.
In the first 6 months of FY 'twenty, 1 we've continued to deliver against our overall plant excel.
Accelerating wherever possible.
The investments made to reposition certain portfolios for growth are delivering encouraging proof points, albeit with challenges remaining.
In addition, we've continued our go to market transformation plans with our restructured approach to customer coverage.
As we begin to look forward to 2022.
Digital transformation program will complete.
This will provide the platform for delivering significant efficiencies and productivity improvements.
By the time, we exit FY 'twenty 2 we intend for this progress to lead to an end to end customer engagement model that ensures we deploy resources effectively to maximize customer impact and hence business performance.
Turning to slide 13.
I have 4 key operational priorities for the business.
Firstly, improving the overall effectiveness and go to market.
In the first half book, the overall level and the consistency of our sales execution continued to improve.
There remains a great deal of opportunity for further improvement, but the changes we have made in leadership.
The realignment of our organization to sharpen focus on specialization at the product level.
On the development of the consistent approach globally are beginning to have a positive impact from performance.
We now need to build on this with continued focus on delivering consistently high levels of execution.
Improvements in sales productivity and further increases in sales specialism byproduct portfolio.
Secondly, Bob.
Optimizing the <unk> platform and simplifying business operations.
To deliver efficiencies.
As I said earlier.
We have no transition to our new it platform.
This is a really important milestone for the business and fundamental to our long term plans.
We're in the early days of go life on projects of this scope and scale typically take between 6 to 9 months to ramp to full operational effectiveness.
Which point, we will be able to begin removing duplicative costs within the business.
We have robust plans in place to manage through the unavoidable disruption to our business in the near term.
And they are fully focused on delivering what we expect to be an excellent operational foundation from which to build improve business agility and provide greater strategic flexibility.
I want to spend more time on the next 2 priorities recurring revenue, which is where I will focus on actions to improve maintenance from renewals.
And finally on delivering product innovation.
So turning to slide 14.
What are we doing to improve levels of recurring revenue in the business.
Personally there will be a natural moderation driven by revenue mix as we grew in key areas and arrest the claims and others.
Looking beyond that to the proactive actions, we're taking there and there are 3 key focus areas.
Firstly, our license revenue helps support maintenance performance over the long term.
We have just delivered growth year and need to sustain this.
Similarly with sauce, we are concluding the repositioning work and are focused on delivering growth next year.
Finally, improving customer retention rates low.
This is an area, where we need to deliver progress and I know you want to take you through the actions in more detail on slide 15.
You can see the key actions and longer term initiatives, we are executing to deliver improvements in customer retention rates as a key driver of overall maintenance performance.
I want to start by reiterating that whilst this program is being executed across each portfolio. It is also being targeted and actions prioritized too.
2 specific hot spots at the sub portfolio level.
And again targeted to the specific reasons why customers are choosing not to renew.
The actions you see in this page or a combination of transformational change and more specific targeted execution improvements.
Starting at the base.
As part of our go to market transformation, we have made comprehensive changes in leadership and an organization.
And recruited new talent dedicated to this area.
We have also changed compensation structures.
So that's a broader base of sales leadership and.
And the account managers dedicated to our major customers.
Are also now remunerated in part based on improvement in retention rates.
These changes combined with our new customer success organization.
These aimed to ensure we are consistently delivering the highest levels of customer service.
More specifically we have 2 priorities.
Helping customers upgrade to the latest version of our products.
And ensuring we have deeper levels of specialist skill deploy to the right customer situations.
Getting customers onto the latest versions of our products or bashing currency for shorthand is particularly important.
Given the changes we've made to the products over the last 18 months.
For example, a customer who has multiple versions bock will not benefit from the extensive improvements made to the products ranging for example in terms of cloud deployment options or all of the artificial intelligence and machine learning capabilities we've introduced.
Put bluntly.
This means these customers at risk when comparing their existing but Oh day teed versions of the product.
2 competitive alternatives.
[noise] upgrading to the latest fashions can provide all of these new capabilities at a fraction of the cost and risk of a replacement strategy.
This program is in its infancy, but we've seen good examples where this focus supported by small investment. So professional services have led to material incremental new business.
As customers see and appreciate the new products.
And look to take advantage of water often an extensive range of new capabilities.
Product specialism is about ensuring our renewals team can position the product and the benefits effectively for customers.
This means that customers are better informed on upcoming releases and our longer term product roadmaps, both of which are key in their decision, making process when they're considering making a change.
It is also a really important enabler of the fashion currency program I talked about a moment ago.
The final 2 or more transformational to the way we operate.
Will deliver benefits over the longer term.
Maintenance modernization means ensuring we're using the latest technology innovation to improve customer retention.
This can be summarized as making it easier for customers to renew through the provision of auto renews or click to renew capabilities and we're looking to build these into our offerings and ultimately a low for this to be automated with no new systems.
Finally sauce.
In FY 'twenty, 1 we've continued to invest in SaaS infrastructure to improve service delivery and hence renewal rates.
Additionally, we've begun to lead with SaaS in certain parts of the portfolio and in FY 'twenty, 2 and tend to go source only in a number of areas.
This will allow us to offer alternative path for customers as they evaluate the future strategies.
In summary, the issues are understood. We have comprehensive action plans in place and expect a moderation in the rate of maintenance revenue decline to be delivered as a result, but top line improvements will take time to come through.
The goal is now to accelerate this.
Before I finish on outlook I would like to talk about our customers.
When we execute well.
Our approach to digital transformation resonate strongly with customers.
We are seen as a trusted partner committed to helping them deal with the challenge of simultaneously, both running and transforming the business.
This means reducing running costs, whilst improving levels of cyber resilience.
And investing in the latest innovation to exploit new opportunities or new business models.
Our product development prioritizes, enabling customers to build on their existing investments whilst exploiting the innovation, we're delivering through expanded capabilities in cloud and artificial intelligence, which you can see across all of our portfolios from the AWS partnership and application modernization.
Through to the launch of <unk> as a service.
And cyber resilience, we delivered new source capabilities and key partnerships on data security and privacy solutions as well as new partnerships and big data analytics.
Some of the world's largest organizations rely on our products to run and transform the business.
For them, we're focused on.
Accelerating the delivery of new business applications.
Simplifying operations to reduce cost and improve flexibility.
Turning analytics into insight and action.
And in this increasingly complex online world.
Helping customers build comprehensive cyber resilience.
When we execute well our approach to digital transformation resonate strongly with both customers and partners.
We need to ensure that this is more broadly and consistently understood.
Turning now to outlook.
Revenue stabilization remains our most important business objectives.
In this financial year, we remain on track from material improvements in revenue trajectory year on year and in line with current consensus.
We remain committed to achieving our objective book revenue stabilization as we exit financial year 2020 free.
To deliver against this goal, we're targeting incremental improvements in revenue trajectory annually.
And our confidence in being able to deliver this continues to improve.
With that I will now hand over to the operator to open up for questions.
Thank you.
He would like to ask a question. Please press star 1 on your telephone keypads. Please.
Ladies and Joe Your line is it likely won't be advised 1 to ask your question.
So once again Thats star 1 if you would like to ask a question.
First question comes from the line of that go to play from Goldman Sachs. Please go ahead.
Okay.
Thanks, so much for taking my questions.
2 if I may the first 1 on the on the strategic partnerships and it when we have seen a bunch of them in the in the last 6 months, including AWS and Snowflake and you also called out as your debt partnerships in the release you had mentioned in your prepared remarks stops the AWS partnership is called.
Ramp up from the back half of 2022 can you talk about the other partnerships and holistic, Michigan low Socs and also how important is it to kind of been these partnerships so much focus.
Going forward and if you could just kind of give us some color on the pipeline around those would be would be great.
My second question is on the free cash flow.
Clearly, we'll have pretty strong underlying cash generation, which is significantly impacted by some of the exceptional charges working capital items than.
When we think about and look forward into 2022 and beyond is it is it a fair comment to make that a 'twenty 'twenty 1 we'll see the.
Trough in terms of our free cash flow.
Especially from an exceptional standpoint and from next year onwards, we should start to see a stable significant state off and begin the exceptional costs.
A related question to that would be the 70 million charged you talk about about the drought.
Patent suit is that kind of give a color on the book from a cash standpoint in FY 'twenty, 1 or is it going to happen next year. Thank you.
Hi, Joe.
Let's turn to the cash 1 first.
What a settlement at this what provision is a provision it's not a settlement.
It will.
We settle it will turn to cash at that point, but obviously I can't comment beyond that.
Beyond that in.
In terms of the exceptional unwind, yes, we we expect that our car doing.
During the next 15.16 months as we as we talked about so we do expect to see 2020 free cash flow benefit from that from the unwind.
In terms of partnerships.
They range from really strategic collaborator of go to market, which is the AWS end of the spectrum through 2 really interesting tech.
Technology.
Complementary partnerships, if you want to think about it that way so with Snowflake for example, it's a data income.
Encryption data security portfolio that snowflake, putting around their offering to enhance their levels of.
Data security and data privacy as they as they go to market with their with their product.
With the Dell EMC similar to previous.
Our previous agreements with people like pure storage, it's about the big data analytics power of separating compute and storage and what that basically means non technically is that you can deliver cloud scale economics on premise with.
Daily M cra's or some of the other storage arrays in the marketplace. So that just gives customers a real total cost of ownership opportunity under real flexibility in terms of where the where they deploy.
And we have extensive partnerships across the board with Microsoft The 1 I referenced here has to do with again data privacy and collaborations there so really important piece of the puzzle.
There is significant endorsement of our innovation and our ability to collaborate and partner and.
And we think.
Unimportant element of our go forward plans and strategies.
Great. Thank you so much thank you cotter.
The next question comes from the line of Michael Free from UBS. Please go ahead.
Yeah, Thanks, and afternoon, Stephen and Ben just.
Just on the.
And progression I mean, I think previously there wasn't a hope to get to mid Forty's margin by 2020. So you're exiting 2023 can you give a sense of.
I appreciate it.
A while away but.
Whether the consensus says sub 40. It is it's too conservative in your view or given the investments and the time it takes to fix some of these issues around maintenance for instance.
The consensus is it's sort of on track.
And then related to that but the leadership changes you mentioned a few times can you give any quantum of debt.
Magnitude of departures at a particular rankle within particular divisions and then finally, just on the core problem product areas.
Can you maybe give us a sense of how significant they all within the revenue today, either within cash maintenance Oh within the title revenue pool.
Hi, Michael.
We're not backing off at all margin progression.
Over the midterm.
Clearly when we talked about that last year and there's not been a change here we required the stability of the revenues first and then the delivery of the operational efficiencies. So we get leverage across both of them. So.
So we need to I would say we need per a few more of those proof points on the board before we should be talking out in 'twenty 3 about about any changes.
Still committed to getting that done so I would say no change at the moment to any of that Michael.
In terms of leadership, but basically we have new leadership across 2 of the key portfolios.
In the business, we've made extensive additions in the maintenance renewals and customer success area to get more and.
More senior and fresh perspective, and Colin overdose, we've brought in.
Industry skills and leadership into our security business sub portfolio level.
Dedicated.
Dedicated people there.
Yes.
Obviously, you got a new CFO.
Which until likely tough delight to have on board.
And more broadly within the sales organization will replace country leadership in a number of countries.
And a number of other quite significant.
Rolls a level underneath my direct reports if you want to think about it that way.
And on the product portfolio.
Yes.
The product portfolios.
The.
Theres a day.
Basically you can see where they plays out when you look when you look at the overall maintenance performance.
I'm going to be drawn into specifics on which portfolios because it is very commercially sensitive what I can say to you is that the actions I talked about earlier.
Ah broaden application in a number of areas, but also very specifically targeted onto those 4 sub portfolios each of which has a slightly different sometimes significantly different set of challenges and dynamics to fix and hence the executions precise those.
Those challenges range from used case, driven so how does the product's being used through to what I referenced on the call.
In my prepared remarks, rather.
In terms of <unk> currency.
So I would encourage you to look at the overall on the progress and traction against the issues rather than rather than get down into the sub portfolios.
They have lots of vitamins I represent tool.
Well you can see from the performance is clearly a significant proportion of the maintenance base as reflected in.
In the in those 4 portfolios.
So.
Correcting it will have a material impact.
Alright, thank you.
There are currently no questions in the queue. So as another reminder, please press star 1 if you would like to ask a question.
Huh.
And the next question comes from the line of Julian Serafini from Jefferies. Please go ahead.
Thank you. So I have 2 questions from me 1 is just on the revenue guidance. Since you you mentioned the guidance for revenue was for this year was somewhere around the consensus numbers today means that would imply a deceleration I think in your license revenue for the second half of the year can you help us reconcile that a little bit given the rebound we saw in the first half.
Is that a bit of conservatism or is there something else going on and then number 2 is just on the SaaS portfolio and can you discuss a little bit 1 of the underlying metrics. You said that you see are improving and what parts of the portfolio or you think it will be really primarily SaaS only in the future. Thank you.
Yes.
When the revenue trajectory Julian all I would say is look at the year as a whole.
Last year was such an odd year, the seasonality is not necessarily relevant.
And we've also been pretty clear that either side of the line in our financial period with a few transactions moving 1 way or the other skus 1 period.
Expense of another period, so I would underscore we feel we feel absolutely fine about consensus for the year and I wouldn't get over indexed on 1 period versus.
Versus the other.
In terms of SaaS, the key metrics are pretty pretty standard so as bookings.
The new rates and customer satisfaction.
3 big things Big things I look at.
Alongside that we have.
More.
Project oriented metrics, because we are repositioning quite a number of the portfolio re architected moved to the public cloud. So ive got a series of metrics of progress against that obviously once the work is complete those those will fall away.
And I would say the second half of what I've just said there in terms of repositioning were broadly complete and <unk>.
Quite a number of areas.
It's really about then execution enhancement sales.
Sales coverage.
Where we have we have SaaS or subscription capabilities in every single portfolio. We have in our mainframe solutions capabilities and EMC that are subscription based we have.
Very strong SaaS capability in our ADM portfolio, we've launched new offerings in security, which we're getting really good traction with.
Italy, Italy.
So if you want to think about it that way.
The big data solutions, we're transitioning to a subscription led model.
<unk> model. They are so in terms of portfolio, where would you see most of it big data ADM.
<unk>.
And then <unk> of each of the other portfolios.
Okay. Thank you.
Thanks Julien.
The next question comes from the line of George O'connor from Stifel. Please go ahead.
Oh, Hi, there good afternoon, and thank you for taking my questions.
You don't mind, 3 very quick ones from me you mentioned a back level users.
Any idea in terms of how much technical debt and there is there. So what is the license potential if you could get a certain number of the back level users on to current levels and then secondly, you mentioned our retention rates.
To do area just just wondered.
And if you can give us any clarity in terms of what the average maintenance renewal rate it looks like at the moment and then certainly nice to see a SaaS on your to do list is it it's not that an excellent time to move customers from license to SaaS and if not from a sort of an apps delivery standard.
Point than at least from a financial standpoint, 2 bedroom and USC entity.
Thank you very much.
Yeah, Yeah, it's SaaS Theres no question.
Net building of Crawford SaaS revenue stream here.
Significant part of our plans to improve overall levels of recurring revenue.
We're being very targeted in how we do that George for a couple of reasons.
1 we're evolving our product strategy and.
But I think our execution alongside deviation of that product strategy and secondly, we have.
We have a customer base that typically operate in a hybrid world and doesn't want a 1 size fits all or 1 answer only they don't want a cloud only and so they might want a cloud first line so but they don't want a cloud only answer and we're just being targeted and working our way through that and providing the flexibility to hub.
Other bowl.
Our blend.
In terms of retention rates, what I would say George is not good enough in too many places across the portfolio.
We believe we've got a very significant opportunity to improve those we have with pockets of real strength in terms of renewal rates, but we've got significant opportunities in other areas and we've got some areas are performing exactly.
We expect them to so the.
Blend of opportunity that is significant and fundamental to.
2 our plans to return the business back to growth.
In terms of the technical debt.
Probably not the right time and that there isn't technical debt and the product no. What we have is a backlog of people who are not taking advantage of that new capability and functionality.
It's almost impossible to quantify other than very significant if we could move it.
It's a reasonable proportion of people to current to current pay options.
And 1 of the 1 of the.
Big.
Vantages of the company as we will protect customers from a long term. So we don't force from awful.
Offer products to.
So to us so.
So kind of double edged sword here as we move them to take advantages of the new innovation and technology, but moved from a pace that's appropriate for their business.
And that's the balance we're that's the balance we're trying to find.
Bob prioritize to those people that would consider an alternative strategy. If we don't get them to the latest version of the product either because they need some functionality that isn't in the new product isn't in the old product and they don't know that they can get it in an upgraded version so it's really a <unk>.
All of those things short great stuff. Thank you very much.
The next question comes from the line of Marion Rosenberg from bearings. Please go ahead.
And Hello, and I have just had a question on from there.
Capital point that you raised in your free cash flow bridge.
Was wondering if in H 2 we should also expect some non kind of.
A catch up effect in H, 2 last year that wouldn't recur.
This year as well okay.
Alright, Yes, Youre exactly right said last year in general when it comes to the trade receivables balance throughout the year, we collected a.
A lot of aged receivables and there's an element of catch up there and so you would expect that not to repeat in the second half. If you think about working capital in general in the business. It's clearly.
Has an element of seasonality to it anyway site typically we do most of our billings in Q4, So you see and strong cash conversion in the first half of the year.
In the second half of the year slightly low, let's say you need to factor in both of those then into your consideration when you're building out your models.
Okay.
The next question comes from the line of well <unk> from UBS. Please go ahead.
Offering.
For me please firstly on maintenance obviously this takes quite.
Quite a while so it around but I was wondering if you might give us some idea as to what you think might look like.
What sorts of effects can you have on that maintenance trajectory in the second half.
In 2022.
For example.
If things go well with your improving the retention rates are.
My second question was what extent in terms of the move to subscription and SaaS jeopardy toward.
To what extent should we worry about cannibalization or is it.
Is this really you called out areas that so that's something that you'll not switching our existing perpetual licenses anymore.
I'll do the second 1 force the vast majority of where we're focused on our prioritization.
Is on if you want to think about it net new opportunity that doesn't necessarily mean net new customers, but it might be net new use cases from net new opportunity projects within within our existing customer base. So to that extent, we don't expect it to be in any way cannibalistic.
There are of course areas, where a customer wants to convey our proactively because they have a policy to do that or they.
They are on a strategic path and there it's about how do we help them how do we help them get that done and make sure. We protect both the customer under a long term revenues and the transition and Theres also some element of potentially defensive play where we may want to proactively moving someone because it allows us more certainty of longer.
<unk> revenue streams, so the vast majorities in category 1 the minorities and the last category and there are some in the middle.
In terms of in terms of maintenance you're quite right. It takes time to turn around so this is a it's a complex area with a mix of issues that range from the very specific to broader based and it's tough to actually get headlights granular level. So really all of the focus we have at the moment is on.
The actions and our ability to drive track.
Traction in the actions if you want to think about it that way.
So as I said comprehensive SAB actions mix of broad application much more and much more specific issue focus.
We got significantly increased weight over this area now in terms of resources leadership.
Focus of the management system, the amount of incentive that we put out there and people. So we're confident we understand the issues at a pretty detailed level and that we're taking the right actions, we just need to except linked to focus now on accelerating traction from the well is really the most most I can say on it.
Okay. Thank you.
Erika no questions in the queue. So as another reminder, please press star 1 if you would like to ask a question.
We have no further questions in queue I will hand, the call back to your highest for any closing remarks.
Thank you operator, firstly, thank you to everyone for your engagement on the call on your engagement in some of the conversations we had over the course of the smalling.
We're really committed to delivering an H <unk> and continuing the proof points and the execution that we've delivered to date.
I said, we feel very confident about the opportunity for efficiencies and effectiveness that exist in the business and we're going to pursue those that pace just as soon as it's prudent to do so.
Were increasingly encouraged about the opportunity in the marketplace is our propositions begin to resonate obviously lots of work still in front of us, but equally a great deal of work behind us good proof points and a clear plan going forward look forward to giving you an update more fully when we when we report on the full year.
Later this calendar year.
Thanks, everyone.
Thank you.
Yes.
You may now disconnect your lines.