Q2 2019 Earnings Call
Thank you for joining our conference beginning approximately one minute. We appreciate your patience I cannot conferences together approximately one thank you and please continue to hold.
Greetings and welcome to the Synchronoss technologies Inc. second quarter 2019 earnings Conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone to require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like turn the conference over David Clark Chief Financial Officer. Thank you. Please begin.
Good afternoon, everyone. Thank you and welcome to the Synchronoss technologies second quarter 2019 earnings call.
Joining me on the call is Glen Larry President and Chief Executive Officer Synchronoss.
During the call, we will make references to our prospects and expectations for 2019 and beyond.
Other statements relating to our business that may be considered forward looking statements within the meaning of the federal securities laws, including statements about our financial trends future results of operations and financial position business prospects and market opportunities.
Generally forward looking statements are identified by words, such as expects believes anticipates intends and other indications of future expectations. These forward looking statements are based on the business environment. As we currently see it and include certain risks and uncertainties. Please refer to our SEC filings for more information on the specific risk factors that may cause actual results to differ any forward looking statements on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events.
In addition to US GAAP reporting we report certain financial measures that do not conform to GAAP. We believe these non-GAAP measures enhance the understanding of our performance reconciliation of GAAP measures to their non-GAAP measures. In addition to the description of the non-GAAP measures can be found in today's earnings press release, I will now turn the call over to Glen.
Thank you David Thank you everybody for joining US today, we are pleased to announce a strong second quarter of 29 team as we continue to make solid progress with year over year revenue growth very strong EBITDA improvement and more exciting new deals with major customers worldwide.
Revenue in the second quarter was $77.8 million up 1.4% from the year ago quarter as expected and as David and I told you on our first quarter call revenue was down sequentially due to typical unexpected seasonality as well as the non recurrence of a large messaging license revenue that we recognized in the first quarter as well as a few other items.
With the new deals we've announced since our Q1 call, which I will comment on in a moment, we are optimistic about our ability to accelerate revenue growth in the second half of 2019 and continued that trend into 2020.
We are very pleased with the improvement of our overall profitability and the overall year over year financial comparisons continue to give investors a clearer and more transparent picture of the progress we have made to improve gross margins reduce operating costs and drive earnings leverage.
As an example, compared to the second quarter of 2018, adjusted gross profit was up 17.1%.
Selling general and administrative expenses are down $10.9 million or 32%.
Research and development is down $1.2 million or 5.8% and depreciation is down $3.1 million or 13.4%.
These results in turn drove a significant improvement overall profitability compared to the year ago quarter.
Adjusted EBITDA was $8.7 million in the second quarter compared to a break even in the year ago quarter, and adjusted EBITDA margin was 11.1% compared to zero percent in the year ago quarter.
The year to date numbers are even better.
Revenue was up 3.4% in the six months ended in June and adjusted EBITDA was up 15.3% on a positive note versus an EBITDA loss of $10.8 million in the comparable prior six month period, a $26 million swing.
These strong improvements are a result of our intense focus on operational efficiency.
Throughout 2018, and 2019, we have significantly reduce costs and matched expenses to our revenue the entire culture of our company is now geared towards ensuring that every dollar we spend add shareholder value.
And every employee understands.
They have a responsibility to treat our company's dollars like their own and spend efficiently and effectively at all times.
In short we are doing exactly what we told investors, we would do and meeting our commitment to drive to improve profitability and overall shareholder value.
And we're not done yet at our Investor day in June we outlined several of the initiatives that are underway to further reduce costs, including reducing our data center count to zero over the next three years and plans to reduce the number of software license licenses and job of cores used in our operations.
These actions are in addition to our day to day focus on SGN, a expenses as well as optimizing our head count and office footprint to name a few.
Earlier this year, we mentioned that we will be making a 20 to 25 million dollar investment in the growth of our business.
We also told investors that much of this investment will be success based and time to match new contracts and their subsequent implementations.
Thus far this year, we have spent approximately $7 million of that investment. However, we expect the magnitude of the new deals to accelerate in the second half. So accordingly, we would expect a higher level of investment spending in the second half as well.
In short we are spending the right amount to enable sustainable revenue and profitable growth.
And we are ensuring that expenditures are matched to revenue opportunities and incurred at the right time to meet our customer obligations and objectives.
On top of that of the financial progress we have a lot of new exciting deals to talk about this quarter.
In the cloud platform 18 to selected synchronous out of box experience product or it will be.
To provide value added offers to its subscribers. We also continue to make progress towards launching the new cloud customers, we announced last quarter and our messaging platform. We continue to move forward in the next phase of our partnership in Japan.
In our digital platform, we have announced new deals with wireless advocates a major reseller of wireless products and services in over 600 retail locations.
Wireless advocates will implement digital journeys into its enterprise architecture, and delivering a best in class customer experience and true Omnichannel environment.
We also today announced telkom, Indonesia, the largest telecommunications service provider in Indonesia will use our DSP platform to approve.
Its operational agility speed to market and support the expansion of digital services for its customers.
And again in digital we are moving to the next phase of our partnership with Amazon and have identified a number of carriers around the globe, whom our DXP platform will enable the sale of Amazon services.
Also in smart buildings, we've announced a partnership that combined arrows electronics expertise in supply chain and logistics with synchronous has expertise in I O T software platforms. This is a truly global partnership as Arrow has over 200000 customers.
349 locations in 18 countries worldwide.
And finally on today's call. We are announcing that we have signed a developer agreement with tritium, a global leader in smart buildings, and a subsidiary of Honeywell to integrate their flagship open framework Niagara with our smart building solution to provide a rich.
Insights for data for our enterprise customers and bring new digital solutions to treat EMS partners across the globe.
And last.
Week, we provided more details aren't exciting partnership with Microsoft we are partnering with Microsoft on alive proof of concept at rack space This million square foot headquarters in San Antonio that combines Microsoft as your backend with synchronous smart buildings platform.
Let me go into more detail for each of these let me start with cloud cloud continues to be our top revenue generating platform based on our successful partnership with Verizon and others.
With our white label cloud platform last quarter, we announced that we had signed immaterial new white label cloud customer and I'm here to tell you that we are making progress and working with that customer to prepare for launch.
As we noted in previous operators and in previous discussions have recognized the fact that premium cloud services drive material and profitable revenue growth and earnings growth, while reducing customer churn.
Accordingly, we are seeing significant interest around the globe and partnering with synchronous for a premium cloud offering currently our funnel is the largest it's ever been and we look forward to more announcements in the near future.
Now this quarter, we announced 18 T will be using our out of box experience will be to integrate additional mobile offerings into a digital customer onboarding process.
This makes the process of buying or upgrading a new device either at home or in store into a powerful sales channel for 18.
We will be less 18 to rebuild in value add offers for add on products that customers can seamlessly add during the device upgrade or activation process, enabling frictionless personalized digital journeys as well as the opportunity for 18 key to drive new revenue.
We are excited to expand our relationship where they TNT one of the largest wireless operators in the world.
In the messaging platform, we continue to work to the next phase of our messaging partnership in Japan. Later this year, we expect to launch enhanced customer engagement functionality and journeys, which will improve overall customer experience and provide the potential for ongoing monetization opportunities.
On a parallel path, we have been working hard to educate brands about the power of the advanced messaging as a platform for mobile payments ecommerce advertising and ATP and B to C customer experience management.
Advanced messaging is capable of competing with the most widely adopted consumer messaging platforms in the market place today, such as Facebook Messenger, Instagram and whats App, we team with media link to conduct a market shaping initiative to educate inspire and activate brands and their agencies to trial advanced messaging around the globe in an effort to drive interest and ultimate market demand for this new and exciting engagement channel.
Our brand engagement activities also include conducting primary customer research on messaging platform preferences.
As a result, we will be publishing two white papers targeted respect fully excuse me to the mobile operating community as well as the brands and agencies, who will be using this channel.
We are not we are now establishing pilots with brands to test and learn about the possible engagement that can be gained through the use of advanced messaging. Later this year, we will launch in innovation lab to bring together stakeholders to continue to drive the creativity into this new method of communication.
This initiative is geared towards ensuring that customers adopt the new messaging platform and critical mass grows there is.
There is built in demand for the possible engagement and commerce capabilities It will offer.
In addition, I can tell you that discussions have accelerate with operators and potential operator, consortiums and other parts of the world and we are in advanced talks about replicating the model of our success in Japan and other countries expect to hear more about this in the second half of 2019.
In DXP, our digital platform, we announced wireless advocates a leading provider of wireless products and services with more than 600 retail locations in the United States and that they have selected synchronous and our DXP platform to enhance his digital retail and omnichannel customer journeys.
Wireless advocates will implement DXP into its enterprise architecture, delivering a best in class customer experience at all touch points.
This is a great use case for DXP and specifically digital journeys as wireless advocates as a reseller of all four major us carriers.
As such this deployment shows the flexibility and versatility of digital journeys as well as its ability to seamlessly create compelling customer journeys across a complex multi care environment, minimizing operational complexities, which ultimately lowers cost and eliminates the need to rip and replace legacy systems.
In addition, wireless advocates is utilizing all the products within our DSP platform to optimize our omnichannel sales environment, including journey crater journey publisher journey integrator, and our data and analytics across the sales channels and multiple pass.
So this deployment will dense demonstrate the full capabilities of DXP and create a compelling use case that will open a lotta eyes in the wireless and TMT ecosystems.
We're also pleased that Telkom, Indonesia has chosen synchronous as digital experience platform to transform its business processes and enhance and unify its customer relationships management interactions across all channels Telkom, Indonesia will use DXP to improve its overall operational agility and support the expansion of digital services that incorporate new media content and e-commerce offerings.
Telecom unusual we'll use.
DXP is tool kit to upgrade its current CRM capabilities and quickly develop connect and integrate its planned new digital services with minimal cost and disruption. It will also use dxps data mapping and in depth analytics capabilities to aggregate and analyze customer data create cross selling opportunities through customize offers and provide an overall more personalized customer care.
This new relationship with Telkom, Indonesia, Indonesia is another important step forward for our.
There is that we'll use DXP to integrate to Amazon's backend systems.
These carriers are all over the globe the potential for revenue from these exciting partnerships is significant.
Now to the internet of things or Aiotv platform.
As you all know we've been focusing on the our smart buildings platform and has taken off and we have announced several exciting new deals in the last week as we announced last week, we are partnering with Microsoft to deliver an industry, leading smart building solution.
The collaborations first initiative is alive proof of concept with global technology services provider rack space.
Deploying a smart building service to monitor control and optimize energy uses usage reduce cost at rack space 1 million square foot facility in San Antonio.
Synchronous and Microsoft will combine our expertise in cloud computing and Aiotv service enablement to collect analyze feeds from numerous sources when the rack spaces headquarters, including heating air conditioning lighting maintenance and security.
Synchronous the smart building solution will provide rack space with the dashboard to create a unified view for all of its energy and building systems.
Our platform will also include predictive fault detection capabilities and near real time, alerts, which will automatically flag energy usage inefficiencies to rack space through through persistent diagnostics.
The result is an in depth analysis and benchmark reporting of business energy patterns and performance will aim to drive cost between excuse me cost savings between 12, and 20% for rack space per building.
On todays call. We are also announcing a developer agreement with tritium, a subsidiary of Honeywell and a global leader in business applications frameworks that has fundamentally changed the way devices and systems connect.
We will integrate their flagship open framework network called Niagara with our smart building solution to provide a data rich insights for enterprise customers and bring new digital solutions to tritium partners across the globe.
Synchronous and Trillium will deliver a scalable solution that provides a complete visibility into the buildings facility systems as well as the ability to act on real time alerts, resulting in increased efficiencies cost savings and security.
As a result enterprise users level holistic and single pane of glass view of critical data for the efficient management of their smart building, including HVAC electricity.
Electricity security and lighting by providing integrated system control and a complete view and access to all of these sources. We believe we can deliver up to 20% to 25% cost savings.
We have also announced a partnership with Arrow electronics, a leading global value add supply chain and logistics partner to over 200000 customers worldwide. This partnership will combine synchronous is soft were driven smart buildings platform with arrows expertise in creating configuring hardware based and building management systems. This provides a single integrated package, which telecom operators system integrators and other service providers can offer two large multinational companies and organizations to remotely manage their premises onsite and automated features.
This synchronous Aero joint solution will be a truly global in scale and scope as arrow today is 349 locations in 18 countries worldwide.
The scalability of synchronous Arrow solution means global brands and organisations can use it to remotely manage and monitor their office and facilities in multiple locations worldwide at the same time.
As noted on last quarter's call, we are launching customers throughout our ATM T. smart buildings partnership and the pace is accelerating we are excited that there is a great deal of activity with 18 to commercial Salesforce and see this partnership as a growing source of revenue for synchronous for years to come.
In short we are seeing momentum across the business and traction each of our platforms. We continue to feel good about the new deals that we announced in Q1 and the revenue contribution they will bring in the second half of the year. In addition to the recently announced Q2 deals. We also have added new opportunities to our pipeline that we expect to close in the back half of this year.
I believe we have a clear line of sight to accelerated revenue growth in the second half of 2019 and improving in 2020.
With that David will now review the financials in more detail David.
Thanks, Glenn and again, thanks to everyone for joining us.
Ill review, our second quarter results and update guidance for 2019.
We are very proud of the second quarter financial results as they indicate that we continue to meet our promises to shareholders drive revenue growth and remain prudent with spending in order to drive earnings leverage and positive EBITDA.
And $8.7 million year over year in EBITDA improvement and $2 million improvement from the first quarter results. Despite the expected lower revenue our strong testimony to the hard work we've done to improve the earnings profile company.
As Glenn mentioned, we will continue to take the hard action necessary to move the company towards GAAP profitability in scrutinize every expenditure to ensure that add shareholder value in the near term.
On to the results revenue for the quarter was $77.8 million, which is up 1.4% compared to $76.7 million in the year ago quarter, and down 11.6% compared to $88.1 million in the first quarter of 2019.
The year over year revenue increase was primarily driven by growth in our white label cloud business in particular year over year growth in the premium subscribers and our major customer horizon.
Sequential decrease was expected due to the non recurrence.
Of the eight figure licensing revenue, we recognized in the last quarter in connection with the Japanese advanced messaging deal.
However, excluding this onetime large license deal from the first quarter revenue sequential revenue growth would have been in the low single digits.
For the six months ended June Thirtyth revenue was $166 million up 3.4% from $160.5 million in the first six months of 2018.
This increase was driven by growth in Verizon prescribers as well as revenue we recognized in the first quarter from the Japanese Ministry Consortium.
As expected recurring revenue returned to 80% of the total in the second quarter from 73% in the first quarter.
As we noted on last quarter's call recurring revenue was lower in the first quarter due to the large licensing revenue we realized in the messaging business and is now back at the expected level above 80%.
I will now review revenue by product line.
Cloud revenue was $40.4 million up 4.4% compared to $38.7 million in last year's second quarter, largely due to growth in premium subscribers at our largest cloud partner.
Cloud revenue was essentially flat from $40.7 million in the first quarter.
Digital revenue was also flat at $22.2 million in the second quarter and down 3% sequentially from $22.9 million in the first quarter.
Messaging revenue was $15.2 million down 4% from $15.8 million in the year ago period, and down from $24.5 million level in the first quarter due to the non recurrence of the large first quarter licensing deal.
I'll now discuss profitability metrics gross margin operating margin and net loss and EBITDA.
Improvement in profitability measures demonstrates the hard work the entire Synchronoss team has done over the past 18 months to reduce costs and improve earnings leverage across our business, including closing datacenters and migrating to a cloud storage model office consolidations head count reductions and other expense reduction initiatives throughout the business and as Glenn noted, we have more opportunity to further reduce costs over the next two years.
Adjusted gross profit was $45.1 million or 57.9% of revenue.
This is a 17% improvement compared to $38.5 million or 52% in the year ago quarter.
Adjusted gross profit was $49.8 million in the first quarter, reflecting messaging deal, but adjusted gross margin was slightly lower 56.6%.
For the six month period, adjusted gross profit was $94.9 million up 21% from $78.8 million in the first half of 2018.
Gross margin was 57.2% compared to 49.1% in the first half of 2018, an increase of 810 basis points.
non-GAAP loss from continuing operations was $4.5 million, a $10.5 million improvement compared to $15 million in the year ago quarter.
For the six month period non-GAAP net loss from non from continuing operations was $11.9 million a $24 million improvement from the first six months of 2018.
GAAP net loss for the quarter was $25 million or 61 cents, a share a $22.2 million improvement from $47.3 million loss or a $1.20 per share in the year ago quarter.
And a $2.6 million improvement from the $27.6 million loss or 68 cents a share in the first quarter.
<unk> was $52.6 million or $1.30 per share for the six months ended June 32019, a $35 million improvement from an $87.3 million loss in the first six months of 2018.
EBITDA for the quarter was $8.7 million compared to breakeven for the second quarter 2018, and a 32% increase from $6.6 million in the first quarter of 2019.
Now turning to the balance sheet and cash flow cash and marketable securities totaled $78.9 million at our quarter end and the balance on our convertible debt issuance was $47.1 million down $97.2 million at March 31.
Down from $97.2 million at March 31, as we repurchased over 50 $50 million of these notes in the quarter.
Accordingly, our net cash position is approximately $31.8 million as of June Thirtyth, and we expect to have ample liquidity to pay off the remaining balance of our convertible debt. When it comes due in mid August while continuing to support the company's ongoing cash needs.
We do continue to pursue discussions with capital providers with an eye toward funding available over and above our cash balances.
Accounts receivable was $99.9 million at quarter end down from $108.9 million as of March 31.
Now moving to guidance our guidance in 2019 is unchanged.
We continue to expect revenue to be $340 million to $355 million in EBITDA in the range of $30 million to $40 million for the full year. We believe we are well positioned to meet guidance for the full year as we head into cyclicality stronger second half of the year.
As a reminder, our guidance includes anticipated investment to support growth in the magnitude of $20 million to $25 million.
Just to note, we obtained $25 million in EBITDA in the second half of 2018, implying at least a $50 million run rate for the year, but we made a strategic decision to invest in our product platforms in 2019 to support growth in year end 2020 and beyond.
As Glen I explained to you on the first quarter call. We continue to feel very good about the new deals that we announced in the revenue contribution they will bring the second half of the year.
In addition to the new deals recently announced we've added new opportunities to our pipeline and we expect to close incremental deals on all four of our product platforms in the back half of the year.
This new business, we anticipate to have an immediate impact on revenue in the third and fourth quarter as well.
As into 2020 as Glenn discussed earlier.
As Glenn noted, we spent approximately $7 million of the after mentioned $20 million to $25 million planned strategic investment on our product platforms. We fully expect based on the deals announced deals we expect to close in the pipeline in the second half of the year to spend the majority of the remaining success based investment dollars by year end.
In closing was a very solid quarter with strong year over year improvements in profitability due to the hard work and cost cutting actions, we've undertaken over the last six quarters the momentum on the sales front as demonstrated by the exciting new deals. We signed recently and are good indicators of future revenue growth.
We remain well positioned from a cash standpoint to retire remaining balances on our convertible notes were funding operations and investing in the business.
And with that operator, we'll be happy to take questions.
Thank you.
We will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
The confirmation total indicate your line is in the question queue.
I start to feel that you move your question Fund Mikael.
For participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star key is well known please poll for questions.
And thank you. Our first question comes from the line of Richard Baldry with Roth Capital. Please proceed.
Thanks.
So the current broad question given the number of new deals you've won but could you generally give us an overview of how the revenue motion will work on some of those will they be revenue splits with the customers are transaction based and then how much of the sales motion will you control with.
Co selling et cetera, or.
Or will most of that be led by the partners I. Obviously this will change your deals just a general feel for how those things will work. Thanks, great. Thanks, well first of all thanks, Richard I. Appreciate the question and it's a good question and you're right. It does vary based upon the platforms and the deals.
I think let me give you kind of high level in general I mean, let's let's start for a second with cloud.
No. We obviously have had a lot of success with cloud, it's our largest revenue product, but also you know our cloud deals are based on subscribers.
The majority there is always going to be some some services revenue implementation revenue, but the majority of the revenues based on subscribers. So the deals that we have there that we've announced the one that we havent given a name yet, but we continue to work towards getting launched this year, yet that revenue will come more we'll have some this year, but the majority of that revenue would be in 2020, as they ramp up and bring subscribers onto the platform.
If you think about the DXP platform, we kind of have multiple models. There right. You. Obviously, we're real excited about about telecom, Indonesia, we're really excited around wireless advocates both of those we have implementation to go get done.
That we are in the process of doing today and in a lot of cases, you will see deals like that that are success based as well. They are based upon a number of ipi as they can be based upon number of transactions and so you will see again revenue in year, and then you will see that accelerate as we head into 2020.
When it comes to the Amazon deal, which we talked about last quarter that one is one that we will be doing implementations and we will be doing work with them really starting in third quarter and so that one is is Amazon.
Giving us the opportunity with certain carriers globally to work on implementing and bringing the systems together between the carrier and Amazon's backend and we will see revenue this year and we actually truly hope that accelerate obviously going into 2020, as we do a really great job and speed up that process for both sides.
If you think about our I O T platform, we made a lot of announcements around smart buildings and the team is doing a fantastic job and we really feel very good about about the feedback when you think about really industry leaders like arrow and tritium doing deals with us and the kind of volume and global stature. They both have and can bring our our software platform into and we fully expect to see implementations of that happening in the back side of this year and again, we have very high hopes of acceleration for many years to come on that but those are those are based upon per building.
And then in a SaaS model, which you'd expect and this success will be obviously, how quickly we can get our our our synchronous.
Building platform in width in Arrow's case, their hardware end and with tritium, obviously, what they are doing around the entire building and the ability to deliver analytics to the building owners and managers.
The other one that we talked about this quarter, which was Microsoft and rack space that one's up and working in real time, we are learning and seeing the capabilities that both Microsoft brings to the table, we bring to the table now with the great customer like Rackspace and that is an implementation is happening right now and like I said that one will be in year.
Last but not least is a messaging platform and I think you're as we've talked about with our relationship in Japan. There are multiple facets about to that situation. When you think about implementation and service and things that we do on a regular basis as well as there is some success based.
And that and that platform as well, but that wont ongoing and obviously as you know we've announced we're continuing to the next phase.
So you have a mixture of of of what you would look at as success based or recurring revenue models that always will include some level of service and capabilities that we will do ongoing.
I can tell you one of the indicators as David talked about having our ongoing re occurring in the 80% of our revenue level. We think is very healthy we're always going to have those situations, where we do a large license deal in a quarter, but really the ongoing we want to have in the low 80 percentile does that help Richard.
Yes.
One for David then switching more into the number side of it the SGN a total dollars came in at the lower end of what we've seen in the past many quarters, so sort of wondering if that's.
A new run rate you think is sort of a near term level to see.
Or maybe that's the number that we all would be coming up on some of the success based spending in the second half so maybe more splitting the first two quarters is a newer baseline.
It's close to the run rate, but I think we will see a little bit of a tick up in the second half of the year.
Okay, and then on the Cogs side.
Again sequentially came down pretty significantly, but still one of the newer guys here. So maybe I'm not sure if that will have to do with the one time revenues in the first quarter or how do we think about the run rate on on Cogs line.
All forward thanks.
Richard when you say coms line.
The cost of caught lying right I was coming from is come through as Doug Yeah, We will as as we ramp deals in the second half of the are you will see.
Cogs go up in fact, you might see a little bit of margin.
Slight margin compression as we do new deals because the co hosting cost will go up and we'll have other.
A rev share with some of the partners that we offer some of our products through so.
I think it's fair, we will get certainly can talk further.
Later today, but certainly we're going to have.
Expenses also for deployment of any new deals.
Yes, if I can add to what David said I think as we said with the $20 million to $25 million. We said, we're going to invest in our platforms. We've spent approximately $7 million of that one of the things that we've talked about each quarter is that in the first quarter, especially with that is going to be success based you can see by the number of deals that we announced in Q1. The number of deals we've announced in Q2 and David and I. Both noted the expected closure of deals in Q3 that we will we will continue to ramp up spend based upon delivery of those deals and delivery of the ones that weve talked about as well as delivery of some ones that we havent.
As of yet and that will get us back to in that 20 to 25 range for the full year.
I guess last one would be yes.
There have been I think a lot more deals than I might have expected not sure, but everyone else but.
How do you feel because you've been in a careful spending mode, which has been pretty how do you feel about the the amount of resources you have to ramp that many deals you know sort of simultaneously and the ones you see in your pipeline ahead, yeah. That's a great question and you know what we've tried to do our strategy has been and I think we've been relatively consistent the last 18 months that we wanted the number one get the baseline cost structure right and I feel good about that the team's done a phenomenal job I give david and his team a lot of credit.
For getting us there at the same time, we have been very very cautious eye is one word cognisance now the word around as we get deals done where is that next investment need to go and really we have been doing it I'll call. It real time.
Very very carefully.
The team has done an excellent job of that now to your point, we're seeing the contracts come through the deals get done and now we're looking at where those next investments need to go.
One of the nice things also about being in a SaaS business or platform as a service business is some of these deals really the incrementality of your spend is really delivery because because the because the software is there the customers. As you know we've spent a lot of time white labeling our software to make it. So it can be sold and the acceleration of the sale can go up and then really falls back to Pat and his team and the ability to deliver these things and do a fantastic job from our customers. So at this point we feel good.
I think we're always going to be a little nervous that just kind of how we operate and that's how we feel the time, because we want to make sure. We're doing the right thing for our customers as well as for our shareholders, but right now we feel we're in a very good place as we see these deals coming down.
The pipeline and getting getting closed.
Thanks, and congrats on the deal moment, Hey, Thank you.
Thank you.
Our next question comes from the line of Sterling Auty with JP Morgan. Please proceed.
Hey, guys. This is actually file on for Sterling congratulations on the quarter.
So my question is to the data thing to ship.
That that's been done so do you think that the.
In fact their costs in the coming three years ago, a gradual reliance on the public float increases on at the same time, you have to pay for maintaining your internal data centers as well.
Yeah. So I think I think what you're asking around our data center closures.
Yes so.
Is that what you're asking about.
Right right Yeah, no problem so absolutely this will.
Again.
When I first came in about 18 months ago, one of the very first things we looked at and we looked at what the trends in the industry is that we want to get out of the data center business.
And Weve started that process immediately and as you guys have seen we've made very very good progress.
At our Investor Day in June we laid out a plan Pat actually patent around our CTO a plan over the next three years to get to zero.
And so candidly it is the plan and the process.
And actually the transition has been incredibly smooth I give credit where credit is due we've got a great partners. Obviously in the cloud companies out there that are working with us on rack space working with us Pat and his team have done very very nice planning with our customers to make those transitions as smooth as possible, but ultimately what those have done as those have improved quality and reduce cost and actually improve customer experience for our customers from a b to b perspective, so it's kind of been the perfect storm for us where it's worked very well all around the one thing we can't do is rush them, we have to plan them and do them in the right way each time to make sure we bring that quality to the end user but overall, yeah. We are seeing cost reductions and in fact as as you know what's happening in the storage space. The cost continues to come down which has been advantageous to us and our cost structure and not only is showing up in the margin improvement. It obviously is reducing the overall capital.
I'll spend the company has to do on a year to year basis is we don't need to deploy new hardware.
Right right got it. Thank you that's all from me.
Thank you were reached end of our question and answer session allow me to Hana floor back over to Glenn Larry for closing remarks.
Thank you very much and I just want against thank everybody for joining us today.
I want to really again, thank the synchronous team.
Each and every person inside of this company is working incredibly hard and has been doing a lot of very very good work around cost around taking care of our customers and obviously around growing.
We are very proud of the deals we've gotten accomplished in Q1 the ones we've announced in Q2, we have nice momentum in all four platforms and we fully expect to continue and accelerate that momentum into the second half of the year. So again appreciate everybody's interest and have a great day.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.