QAD Inc. (QADA) CEO Anton Chilton on Q2 2021 Results – Earnings Call Transcript

QAD Inc. (NASDAQ:QADA) Q2 2021 Earnings Conference Call August 26, 2020 5:00 PM ET

Company Participants

Kara Bellamy – Chief Accounting Officer

Anton Chilton – Chief Executive Officer

Daniel Lender – Executive Vice President and Chief Financial Officer

Pam Lopker – President

Conference Call Participants

Kevin Liu – K. Liu & Co

Bhavan Suri – William Blair

Operator

Good day and welcome to the QAD Incorporated Financial Results for Second Quarter of Fiscal Year 2021 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Kara Bellamy. Please go ahead.

Kara Bellamy

Hello, everyone, and welcome to today’s call. Before we begin, I’d like to ensure that everybody understands that our discussion may contain forward-looking statements that are based on certain expectations and analyses. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.

QAD undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this call. For a complete description of these risks and uncertainties, please refer to QAD’s 10-K and 10-Q filings with the Securities and Exchange Commission.

Please also note that during this call, we will be discussing non-GAAP pre-tax income, which is a non-GAAP financial measure as defined by SEC Regulation G. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP measure is included in today’s press release, which is posted on the company’s Website.

Now, I’ll turn the call over to our CEO, Anton Chilton.

Anton Chilton

Thank you, Kara. Good afternoon, everyone and thank you for joining today’s call to discuss QAD’s fiscal ’21 second quarter results. As usual joining me on the call are Pam Lopker, our President; and Daniel Lender, Chief Financial Officer.

I was very pleased particularly in the current context to see a solid sales performance in our second quarter. Our sales team was able to match the performance of the same quarter last year, both in terms of value and number of deals. Our strong competitive position has maintained our momentum and sees our cloud transformation journey continue a pace as we hit guidance for the quarter with a 20% growth in subscription revenue over the prior year quarter, which when combined with maintenance revenue puts our recurring revenues approaching 80% of our total. As the global pandemic continues to dominate headlines and we and our customers and prospects navigate through these challenging times; our priorities remain consistent. The health and well-being for our community at large, complete continuity of service for our customers and protecting the investments in our global workforce are our areas of focus; and we continue to perform well in each of them.

With the current macro conditions, we have maintained a strong focus on prudent expense management and that’s helped sustain a solid bottom line performance. While the effects of the COVID-19 pandemic sustain the uncertainty over the medium-term future; our business remains in good shape and we’re still confident in achieving our long-term strategic targets.

I’ll now turn it over to Daniel to discuss the detail of the financial results.

Daniel Lender

Well, thank you, Anton. Our second quarter results were solid. Subscription and maintenance revenue mid guidance and we generated pretax profitability. Subscription margins improved 3 percentage points from last year. Professional services margins remained positive from last quarter at 3% as we continue our strategy of building and utilizing our partner network. The increasing contribution from higher margin subscription revenue and the expense control actions we’ve implemented help drive an improvement in our profitability compared with last year and last quarter. Currency had a $1.4 million negative effect on total revenue compared with last year’s second quarter, and a negligible impact compared with last quarter. Profitability was negatively impacted by $300,000 compared with the prior year and no impact compared with the prior sequential quarter.

Total revenue for the fiscal 2021 second quarter was $74.1 million, compared with $76.4 million for the same quarter last year. In addition to the impact from currency movements, the performance decrease of $900,000 resulted from anticipated declines in professional services, maintenance and license revenue; partially offset by gains in subscription. Subscription revenue grew 22% on a constant currency basis to $31.1 million and accounted for 42% of our business for the fiscal second quarter, up 8 percentage points from last year second quarter. Currency movement negatively impacted subscription revenue by $400,000. On a rolling 12-month basis, subscription billings grew by 17% with a three-year CAGR of 25%. We signed 22 cloud deals in the quarter split evenly between conversions and new customers versus last year second quarter, where we signed 24 cloud deals.

Looking at the total annual contract value of the deals; this quarter was almost identical to last year’s second quarter. Maintenance revenue was $26.5 million, of the $3.1 million declines from last year about $0.5 million was a result of currency movement with the remaining $2.6 million declined related to cloud conversions and our historical attrition rate which remains less than 10%/

Professional services revenue totaled $13.5 million compared with $17.4 million for last year second quarter; $0.5 million of the decrease was attributable to currency movements while the remaining $3.4 million decline was attributable to the completion or extension of certain projects. We also continued our strategy of expanding our partner network and further enhancing our ability to deliver services remotely, which resulted in services margins of 3%, up from negative 4% in the same period last year; and down slightly from fiscal 2021 first quarter.

License revenue for the fiscal 2021 second quarter $3 million, up from $1.2 million last quarter due to expiring licenses at one customer. We expect license sales to remain at low levels for the foreseeable future and we continue to focus our sales efforts around the cloud.

Total revenue by vertical for the fiscal 2021 second quarter was high tech and industrial 36%, automotive 30%; consumer products and food and beverage eighteen 18%, and life sciences another 16%. By geography; total revenue was North America, 53%; EMEA, 29%; Asia Pacific, 13% and Latin America 5%. Gross margin for the second quarter fiscal 2021 was 58%, a 5% improvement over the 53% last year; principally driven by gains in subscription and professional services margins.

Sales and marketing expense was $17.4 million, or 23% of total revenue versus $20.2 million, or 26% of total revenue for last year second quarter. The decrease mainly related to reduced travel and savings incurred as a result of the cancellation of our annual explore customer event.

R&D expense was $13.2 million compared with $13.9 million for last year second quarter. R&D as a percentage of total revenue was 18% for both periods. The reduction in R&D expense related to a one-time payroll tax credit received in Europe.

G&A expense amounted to $10.3 million or 14% of total revenue for the second quarter of fiscal 2021 compared to $10.4 million, also 14% of total revenue for the second quarter of fiscal 2021. Stock compensation expense totaled $4 million for the fiscal 2021 second quarter and $3.2 million last year. The increase is related mainly to equity awards issued at higher stock prices. This brings our income from operations to $2.3 million compared to a net loss from operations of $4.2 million last year.

Other expense of $1.8 million related primarily to foreign exchange losses in the quarter mainly due to the effect on our cash balances from the appreciation of the euro which brought our GAAP pretax income to $500,000 compared with our GAAP pretax loss of $3.4 million last year.

Non-GAAP pretax income was $4.5 million versus breakeven a year ago. We entered the second quarter with approximately $141 million in cash and equivalents compared with $137 million at the end of fiscal 2020. Cash flow from operations for the first half of 2021 totaled $16 million compared with $4.3 million [$14.3 million, as per press release] for the same period last year.

Accounts receivable was $42.3 million at July 31, 2021 versus $41.5 million at the same time last year. On day sales outstanding using the count back method was 49 days for the fiscal 2021 July quarter; the same as the year before.

Our short-term deferred revenue balance at July 31 was $95 million versus $94.4 million a year ago. Deferred revenue balances by category include $41.1 million of deferred subscription versus $32.8 million or a 25% increase. $51.8 million of deferred maintenance versus $59.6 million, $2.1 million of deferred professional services versus $1.8 million and $47,000 of deferred licenses another versus $200,000.

Our maintenance contracts are built annually while subscription contracts can be built either annually or quarterly. Our business outlook assumes current foreign exchange rates for the remainder of the quarter. Consistent with the guidance provided for the fiscal 2021 second quarter, QAD is providing guidance for subscription and maintenance revenue for the quarter ahead as follows: subscription revenue of $32.5 million and maintenance revenue of $26 million.

With that I’ll turn the call back to you Anton.

Anton Chilton

Thank you, Daniel. So consistent with our first quarter the difficulties presented in the macro environment have seen some sales cycles extend and some prospects still show a little more caution in terms of closing deals. But with that said, we did have a solid sales quarter both in terms of the number of deals done and the value of those deals being on a par with our second quarter of last year. We’re really happy to report that we closed those 22 cloud deals that Daniel mentioned in the quarter with a good representation of all of our key vertical markets in that cloud sales mix.

Our competitive strengths continue to attract new customers and we were very pleased to welcome 11 of them to the QAD Cloud which gave by deal count a 50:50 mix in the quarter between new business and conversions. We continue to make steady improvements in our cloud margins in line with our plans and we expect these improvements to continue over the medium term, driving incremental efficiency gains of 1% to 2% per annum. Looking at the quarter geographically; North America came in with a really strong performance in our cloud business and EMEA also saw reasonable results given the macro context; however, in Asia Pacific the picture is a little more mixed. The Australian business performed well but business activity is moving at a slower pace in other parts of that region. China activity is picking up at a somewhat slower pace than we might have expected and it’s hard to discern at this juncture whether that’s a result of COVID-19 or trade relations between the US and China or some combination of the two.

With the disruptive effects of both the pandemic and trade negotiations on the global supply chain, we’ve seen good activity and interest pick up in our global trade and transportation execution and our demand and supply chain planning divisions. Both the divisions were able to add new customers to their portfolios in the quarter.

On the professional services side of the business; we’re on track with the acceleration of our plan to move a larger percentage of work to our partner community. To that end, we were very happy to announce during the quarter the signing of a partnership agreement with the global IT consulting firm Infosys. These changes together with our new proven ability to deliver services remotely and strong management around resource allocation have allowed us to sustain positive margins in the services business as revenues continue to fluctuate. On a related note, we appointed during the quarter a senior executive to help drive momentum in expanding our partner ecosystem. With his experience of building global partner networks; he’ll support the expansion of our sales agent and distributor channels as well as supporting the continued expansion of our professional services ecosystem.

From an expense management perspective given the current macro context and the uncertainty around how long the situation will remain, we continue to focus heavily on the management and control of costs; in doing so we’ve been able to protect many of the investments we’ve made in our global workforce and sales and marketing capabilities. Without protracted uncertainty, we do continue to see a more cautious approach with some customers and prospects in moving forward with sales opportunities. From a vertical market perspective, it’s interesting to see in almost all sectors a mixed picture with some companies faring well and demonstrating a high degree of resilience, while others are more heavily impacted.

With all of that said our pipeline remains strong and continues to grow. While our weighted pipeline at the end of August was up 27% compared to the same period last year; our neighed pipeline value increased by 48% and remains at record levels. That does suggest that timing on those deals are extended, but we’re pleased with that amount of growth and it shows the investments we’ve made in lead generation continue to yield good results. Given all of that we remain cautiously optimistic about our medium-term sales prospects. We know our competitive positioning remains strong and the need for our next generation solutions is only reinforced by the current situation.

So I’ll now hand it over to Pam for a bit more color on those cloud bookings.

Pam Lopker

Great. Thank you. Anton. In Q2, we had 22 new teams; 11 from conversions and 11 from net new customers holding the 50:50 between conversions and net new bookings we have seen historically. From cloud activity perspective, all regions contributed to the quarter with North America performing exceptionally well. Interestingly, our automotive vertical led in bookings and represented approximately half of our cloud bookings this quarter. An example of this is a sizable order we received from an $8 billion global leader in energy storage solutions. They power one and third of the world’s vehicles creating the most advanced battery technologies for virtually every type of vehicle. The company was spun off from its parent owner approximately one year ago. They had an SAP direction.

The QAD cloud purchase this quarter represents a change in that direction and include purchases produced in the cloud as well as conversion of existing on-premise sites to the cloud. Being an automotive supplier has plenty and constant cost pressure from the OEM as change accelerates and the cost pressures increase big legacy ERPs are making less and less sense. Combined with the accelerating trend towards EVs, reduction in supply and demand due to COVID and autonomous vehicles on the horizon, we believe the industry has seen a tipping point. Big bloated, complex, rigid legacy ERP systems will simply not be tolerated anymore. We are winning because we offer an alternative; an adaptive ERP system built for the realities of today and the uncertainty of tomorrow. You will find QAD used in 52% of the major ice automotive suppliers and 46% of the major EV automotive suppliers resulting in 93 of the top 100 best-selling cars in the world being made with parts manufactured from QAD.

Our wins in automotive this quarter further consolidate our position as a leading player in this highly dynamic ever-changing market. Thank you. Back to you Anton.

Anton Chilton

All right. Thanks Pam. Okay, so looking to the future; we remain confident about meeting the long-term goals published earlier in the year. The need to deal with continuous disruption and change continues to grab the attention of global manufacturers and this ongoing and protracted situation has served to highlight the need to be able to respond in real time to sudden changes in demand, in the supply base and in supply chains globally. That’s what QAD adaptive ERP and our solutions were designed to support; a rapid response to change in near real time.

On that note, I’m pleased to announce that on September the 22nd, we’re very excited to be hosting a virtual thought stream event we’re calling QAD Tomorrow. This is in recognition of the challenges global manufacturers face in being prepared and ready to deal with whatever it is tomorrow throws at them. We’ll be talking about our observations on the characteristics exhibited by these enterprises who are adept at proactively dealing with the uncertain and the unforeseen and how QAD and our adaptive ERP and solutions can help customers react to change efficiently and effectively. We’ll also be highlighting some of the customer success stories I mentioned in our last call as they change business models in real time to cope with a new reality and also to support their communities in the fight against the pandemic. The protected situation with this pandemic continues to drive uncertainty and challenges for many of our customers. This in turn makes it difficult for us to predict the effect on our sales and professional services projects throughout the remainder of the year; however, with our strong pipeline and the global manufacturing PMI now at just over 50; we feel we’re in good shape for a strong finish to the year.

Our immediate focus now is on pulling forward some of those deals forecast for later in the year into the current quarter.

In summary, we continue to be vigilant around management of costs and in monitoring the trends in our sales cycles. Our priorities remain consistently focused on the health and well-being of all in addition to supporting our customers through this difficult time. The prudent approach to managing the business has proven to be effective to this point and will remain in place to see us through the coming months. Our balance sheet and cash position remain strong and we remain well positioned to get back on track and drive aggressive cloud growth once we emerge from the current situation.

Okay, operator, we’re ready to take questions from analysts, please.

Question-and-Answer Session

Operator

[Operator Instructions]

Our first question will come from Kevin Liu with K. Liu & Co.

Kevin Liu

Hi. Good afternoon, guys and congrats on a solid performance in this environment. First question for me obviously on sequential basis things started to pick up for you guys on the license side. And it sounds like on the cloud booking site as well. I was curious if as you kind of look forward in your pipeline and just how your sales cycles are progressing. Whether you feel like the worst of kind of this pandemic impact is behind you or if there’s still any sort of lingering concerns just in terms of your customers’ ability to close business.

Anton Chilton

Sure. Thanks Kevin. Yes, I’d say, yes, good performance by the sales team this quarter; as you say our pipeline is very strong but if you look at that difference between the facted or weighted pipeline and then the unweighted pipeline; it’s much bigger growth in the weighted which means that some of those deals are in earlier stages. So I talked there about having a strong finish to the year and our focus now is pulling some of those deals into our third quarter. So there’s definitely still an effect of the COVID-19 on caution and moving forward at a slightly slower pace than in the past. So we remain bullish about the medium to longer term but still a note of caution in terms of the immediate future. And of course nobody knows when this all is going to be over and so that adds to that note of caution there too.

Kevin Liu

Got it and certainly there have been significant expense savings thus far. As you look into the back half of the year, are you guys seeing opportunities to either reallocate or redeploy some of those savings in various marketing events or do you feel like you’ll continue to run as you have in kind of the first half of fiscal 2021 and keep kind of a tight reign on expenses?

Anton Chilton

Yes. We’re obviously being very prudent but yes well we’ve made savings and Daniel alluded to in the commentary. We obviously didn’t run our global customer event explore this year in May and so instead we’ve diverted some of the energy and effort of that into this thought stream event that we’re going to be running on September the 22nd; obviously, it will be different and it’ll be virtual and much shorter. We’re not going to run the virtual event for three days for example, but yes so it’s things like that we continue to do a lot of webinar activities and so on. So I think from that side we are diverting effort and energy. They aren’t necessarily pushing our expenses up higher, but making good use of the time that we save from putting in planning and executing on some of those events.

Kevin Liu

Understood and just lastly for me on a sequential basis services were down a bit. I know that might be just normal seasonality, but wondering could characterize how much of an impact with seasonality versus other factors. And then as you look at the project backlog from here how we should expect that to trend?

Anton Chilton

Yes. There was not significant impact to seasonality on that, Kevin. It actually came in — it came in slightly lower than what we had originally anticipated. But I had as I mentioned earlier there is a given some of the efforts that we’ve done around utilization of our partners and also being able to deliver services remotely that helps our utilization; our ability to use people of different locations and so forth. We still were able to generate a profit there, which is — was a key goal for us this year. We do experience some seasonality in Q3 mainly as a result of the August being a heavy vacation month in Europe with a lot of customers and our employees themselves go on lengthy vacations or I guess this time of the year they’ll be out — there taking vacation maybe staying home. But that’s still an effect but going forward we’re really not thinking that the revenue — the revenue level on the services side is going to vary significantly from existing levels. Yes, it could go up some quarters or down a bit in others. Our main focus is really in ensuring that it’s profitable and that we’re providing our customers with the right level of service.

Operator

Our next question will come from Zach Cummins with B. Riley.

Unidentified Analyst

Hi. This is Zach’s associate Danny on for Zach. Congrats on the quarter. I just have a question on the transition to cloud. I was wondering if you guys have seen an increased interest and making the transition to cloud within your existing base.

Anton Chilton

Yes, absolutely, I would — yes and I think the current situation has kind of reinforced that level of interest. I think as I’ve said on prior call or on the prior call the pandemic has definitely increased people’s interest and desire to get to the cloud. It’s one less thing they have to worry about in terms of managing their business in some situation like this. That said if they weren’t thinking of moving ERP originally, then it’s more a level of interest in thinking about planning for the future as opposed to a big rush to transition to the cloud right now. But again with that said we were pleased with the level of conversions that we had this quarter; it’s a good healthy number, and so yes we’ve always felt good about the value proposition. The current situation just serves to reinforce that and we do expect to see an increased pipeline, and part of the increased pipeline for the future we think is attributable to that reinforcement of that value proposition in the current situation.

Unidentified Analyst

Got it. Thanks. And so another question I had was just how we should think about the mix of conversions and new cloud customers moving forward.

Anton Chilton

Sure. So it — for us, we continue to — if you look at it by deal count on average; we’re still expecting for the foreseeable future to see that that mix of 50:50. And so the mix by value is a little bit different. When we do the conversions they’re typically coming in and switching a 100% to the cloud straight away. When we acquire a new customer we’re typically rolling out the solutions; so that comes in phases and then catches up a little bit later. But, yes, by deal count just given the way our funnel mix is at the moment and how it’s looking, yes, we see that 50:50 split by count continuing.

Unidentified Analyst

Okay. Thanks for the color there. And my last question; I was just wondering what is the expectation for professional services in the coming quarters? I know you guys provided a little color on proactively working to push into a partner ecosystem. Is there anything else there that we should be thinking about or any additional color there would be helpful? Thank you.

Anton Chilton

Yes, no, sure. The main color as I mentioned earlier is really around, we have a very, very keen focus on ensuring that line of business remains profitable on an ongoing basis and our — we have quite a number of efforts right now as well with the ability to provide services remotely to be able to get utilization rates higher there. As the economy or when the economy starts to recover a bit more, we do expect to see some more services projects start to come our way. We do believe there’s still going to be a very significant amount of customers that will want us to lead on those projects even though we may be using some of the partners in the ecosystem to provide some of those going forward. So we would expect as the economy grows and the rest of the business grows we would expect longer term to see professional services grow as well. But not quite keep pace with the rest of the business. We would expect to see that number as a percentage of the overall company revenue to remain where it is or potentially come down over time.

Operator

Our last question will come from Bhavan Suri with William Blair.

Bhavan Suri

Hey, guys. Thanks for taking my question. Can you hear me, okay? Great. So congrats and let’s start off maybe on the partner side. I’m actually pleased that some of the shift is happening to partners; so a couple of questions there, so sort of where are you and sort of that transition the partners. Any color in sort of number of consultants ramped, things like that? And then the second part of that and then I’ve got a couple other questions, but the second part of that is when you look at the partners it’s always interesting you give them leads so they sort of build a practice around it; and then as they get consulted into the bench and they’re not utilized they go find leads and do that with their clients or they approach our clients with QAD instead of say SAP or whatever. Like where are we in that trajectory? So first any colors in sort of a number of consultants and second we’re in that flywheel that has happened for SAP and Oracle and JDA with et cetera et cetera but in things a big, big consulting company, so just some sense of how you think about where we are in that flywheel. I suspect it’s early but enough to get some color on that. And I got a couple more questions.

Anton Chilton

Sure, absolutely, Bhavan. So just, yes, just where are we on the let’s say capacity journey. We’ve been for those partners of scale that we signed in recent times like TCS and so we’ve been continuing to work on certifications and helping them come up to speed with the later versions of the product and adaptive ERP. Obviously with emphasis they have some capability but we’re now working with them in terms of rounding that out. So I think globally at scale, I think, it would be fair to say we’re around double the capacity we had this time maybe say 18-months ago. But our goal is to continue to build that and that’s I’m going to talk about that and then leading into your second question about helping with the sales efforts there. So a big reason that we brought in our new executive to help us manage our partner growth is someone who’s experienced in growing sales channels on a global scale, and also systems integration channels. It’s been in since relatively early in the quarter and plans are starting to come together now.

Bhavan Suri

Do you want to share who it is or maybe a little bit about the background?

Anton Chilton

Yes, sure. His name is Mohan [Indiscernible]; he’s from Exo Dassault Systems, was there for quite a while and helped them build their global partner network system up for one of their larger divisions. And his entire career has pretty much been in that space in terms of building out systems integrations and sales agents sell distributor relationships. So the professional services initiative is obviously some way ahead of the sales initiative but we’re looking for him to help us quickly catch that up. We feel in a great position given the adaptive ERP, the enterprise platform. We think we’re going to be extremely attractive to partners both at scale and on a regional basis too. And indeed we’re already in some conversations around fleshing that out right now and driving that. So as you said early days but we’ve got the guy on board; his plans are coming together. We’re already in some of those conversations. So we’ll keep you updated as we go down that journey.

Bhavan Suri

All right. Got it and then let me talk about the pipeline a bit. So obviously you gave us both the weighted and unweighted color in the pipeline. I guess when I had a couple questions there; one, when you look at that pipeline and you try normalize this may be a question you can answer but normalize for what COVID has lengthened how is that percentage — can you give us any sense of that? So if I take all the deals that should have closed remove them from the pipeline what does that look like? Do you have — I mean I’m sure you have that sense. I wonder if you could share some of that color with us because obviously the pipeline’s a lot bigger because skills have just lengthened and you comment on that but I’m saying okay so if we try to normalize what would that look like.

Anton Chilton

Okay. I’d say it’s not bigger because deals of lengthen necessarily that might have a very modest effect on that. I think we’ve grown it pretty substantially because if we go back 18-months we put that investment into our business development team and our marketing and our marketing tools. And I think that has been paying off and paying dividends. I do believe that’s growing at a slower rate than it would have COVID not come around and affected the world the way that it has. I’m struggling to give you a percentage number in terms of what it would have been. And I guess we’ll never know. [Multiple Speakers]. So, yes, it’s but yes certainly it’s not helped and we think it would have been significantly higher. And that said we continue to put the efforts in our business development teams are as busy as they’ve ever been. And I think you’re seeing a reflection of that where the weighted funnel has grown almost to 50%. It was 48% of where it was this time last year, but the fact that the unweighted has grown by 27% is just — yes, there’s interest, there’s deals there; they’re just in earlier stages than they might otherwise be given the current situation.

Bhavan Suri

Got it. And then one last one for me for Pam maybe or for you just as you look at the cloud wins on the new customers the 11 ones, sort of who are the competitors and usually every quarter we have sort of one big displacement from the three-letter company out of Germany. So just wondering sort of any competitive sense of how those deals played out? Who were the competitors? Who did you displace? Some sense that would be really helpful Thank you.

Anton Chilton

Yes. I’m certainly happy. I’ll jump in and Pam if you want to add any color to that absolutely. Yes, the German competitor remains the strongest. The case that Pam outlined was from a company that had an SAP strategy and is questioning that and the value of that. And we today we are in quite a number of conversations with large enterprises that really are given cause to ask the question about what the alternatives are given that there is no migration path from ECC 6 six or prior versions to S/4 HANA. The fact that’s a re-implementation and so that’s causing them to question that. And that’s pulling us into some conversations at scale around the world with global manufacturers. And I’d say they remain by a standout our largest competitor in our sweet spot which is those global manufacturers. Pam anything you want to add to that?

Pam Lopker

I’ll say that we have certainly been concentrating on our SAP right now because there is a change there and change creates opportunities. The other company that we is kind of for up for grabs and we see a lot of replacements and win against would be the in-force we looking at those getting old and ready to replace and taking competitive opportunity against them. The market is certainly a lot smaller and competitive than it used to be. Thanks.

Bhavan Suri

Yes and I did say it was my last question, but I actually have one more. So obviously SAP had the — hey, you’ve got to move to HANA by whatever date. They push that out from I think it was 2022 or 2021 to maybe 2025, is there — have you seen any slowdown because of that? Because they extended the timeline to migrate because obviously that time line to migrate to HANA is a great driver for you, but given the fact that they push that out has that sort of made people say, let’s sit back on our heels and wait. Our SAP system is working. I don’t have to make a decision today. I can postpone the decision a year or two years. Have you seen any of that?

Anton Chilton

No, not in the conversations we’ve been having because I think that the challenge remains the same. And, yes, they were obviously under pressure. I think the dates from memory, Bhavan, excuse me 2025 was the original push to 2027 I think from memory. But I think that the challenge there is if they wait they’re still on a legacy system. And with the pace of change and the rate of change that’s happening in the world today and the requirement to respond really quickly to stuff like supply chain disruption and so on. That’s really hard with legacy ERP and so, yes, if your business is fairly static not changing much then maybe you can afford to wait but the companies we’re talking to we’re already needing to do something to respond to change. And so they’ve got a bit more comfort I suppose that they can be supported for longer but their business demands are still there pushing the urgency to make that switch. So, no, I’m not seeing any of those conversations slowdown as a result of that, if anything it would be related to COVID and when’s the right time to start but not to the SAP date switch.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Anton Chilton for any closing remarks. Please go ahead.

Anton Chilton

Great. Well, thanks everyone for joining the call today. And we look forward to sharing our Q3 results in November. Thanks and stay safe.

Pam Lopker

Great. Thank you.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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