Earnings Call: Q2 2020

Jul 28, 2020

Thank you for standing by, and welcome to the MicroStrategy Second Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Michael Saylor, Chairman and CEO. Thank you. Please go ahead. Hello. This is Michael Saylor. I'm the Chairman and CEO of MicroStrategy. I'd like to welcome all of you to today's conference call regarding our 20 2Q2 financial results. I'm here with Phong Li, our President and Chief Financial Officer. First, I'd like to pass the floor to Phong, who's going to read the Safe Harbor statement. Thank you, Michael, and good evening, everyone. Some of the information we provide during today's call regarding our future expectations, plans and prospects may constitute forward looking statements. Actual results may differ materially from these forward looking statements due to various important factors, including the risk factors discussed in our most recent 10 Q filed with the SEC. We assume no obligation to update these forward looking statements, which speak only as of today. Also, during today's call, we will refer to certain non GAAP financial measures. Reconciliations showing GAAP versus non GAAP results are available in our earnings release and our new presentation, which were issued today and are available on our website at www.microstrategy.com. There's a lot to cover on today's call. I'll begin by providing a high level overview of our performance in the second quarter and provide our updated thinking regarding our strategic focus going forward. I'll then close with a more detailed review of our Q2 financial results before turning the call over to Michael for his comments. Overall, we delivered solid second quarter results given the challenging global economic backdrop due to the COVID-nineteen pandemic. We continue to see healthy deal pipeline activity and the selling dynamics at the end of June were somewhat better than what we experienced in March at the height of the pandemic. However, there still is a great deal of uncertainty in the market, which is having an impact on our close rates. This impact shows up most notably in our product license revenue, which was down year over year, but did show improvement relative to the Q1. We believe we will see further improvement in this area over time to the extent the macroeconomic environment improves. In the Q2, we continue to see revenue growth from HyperIntelligence and we signed a number of HyperIntelligence transactions with new and existing customers, including 711 Japan, the Dubai Health Authority and the International Commerce Bank of China and several global software and financial services companies. We also saw notable strength in our cloud offering, which helped drive double digit year over year growth in subscription billings. The enhancements we continue to make to our cloud platform, coupled with the scalability and ease of deployment of a cloud platform are generating strong interest from customers. The rapid move to a work from home environment has proven to be a catalyzing event for many organizations that has them reevaluating the pace and scope of their digital transformation initiatives. We believe our cloud platform is well positioned to benefit more companies as they look to move away from their traditional on premise IT stack. One other notable area of strength in the Q2 and the last year has been our OEM business, where companies embed the MicroStrategy platform into their end customer solutions. MicroStrategy's modern open open enterprise grade platform is rated the number one OEM Business Intelligence solution by several industry analysts. We also made notable improvements in profitability with non GAAP operating income of $8,600,000 an increase of $10,300,000 from our non GAAP operating loss of $1,800,000 in the Q2 of 2019. This reflects the impact of our cost rationalization efforts over the past year, as well as additional steps taken during the quarter. We have reduced year over year non GAAP operating expenses for the past 3 quarters with total non GAAP operating expenses down $16,200,000 or 17% year over year in the second quarter. We are pleased with the profitability improvements we have generated across the business as a result of shifts in our go to market approach, scale in our cloud business and increased focus on G and A expenses. The intent of these initiatives is to run a more lean and efficient organization committed to generating increased cash flow, while still focusing on revenue growth. I'll talk more about additional opportunities for improvement in a few moments. From a go to market perspective, in the Q2, we made significant progress virtualizing business operations. For example, we've been very pleased with the productivity improvements we're generating from a fully virtualized marketing program. As discussed last quarter, virtual events and an increased focus on driving lead flow through our interactive website allows us to reach a much greater number of customers more quickly with greater flexibility and a materially lower cost than the traditional live events and static website that were a core part of our historical marketing efforts. We're now fully committed to a virtual demand generation approach and expect us to represent the majority of our marketing strategy even after the pandemic is behind us. We're also making changes to our sales focus. We'll now be leading with our cloud platform in most discussions with prospects and customers. We're leaning on a cloud based approach given the early traction we're seeing with our cloud platform and our view that many organizations are likely to accelerate cloud deployments post COVID. The benefits of the cloud deployment are becoming more apparent to many customers and we believe the replatforming of the data warehouse layer, which is a common catalyst for switching to a cloud BI platform has reached a critical mass. To facilitate this trend, we plan on making we plan to make our cloud pricing more transparent online for prospective customers and to make it easier for them to buy our cloud platform and HyperIntelligence in the second half of twenty twenty and into 2021. By simplifying our pricing and building out our online and digital marketing efforts, we believe we can reach a broader cross section of potential customers than we have historically. Going forward, we'll also begin instituting incentive programs for existing on premise customers to begin migrating to our cloud platform. We believe there are significant benefits for customers who are ready to make the transition to a cloud deployment. To be clear, we don't intend to force any to force any customer to move and we will continue to sell and support our traditional on premise platform for this foreseeable future. We have deep and trusted industries or just at the beginning of their digital transformation strategies that are unlikely to move to the cloud anytime soon. We believe there is a strong demand for our cloud platform and our expectation is that a cloud first focus will also make it easier to do business in MicroStrategy. We're continuing to evaluate the revenue impact from this transition, which will change the mix of revenue between product license revenues, support revenues and subscription revenues in favor of the latter over time. However, I would note that we expect this transition will likely take a few years to effect. So the P and L impact is expected to be more modest than many other subscription transitions in the software industry. The transition to cloud will be a priority for us going forward. Shifting license revenue from product licenses to subscriptions may make it more difficult for us to achieve top line revenue growth in the next year. We also believe we can run the business much more efficiently than we have in the past. As we further operationalize our virtual strategy, which includes changing our marketing programs, as we noted above, as well as making changes to our global facilities footprint and our travel and entertainment expenses, we believe we can achieve additional material reductions in our cost structure. We recently reduced our workforce by 6% in early July. While it's never easy to let people go, the operational changes we're making to the business mean we can do more with less. The actions we've taken in the Q2 of 2020 and we'll continue to take the rest of the year to to significantly reduce operating expenses going forward compared to 2nd quarter levels. We believe overall non GAAP operating expenses in 2020 will be 10% to 15% lower than in 2019 and that we can approach and potentially exceed 10% non GAAP operating margins in 2020. Looking beyond this year, we believe that we can generate $60,000,000 to $90,000,000 of non GAAP operating income in 2021. Going forward, our goal is to consistently generate profitability at this level or higher. At the same time, our commitment to profitability is not at the expense of top line growth. We believe our focus on HyperIntelligence, our transition to cloud, our OEM business and embracing the virtual wave will position us to help increase both revenue and productivity. With our commitment to generating long term operating income and free cash flow, we will also take a more opportunistic approach to our balance sheet. We believe we can manage our day to day business with approximately $50,000,000 of operating cash. This leaves approximately $500,000,000 of excess cash, cash equivalents and short term investments, which will be more active in managing. To date, we've been utilizing our cash to generate shareholder value through share repurchases, including $11,100,000 in the second quarter. Overall, we've returned more than $245,000,000 to shareholders through the repurchase of 1,800,000 shares since the Q4 of 2018. Our capital allocation strategy going forward is to return a portion of this excess capital to our shareholders and invest a portion in assets with higher return profiles and cash. Accordingly, today, we are announcing a capital allocation strategy under which we plan to return up to $250,000,000 to our shareholders over the next 12 months. In addition, we will seek to invest up to another $250,000,000 over the next 12 months in 1 or more alternative investments or assets, which may include stocks, bonds, commodities such as gold, digital assets such as Bitcoin or other asset types. Both of these strategies will depend on market conditions. Turning to our Q2 2020 financial results in more detail. GAAP revenues for the quarter were $110,600,000 down 6% year over year and down 4% on a constant currency basis. Product license revenues were $14,800,000 in the Q2 of 2020, a 5 point percent decrease year over year and down 23% on a constant currency basis. We experienced delays in closing certain product license deals in the quarter due to a general increase in the time it takes to close deals in the current depressed macroeconomic environment. We may continue to experience decreased product license revenues compared to prior year periods until the effects of the pandemic have subsided. Subscription services revenue in the Q2 of 2020 were $8,000,000 an increase of 13% year over year. The growth in subscription services revenues reflects the growing portion of our product bookings that are related to our managed cloud platform. Product support revenues were $70,000,000 in the Q2 of 2020, a 4% decrease year over year and a decrease of 2% on a constant currency basis. The larger than usual year over year decrease was primarily the result of 1, a decrease in new product support contracts 2, certain customers converting from perpetual licenses to our subscription services offering in 3, higher than usual Q2 twenty nineteen product support revenue due to several late renewals closing in that quarter. Our renewal rates remain strong in this quarter. Trailing 12 month product support revenues were up slightly year over year on a constant currency basis. Finally, services, which largely reflects our consulting services, increased 1% year over year and 2% on a constant currency basis. We continue to deliver services remotely to our customers and we're expecting that remote delivery trend to continue. While consulting revenue grew 7% year over year, education revenue decreased 45% year over year, primarily as a result of a decrease in the average sales price of our education offerings and free education offered to customers in late Q1 and early Q2. Total deferred revenue at June 30, 2020 was $173,600,000 This is down 4% year over year, primarily due to support contract negatively impacted deferred revenue by 1%, particularly in support revenue. As we begin to see more existing customers convert to our Managed Cloud platform, there is a shift from deferred product support revenue to deferred subscription services revenue. Total GAAP expenses were $104,300,000 in the second quarter of 2020, a 15% decrease year over year and down 6% quarter over quarter. The year over year cost decrease is driven by efficiency in staffing, reductions in corporate travel and a reduction in the number of in person events, mostly related to marketing. Over the last 3 months, like many corporations, MicroStrategy has spent significant time evaluating our business and our go forward strategy. We're excited about the plan we've developed and for the future of the company. We'll continue to focus on revenue growth in our core business, primarily from HyperIntelligence, our cloud platform and our OEM business. We're simplifying and streamlining our go to market approach, including our offerings and pricing, and we'll be offering a cloud first platform as a service solution with a greater focus on prospects. We believe these changes will allow us to streamline our cost structure throughout the business, leading to material improvements in operating margins, EBITDA margins and free cash flow. As a result, we expect we can run our business with approximately $50,000,000 in operating cash, allowing us to utilize our excess cash strategically and transparently, returning a portion of shareholders and making alternative investments in assets with higher return profiles than cash. I will now turn the call over to Michael for additional thoughts. Thank you, Paul. I have a few things to add regarding Q2 and our results. I expected our license execution to be choppy due to the degree of uncertainty in the quarter, but I was pleased to see the support cloud and consulting revenue is holding up strong. Given the currency headwinds and the lockdown challenges, I think our team performed well. The company is doing a good job of managing expenses and transitioning into a more digital firm. We have adopted Zoom as corporate standard. Our systems are holding up well as we work remotely. Productivity is improving. I oftentimes point out to the executives of the firm, in the virtual age, you can now fly anywhere at the speed of light and you can bend time and space. When you zoom somewhere, what would have been a one day travel trip becomes a 1 hour meeting. And when you record the meeting, a meeting with 1 person might become a video watched 500 times. And of course, the video might be watched 300 times while you're sleeping. And so shifting into a zooming environment with streaming video in order to do sales, marketing and services is just one of the profoundly interesting dividends of the year 2020. And it's driving changes in the way we do our sales, the way we do our marketing, the way we think about support, the way we think about all of our internal reviews and our corporate activities. And I think based upon these new approaches, we'll continue to see improvements to sales, We're getting higher velocity. We're injecting more We're getting higher velocity. We're injecting more automation content into our business processes. I'd like to say a few words about our technology focus looking out. As we look forward for the coming year, we're really focused upon delivering our HyperIntelligence on our business intelligence capabilities and a high performance, low maintenance, multi tenant cloud environment. We call that the MicroStrategy Cloud Platform, or MicroStrategy Cloud Intelligence, MCI for short sometimes. The idea of the MCI offering is to combine the license, the cloud environment, the administration, the support and the hosting elements into a single offering that we can sell with the term license, similar to the way that Slack and Zoom sell. If you have 1,000 users and you want HyperIntelligence, we're going to give you HyperIntelligence for 1,000 users for a certain price per user per month on an annual contract. We plan to release HyperIntelligence on this MCI platform in Q3. We refer to it as HyperNow. HyperNow is going to allow you to deploy HyperIntelligence to your entire enterprise in less than 1 hour. In fact, that's the marketing moniker. Deploy Hyper Intelligence to your enterprise in less than an hour. We're just extraordinarily excited about this. It's going to be dramatically easier to buy, dramatically easier to try, dramatically easier to market and sell. And we think that this is a great way for us to spread our intelligence value proposition everywhere. We hope to deliver business intelligence on this MCI platform in Q4. And the marketing moniker will be deployed business intelligence to your enterprise in an afternoon. And that would be our modern datasets, federated data, our dossiers, our modern dossier based mobile applications and traditional dossier dashboard type applications running on Android and iOS and Mac clients and Windows clients and in the web. And we're excited about that. So I think we've got an exciting technology plan that builds on the strengths of our platform, but we're productizing it in a way that thousands of customers can find on our website. They can go to our website. They can learn everything they need to know about the product offering from streaming videos, then they can start their trial, then they can deploy the application, all of that without any human intervention or without a lot of manual labor or friction involved. So it's a truly virtual version of the MicroStrategy platform. It should be dramatically easier to deploy. So that's an exciting thing for us. And I think the growth will come from that MicroStrategy Cloud Intelligence initiative President. I'm really pleased to have Fong assume the role of President of MicroStrategy. In this capacity, he'll be able to integrate sales, marketing, services, corporate finance and technology operations of the firm more tightly. He's proven himself to be a very adept and agile high bandwidth leader. We made this decision in order to leverage his skills more fully. The timing is fortuitous. Since the company needs to transform and integrate more tightly due to the digital transformation being driven by the virtual wave. Having a single hands on executive holding all of the various pieces together and driving operational efficiency is more important than ever before. So this transition is partially about and due to Fong and his great capabilities and it's also a great thing at the right time because of our virtual transformation. I am going to continue to be engaged full time in corporate strategy and marketing strategy and product strategy, working hands on in product design and systems development. And I'll be focusing on our alternative investment strategy and the execution of that strategy. Generally, my focus will be on items that are 1 to 3 years out and Phong will be running the day to day operations of the business. A few words about our corporate strategy. During Q2, we gained better clarity regarding the impact of COVID and the transition to the virtual wave and the impact that was going to have on our core business. These observations combined with the major developments and the macroeconomic environment that took place during the quarter have prompted us to adjust our corporate strategy for our business operations and also to adjust our corporate strategy for our treasury policy and how we're going to make use of our balance sheet. Regarding our business operations, our core value proposition of Enterprise Intelligence remains strong. Our secondary value proposition of intelligent services and all the things related to our software has transitioned smoothly. We found that there's as much demand as ever for enterprise intelligence and we're able to provide the consulting and the support in a virtual environment effectively. Our customer base has weathered the crisis and is holding. Our operations have simplified as we transitioned away from traditional sales and marketing techniques, flying around, going to trade shows, meeting face to face with customers. And we've moved to digital techniques, streaming video, Zoom meetings, etcetera. We're getting the same thing done, but in a quicker, easier, more efficient fashion. That's caused our productivity to improve with the introduction of all these digital techniques. Our key growth opportunity is HyperIntelligence to sold our enterprise customers. And the exciting new thing is going to be HyperNow sold out of our cloud environment. So our product strategy is to refine and deploy HyperNow. If we can deploy HyperIntelligence to your enterprise in less than an hour, it's just going to be an extraordinary opportunity for us. So given all of these things, we expect to generate cash flow and to be consistently profitable on an annual basis looking forward. We've got opportunities to grow revenue and increase margins as well on a going forward basis. And we don't expect our continuing operations or our growth to be capital intensive. Fong has laid out all of these things pretty effectively. I think our conviction with regard to these considerations became much stronger as the quarter progressed. At the end of March, there's a huge amount of uncertainty in the macro environment and in the business environment. There's a lot of uncertainty both in regard to how our customer base would react and also how our business would be impacted. I think that after 12 weeks of experience, we were able to get our bearings and that made us confident that in fact we can run an enterprise intelligence business more efficiently and with a higher velocity and generate cash flow from it. And that caused us to start to reassess the balance sheet. I think the balance sheet is the 2nd part of our corporate strategy that's material. We have a large amount of USD on our balance sheet and we have carried that for a while. Over time, the yield on our dollar values has decreased. And at points, we had an expectation that we would get higher real yields. And therefore, there was no real urgency to address this issue. But as of today, we're expecting negative real returns or a negative real yields on U. S. Dollars. And that's an expectation that has materially changed over the course of the last 3 months. We expect on a macroeconomic basis more monetary stimulus from the Fed. We expect more fiscal stimulus from politicians, both in the U. S. And Europe and perhaps everywhere else in the world. And we expect a low interest rate environment for quite some time. As Jerome Powell said, we're not thinking about raising interest rates and we're not even thinking about thinking about raising rates. And that being the case, if you have large dollar values and you're hoping for any kind of return on them, that's faded. Gold, silver and bitcoin are showing strength. The dollar, the DXY Index is weakening. Faith and Fiat currency across the market is fading. And we've seen that in rallies in most asset classes during Q2. Accordingly, it wouldn't be prudent to continue to hold a large portion of USD as our treasury strategy. And that's prompted us to rethink this. Our strategy is to return a portion of our capital to the shareholders via buybacks and invest another portion of our capital into assets other than dollars that will yield a positive real rate of return. That will result in us reducing the number of shares outstanding, and that should be accretive to all shareholders. Having said that, we need to maintain a healthy capital base. It's the equivalent of our endowment as an institution. And we need that capital base in order to assure our investors, our employees, our customers and our partners that we're going to be around through good times and bad times. So while it's potentially dilutive for us to carry that capital in dollars, that doesn't mean that we don't need the capital. Hence, if we look at assets, gold, silver, bitcoin and equities have all been accreting as the dollar has been weakening, it makes sense to shift our treasury assets into some investments that can't be inflated away or are less likely to be inflated away. There's just about nobody we can find in the market today that isn't expecting some form of inflation to come. So as we pursue alternative investment strategies for our treasury assets, we expect that we will have more volatility at least as measured in U. S. Dollar terms looking forward. But with the consensus of the market that fiat currencies are going to continue to debase, now is the time for us to address this issue and make a change in our policy. We're going to work to execute this 2 pronged investment strategy over the next year, taking into account market conditions and the opportunities as they arise. And with that, I would like to go ahead and open the floor for questions from the analysts. For our first question, we have Tyler Radke with Citi. Your line is now open. Hey, thanks and good evening, Michael and Phong. Phong, I appreciate all the clarity you've given us on some of the efforts you've put into reducing expenses, both from workforce reductions and sizing down your global footprint. Maybe help us understand some of the assumptions into that $60,000,000 to $90,000,000 op income range next year. Obviously, op income is a combination of revenue and operating expenses. But just how should we think about kind of the trajectory of those two items to get us to that $60,000,000 to $90,000,000 range that you put out there? Yes, Tyler, good to hear from you as always. A lot of that range between $60,000,000 $90,000,000 is dependent on where we think revenues will go next year. And the dependency on revenue is primarily based on the speed of adoption of cloud. The speed with which we move existing customers who are paying maintenance to cloud platform could actually be accretive to revenue moving from product support to subscription services. But the speed with which we move customers from new customers or new product license revenue to subscription services, as you know, could in a short term be dilutive to revenue, but improve our overall balance sheet and deferred revenue. So that uncertainty is what's going to drive that differential between sort of $60,000,000 to $90,000,000 And of course, also in addition to that, just sort of what are our assumptions on revenue growth overall. The parts that we're fairly certain about is where we think we can take our cost structure, right? You've seen in the course of this quarter, a roughly 15% year over year decrease in our operating expenses. I think we can continue at that type of a pace on a go forward basis and realizing a full year of that could be quite beneficial to our operating income. So those are the 2 components. I would say the revenue is what creates the range and the cost we have greater certainty in. And as Michael mentioned, we've really thought long and hard in the last 3 months about how we want to run our business. And we think we can do it in a more economic fashion. And I do want to stress, it's not going to this is not sort of harvesting the business for cash. We can be more economic, but still be able to grow the business. Appreciate that. And maybe just to help clarify a little bit. So just say to get to the 60,000,000 maybe just talk about the OpEx assumptions for next year. Would you expect another kind of double digit decline in terms of OpEx growth next year? Probably not off of this year, right? Like I don't think we're going to get necessarily that aggressive, although we can, we'll start to look at the business overall. But I think what we're assuming is what you saw sort of on a year over year basis in Q2, we can project that out for a full year and then realize the full year benefits of that. So there are still other things that we can do, especially as we move more customers to cloud. I think we can get better economies of scale. Mike talked about some of our new product initiatives. To the extent that those take, those will require even lower sort of cost to serve, cost to sell, cost to market. And so there's still additional things we can do that could create more cost savings that we'll evaluate over time. Got it. And on the product support revenue, obviously, that declined a little bit year over year. Maybe just help us understand when you think that starts to return to growth. I know there were some timing issues or maybe the answer is with the subscription transition, it doesn't return to growth and you just see growth in subscription. But maybe just help us understand the differences in growth in the product support versus subscription? Yes. I think the objective there is as you see customers move from paying perpetual maintenance over to cloud that we see an uplift as we move them over. So product support will decline over time depending on the speed that we move customers to the cloud, but they'll pick up and be revenue accretive over on the subscription services side. So it's hard to project sort of how fast that will happen. As I mentioned in my prepared remarks, we're starting to incent our sales force to move customers from on prem to the cloud. That the extent obviously that they increase our ARR and that's been our observation today is when we move customers from on prem to the cloud, we do see an increase in ARR and it's fairly significant, right, anywhere from, I'll call it 20% to 50%. So predicting the product support revenue going forward, the primary function of that is how quickly we move that revenue over to subscription services and then we see an uplift come out of it. So overall, it should be accretive to total revenue by moving customers over. Great. And then last question for me. Just obviously, these cost cuts are very positive in terms of returning to profitability and generating positive free cash flow. But just how are you thinking about the impact on returning to revenue growth? I mean, I imagine, I'd look at your sales and marketing expenses are down pretty significantly year over year. So just how confident are you that you can return to revenue growth despite making some pretty big cost reductions in areas that would generally be viewed as revenue generating? Yes, it's interesting. And Mike talked about this. The world has really changed, right? So big primary like sort of things that have reduced, right, like in person marketing events, we've moved it to digital. We haven't seen a substantial decrease in pipeline as a result. In fact, in some regions of the world, we've seen an increase in pipeline. So where we're spending significantly less money, it's not impacting our ability to market to our customers and our prospects, right. T and E expenses, right, there has always been a historical point of view that you need to be in front of a customer to for that initial meeting for the POC to close a deal. We've seen that hasn't been the case. And we think that we don't need to return to previous levels. Now are we going to be operating at 0 T and E post COVID? Probably not. But we think that we can be much less than we've ever been in the past without an impact to revenue again. And those are probably the 2 big buckets on the marketing side. And then just in terms of sales productivity, our view is if people aren't traveling, if they aren't going to these physical events and they're not spending time on an airplane, they're able to take more meetings, meet with more customers, advanced deal cycles. And so we're able to do more with less over time. And we're seeing this, generally speaking, in the enterprise software world happen pervasively. We have the good portion of being a pretty agile company. We move quickly, we make fast decisions. So we think that all these cost changes and then as we move to cloud, right, like when we are able to attract customers through digital channels, consume, get them to trial on the web, get them to buy very quickly after a trial and click wrap agreements, very standard agreements, standard upgrades, like a lot of the back office expenses over time will be able to reduce too and we're seeing some of that. So it's all sort of this digital transformation that the lot of conviction and the ability to make these changes to the business. And a year from now or 2 or 3 years from now, not necessarily have to reintroduce these costs as a means to generate revenue. We think we can generate revenue growth without these costs for the foreseeable future. Thank you. And our next question comes from the line of Hamed Khorsand with BWS Financial. Your line is now open. Hi. First, I want to start off with, have you already implemented your asset investment strategy? No, we haven't. We're announcing our strategy today as part of our earnings, and we'll start to implement over the course of the next 12 months. Okay. And then what have you seen from the customer base as far as the adoption is concerned on your cloud products that gives you conviction over this guidance and OpEx cut that you're expecting? Yes. So the conviction we have on the guidance and the OpEx cuts is partially related to the implementation of our cloud platform. But as I mentioned to Tyler, it's also related to things that we're able to do to change our marketing, our productivity, etcetera. On the cloud side, we've definitely seen a wave in the net last year or 2 years of customers, especially leading with cloud data warehouses and moving to cloud BI of the interest in moving to cloud. And so conversations that we've had have been pretty pervasive throughout the world, the customers uptick in cloud. You're seeing it initially show up in our subscription services revenue, increasing 13% to 15% depending on the quarter that you're looking at. So that sort of initial traction on our cloud subscription services revenue is an indication of where we think we can take this. And remember, this is before we've fully implemented what I would call more of a platform as a service solution. This is running what we've been running for the last few years now more of a private cloud. So we have seen initial indications of interest from our customers. We've seen initial buying activity, customers buying into the cloud with migrating existing customers and new prospects. And we expect this will accelerate. The other thing I'd mentioned is sort of post COVID, a lot of our customers are coming back asking for to move to the cloud in even a more rapid way. So there's definitely a lot of data points that point to the increased adoption of our cloud platform. And because of this pandemic, what are you seeing from customers as far as anything from a budget cut standpoint or elongated sales process? We are and that's the primary reason for our Q1 and Q2 decreases in product license revenue. I think we're seeing 2 factors. 1, at the end of Q1, what we were seeing was a distraction. Customers not willing to have conversations and buying BI software because they're trying to figure out business continuity. In Q2, what we're seeing is either budget freezes or escalation of budget authority to more senior levels. We are starting to see some relaxation on that, but that not long enough that we can predict what will happen in Q3 or Q4. But we do expect a turnaround once the global pandemic starts to ease and the economic situation becomes more clear for everyone. But in the short term, it surfaces itself in longer deal cycles, unexpected escalations of authority required to sign on a deal. And so we're putting in things in place more precision on our deal side to predict for that. And if today was a Q3 quarter end, how much of a benefit or impact would you see from the weaker U. S. Dollar? You mean on our balance sheet or on our income statement? Income statement. I don't think we would see a lot of a benefit from the weaker U. S. Dollar. I mean, it just really depends on the extent that we have our earnings sort of in the U. S. Versus international. And as you probably know, there's a lot of volatility quarter to quarter on our product license revenue, whether it's happening in the U. S. Versus international. 1 quarter, it might be 40% U. S, 60% international. The next quarter, it might be 70% U. S, 30% international. So that distribution will be what affects sort of U. S. Dollar translation of our international income into our income statement. And when we move to cloud, when we move to subscription services, we'll see less volatility in that distribution. But while a large part of our revenues is coming from product license, there'll be a lot of volatility still. Okay. Thank you. And there are no further questions. Please proceed. Okay. So are there no further questions? There are no further questions. Okay, great. I want to thank everybody for tuning in today to our call and to all of our shareholders on the call. Thank you for your support. We'll look forward to speaking with you again in 12 weeks. Until then, be safe. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.