74Software (74SW) Earnings Call Transcript

Good morning, everyone. Welcome to Axway 2019 full year results presentation. My name is Arthur Carli. I'm in charge of Investor Relations for the group. I'm here to remind you that this presentation will be held in English, but the French translation is available too. Just ask for headsets to one of our team member. On top of that, I would like to remind you that this presentation contains forward-looking estimates, is recorded and live webcasted at axway.com. With that, I hand over to our CEO, Patrick Donovan.

Thanks, Arthur. Thank you for joining us here today, and I'm happy to share with you how we've finish up 2019 and our outlook for 2020 and a little beyond. Today, I'll start off giving you a few comments on 2019 and some updates on our transformation plan. And then I'll ask Roland to come up and join me and talk a bit about the updates on the CSO organization and the transformation plan there. And then I'll come back and share more detail on the 2019 financials, and then give a little bit of a 2020 guidance and some mid-term ambitions. So with that, I'll remind you, in 2019, we shared with you some guidance for the year and some targets. And I'll go ahead and give you some updates how those came up for 2019. So for 2019, we had guided that we'd be at organic revenue positive, but I'd cautioned that it'd be just above 0. We are just trying to get the momentum back as part of our strategy. So for 2019, thanks to a strong fourth quarter, we finished at a 3.3% organic growth in revenue or EUR 300 million in total. And if you remember, we also were saying that as we come out of our transformation journey in 2020, we look to target about EUR 300 million base. So I'm pleased that we've already reached that target, and we'll be driving into 2020 quite strong. Our profit on operating activities, we gave guidance that we'd be between 8% and 10%. We've finished right in the middle there at 8.6% or EUR 26 million. And so we are pleased to be able to keep the profitability, although as you will see later, we invested strong in various areas to help drive our transformation. Our segment -- our subscription growth for revenue finished at 41% year-over-year, EUR 60 million of revenue. That was driven with a strong ACV signature as well. So we were up 33% for the year over the previous year, signing about EUR 17.5 million of ACV, or annual contract value. And our signature growth metric, which is one we track to actual health of our sales activities. So in the past, we used to talk about licenses is how I'm tracking. The new business, our sales efforts have brought in, it grew 8.3%, crossing the EUR 100 million line to EUR 105 million for the year. We also -- besides the financial metrics, we had to get some validation in the market that we're progressing towards the Hybrid Integration Platform leadership, and we are also doing good things around our API offering because the API is the doorway to the platform. So in 2019, we participated in the Forrester Wave. We had debated a little bit if we even go into it. Forrester takes a, what's called a iPaaS approach to the platform, which we're not fully aligned with, but we participated, and we were happy to see we were a strong leader in their Forrester Wave, which just validates we're one of the significant players in the Hybrid Integration Platform market. So that was a good step to get awareness of Axway associated with the platform space. But more importantly, for our strategy. So as we're moving our offerings forward, the API is critical for everything. So we had to get into the leadership quadrant with Gartner's Magic Quadrant. So we achieved that in the second half of 2019. So we're happy to see both of these analysts recognizing what we're doing. But we've talked a lot about being on a transformation journey over these 3 years. So about 1.5 years ago, I shared a lot of details about what we are trying to do over the next 3 years, and we kicked all of that off in 2018. And it required a significant amount of effort that Roland and I described would be done around the products, the offerings, the technology, what we -- what I call, go-to-market, but a lot around the CSO organization. All of this took investment, time and effort to change a lot of things within Axway, so we can embrace the future. We've done quite a bit of this over the past 18 months. So we've done a lot around the innovation over -- some of the last presentations have gone more technology side, and talking about the evolution we've made in our products towards a platform. And this year, we focused more on the go-to-market. So we've made some good reboots, let's say, of the go-to-market activity. And Roland will share, after me, all we've done in this area. We've also had to get our employees engaged quite strongly. When we started this journey, our employees weren't with us, to be frank. We had a lot of attrition in the employee base. And they weren't fully engaged, and I'll give you a little more details on what's happened there. We also have reinforced our management. And I'll make a few key points on that as well. And we've also modernized our organization. We've had to change the way we think about ourselves, so we could attack the market properly. So to go a little deeper on the technology investments. Back in the second half of 2018, we had to significantly increase our investment we were making in R&D. And just to remind you, we expense R&D, so we don't capitalize anything. So when we increase our investment, it goes straight to our P&L. And so at the second half of 2018, I realized we weren't driving the platform strategy, the API strategy hard enough. So we put some significant investment back into it, which continued on at that pace for 2019. And now we've made some good improvements in the technology. And so we could kind of cap the R&D as we go into 2020. But you see, we moved from EUR 58 million to EUR 61 million. But the first half of 2018, if we would have done that run rate, it would have been significantly below EUR 58 million. So the investment was strong over the past 18 months, and then we'll start tapering as we go into 2020. But we additionally took the resources that we were investing and reallocated where they're spending time. So we have a lot of legacy and history products. We've had to make a lot of hard decisions about what we do with our portfolio of products, and reinvest those resources to help drive the future. So we've been moving the capacity of even the staff we have on hand from mid 60s to over -- to mid-70%. So the additional capacity is allowing us to move stronger towards the platform and move stronger towards the API space. And it's been showing returns. Additionally, we bought some technology and stream data to help with the API space and event-driven APIs. And all of this -- and you'll hear me say it constantly through the presentation, software is people, really. The people make the technology, R&D was the worst for us in attrition back 2 years ago. We were experiencing some of our technology centers upwards of 27%, 28% attrition. So we've made significant improvement over the last year, decreasing our attrition by 19%. And now the R&D centers are at the level of the group. So we're quite pleased with that. I mentioned also that we've reinforced our management. So it was more of a personal objective of mine. We were driving quite hard, Roland and I and a few key others, but we were a small group. So we've been able to add some strength in finance with the new CFO. We've added EVP over people and culture. And I brought on a gentleman to help us with the go-to-market efforts because that was a strong push for 2019. So rounding out the executive management team gives us more capacity to drive, which was definitely needed for the year and part of our strategy. Going a little deeper. Besides just the executive management, we've done a lot of investment in the top level management of the sales and marketing, and that's carried down and it's going down to the next level now. And so overall, with our employees as well, we had to make sure all the employees were engaged in our strategy and what we're trying to do, so we can continue to push into the market. And we were able to improve our overall engagement score within Axway -- across Axway by 18% in 2019 versus the measurement at the beginning of 2018. So now our employee engagement score's at 58%, which kind of means nothing. But against our survey, our survey target is 60%. So at 60%, you've got enough of your workforce fully engaged to drive this strategy. And so we're right in line with where we need to be to push hard to the next phase of Axway. And we've reduced our attrition overall across actually by 15% over the year. Getting it down to a level of about 17.7% per year. And so my target's 15%, and that 15%, it's a healthy software company activity. So we've got our employees back. We've got the resources back to continue to push towards our strategy. So internally, this was a very good metric for us to be able to sustain what we need to do next. So with that, I'm going to ask Roland to come up and give the transformation details of what we've done in CSO because it's really a validation of what we've had to do in the go-to-market space over 2019. Roland?

Hello. Thank you, Patrick, and good morning, everyone. Very happy to be with you today to give you an update of the transformation journey that we have started in 2019, with the creation of the Customer Success Organization. And you may remember, for those who are following us, this slide that I used as the -- my first slide in 2018 July communication. We made the decision to create this Customer Success Organization based on a few -- [touch on] a few observation that we were making that required some change within our company. The first one, I'll say that we were really engaged only with our IT, really helping them to manage and control their operations. And we recognized that we had to also engage with business line to help them to transform. The revenue was historically coming very much upfront and transitioning with subscription. We had to recognize that a big part of the revenue was going to come along the way and a longer time of the engagement with our customers. And our services, support professional services, were really in a reactive mode, responding to customers when they had some difficulties and some need contacting us. When today, we realized that we need to engage proactively with them, driving adoption and deliver fast customer outcome, customer business outcome. So we create the organization with a few guiding principles: building this customer-centric organization with, first, regularly and constantly measuring the customer experience and acting on the customer feedback; the second was to build this organization to develop the engagement with our customers, aligned with the land, adopt, expand and renew life cycle of our customers; and finally, to be -- to have a strong coordination and execution on the regional, close to our customers on all the customers' interactions. Today, we've got a team, customer support, Customer Success Organization, it's about 800 people, from pre sales, sales, all the services line, support and the team of customer success managers that we created at this time that are engaged with the customer from the start to all the way of their engagement. So while we were actually transforming our organization to better serve our customers, we also recognized that we had to revamp our brand and go-to-market strategy, building up on customer success, business outcome of our product features and positioning Axway as the top leader. So we have a fantastic customer base. We've got more than 11,000 customers. We've got an extremely powerful and complete solution offering. We are mission-critical for all these customers. And every day, we are keeping their systems running. However, we can have the best solution, we can deliver great services, but we are not well-known as the importance of that we have in their business. So as I often say, great technology alone is not enough, it takes much more than selecting the right software to be successful. And that's why we, in 2019, we invested and created a team named the Catalysts, and creating a service, a consulting services offering to help and guide our customers beyond the technology through their transformation. So the Catalysts team, they are business solution and technology experience that has been engaged and delivered over the last few years, several years, helping large enterprise to build project, breaking silos, to put the transformation, the project that they have on the right track for success. They are very well-known in the market. And this team and the offering that we've built repositioned Axway, no more as just one yet solution vendor but trusted and guide in their transformation. So we have the technology. We have the Customer Success Organization structure and goal to be with our customers from start to forever. We also recognized that we needed to excel in selling the right solution to the right customer. In 2018, we realized that we had to implement some changes in our organization in that side. And we started early in 2019 by onboarding 3 strong general managers for the different regions, Europe, U.S. and APAC, bringing a high level of experience and expertise in transitioning a business from license to subscription, being able to bridge this gap between the technology and the business outcome and adding being able to build a successful network of partners. So as they come, and they came early in the beginning of the year, they quickly act and recruited some experts on the API and digital part of house. They reinforce the local customer success management principle that we have and driving this engagement with the customers. And they bring a strong culture and discipline of execution. And all of that, and you will all see the impact of all of that was coming up to a very successful end of the year. And we are measuring success. We are measuring success. And I will share with you the results of 2 important KPIs, financial KPIs, and the progress of our signature on the API -- AMPLIFY API management. While we are focusing on this one very, very much because, as Patrick said, okay, the API is the doorway to the platform. It's coming from this solution that the customer expands and expand on our -- the usage of our technology. The other one will be the subscription and the transition to subscription. But we also measure and use internally all our KPIs, nonfinancial KPIs. And when we created the Customer Success Organization, we implemented the measurement of customer feedback, customer satisfaction and loyalty. And since the beginning of -- since we implemented the CSO, we constantly see an improvement of this feedback. Over the last 12 years -- 12 months, we won 10 points on that. This is a leading indicator for us. As we know, and we all know, I assume, that satisfied promoters of a company will generate and accelerate success. In July, last presentation, I presented the API Management pipeline, saying this is the leading indicator of what, I hope, was going to be the booking of the success and the deals with this product. We drove during the full year lots of initiatives to generate these pipe, and drive our team and drive the awareness of Axway on this market. I mentioned the Catalysts team, and we've been around the world present in multiple of events every week. We increased -- we recruited the sales specialist. All of these actions actually generate the fact that our booking year-over-year on the signature and API management grew by 22%. And our pipeline, when we looked at the pipeline that we have today for 2020, it's much higher than when we entered '19. The other KPI that I want to share with you, the transition to subscription. During the year, during 2019, we worked to make most of our portfolio available in a subscription mode. Then we enable our sales team, okay, and we work with our customers with the possibility to contract with us either as licensed or with subscription. The result of that, during the year, was we grew our bookings by 33%. We grew our revenue on subscription by 42%. The result of this booking is the fact that today, the first year of that -- actually, the subscription revenue of our past due license. And together, the recurrent revenue of Axway, when we bring the maintenance and subscription, is just shy of 70% of our revenue. Great transformation that we are explaining at the beginning of the year at the journey in 2019. So 2020. We're just back from -- a couple of weeks back, we were launching the year with a Customer Success Organization. We entered the year with a very strong momentum. And the result of Q4, generate a very good momentum on the team, and we are going to focus on 2020 with 3 key objectives: The first one, continue to increase our strategic value and positioning with our key customers. Building upon the Catalyst and we accelerate the Axway -- accelerate offerings that we built, creating and strengthening the relationship that we have there. Cross-selling around the platform by being engaged in their transformation. The second one, accelerate the success of the AMPLIFY, meaning finding new customers. Building up on the go-to-market investment that we've made, building up on the teams, on the inside sales team and the bigger team on sales that we have created to generate more awareness of Axway and more opportunities. And finally, also continue to build and strengthen our partnership in each region. We just launched this year with Sopra Steria France, a very important partnership and program around APIM and the digital transformation. We will continue -- we've been very successful this year and the year before in APAC and in LatAm to work with our partners. And we will -- we are actually rebooting the program in North America, where we haven't been well executing this last year on the partnership, where our recruitment team now working with new partners. We have got new opportunities and that will be an important part of what we drive in North America. So in conclusion, I will say that we built Customer Success Organization and the alignment across the team, on the premise that we will work with our customers from start to forever. Axway mission-critical solution has been crucial for our customers for the last 20 years. I've been very, very pleased with the work that we've done in the last 18 months. And we will continue in 2020 with the same focus. And together, we will delight our customers for the next 20. So with that, I will hand it over back to Patrick for the financial part.

Thanks, Roland. Before I dive into financials, I do want to -- I was thinking about it, I do want to make a little comment before I go into the financials. Because it's important to understand, we've made the choice here today not to highlight a lot of the financials and talk about -- we're pleased with the financials. We had a good year hitting our target, but not to just sit here and throw the numbers up or to throw customer wins up, but to go through a lot of things that is, yes, inward facing and part of our transformation. And some of you may not fully understand why, but I'll remind you, back in 2017, we had a choice to make. And software is interesting industry because you create an idea, it runs for maybe 10, 15 years with success, and then it becomes mature. And we were starting to hit the maturity in our portfolio of several of our components, except maybe API. So we had choices to make. One choice a lot of our competitors made was to sell to a private equity firm that would do a financial transaction, strip out all the cost and run it for cash. And that gives the private equity firms a nice return. It's a model. It works. A lot of the U.S. companies are doing it. We could have busted Axway up into its pieces and sold for high value the key assets in the group and then ran for cash to others, as another change. But we've taken a much longer-term approach that will hopefully benefit our customers, our employees and all of the shareholders for the long-term and not just for a short-term win. And so all of these transformation changes are necessary because we're building the foundation we hope that's going to be here 10, 15 years from now, still a public company, still serving our customers, still delivering value to all our constituents and not just one of them. And so that's why we're happy with the results. But we are still on this journey. As we go into 2020, we have things to do. And we got to build this stable company so that as we come out of 2020, we could start being aggressive in the market for the long term. So with that, I'll go through and cover some of the financial points. But remember, we're looking at this as a journey. So in 2019, we finished up, as we said, 3.3% organic, EUR 300 million revenue with a strong subscription growth. Our gross margin, we kept stable at 70%. As always, there's a mix in there, but I'm pleased with the gross margin staying at 70%. But you will see exactly in the financials what we're doing inside the walls of Axway. So the 6% growth of R&D finishing at EUR 61 million, where we're investing in our product. And we had a 19% growth in sales and marketing, finishing at EUR 99 million. And in line with what I've been talking about, as we go into 2020, we've had to do these shocks to the system of Axway to get us moving forward. Our goal was that this is the low year in our margin. In 2020, we start building and coming out of it because we've made these changes in investments now to help benefit the future. So we should be able to keep stable in absolute value, what we're spending on sales and marketing, R&D or even drop -- look to opportunistically drop because Roland doesn't like hearing this, but I'm expecting more for the investment we're making in our sales and marketing for next year. We should get the return. We did a lot of experiments to see how we could shock the market, to view Axway differently, to talk about Axway differently, to engage customers differently. Some are working really well, others have to be revised, and we've learned from them and we move on. But these are all the things you have to do to really take a mature or maturing software company and set it on the course to be relevant, again, for the next 10 or 15 years. We hit a profit of operating activity of 8.6% or EUR 26 million. This should be the low, and then we -- you'll see we're going to forecast driving out of it for 2020. Our net profit finished at EUR 5.4 million or EUR 0.25 per share. Looking a little bit more on the revenue side. As Roland had said, we are pleased to see our recurring revenue go up to 69%, and that should continue to go up as we transform our revenue streams. The subscription revenue surpassing the license. We expected that to happen during the journey. So we're not expecting to have it ever go back down below license. The maintenance, we were quite pleased with, to be able to keep a stable base of maintenance. When you're dropping the license revenue, it makes -- when you mathematically do the computations with the standard attrition rates, it makes the maintenance under stress. And so being positive was our goal, and we achieved that for the year. And we have our services dropping as -- the way the technology is engaging the customers and the way they're buying the license versus a subscription, changes how they use services from a software company versus maybe other consulting firms. So overall, our revenue finished at EUR 300 million, up 5.7% in total and 3.3% organic. Going a little bit further on the subscription, we had a strong Q4. And again, you're going to hear Rolando and I talk about the key pieces in it and what we're learning from it versus absolute numbers. So the growth of 33% is very important to us, and the Q4 was really strong and really drove that. But why was Q4 not an anomaly in the system, and we just got lucky? We have done investments all throughout the year that Roland talked about. We've changed a lot of the leadership. We've changed a lot of the sales teams. We've engaged customers differently. All this was building pipeline through the year. And so we have the pipeline there. And I got questions on a lot of the investors I talked to at the end of the third quarter results. Why do you hold your guidance? You have a tough Q4 to do. We have the pipeline to do it. All we had to do is do our job. And so Roland and the team did their job for Q4 and delivered what we expected. And the health of the pipeline is now becoming less of a hope and more of just a consistent reliable mechanism by the changes we're making. So we're pleased that Q4 delivered the results we saw in October. It requires a little faith in software that you're going to do it, but we did it. We're seeing the trend come into Q1. We still have 2020 to do. But all the signs are good, we will. On license and maintenance. I created the signature metric to track new license and subscription we're bringing in. So the license dropping for me is not a problem as long as the signature metric is growing because that's going to be an indicator of how overall my revenue should move in license and subscription. And so we finished at EUR 52.8 million of license, about 8% drop. This could be a variability year-over-year with -- we're trying, as a company, we're playing in a league of big fish, let's say. And if you looked at the API chart, there's 5 in the leaders quadrant. And we're the smallest of the 5 with EUR 300 million of revenue. So we have to engage our customers differently and being very strategic. I can't spend the money they do in marketing. I don't have the sales team they do. So I have to pick and choose where I'm going to fight and win. And so we have to engage the customer with a hybrid approach on the contracting model. Do you want to buy a license? Do you want to buy a subscription that you run on your premises? Do you want us to run it for you? So we have to be quite flexible. And a lot of the work we've done is training and working with our sales teams, our marketing teams to provide our offerings so that when we're in the deals, we could talk at how the customer wants to talk to us instead of forcing them down one path. So this is the signature metric for the year. I've been happy through the transformation. It's at 8.3% for the year. We did 7.8% for the last year. And we're seeing the visibility that this positive number continues. So what does it translate to? It's taking into account both the license and the subscription. So at a very broad level, if I'm growing 8% here and this is my license and subscription and I'm holding my maintenance flat, yes, you could see how we get to a 3% organic growth for the year. We will continue to track this. And to note, this does not include the renewals. Some companies in the market, including renewals, when they talk about bookings, they're -- this is really new business for us. This is new money. I want to see the new money coming into the business. The revenue by geography. I just want to make one important point here. I think this may be -- I didn't go back and check every year, but I think this might be a full year that we grew every region. And that was a nice accomplishment that our leadership teams in each region are pushing from a business level to grow the revenue in their region whether it's license, maintenance, service, subscription but to focusing on driving the health of the region to continue to grow their region's total revenue. A quick balance sheet note. We finished at EUR 21 million of cash, down from the EUR 36 million in prior year. Our net debt at EUR 22 million. Our DSOs remain stable at 77, and our current deferreds are EUR 61 million. Total assets at EUR 568 million, just up slightly from prior year. And our equity remained stable at EUR 362 million. All our banking covenants on our revolving credit facilities remained in good shape. Our leverage ratio is below 1x, and our leverage ratio is what drives our availability of utilization of the credit facility. So of the EUR 125 million line, we have about EUR 42 million borrowed, but we still have some room in this facility in case we need it. Our cash flow is a bit challenging with our transformation in the business. So to try to make it simple, as we're moving from the license and maintenance, if you remember, the last revenue recognition rules, we had to get paid upfront pretty much or within the first year to be able to take that revenue upfront. And so the whole industry's behavior was to shove that cash into the first year. So now as we're trying to meet our customers and what they're doing, the subscription economy is almost like a pay as you go economy. And so the customers, even though they may manage a subscription license on premises, if they're contracting with us in a subscription, they're expecting to pay over time. So most of our subscription ACV are annual payments. So if I did EUR 17 million of ACV, let's say, on average those are 3-year deals so EUR 50 million or so, I'm only getting 1/3 of that cash this year where I would have got almost all that cash upfront under the license model. So that helps explain why my change in my working cap is negative this year. And why my free cash flow is flat. This will all start coming back to me. So next year, I bill the other 1/3, the year after I bill another 1/3 and it layers in the waterfall. But during the period of transformation, you take this dip for a year or 2 where -- since we did good in sales, we take the dip this year. Next year, we'll layer on and the year after that, we will layer on. And we should get back to the EUR 20-plus million we were doing historically in working cap quickly over the next few years. So with that, I'll finish up 2019 and then give you a few comments on 2020 and beyond. We haven't lost sight of being the leader in the Hybrid Integration Space. We continue to push for this. We expect to be a leader in the API space as well because that's our approach to the platform market, as the API-first approach. Financially, we're targeting to continue to organically grow. As I said, last year, my expectation is we're now back on a path to where we'll be able to grow revenue every year. We're targeting to be at or above the EUR 310 million of revenue for 2020. Also in line with what we said last year, this should be -- 2019 should be the low point. We're expecting our margin to be above 10% for 2020. And with the improved margin, we're going to drive to start improving our net income as well. To be very technical, financially, it's hard to optimize your taxes when you've dropped your margin. So we could start looking to improve our tax position as we come out and start building back our profitability. And then the midterm ambition. So as we come out of 2020, we've talked about this 2020 ambitions constantly. 2020 is the finish of what we are trying to accomplish over the 3-year journey. And as we start ending the year, we're going to look at what's next. What's the next 3 or 5 years hold for us. And so as a company, we're targeting to get back to that target of EUR 500 million of revenue. I want to get back to the range of the profitability we were doing before between 15% and 20%. And to get back on the EPS over EUR 1 per share. Those are all priorities for us over the midterm. And as we go into the planning periods, we'll be taking those into account. So with that, Roland can join me back up on stage, and we'll take any questions. There's questions that will come in from the web as well. And if you have any questions in the room, just raise your hand, and they'll bring you a microphone.

Jean-Baptiste Bouchet, CIC. My first question is, well, where the -- this performance of subscription in Q4 comes from really? Is there a big contract or any contract recognized upfront or something like this? Second question is when you mention a medium-term goal, is it more, for example, 2021 or more 2023? And can you give a more or less a guidance? And where do you see, last question, where do you see the levers to improve the margins to 20%?

Okay. I'll try to go in order. For the ACV in Q4, the mix of it, you'd asked was there a large transaction? We had some large transaction, 7-figure transactions, but there was no 1 enormous contract we had. We had really good volume of transactions and all the teams across the main regions brought in a good amount of business. So the health of the business and the ACVs came in for Q4. So we are quite pleased with that. The accounting for the contracts, I could spend an hour on. And I don't know if you sat through the Capital Market Days in Sopra, they spent an hour on how you account for all the craziness with the new rules. So to make it simple, though, if we're hosting the customers, if we're running it for them, then it's monthly revenue. If they're running it and it's a hybrid, so they take the main portion of the activity in their server room and they're maybe connecting to the cloud for different components but the engine, let's say, is on-premise. Then the rules have changed over the past between IFRS 15 and the prior rules, we have to take a portion of that contract upfront. So we have -- we take about 50% of that contract upfront. So that is why you can't get the boost in our subscription line in Q4. But it happened throughout the year as well and a little bit in 2018. So those, what we call customer managed subscriptions, because they take the primary drivers in the license and only use our cloud services for a little bit. They have a new model of revenue recognition under -- in the past, those used to be rentals, and they would be taken monthly over time as well. And then there's a pure cloud ones that are monthly. So we had some of the boost in Q4 from that. And that help -- hit our revenue. But that's why I created the signature metric. That to me, tells, are we going to grow either now or in the future. It's really trying to strip out, trying to figure out the craziness of the rev accruals. Next one, the midterm. For me, as I said, we're looking to target 3 or 5 years. Obviously, if you do all the math, I'm going to have to buy a few companies. And are they available tomorrow or in 5 years? I don't know. So I'll have to keep at that midterm level versus trying to say 2021 or the specific year. Last question. I forgot. Oh, the 20%. So as we grow, we have to continue to rationalize our portfolio and pull back R&D or keep it stable while the revenue grows. And sales and marketing, we really pushed hard many areas and we should be able to pull back on the spending there. As long as we maintained that methodology and the revenue is growing, we should be able to gradually increase the margin back to the levels it was before. Other questions? Or from the web?

Yes. Patrick, I got a few from the web.

Try to give me no more than 2 at a time.

Okay. With Derric, it's complicated. The first one is coming from Derric Marcon with Societe Generale. What is the amount of ACV in 2020 that you expect to flow out from the new ACV signing recording in 2019? In other words, last year, the EUR 13.1 million new ACV signed were supposed to bring EUR 8 million revenues in 2019. Should we apply the same formula or do late signing in 2019 makes a big difference in the way we should calculate it?

So 2019 signing, we had more customer managed than we did in 2018. So in 2018, we had a lot that were Axway managed accounts. And so that brought a higher percentage of the new ACV that would flow into the next year. This year, it's going to be a bit less, I'd estimate maybe 20% or 30% of the signings in ACV, maybe a little higher, 30% to 40% will flow into 2020.

Second question. Do you expect the gross margin of your subscription activity to improve further in 2020?

Yes. So 2019, we had some anomalies on our cost base. We had some technologies that software vendors sometimes will extort you once you're on them. And so we had some exceptional charging that we weren't able to bring down our margin as much as I would have liked in 2019, but we'll be able to do so in 2020.

Last one from Derric. Despite the sharp reduction of your service activity and its repositioning on more added value services, the profitability of this business remained low. Will you continue to streamline the cost base from here? Or are you envisaging other option to turn around this business at a quicker pace?

Yes. We will. Thank you for the question. We are focusing on higher level services. So that explains -- two factors that explain the drop and the decrease. We are working on higher level services. So the amount is less. We are working also in a different region, much more with our partners that we used to deliver long time engagement with customers that we are less doing right now as we are partnering in -- if you look at some region in APAC there's a big drop because we are actually very successful to work with the local partners there. And yes, we adjust -- there's always an upside, but we adjust also our workforce to the level of activity that we can have on services. So that won't be.

But that's why the margin lags. If the revenues drop and the margin will drop a little faster until you adjust it and find the equilibrium. So the margin should come back in 2020 to the levels of the prior year of 2018.

Coming from Matthias Durner, Discover Capital. Where would you see your underlying effective tax rate? Why did you see such a significant working capital outflow?