Operator: Thank you. Our next question comes from Jeff Martin with ROTH MKM. You may proceed.
Jeffrey Martin: Thanks. Good evening, guys. Thanks for all the details, very helpful. Hi, Paul. Paul, I wanted to dive into the industry mix a little bit and ask if you’re seeing any particular trends by some of your larger industry categories, manufacturing, financial service to government, tech — in terms of client renewals, is there a pattern from within the larger pieces of the pie even though none of them is overwhelmingly large.
Paul Walker: Yes. That’s a great question. Maybe I’ll ask — I’ll have — I’ll just make a quick comment and then have Jen Colosimo speak to that specifically. But in short answer, it’s not a doesn’t vary much by industry. But Jen, I know your team has been kind of really digging into that. Any thoughts you have? Jen, you might try to come off mute.
Jen Colosimo: I came off mute. There you go. Thanks for the question, Jeff. The simplest way to answer that is, no. We are not seeing a trend by industry. The best way I could explain it is based on the challenges that we address with our clients, particularly as you think about leadership culture, executing on strategy. Many of our clients are reinvesting in that, even if they may be having a smaller work force even if they have a smaller workforce. They’re reinvesting with those that remain. So, as we look at it, as you might expect in this economy, decision-making often moves up. In my case, now making a case to Steve Young, you have — you need to make more of an economic case, and we have clients that are making that economic case.
And we have some that it is delaying decision-making. And so it’s frankly just an uncertain environment where many of the things that Paul said, we have all of these great things happening. And in fact, the same percentage renewing and to your question, even within industry, it’s just that we had a few that were larger revenue amounts that did not, and we hope to win them back, but there just isn’t an industry trend.
Paul Walker: Yes, Jeff, good to hear — yes, Jeff, maybe we did report that government was down, drug the results in North America down just a little bit in the quarter. I think that has been a slightly softer, but I don’t expect that’s a long-term trend. It’s just kind of a — due to one particular client actually one agency. So that would just be one thing to note.
Jeffrey Martin: Okay. And then I was intrigued by your wording where clients were quote not able to renew rather than chose not to renew? Is there something in particular that stands out and led you to phrase the statement that way?
Paul Walker: No. Trying to remember where I said that.
Jeffrey Martin: Okay. Well, let me just add that — to a second part to that question. it’s noticeable that your unbilled deferred revenue growth far outsized your deferred subscription build in the quarter. And that suggests that the longer-term contracts are overwhelmingly outpacing the shorter-term contracts. That to me says your more loyal, higher-value clients are renewing at multi-year and past expansion levels relative to maybe some of the shorter-term clients. Maybe you could comment with respect to some of the shorter-term clients? And are those traditionally, your more valued clients or is there much of a difference between those that purchase longer-term subscriptions?
Paul Walker: Yeah. So great, I think maybe they’re not able to renew. We have a — oftentimes when clients — clients are very committed to us and very committed to what they’re trying to achieve. And oftentimes, that discussion is like the one I shared the example of the one that was — did not renew in the fourth quarter and came back and renewed. Oftentimes, if you were in those discussions, you’d hear the clients, they said, “hey, we’re just we’re not able to do this for this reason at this moment, but we’re — that’s not going to long-term permanent stay here. So, they are just sometimes where the environment for the client, and that’s not just a Q2 thing that happens. Every company goes into or not every company, but it’s not uncommon for a company to go through a period where things get more difficult for them.
And so usually is say, hey, we’re not able to do this at this point, not a, hey, we’re leaving you guys forever kind of things, maybe that color my language a little bit. But to your question, we’ve been really pleased for a number of years now at the continued steady growth in those clients who want to enter into multiyear contracts. We’ve reported on past calls that typically, it will be upon the renewal of their first year or even their second or the third year where they’ll step across and add multiple years. But it’s usually in that — after year one going into year two. And I think that’s happening because the nature of the problems that we’re solving. We’re dealing with the kinds of issues and challenges and topics that are important and don’t get solved in one quarter or even in 12 months, to change the entire culture or change the level of productivity of an entire team or department is a longer-term kind of thing.
And so I think we see that in clients generally deciding to make the commitment to multiyear more and more, and we certainly saw that in the second quarter. And so, yeah, where you do see your — to the extent that there is greater churn, you see that with those clients after their first year. And then as those cohorts become more and more established, it’s like laying down road base where you get these very mature cohorts that now have very little churn or very little transition eight years later that have been there all those years. And so the most noise and the most chop is actually on those that have — that are coming out of their first year as we’re still getting to know them and work with them and then oftentimes, they’ll go multiyear.
Jeffrey Martin: Great. And then I know in the past couple of quarters, you’ve talked about revenue growth acceleration, obviously, in the current environment, that’s going to take a bit of a pause. Just maybe give us a sense of your degree of confidence if it’s — if it shifted or if it’s changed at all relative to some of the targets that you previously outlined getting to the mid-teens and ultimately upper teens revenue growth once the economy kind of is back in stable growth mode?
Paul Walker: Yeah. Great. So maybe first point that’s slightly related, but not exactly the answer to that is that we’ve built a business model that generates significant increases in adjusted EBITDA and cash flow, independent of whether — when and whether we get to the mid-teens and then all the way to the high-teens. So there’s — it’s — the business model continues to be what you’ve always recognized it to be, which is a great business model. To your specific question related to growth rates, we also have this powerful — these two powerful subscription engines that have been driving more and more growth, faster and faster growth. And it’s absolutely still our view that this is a business that’s on — its way to low teens, mid-teens and then eventually high-teens, like we’ve said, the current environment means that the timing of when we get there might be a little bit more elongated.
But we still — we’re still very excited and pleased with what we’re seeing in the way the subscription businesses are behaving in both divisions. As I think you alluded to it, Jeff. I think there’s a timing thing there given kind of the current economic environment that might slow slightly pace at which we move to low, mid and then high, but I suspect, strongly suspect that’s where we’re headed.
Jeffrey Martin: Okay. Thanks. I’ll leave the floor.
Paul Walker: Thanks, Jeff.
Operator: Thank you. Our next question comes from Dave Storms with Stonegate. You may proceed.
