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okay the company I'm going to talk about
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today is D2L or DT on the TSX uh they
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are currently trading around
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$769 just under a billion market cap 962
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million uh what does
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D2L do they are their core cloud-based
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learning innovated platform is called
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bright space it serves three distinct
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markets kindergarten to grade 12 or the
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K to2 Market higher education and
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corporate markets the company's platform
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is used for online learning supporting
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learning in the classroom and for
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professional development and training
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d2l's bright space core functionality is
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extended through the company's
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Performance Plus and Advantage an
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advanced sorry analytics package and
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Creator plus which provides easy to use
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authoring tools for efficient and
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effective learning and engages Learners
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through add-on Solutions such as video
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and catalog capabilities to help
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instructors create engaging vide Based
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training and courses the company
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Solutions are sold through a
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subscription model and structured with a
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minimum user level commitment the
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majority of its customers enter into
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contracts with terms of three to five
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years contracts are priced on a per user
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basis excluding certain users such as
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administrators and teachers that VAR
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depend on the size of the organization
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compl complexity and required services
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so let's look at how the company has
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performed year-to date it's been a
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strong year for D2L you year-to dat
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performance about 65% roughly 20% over
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the past month largely powered by its
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latest quarterly numbers which bested
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analyst expectations so let's take a
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look at that quarter this was the Q3
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fiscal year 20125 some of the highlights
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here Revenue uh was 53
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4.3 million that's up 18% so a strong
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gain there in terms of revenues
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subscription and support Revenue was
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46.8 Million that's up 133% or the same
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period last year Professional Services
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saw a surge in the quarter 7.5 million a
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2.8 million increase from the same
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period we do caution that during the
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quarter the company recognized Services
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revenues about 1.2 million from
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revaluing the completion progress of
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certain Professional Service uh engaged
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ments excluding this Revenue Services
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Revenue increased by 1.6 million over
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the prior year and total revenue
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increased by 7.1 million or
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15.2% so it was slightly uh it was lower
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than the 18 plus percent that we saw
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there there was an approximate half a
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million dollar pull forward in usage
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based subscription Revenue also in the
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quarter these factors and lower cash
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cost drove a large adjusted EA beat to
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what the market was expecting uh 19.2%
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adjusted ebit D margin from 2.1 million
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in the same period or a 4.6% adjusted
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ebit D margin so significant jump there
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excluding the additional Services
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Revenue 1.2 million recognized in the
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quarter adjusted IA and adjusted IA
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margin would have been 9.2 million and
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17.4 million so still strong
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respectively for the three months ended
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October 31st 2024 net income uh for the
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period was 5.5 million or 10 cents per
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share compared with a loss of about
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400,000 or uh negative 1 cent per share
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in the same period last
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year now strong balance sheet at the
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quarter end about 108.3 million in cash
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and cash equivalence and no debt let's
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look at the financial Outlook the
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company updated its previously issued
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Financial guidance for the year ended
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January 31st 2025 or its fiscal 2025
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year as we can see here subscription and
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support Revenue will be now in the range
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of 180 to 181 million implying 11%
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growth at the midpoint over fiscal
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2024 uh it's really just a tightening up
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around the higher end of guidance total
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revenue will be 204 to 205 million
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implying 12% midpoint growth again
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another slight increase here adjusted
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ebitda saw a little bit farther or more
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of an increase 25.5 million to 20 6.5
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million that's 13% at the midpoint so an
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increase here which we see which is more
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positive let's look at the
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valuations uh these are adjust based on
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adjusted e IA or sorry adjusted earnings
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uh higher valuations based on adjusted
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earnings which are um which are
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significant here um if we look at the PE
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on a trailing basis uh you can see it is
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a high PE again based on the
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expectations for earnings this is the
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current fiscal year they're in that'll
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drop down significantly after the market
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expects and if the company can deliver
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on a profitable Q4 as way as well based
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on EV to EAA uh the company the numbers
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look a little better here uh you can see
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based on this year's expected e uh eidon
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numbers and next year you get down to
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about 16.7 the numbers are moving in the
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right direction in terms of margins and
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profitability here some more of the
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positives we can see here Q3 cash flow
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from operations pre-working Capital was
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9.4 million this is a record uh by far
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for the company alongside working
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capital inflows of two million drove
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free cash flow per share in the quarter
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of 18 cents which was again a record for
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the company uh key competitors like
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Blackboard and infrastructure in its
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Market are pulling out of certain
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International markets they're trying to
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enhance their profitability where they
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weren't significantly profitable in the
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past which enhances the opportunity for
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a cash-rich company like
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D2L uh in those markets again the other
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positive slight guidance increas as we
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saw that and free cash flow is expected
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to continue to increase at a relatively
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significant clip over the next several
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years our conclusion here quickly we
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like the business we will be including
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the company in our upcoming 2025
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profitable net cash Canadian small cap
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report for clients uh we like the
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strength of the balance sheet
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breakthrough into more meaningful
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profitability is what we see here
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sustainability on these fronts will be
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key we'd like to see Topline growth to
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be a little bit higher uh if the company
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right now it's looking at about 11% are
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the estimates for next year on Revenue
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but if it could get to the 15% range it
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would make it very interesting not sure
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if it can get there again analysts right
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now are just expecting 11% for fiscal
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year 2026 the year they'll they'll be
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heading into again it could be
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interesting on pullbacks and we are
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monitoring it for potential entry points
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uh as we look at the research for our
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upcoming uh net cash Canadian profitable
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small cap report any comments to follow
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that I mean I think it's just it's one
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of those examples of a company that is I
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mean it's certainly interesting but at
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147 times earnings right for our for our
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style of research it it doesn't seem it
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just doesn't make sense
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obviously I would say that it's not
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being it's not being valued on earnings
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right now which is is something else
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that we would find problematic um um but
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certainly there's an expectation there's
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a huge expectation built in yeah that
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you're already and the the good thing is
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we saw them go from like this time last
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year a loss of 1 cent to 10 cents in the
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quarter so I mean again I talked about
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some of the pull forwards in that
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quarter and and and you know some
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onetime num numbers in there that
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actually help the company in the quarter
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which I wouldn't expect in the next
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quarter uh but it the company does
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expect to be profitable and even if you
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take out those numbers it was um it was
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a good quarter now it has to keep doing
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that and that's when you're priced to
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Perfection not absolute perfection here
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but you were honestly on the premium end
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and its highest end of uh where it has
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been on an earnings basis over the past
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say 10 years or cash flow basis um you
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know if there is any hiccup a company
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like that get hit if there isn't you
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know and they keep
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accelerating the free cash flow
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generation and earnings generation you
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know then you know you can have
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something but they certainly have to
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keep uh a high uh free cash flow growth
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rate or a high EPS growth rate going
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forward to sustain the current uh the
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multiples on the stock it's great to see
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100 plus million in cash too they could
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go out there and make an acquisition
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that can help growth that would be
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inorganic versus organic sorry sorry I
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was trying to cut you off I apologize
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but like you know do you think that
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generally would be more more of a
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defensive business just be given you
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know given its like focus on education
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or do you think that like kind of like
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the budgets of these schools is volatile
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what do you think like do you think he
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would be more of a defensive business
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like in terms of like the the economic
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cycle I guess generally what are your
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thoughts on that you it it should be
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because you know in selling it to the
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educational sector um you know and the
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three to five year contracts uh you know
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the only they can be disrupted by
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someone else but I mean that's true in
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any sector really I mean you can be
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disrupted but if they you know continue
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to invest in R&D and they can you know
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that is a market that should have some
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stickiness to it for sure so yeah I mean
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we had another company that does
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software uh and video conferencing
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software for the educational market and
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they certainly consider that to be
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sticky once you're in uh you can it's
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sometimes hard to get out teachers get
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trained up on the software in there they
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get trained up on and it's it is hard to
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you know Teach an old dog new tricks to
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move out of there so once they get in
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there it it likely is sticky yeah
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