Constellation Software Inc. (CSU) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Constellation Software conference call. [Operator Instructions] I would now like to hand the conference over to your speaker, Mr. Mark Leonard. Please go ahead, sir.

Thank you, operator. Good morning, and welcome to the 2019 (sic) [ 2020 ] Constellation Annual General Meeting. We've coached together a bit of a technology solution here to try and emulate what we've done in previous years. As most of you know, we have the formal part of the meeting first, and then we have an extended Q&A afterwards. We've got the general managers of our business units, along with our CFO and Chief Investment Officer on the line. And we've also got each other video link so that we can signal, hopefully, when each of us should speak. Mark Dennison is going to act as Chairman for the formal part of the meeting. And over to you, Mark.

Thanks, Mark. Good morning. I'm Mark Dennison. I'm the General Counsel of Constellation Software. As you've just heard, Mark Leonard has asked me to act as the Chairman of the Annual Meeting today. Jamal Baksh will act as Secretary of the meeting. I ask Rebecca Liu and Bryce Docherty of Computershare to act as scrutineers and compute the votes of any polls taken at the meeting. I would like to start by acknowledging the extraordinary circumstances being faced around the world as a result of the rapidly evolving global COVID-19 public health emergency. It is as a result of the pandemic that we are conducting today's meeting virtually via live webcast. Since the meeting is being held virtually, we want to outline a few logistical items regarding the conduct of the meeting. Questions can be submitted by any meeting attendee using the instant messaging service of the virtual interface. When asking a question, please indicate your name, which entity you represent, if any, and if applicable, confirm if you are a registered shareholder or a duly appointed proxy holder. For each question we answer, you will summarize the question and read out loud the name of the person who asked such question, and if applicable, the entity such person represents. Questions will be addressed during the question period at the end of the meeting, provided that some questions may be addressed during the formal part of the meeting, including questions regarding procedural matters or directly related to the motions before the meeting. As indicated in our press release dated February 28, 2020, and March 26, 2020, shareholders also have the opportunity to submit questions to the company in advance of today's meeting. We will pose those questions to certain members of senior management following the formal part of the meeting, and we'll also take questions from the audience. Questions which are already addressed in the questions submitted in advance of the meeting or that are redundant or repetitive will not be answered. For the purposes of the meeting today, voting on all matters will be conducted by electronic ballots. Registered shareholders and duly appointed proxy holders will be asked to vote on each business item after the presentation of all business items. When you're asked to vote, you will receive a message on the virtual interface requesting you to register your votes. When voting commences, the polls will be open for 3 minutes. We will now proceed with the formal portion of today's meeting. To expedite the formal part of the meeting, I will move and second all of the motions. The secretary of the meeting has filed with me proof of mailing of the notice of the meeting, along with the management information circular in the form of proxy. The consolidated financial statements of the company for the year ended December 31, 2019, and the auditor's report thereon have also been mailed to all shareholders of the company who have requested them. Copies of these materials are also available on the company's SEDAR profile, and we would be pleased to deal with any questions concerning the financial statements, subsequent to the completion of the formal business of the meeting. The scrutineers have reported to me that we have at least 2 shareholders present by electronic means and holding or representing by proxy at least 15% of the votes entitled to be cast at the meeting. As such, I declare that a quorum is present for the conduct of the business, and this meeting is properly constituted for the transaction of business. Voting today will be conducted by electronic ballot. The balloting will be opened to registered holders and appointed proxy holders who are properly logged in with their control members and user name after the presentation of all business items. The first item of business is the election of directors. There are 11 directors to be elected at this meeting. A management information circular mailed to shareholders contains information about the 11 nominees. The nominees are: Jeff Bender; Lawrence Cunningham; Susan Gayner; Robert Kitte; Mark Leonard; Paul McFeeters; Mark Miller; Lori O’Neill; Dexter Salna; Stephen Scotchmer; Robin Van Poelje. The meeting is open for nominations for the election of directors for the ensuing year or until their successors are elected or appointed. I will now nominate the directors and second the nominations. I nominate each of the persons whose name appears in the management information circular under the heading Election of Directors to be a Director of the company until the close of the next Annual Meeting of Shareholders or until their successors are appointed. And I also second the nominations. If there are no further nominations, I declare the nominations closed. I note that as described more fully in the management information circular, the company adopted a majority director election policy in May of 2009. This policy enables shareholders to vote separately for each Director nominee at meetings of shareholders where directors are to be elected. If a Director nominee does not receive the support of a majority of the votes cast at a meeting of shareholders, that Director will be expected to tender his or her resignation from the Board following such meeting. The resignation will be effective upon acceptance by the Board and will be disclosed via press release. For more information about our majority director election policy, please see Page 16 of the management information circular. I will now move and second a resolution appointing the auditors for the current year and authorizing the directors to fix their remuneration. I move that KPMG LLP chartered accountants are appointed auditors of the company to hold office until the close of the next Annual Meeting of Shareholders or until their successors are appointed. As such, remuneration as may be fixed by the directors and that the directors are authorized to fix such remuneration, and I also second the motion. Unless there are any questions, I will move to the next item of business. The next item of business is an advisory resolution to endorse the company's approach to executive compensation as further set out in the management information circular. As the vote is advisory only, it will not be binding on the company. However, the Compensation, Nominating and Human Resources Committee of the Board will take into account the results when considering future executive compensation arrangements. I will now move and second the approval of the advisory resolution. I move that if we resolve on an advisory basis and not to diminish the role and responsibilities of the Board of Directors of the company, that the approach to executive compensation disclosed in the management information circular is accepted, and I also second the motion. Unless there are any questions, I will move on to the voting process. As we mentioned earlier, voting today will be conducted by electronic ballot. I will now take a moment to ask that the balloting be open to registered holders and appointed proxy holders. The polls are now open. And at this point, all registered holders and appointed proxy holders who have properly logged in with their control numbers and user name and wish to vote will be able to see on the screen, the election of directors, the appointment of the auditors and advisory resolution on executive compensation motions brought forth at this meeting. Please register your votes by accessing the voting page and selecting the for or withhold buttons next to the name of each proposed Director and next to the resolution with respect to the appointment of KPMG as the company's auditors. Please select the for or against button next to the advisory resolution on executive compensation. The voting will be opened for 3 minutes. And while you are submitting your votes, we will begin the question-and-answer period, which will be moderated by Lawrence Cunningham. Once the electronic balloting closes, the voting page will disappear, and your votes will automatically be submitted. [Voting]

The full voting results will be published on SEDAR following the meeting, but I can report that based on the proxies received in advance of this meeting, all matters that were put to a vote today have passed. The formal items of business as set out in the notice of meeting have now been dealt with. I move that the meeting be terminated, and I second the motion. I declare the resolution carried and the meeting terminated. The formal agenda for this meeting is now completed. I will now turn the meeting over to Lawrence Cunningham for the question-and-answer period. I ask that all attendees who would like to ask a question, use the instant messaging feature of the virtual interface to do so. When asking your question, please include your name, the entity you represent, if any, and if applicable, confirm if you are a registered shareholder or a duly appointed proxy holder.

Good morning, everyone. Lawrence Cunningham here. Welcome to the meeting. We're delighted to be here, and we don't have any preset ending time. We've got a lot of questions that came in, thanks to the press release soliciting them from a very diverse group of shareholders. A large portion of the questions congregated around the coronavirus pandemic as it affects operations and investments, but we've got a lot of more general and excellent questions as well. We have listed 2 very knowledgeable analysts of Constellation to help us collate the questions, and they will help pose them here this morning. We're delighted to have with us Will Pan of Ruane, Cunniff and Howard Leung of Veritas. By a way of background, Howard is an equity research analyst who's been covering Constellation since 2016, and he's been with Veritas for 6 years. Will has been an analyst at Ruane, Cunniff for 10 years and a shareholder of Constellation since 2014. I joined the Constellation Board in 2017, became Vice Chairman last year and have been a shareholder throughout that time. The 3 of us collated the questions by subject area. We tried to eliminate the redundancies without necessarily capturing every variation in wording. We provided some light-touch editing without intending to change the meaning of any questions posed, and we will monitor the instant messaging service for questions that you'd like to submit here this morning, and we'll weave them in at periodic intervals during the session. We divvied up the topics between the 3 of us, and each of us will take turns posing them through about 12 rounds altogether. And so you can get a sense of the theme, the structure of the meeting. Here's the outline of the topics in order that we plan to cover them. First, the pandemic on operations and on own investments; second, a deeper dive on investments, including the current M&A environment and process, questions of geography and size, and finally, the investment universe beyond vertical market software; third, operations, including attrition, software-as-a-service and product development and organic growth. We then have a variety of miscellaneous or other questions that each of us intend to pose. And as I said, I'll monitor the message board and ideally pose questions received today at the end of each of those sections. We don't know if we'll have time to pose all the questions that we receive -- questions that are submitted today, but we'll try. And with that, let us begin on the topic of the pandemic and how it's affecting operations with Howard. Howard, thank you so much for helping us out today.

Howard, just before we move on, maybe I could go off-script here. And since it's so hard to see who's speaking, maybe we will do a workaround and get the managers to introduce themselves briefly. So you'll know who's on the line. And then as the managers respond to the various questions, I'll ask them to state their name, just so you know who's responding to the particular questions if it's unclear. And the order in which I'd like to go is alphabetical as we usually handle in our own e-mail communications. So Barry, Bernie, Dexter, Jamal, Jeff, John, Mark and then Robin. And then one other comment before we move on, the only perk associated with working with Larry on curating these questions and generally sort of referring and expediting that the panel members that Howard and Will get is that they get to sneak in their own occasional question. And so I'm looking forward to those because I'm sure they will be the most pointed and the most interesting. So let's start with Barry, a brief introduction, please.

Sure. Thanks, Mark. It's Barry Symons here. I'm the CEO of the Jonas Operating Group. I've been within the Constellation fold for over 23 years. I did about 11 years at head office, working directly with Mark, a lot of that time as the CFO of the corporation. Then I moved out to the Jonas Operating Group about 12.5 years ago and have been spending my time trying to grow and operate the Jonas Operating Group.

Bernie?

This is Bernie Anzarouth. I'm the Chief Investment Officer for Constellation. I oversee M&A across the entire group. I've been with the business since we founded it in August 1995, and have been in a prospecting M&A mode since the very beginning.

Dexter?

This is Dexter, and I've been with Constellation from the very first acquisition. And for the first, I believe, 10 years, I worked for 9 years, I worked with Volaris with Mark Miller. And in 2004, I [ received my ] own division, originally called HomeBuilders that I renamed the [ Proceeds ] division.

Jamal?

Jamal Baksh, CFO of Constellation, joined Constellation in 2003 with the acquisition of Jonas. I moved to head office in '06 with the IPO, and 7 years as VP Finance and the last 4-or-so years as CFO.

Jeff?

Good morning, Jeff Bender. I'm responsible for the Harris Operating Group and then with Harris and Constellation for the past 21 years.

John?

It's John Billowits. I'm the CEO of Vela Software. I've been with Constellation for 18 years, first at Jonas, then at head office and at Vela since 2013.

Hello. This is Mark Miller. I'm in charge of Volaris. I co-founded the first acquisition that Constellation did back in 1988. Constellation acquired it in 1995, and I've been with Constellation since then now for 25 years.

And Robin?

Yes. This is Robin van Poelje, responsible for TSS, founded the company in 2006, joined CSI in 2014, while CSI acquired TSS.

And over to you now, Howard. Sorry for the interruption.

No worries. Thanks, Mark and Larry. So as Larry mentioned, the first section is going to be about the operation side of the pandemic and how COVID's affecting operations at Constellation. So as you must know, all of us stuck at home are curious to get an update on how Constellation is coping with the ramifications of COVID-19. And so this one's about remote work directly. A recent article quoted a Constellation manager war0ning employees about the lair of the Internet and endless box sets while they work from home. So how is the company adjusting to remote work?

You know that. I'm sure this is one where everyone has a slightly different answer. So why don't we kick it out to the general managers? But I have a question first, what's a box set?

I think they mean Netflix, Disney, Disney+.

Okay, okay. I thought maybe I was not in the current run of changing language dynamics and had missed a new thing. But...

I think it's an old thing. It's like a DVD box sets.

Okay, okay. Anyway, well, who wants this one?

I'll go first, Mark. It's Jeff. So actually, I am watching the Blacklist on Netflix, just in full disclosure. I typically watch it though with my wife after the business day is over. We're only in season 4, so we have a couple more seasons to go. I would say from a Harris' perspective, the transition to working from home was relatively seamless for most employees. Again, a lot of our employees work from home or work from the road as they travel on a regular basis anyway. So I'd say that move for most of our employees was without too much ordeal. I had spent some time calling around video chatting with all of our leaders over the last couple weeks, and I was surprised to see everybody was -- one of the general themes or comments was that people thought were actually communicating more with each other now than we had in the past with video, which I thought was an interesting dynamic. I must admit, my group, we meet -- right now, we're on a schedule of 4 times a week, we meet every morning at 9 a.m. except for Wednesdays. For as long as it takes, you typically 30 to 45 minutes just to do a go-around. And I think if I look back over my 20 years, I've never done that before. We've never had a standing meeting on a daily basis with my direct reports to talk about any topic. So I think I would be a good example of how this communication has been changing, and that I think has been cascading down through the organization. I think from a work perspective, I think probably one of the things that everybody is adjusting to, as well, our service people are used to being on the road and delivering service and either at the customer site, in their hotel room, or even from home, a lot of our customers are not used to that reality. So that's adjusting to sort of working with customers who are now at their homes trying to sort of deliver service has been probably the area where people are getting used to it the most, and that's sort of caused probably the most challenge in the near term.

I can add to that. I was just going to add to it, we -- Mark Miller from Volaris. We surveyed -- we've done some surveys of our staff, and that's been something I'm sure many of the people on the phone here have done with. And it's really interesting to see one of the key questions is, is, do they have the right tools to work at home, and that seems generally the case. They seem to be pretty comfortable with their ability to work at home. However, there's really a large separation between a few people who are finding it very difficult to work at home, not because of the tool just because of the environment. But most are okay working at home, which surprised me. But a large separation between those 2 when you look at the survey data on it. So -- but it's actually going far better than I expected. In some cases, of course, we had to buy equipment for people who didn't have the ability to -- didn't have laptops, you need to get them some tools to work at home, but we just -- we've managed to work through that. And I think right now I asked a couple days ago, what is the most people we have in any offices around the world, and it's pretty small. Like I think the largest number of people we have in an office somewhere sort of like 22 in the U.S. Somewhere, pretty much everything, which is pretty remarkable.

This is Dexter. And we actually took action prior to the shutdown, we realized that the risk to our employees, and so very early on, we started to kind of prepare to provide workplaces for some of the employees at home that didn't have proper facilities, renting IT for them, getting everyone set up, but we were very concerned about safety, and so we shut down our offices before the government forced us to. And the most difficult part is where we have some large sales teams that sell to real estate agents, and just kind of managing those is probably our biggest challenge of making sure that we're properly engaged with our customers. But I'm surprised as well of how well it's gone, and it's kind of going to lead to questions of how many offices we need to leave open after this pandemic is over.

Okay. Great. Those are -- that's good. It's not the first time I've heard of some leaders considering cutting office space back. I guess the next question goes to -- talk about the at-risk verticals and what happened during the last recession? So as Dexter mentioned in your bio, you led the HomeBuilder business and you stewarded it through the subprime crisis 10 years ago. Now the at-risk verticals are ones, such as in retail, hospitality and restaurants, so the question is, generally, what percentage of CSI's revenues are exposed to those at-risk verticals? And what lessons are there to be learned from the '08, '09 period? Maybe I'll hand it off to Dexter first and then anybody else who wants to contribute can chip in.

Yes. It's like déjà vu all over again. And I guess the biggest worse lesson I learned from the last HomeBuilder meltdown is you got to act and you got to act fast. And you can't hope that for a quick rebound. And so with that, we've taken immediate actions to look at all our costs and see where we can reduce costs, and that includes third party and unfortunately, also personnel. But if we don't do it, we have to save the business for the employees that are going to remain. And with the HomeBuilder downturn, we went down by 40% in revenue, and we had to keep on cutting staff as almost every week, month. And so learning from that, we went ahead and made some changes immediately. And probably, as we see things, if we don't see things improving, we'll have to cut deeper. But act fast, don't wait and don't hope for a quick recovery.

And Dexter, just a quick follow-up before we have other people join in. But when you mentioned 40% decline in HomeBuilders, was that a mix of subscription or maintenance contracts getting canceled and less licenses? What was the major source of the decline back then?

It was almost 100% bankruptcy. Most of them was bankruptcies. So we had a lot of companies just go bankrupt. And then we had people kind of reducing users, but we worked with them to -- on their license accounts and allowed them to take a short-term reduction in their licenses that they could keep it when the economy rebounded. And so -- and working with them on payments. But a lot of our reductions actually came from our customers going bankrupt.

Okay. That's helpful. Anybody else waiting and want to speak about it? Barry?

Yes. I'll chime in because we probably -- it's Barry Symons from Jonas. We probably have the dubious distinction of having the operating group that's probably got the most verticals exposed to this in terms of the number of hospitality, fitness, hotel, et cetera, that we have in our portfolio. Yes, it's absolutely very difficult. I was talking to my wife the other day in my 23-plus years of working at Constellation, this has by far been the most difficult time. And the reason why is I really struggle when you have good people that are doing good jobs and you have to put them on layoff, furlough, whatever other terminology you have to use. But we've had to do a lot of that within Jonas. And I have no problem if the person is not doing a good job, not showing up to work, stealing from the company whatever getting rid of those type of people. But people that were doing a really, really good job working really hard, and we just don't have the work for them. So it's been extremely difficult, but I think one of the things we've been focusing on is how can we help our customers because the world has changed and it will be changed for a long time. And there's lots of little things we can do to help our customers, and I can go through some very simple examples. So in the fitness industry, one of the big successes we've had is helping our gyms put classes online. And so that members, who are members of the gym, can now workout at home using an online class that the gym provides them, whether it's a personal instructor doing a Zoom call or whether it's bought content, they get off the internet, whatever the case may be. Online modules are very, very important. And so online reservations to the extent some of these businesses in the spa space, the salon space, the restaurant space, whatever weren't using online and delivery type modules, we can help them out there. And things like contactless payments, very, very important. So we've had a surge in helping our clients deal with contactless payments and getting cash out of the system. So it's all the little things that you can do to help them live within the new normal that you need to focus on. So that's something we've been spending a lot of time on is how can we be better, and how can we help our customers be better and get through this. Because one of our biggest concerns is the number of customers that will unfortunately go out of business as a result of this because they won't survive the pandemic. The other last thing I'll throw in there is, surprisingly, our attrition rates are probably down, i.e., clients leaving us. So new name sales are down, but clients are not switching to other vendors as well. So kind of one of those -- it goes both ways, I guess. So that's kind of my two cents on the situation.

That's interesting. And it's -- and so you brought the point about attrition. In that regard, especially in your verticals, are there any POS systems there that you think might have more churn because some of these retail customers might be taking their business online, and may not need the transactions in store?

Yes. I don't -- I mean, it all depends. If they never reopen their store, then absolutely. But if they reopen their store, they're going to need the point-of-sale in the store. And so I don't see that happening unless they go 100% virtual.

Okay. Any other operating managers want to take a crack? If not, maybe I'll just ask Jamal, if he has an idea of the kind of the percentage of CSI's revenues overall to those verticals?

I mean I'm not sure exactly what verticals you refer. I mean you said at-risk verticals. I mean we're in 200 different verticals. I mean I know the percentage of each of verticals we're in, but I don't know what the exact answer to your question is because I think almost all of our verticals are going to be impacted in some way.

So the ones that are in this question specified, I should say retail, hospitality and restaurants.

Somewhere around 10%, maybe.

Sounds good.

I noticed how irascible Jamal is getting these days.

So the next one...

Being a CFO, [indiscernible] cash, worrying about loans, all that stuff. So I think the underlying issue here, Howard, is one that we confronted all the time, which is that we don't like to talk about specific verticals because we have competitors in each of those specific verticals. And we're always looking for competitive advantage, and we hate sharing competitive sensitive information. And so we know how we're doing in each of those businesses. We tend to run them with separate general managers who are intimately involved. I'm very aware of attrition and who is paying, and we monitor cash flows now weekly because when the crisis initially hit, our first feel was liquidity and whether the system is going to freeze up. And we've been very fortunate governments have jumped in to make sure that the systems are liquid. And so we haven't seen the freeze up, but we are on top of things. And it isn't like we're on top of things centrally. We can simply ask people for information and gather it as we've been doing with the cash flow information. But we're on top of it at the individual business unit level. When you're managing 30 or 50 or 100 people, you tend to know what's going on. You know when you're collecting checks and when you're not collecting checks. And that's basically how we configure the system and the company is, we have tremendous [indiscernible] pushing on the people. We know what's going on and who really care. And you got to have empathy for those general managers in our business units who are in the travel and hospitality and fitness sectors because they have been incredibly hard hit. But then we also have some sectors that are doing reasonably well. And it's a lot more fun to be providing utilities with software right now than providing gyms with software right now.

That makes a lot of sense. So you're not going to like the next question that I have on the list because it's kind of the same thing, and there's a bit of overlap. But our revenues from small to medium-size business customers likely to suffer more than average due to higher small business mortality. Is it possible to share a rough idea of CSI's SMB exposure as a percentage of total revenue?

I think nearly all of our customers, not nearly, the vast majority of our customers are small and medium-sized businesses as the economists would describe them. For sure, we have enormous cities and large utilities that use our software. But the numbers -- obviously, much smaller amount of revenue, but the numbers would be a preponderance of small and medium-sized businesses. We have some businesses that are almost solely oriented towards small and medium-sized business. And Jeff's got quite a big one and can probably talk to some of the experience that he has had with that.

Thanks, Mark. We have that business that we bought when we picked up Acceo a couple of years back, which basically focuses on small and medium business. So to date, it's actually been doing quite reasonably well. But I think the honest comment is it's too early to tell right now what the long-term impact on a lot of these businesses is going to be. Obviously, a lot of them had to shut down or significantly alter their operations in the short term. But I think if you look at our sales results, so that's a business actually where we actually track our results on a daily basis. We actually have a nice graph that I get every morning. I can see it sitting in my inbox now that basically shows what our forecast is for the month by revenue type and then basically tracks on a daily basis, how we're tracking based on our forecast and based on our prior year actuals. And through the first 4 months and the first part into May, we're still tracking basically to our forecast. Now the revenue mix, I would say, has shifted a little bit. So as a lot of these businesses try to relocate to home and do some things from home. We've been actually selling a lot of remote access to our applications, which is something that we wouldn't have typically been selling before. So I think that's an interesting shift. But fundamentally, these customers, a lot of them are taking advantage of still running their business and catching up on some of the things that they hadn't done before. So I think in the short term, the impact has been -- it's been there, but it's been, I think, reasonable and moderate. I think the longer-term question is, I'm not really sure whether these businesses, all of them will be able to come back in whatever the next normal is. But I think the governments are doing a pretty good job, at least in Canada, this business is pretty much based in the province of Québec to support these businesses and I think give them sort of every chance to be able to bring themselves back.

Right. In Canada and the U.S., you have a lot of these government programs, which are really helping the businesses, and we'll see how long that lasts and how long the shutdown lasts. Then my next question has to do with the sales of software and as well as existing agreements. So in light of COVID-19, some software companies are offering months of free software and payment deferral. Are you receiving requests or made any deferrals and discounts -- or discounts? How are you handling those? And do you have any best practice emerging inside or across the groups?

Why don't I take an initial sort of overview kind of crack at this? Everyone wants to have stuff that's cheaper and better and faster. And so it's not unusual for clients to say, can I pay less, can it do more what I want it to do, et cetera, et cetera, et cetera. And hardship is a new reason for them to pose those questions. You still have to think about the impact on your longer-term business. I noticed in today's Globe and Mail, the Brookfield, one of the large owners of shopping malls is providing $5 billion of funding to retailers so they can pay their shopping mall rent or at least that's, I think, the underlying idea. And sure, we could offer our clients money, so that they could pay us for their software. The Brookfield offer is they take equity in those underlying retailers, and I'm sure they're hoping to make a good rate of return on that. Everything that software companies do is an investment. And some of them are very short-term investments, some of them are very long-term investments. SaaS to me was less a technology model than an economic model, and it was basically, you don't have to pay for software, you can pay for it per month in the future. And to the extent that we do the same thing now that we let clients not pay, we have to collect it in the future if we're going to make a return on that capital. So it's an investment decision you're asking about. And I think our guys make those investment decisions over time. We're more than happy to buy back systems from clients that we think are going to be around and put them on to SaaS-type programs if we can get a good return on the capital that we're deploying in that fashion. So it's an investment decision from my point of view. I'm sure it's an emotional decision from other points of view. Did anyone else want to sort of weigh in?

Maybe if -- maybe I'm going to pick on the other people who haven't spoken yet, maybe Robin or John, any thoughts there?

I can start, Robin. It's John from Vela. And I just want to first send my regards to all of our employees. This has been a very difficult time, and obviously, everyone on the phone is very appreciative of the efforts they've made. Howard, with respect to your question, I would just echo Mark's comments. We're in so many different countries, so many different verticals with so many different pricing models. Anything we say is anecdotal at best. So in aggregate, I'd say we really haven't seen any pricing pressure on renewals other than those select verticals that you alluded to earlier. And that can vary depending on whether they're monthly billing or annual billing. Obviously, that's annual billing in advance. It's a much -- you have to deal with that over the next 12 months. Monthly ones are more difficult to deal with. So there's been various things done to make sure we keep the customers we want to keep, but it's very little relative to our overall revenue composition.

Yes. Thanks, John. Yes, I think similar situation with us, huge difference, geography, verticals, and we did a lot of our billing on the 1st of January. So lots have been paid. And like John said, it will differ for some industries, which will be hit hard, and other 3 industries are not affected. So also in my business, it's a relatively small percentage, and we haven't gotten too many of those questions, only in industries which are hit hard.

Right. And I guess for those industries that are hit hard, would you consider maybe from the operating group head office side, providing temporary funding to those business units that might be getting hard, I guess, like Mark said as an investment decision?

Well, yes, like I said, I mean, for some of those clients, they already paid the bill. We expect that it might be difficult for them next year or later during the year. And if there are opportunities where we can help out our clients and unburden them, we might consider, like Mark said, for example, on the hosting side or whatever, we might step in there if that's a requirement.

That's good. That's actually trends well into my next question, which is about the sales funnel. So has demand for off-prem products increased? It's still early days, but have you seen that tick up? And as for new on-prem products, when your sales staff is selling those, do you find you have to offer steep discounts on licenses?

I'll start off. The -- I think -- so I think back to John's point, I think were in so many verticals, so many geographies that it really does depend. And again, any -- we could tell you stories of very specific instances that would be true in that one instance, but that doesn't necessarily mean it multiplies over to 200 different businesses that we have. So I would say when I'm on the call reviewing -- and we review now our -- with our businesses on a bi-monthly basis, what's going on and what they're seeing. So obviously, it's really talking and looking at bookings, and I think you'll see from -- there's no change, people continue, ready to sign up. You'll see postponements. Not a lot of cancellations, and then you'll see a bunch of slowdown. So I would say you sort of see things in all of the different categories. And I would even say it could even be sporadic where one utility group is seeing no slowdown, one is seeing more postponements. So it really does depend across the different verticals and different businesses. And I think it also depends on where the customer was in their procurement cycle. Were the funds already encumbered and set aside for the project? Or right, were they looking to sort of get new funds to fund the project? I think you have all of these different things that are at play. And then I definitely see more willingness of customers to consider cloud-based or SaaS-based solutions. Certainly, anything in the short-term that's connecting our customer with their customers, definitely in the short term. I think you get a lot of interest from customers. I see no pricing pressure or no sort of no change in any of our on-premise solutions or any pricing pressure related to those solutions at all, not in the short-term anyway.

That's great. Maybe I'll direct the question to Barry because he has more of those "at-risk" verticals.

Sure. Yes, it's Barry Symons again. Yes, absolutely. We've seen -- kind of what Jeff said, we've seen a mix of everything, and we're in 25 different verticals. And so certain verticals have seen a huge spike in this type of stuff. So one of our verticals is liquor and beer stores and wine stores in the U.S., and one of the hottest modules we have is an online ordering module. So that's -- demand is through the roof on that product because a lot of stores didn't offer that service, and now because of the situation, have to offer that service. So you have situations like that. And then you've got other things that are sort of ticking along normally. And I would say in the hardest hit verticals, absolutely, there's a bit of a demand drop. I don't think there's a pricing pressure as much as it's a demand drop. So people were thinking of doing a project and maybe replacing PMS, property management system, in the hotel space have now decide to put that on hold for 6 months, 9 months, 12 months till they see how bad things are. So definitely a demand drop, but I don't think it's really a pricing drop. I think if you think about what we offer from a value perspective to our clients, it's generally speaking, tremendous value. We're very, very, very small piece of their overall spend. And if our products work the way they're supposed to work, they add tremendous value in terms of efficiencies and ability to generate more revenue and all that type of stuff, help them generate better customer engagement and customer interaction with their customers, all those things. And so I don't think it's a pricing pressure thing as much as it's just a drop in demand in certain verticals because they just don't know what the future holds. And so they're going to sit tight until they figure out what the future holds.

And just to add to what Barry was saying, I think it's important to realize that whether a system is on-prem or whether it's hosted per se, isn't really the deciding factor. It's what really solves their pain point at this time, right? So I wouldn't be overly concerned about, well, if it's a hosted system, you're in better shape and if it's an on-prem system. Our people are working very well on our on-prem systems remotely right now and can continue to enhance them and improve them and add things to them, right? It's really you solving a problem that a customer really cares about and really needs. That's going to decide whether you get a deal or not.

All right. Sorry, Robin?

Yes. We sometimes see as well our sales funnel is very strong in our first-line health care business in The Netherlands, but they are currently overloaded. So we see some delays, but it will come. And the implementations will be a little bit slower, but it will be still done, but they were all very, very busy helping their patients. And you see also some delay in your sales funnel.

This is Dexter. And I just want to add, we're seeing delayed decisions in most cases. People want to find out kind of what's happening before they commit to sale. And that is both good and bad because we have customers that were thinking of leaving that have extended their contracts as well. And so your help because of the delayed decisions, but it's definitely impacting new sales.

Right. So the funnel is just -- is kind of stretched out and demand price dropping? So that's pretty...

I think it's not dropping. They're just delaying their decisions.

Right. And they're -- it's because of the uncertainty. And I guess, we'll -- as they've stretch out, we'll see what happens. And then I guess, Mark was right. I do have a question that I want to sneak in, really, based on the Q1 results last night. So I saw that in the statements. You started to do some write-downs on both intangibles and the earn-out. Just 2 questions there. On the intangibles, why only write-down the intangibles on the acquired assets for 2019 and not anything beforehand? And also for the earnouts, it looks like some of the longer-term earnouts were written down, too. Does that mean that those specific longer-term forecasts are also in trouble because of COVID? So that's -- those are my 2 items I'm sneaking in there.

I think Jamal has to take that.

Yes. So the first one on the write-down. So it's not that we just looked at 2019 acquisitions. If you think what's on the books from an accounting intangible perspective, it's going to be more IT unamortized for more recent acquisitions than old. But what we did, we looked across all of our cash landing units. We had a criteria of what would be a triggering event to then look for impairment. We then perform that impairment test, and we wrote down accordingly. It just so happened of the $5 million hit that we took, the majority of it related to 3 acquisitions that were acquired in 2019. On the -- sorry, your other question was about...

You forgot the earnouts.

The earnouts, right. So again, what we do with earn-outs. I mean it's not looking at longer and short term. All of our earnouts are based on the latest forecast at that point in time. And then it's a question of how much earnout you're going to have to pay. We do that for all of our acquisitions quarterly. And obviously, as a result of COVID, a lot of our forecasts have been reduced, and this is the impact. So it is an indicator that, obviously, some of those businesses that we've acquired, the forecasts are lower now than they were at the time of acquisition, and we've written down those amounts accordingly.

Right. The earnout amount written down, that was kind of a lot bigger as a percentage of total earnouts compared to the intangibles. Is it just kind of chance like those particular earnouts are related to businesses where they're more at risk? Mark is waving.

Yes. This sort of relates to how we tend to structure earnouts, Howard. We did a study of our earnout experience probably a year ago and tried to learn from that experience. And for the most part, it's been good. The earnout experience has been good. And learning from it has also been good. The earning outs on average are 2 or 3 years. And so if you adjust your forecast more in the short term, less in the long term, you're going to have a fairly big adjustment in the earn outs, and you're not going to have as large an adjustment in the discounted present value of the future cash flow streams of the business. So you can see that people who had earnouts that only had another year to run or 2 years to run, a big chunk of that might be affected by the slowdown in sales or the reduction in profitability. Those were the 2 criteria that the earnout was built on.

Okay. Great. That makes sense. Thanks for satisfying the accountant part of me. That's it for the pandemic operations section. And I'll turn it over to Will to talk about M&A.

Will Pan here. Thanks for having me. So the next set of questions is about the effect that the pandemic has had on CSI's M&A operations. Many analysts are wondering what the impact is specifically. And the first question is, how does COVID-19 change the overall M&A environment in terms of volume? So number of deals and activity and valuation, pricing and multiples. And has it changed the behavior of sellers or other buyers?

Bernie here. Thanks for the question. I think the way to look at it is by tier, by size of the businesses. So if you look at the very high end, we've looked at some businesses that were in a process that started, say, just before the COVID crisis really got on its way. And some of those were actually halted. They were just starts, not all of them, but a good chunk of them. And the reasons are various, but they all deal with COVID-19. People are dealing with their employees, customer base, making sure that everyone is safe and just finding that it's not the right time to do -- to go through a transaction. At the very low end, there are a lot of businesses that are actually surviving on government handouts. They're having a tougher time dealing with the fallout. Some have had to furlough employees. So for those, a little more difficult for them to transact. Fewer buyers would be interested in those because it's questionable as to whether or not they make it through the crisis. For the most part, our bread-and-butter type businesses are still interested in transacting. There's still some interesting level of volume at our level, which is really nice. The good news for us is that they're actually a lot easier to get in touch with these days because everyone's working from home, so easier to get touch with the owners, managers of the operations. So that kind of volume is still there. We haven't seen much change in valuations. People are still expecting what they've expected prior to the crisis. So that hasn't really changed very much. And I think part of it depends on how long the crisis extends in time. So we'll see how that unfolds. And as far as buyers are concerned, buyers are still there. There's still plenty of capital out there looking for a home. There may be some buyers that are taking a closer look at some troubled portfolio companies, but that is not stopping them from deploying more capital. So it's still there. It's almost like things are a little bit slower in terms of actually getting transactions done, but transactions are still getting done.

Any of the operating managers want to comment? Volume of transactions, activity levels.

I think I can [ echo to ] what Bernie is saying. It is easy to get hold of people. There's a lot of discussions going on. But of course, because of the challenges each of those owners have, they're moving a little slower. They're dealing with issues within side of their own businesses. But we're having a lot of conversations, which would be the most positive you could, I guess, extract from this.

This is Dexter. And if I go and you ask me -- I was asked a question about the -- the last time the HomeBuilder thing happened, what we saw was that for at least a year or so, nobody was willing to sell because they -- no one wants to go and sell at the bottom of the market. And it wasn't until it became evident that it was continuing to go down that people thought to divest or sell when they became more dire. And so I don't think we will see kind of significant drops in prices until the owners understand kind of what the future is for the guys who get into trouble. So it's just very early on to say what impact it's going to have on M&A. I agree with the rest of the other managers that we're finding it a lot easier to get a hold of owners because they are not traveling. And they are -- do have more time to take calls. And so I think in the future, that will help us because we start to get all these contracts, they know us and they know who we are. And so I think that will be positive in the future. But as far as changing the number of deals, I think we haven't seen a large drop in pricing the way we did in 2009, 2010.

Is it fair to assume that given CSI's focus on IRRs, if you were willing to pay a certain price for a business pre -- or a certain multiple before the crisis, now as a result of lower earnings and struggles, you're wanting better valuations. And so you might also wait before making some of these acquisitions until you can get a better price?

I'll take that, Will. It's John from Vela. Yes is the answer to that. I think for the most part, similar to our businesses, we expect the businesses we're looking to invest in to have similar challenges. And so the ones that are in process, we're being pragmatic about it. And for the most part, we're looking to share some of that risk with the seller in the form of earnouts that Mark alluded to earlier. And we hope to be successful in most of those, but some of those will have to -- both parties will probably have to put that down and get back together again when there's more certainty in the environment.

Got a question. Countries and the states are in various shades of lockdown. And so the question wonders, has that led to a substantial difference in M&A in different regions of the world and maybe that's appropriate to start with Robin because he covers a lot of countries and maybe you can comment on the differences between Europe and the rest of the world.

Yes. I have to do so. Robin here. Well, we focus the CSS predominantly on Europe. But also, in Europe, there are differences in each country. In particular, the Nordic countries are handling the pandemic in a different way than some other European countries. So we see a huge difference there. But I cannot say that the M&A appetite or the volume or the pricing is really different in the different countries. I think it depends a lot on the vertical and what's happening in that vertical. So for example, we bought a company in Finland doing software for trade unions and unemployment runs. I mean, we were in talks with them. It's a good business. And we just stick to the deal as we planned. So we were happy and the sales were happy. Just to give you an example. So yes, it's different in each country. But again, what's happening for a specific yield depends on the specific vertical and the specific company.

Great. The next question is about debt financing, probably with regards to larger ring-fenced acquisitions. Maybe Jamal may want to comment on this. Question is this, is debt financing readily available, if desired?

Sure. I'll take it from Jamal, please. If you don't want. Yes, it's Bernie. So we've been in touch with bankers and debt funds in North America and in Europe as well. I'd say in North America, they're still open for business. We're still talking to them on a regular basis, still available. There are some that are maybe having a little trouble in putting out capital. They've reached their limits. But for the most part, they -- it is still available. I imagine that some will be charging higher interest rates despite the drop in interest rates. But yes, they do seem to be available. In Europe, it's almost like nothing has changed. It seems like the banks are more than happy to look for targets to help out with financing. And again, we're in regular touch with bankers there as well, and it still seems to be available.

As a result of the pandemic and associated recession so far, do any of the operating group CEOs believe you're seeing acquisition opportunities you would not otherwise have seen?

I would say that we're probably seeing some troubled companies, highly troubled companies that we might not have seen previously, that have been sort of pushed over the brink. But I think on the flip side, we're also not seeing the businesses that were set up 30 years ago, where the founder is thinking about selling and probably no longer wants to sell at the bottom of the market and wants to wait for a while. So there's a flux of more troubled, less nice founder-led businesses in the funnel.

Great. So a few of the operating group managers have already touched on how they're able to reach out and get into contact with prospective sellers a little bit more easily. This question just wonders how the company and the groups are adjusting the M&A process to respond to the obvious challenges posed by COVID-19 and how they're able to develop relationships and complete due diligence and negotiations. What the various hurdles have been and what the -- how the company has responded?

I'll start. Well, it's Jeff from Harris. So I think you have to remember, I think the vast majority of the prospects that we're talking to now we already have pre-existing relationships with, right? So when you look at the relationships we have, we have hundreds, if not thousands of relationships, certainly across CSI that are at various stages, lots of which we would have already met in person, one time, several times, many, many times. So as those relationships continue, and we talk to them, I would say the current pandemic situation does not really pose much of a difference. I think for the small proportion that are new, that we've never met face-to-face, I think that is a bit more challenging. And it probably just depends on the individual. So I would find it more challenging because I'm more of a face-to-face, like to go out and have dinner and learn a bit more about the person. So I think I find that a bit more challenging in the short term. But again, it's a relatively small proportion of the actual work that we're doing. Most of our diligence, to be honest with you, I mean, we do due diligence on site, but I would say the vast majority of our diligence was already being done remotely with data rooms and with people all across different geographies. So I'd say there's not a substantial change to that part at all. And then I think the final piece that I would comment on is the integrations, obviously. So now that we've -- let's say, now we purchased the company. So Robin talked about buying this company in Finland, now how do you integrate that company into your company when you can't physically be with them. I think there, again, it really answers. It just depends -- from our perspective, I'd say, it depends on the thesis. So again, if you have a relatively simple thesis that basically is it requiring you to do a lot to the business to generate your return, it's probably not that big of a deal. You can use video conferencing and other ways to sort of slowly bring that company in. But I would like -- we would like to slow down the integration. If I think you had a super-complicated thesis where you were pulling -- you were using a lot of the CSI best practices to drive your return and you can't be sitting there holding someone's hand and walking them through and sort of spending more time with them, that would probably be a little bit more challenging in the current environment.

It's Mark, and I'll go take a crack at answering here, too. I've recently reached out to a couple of competitors in our verticals, in specific verticals that are exceptional companies, large, successful, great track record and have offered to help them through these troubled times with a minority investment. But the caveat is that I'm looking for -- we're looking for a permanent minority investment in those great companies. And we're willing to do it largely site unseen. So we're not going to get to call all over these companies. I've told them that since we do compete with them, I would be the sole person working on the investment and interacting with these competitors. And initially, they were pretty surprised because the ones that I've reached out to are going through very difficult times in their industries. And then they come back and say, "Well, yes, but valuation-wise, you're not going to pay what I can get from private equity from A or venture it from B." And then I'd say, "Yes, that's true. And it's because those firms hope to invest in flip 3 years later, selling out for a much higher price, whereas we're hoping to invest and hold these shares forever and the big choice that you have to make as a management team is whether you want opinion shareholder or not with your partner. And if that's the case and if I'm willing to invest based on your track record and to be largely nonintrusive but available as an adviser, the price you pay is valuation." And so I think the answer to your question was that in certain instances, there's a trade-off between diligence and integration and the value you bring and the price you get. And for really good businesses where I don't feel a compelling need for detailed diligence, where I can rely upon the history and my perception of what the future holds in those industries, then I'm willing to do relatively small amounts of diligence and small amounts of integration.

And are you more comfortable about the fact that those would be minority investments?

It came from the minority investing world. I know how to build minority shareholder protections into agreements. And I can -- because we're in those industries, do reputational checks very easily on the people with whom we're doing business, and so it's different than being a controlled investor or owning the entire business. But it's not why we're uncomfortable.

Okay. I understand. And then the last question for this section is how far along -- Jeff Bender talked about how a lot of the activity was already in process, even knowing these companies for a long time in many cases. But how far along do we think we are to a fully virtual acquisition from beginning to end? Is that possible?

Yes. This is Robin Poelje speaking in. We bought a company this week in the U.K. And we signed the LOI virtually. We did diligence. We negotiated the SBA. We had interviewed with management, but we never met the persons really physically face to face. So I think you could more or less call that one of these deals. And it was a company who wanted to divest a part of their business, and we got in contact with them, and we've done it like this. So we never went over to really see the company, never went through their offices and never met management really face to face. But we have them through Microsoft Teams and all that kind of stuff.

Larry, are you there? Or Bernie, do you want to?

Yes. It's Bernie here. I just wanted to add. I think what we're going to do or what we are doing is actually spending a lot more time with the management teams online now. You can never replace face-to-face sitting down over a dinner, getting to know someone really well. But for the most part, our guys have been spending a lot of time on the phone, video conferencing, just having long, long conversations with the prospects on the other side. And I think it has worked out pretty well. But of course, we're waiting to get back to normalization, but this is doable.

All right. It's Larry Cunningham back here. It's 9:15. We've been going for about an hour. Thanks so much to Howard and Will for posing those questions and for the excellent conversation. We're going to move into Part 2 or Section 2, which we call investments and capital allocation. It's got 3 different segments. The first is on the general environment and process, which I'll tee up. The second is on geography. And the third is on large-scale acquisitions. Just so you know, we've got nearly 600 people connected to the call. And we've got 15 questions that have come in through the queue. And just let me pick a few of those as they relate to the acquisition process. First, I don't know if we can answer this, but the question comes from [ Gabriel ] [indiscernible] and her question is -- his question is how many acquisitions has Constellation Software closed in 2020, broken down between pre and post lockdowns? Bernie, can we answer that question or?

Yes. We've decided to shy away from our numbers in terms of numbers of acquisitions. Just -- it's one of those competitive items that we prefer not to disclose. But it's been a healthy amount.

All right. Thank you. Next question from the queue is from [ Christopher Burnett ]. Does Constellation -- to what extent do we use investment banks and other intermediaries and brokers in our -- in the scouting process? And does that become more feeling or interesting as you go for larger acquisitions?

Bernie, do you want to talk to the research?

Sure. We are in touch with a lot of intermediaries, lots of brokers across the group. Some of them have general outreaches that they do regularly. So a fair chunk of our transactions are actually done through brokers. So we're more than happy to develop relationships with them. Sometimes it's interesting because the brokers go directly to one operating group, whereas the prospect that they're representing probably belongs in another operating group. So we're trying to coordinate that, and sometimes it gets into interesting situations. But for the most part, they're coming to headquarters, first, telling us about a prospect that they have and a process that they're about to start. And we take it from here, and we distribute it to the operating groups. So a fairly good chunk of business that we do get from them and more than happy to continue to develop our funnel with the brokers, both Europe, North America, Australia, around the globe.

Thanks, Bernie. I suppose sticking with you. This is a question that came in with the earlier questions. Thanks to the press release. It starts by observing that Constellation made more than 100 investments. By the way, we call them investments, not acquisition or deals. More than 100 in 2019 and probably hasn't been increasing annually. And as you have increased the frequency of investments and the related process and due diligence, what processes have you built in to streamline the vetting, the analysis, the due diligence and then the closing of these investments?

Yes. So the biggest thing that we've embarked on, I think, since the beginning is -- well, since the beginning is decentralization. So if you dial back the clock 20, 25 years or at the beginning, it was Mark and myself prospecting, going out to visit, doing the diligence, going through the acquisition. Very quickly, we saw that there is no way that we could scale in terms of making a larger number of acquisitions. So we pushed that down to the operating groups and the operating groups had their own central M&A operations as well. They had -- they started engaging their own legal resources. Prospecting was done from the operating groups. M&A staff was hired in from the operating groups. And then what happened was they got too big. And they saw that from the operating group level, it slowed things down if everything was done centrally from the operating group. And so that was broken down even further and pushed down into portfolio managers who had big, big groups who started hiring more prospectors, M&A people and legal staff as well. So that has been a big part of our ability to scale up. So across the board, we've just hired an army of M&A resources across the board. And it's doing quite well and actually streamlining our processes. The other thing that we've done is that we've increased the threshold by which the operating groups or acquisitions require headquarters approval or even board approval. So that threshold is much higher. Things are being approved at the operating group level and some even below the operating group level. And so that has made things go much smoother, much faster. But that isn't to say that we're cutting corners. We're still going through the entire diligence process. We still have our checklists, interview processes. So that has not changed. It's just done at the lower level of the organization, and it's still going okay. Mark has said in the past that it's still an experiment. And I would agree that it's still an experiment. We've had some very good experiences so far. And for sure, we'll make a few mistakes along the way.

Thanks very much, Bernie. [ Alexis Fortune ] put in a question along those lines that you've now answered. But she also wondered to what extent lowering the hurdle rates has influenced the rate of investments, if at all?

Certainly right here, lowering of the hurdle rates has helped a little bit, but not on the very larger -- the much larger acquisitions. That hasn't really changed very much. There's still plenty of competition at the very high end. But for our regular-size businesses that we acquire on a regular basis, that has helped a lot. Yes.

Thank you. Here's another question we received earlier, a few weeks ago about the coverage ratio. How are you handling -- and I guess this maybe go down to the operating group manager level, how do you promote your coverage ratio? This questioner says that we said last year, we've talked about not seeing about 70% of acquisitions that closed. Have we improved that? And are we making any progress on this? And if so, how?

I'll take that, Larry. It's Mark Leonard. We haven't made noticeable improvement in that particular ratio. And that may be because we have done a better job of filling the funnel at the top end, so to speak. So looking at it will be hard trying to understand the issues, trying to get feedback into the system and push it down as far as we can and trying experiments. It's disappointing. It's probably the biggest disappointment we have. Some of it will be that people have chosen deliberately not to talk to us, and that's understandable if they have expectations of selling to a synergistic buyer who's willing to pay synergistic prices. For the most part, because we keep the businesses that we buy separate with -- of any size, we cannot bring synergies to the table. But if a buyer hasn't talked to us because they don't know about us, then that would be a very poor outcome, and it's the one we worry about the most.

Does the coverage ratio vary much across the different operating groups?

It varies slightly, but not hugely.

Here's another question we received and echoes 1 week. I think we get this just about every year, around competition between the groups for similar investment opportunities. This question noted last year, the conversation suggested that we're generally comfortable with that kind of tension among the sister companies. We'd rather have the duplication than too little coverage. Do we still feel the same way? And is it hard for the newer members of the investment teams to not violate the informal rules?

I'll take it, Larry. It's Bernie. I was told that it was a little harder to hear me, so I decided to pick up the handset. So for the most part, we've got our processes in place to allow for competition amongst the operating groups for prospects. And again, it's prospects, it's not for acquisitions. So the operating group claim their -- stake their claims, and they develop -- they're responsible for developing a relationship with a prospect that we're talking to. And so once that relationship has solidified, the other operating groups are just not allowed to try to contact that prospect. So for the most part, that process has worked out actually quite well. We do have to referee some disagreements between the operating groups once in a while, but it really isn't -- it isn't very troublesome. So for me, it's worked out quite well. And I want to continue to have that duplication of effort and making sure that our folks are ready and willing to get out there and prospect and speak to the businesses that are out there and develop relationships with the owners.

Anybody else want to comment?

Yes. Larry, the only thing I would add I think is -- I would agree that until our coverage measurements tools sort of give us any more comfort that we're seeing more of what's actually transacting in the market that I think there's no way we could sort of look to change what we're currently doing. I mean we're always tweaking it, making adjustments. We made a small adjustment our approaching rules when the pandemic first hit to try and sort of deal with some of the issues that we were seeing from our business development people. But I think this again goes back to what Bernie talked about in terms of scaling. So I think as you continue to scale out an organization at the pace that we're doing it across multiple different groups, you just run into these issues where it's harder to get people to understand. And we have to work on our communication and teaching people what we expect of them. So it's not really, I think, an issue of people choosing to violate rules. It's they don't actually understand what the rules are and why the rules are in place. And it's our job to make sure that they do that. But I think until we get better at coverage, I think there's -- none of us are really willing to make any substantive changes.

Well, that segues right into the next question, Jeff, which is how do you train a solid M&A or investment team? How do you promote that the skill set is necessary and build up a solid room we can participate in deploying capital?

Yes. I think -- I mean, obviously, I think one of the key things that we want from that part of organization is this -- we look at it as a disciplined deployer, which means, obviously, we want to earn high rates of return, which means fundamentally for us, you need to have tremendous price discipline. So I would say that concept by itself is quite challenging for some people to get their head around. So I think it's quite easy to be enamored by buying other companies and doing acquisitions and being part of the M&A process. It's something totally different to do it in a way that is disciplined. And I think -- so obviously that's what we're trying to create. I was -- when you think about best deployers and what skill sets do they have, I would say that they're not necessarily super financial skill sets or super necessarily even experienced M&A professionals. They're just people with high curiosity and willingness to learn. I would say willingness to roll up their sleeves and jump into these businesses and understand them. And I think, again, if I reflect back on the Harris deployers and who's done this more and who's been more successful, then you can't take away the importance of experience, and then this experience of having done them, done good ones and learning those lessons, but also having made mistakes during the process and learning from those. Because really it's -- I mean, once someone understands our best practices out of the CSI tool kit that we have and they can apply those to the situations and the businesses that they see, that I think then when you get the -- sort of the best deployers, the -- certainly that I've seen both in Harris and across Constellation. But that understanding best practices, applying it to a business comes back with that high curiosity and willingness to learn. I think that's when you wrap that together. I think that is to me what makes a great professional, which means you need to be committed to what we're doing over the long term because experience takes time and understanding and learning our best practices take time.

Yes. I'd just -- I'll add a bit to that. I think in Jeff's right on the money. I think patience is really key because we have still relationships with companies over many years. And anybody who's trying to succeed at M&A inside of Constellation, I think it's something that you come in and make a quick difference is ruling themselves. You need to be patient, and you need to understand that. I think one of the things that I've seen over the past few years is we've built out our coverage is that our capital deployers really understand or can learn how to deal with coverage is very helpful. And that isn't always necessary for competency of someone who's able to deploy capital. And that means understanding how to -- and what frequency the contact potential companies we might be able to acquire over time and looking at that over multiple years. And I think that's something that -- so the people who are deploying capital, that are generally good at that. And just spending efficiently their time is very, very important as well as seen, again, what Jeff has said.

Here's a related question. It just came in from [ David Polanski ]. How important is it for one of member of your teams to know which companies can be acquired and just left to operate as is, and which need management changes and how Constellation can help supply it? David is asking not only about how do the members of the team think about a question like that, but what portion of your acquired businesses are needing significant change and which can be operated relatively as is?

I'm happy to start with that one, Larry. Thanks for the question, David. I think for the most part, most of the companies we buy do require change. And sometimes it's much greater change than other times. But for the most part, there is some changes required. And we developed a whole host of operating metrics over the years that we used to initially assess the business. And then we overlay that with judgment of our operators to understand which of those are actually achievable. And for the most part, we try to do that with the existing management teams in place. And if the Managing Director or CEO who's also an owner and wants to retire, most of the time, we're promoting the -- someone within that business to run that business. It's very rare for us to go aside and seek senior managers. It's more likely that we're using the existing team there.

Okay. Almost at the end of this section. Here's a question that came in this morning. [indiscernible] wants to know to what extent Constellation intends to increase leverage in its acquisitions.

I'll take a crack at that. It's Mark Leonard. In ring-fenced acquisitions, we'll obviously use leverage. And we use it as a competitive tool if our competitors for those acquisitions are using leverage tied to that particular acquisition. And we ought to be competitive. We have no choice, but to do the same. Inside Constellation itself, I've said before, that is something that is not all the same. And what you really want are friendly stakeholders, stakeholders who can be counted on in difficult times. And last time around in '08, '09, we learned a lot about having supportive bankers. And I think we've made sure that our revolving facility this time is as bulletproof as you can get so that we do have capital that we can use to bridge acquisitions. But we don't have bridging anything. We like to have permanent capital. And so we, for the most part, rely on returned earnings. But we also have the debentures that were issued. And they are the kind of debt capital that we're very comfortable with. And I would be happy to use many billions of those debentures if they were available to do acquisitions. And the reason is because the interest on those debentures is deferrable if we get into a cash flow squeeze. There are no covenants. They can't bit you. And of course, you pay in a very difficult time, whereas many other forms of debt can. And in many respects, we're fortunate that the government has build out the debt markets of late. But at some stage, that will have to end. And there will not always be a backstop for the debt markets, and they will both freeze up and contract. And we don't want to be subject to that. We want to make sure that at Constellation, we have access to enough resources that if any of our ring-fenced companies get into trouble, we'll be able to recapitalize them. So the idea is to have a very well-financed core business and then perhaps some leverage subsidiaries, as the opportunity pop up, that we can basically be a backstop for. That's how we think about debt. Happy to take follow-on question, should anyone want to send those too, Lawrence.

And we'll certainly have -- thanks, Mark. We'll certainly have more around that topic in the second ensuing segment on large acquisitions that Will will be taking up. A final question in this segment and I think it's for Mark, and it's an opportunity maybe for a little bit of levity. The question reads as follows, imitation is the sincerest form of flattery. But that doesn't mean it's not annoying. What do you make of Constellation's clones and copycats?

Whenever you generate good rates of return, you're going to get people trying to emulate what you do. And we do a profile very frequently on new copycats or emulators that have popped up and try and learn from their marketing pieces, which sometimes look remarkably similar to our own. And I don't find it particularly annoying actually. It's -- nor do I find it physically flattering. I mean, obviously, I'd love them to stumble and fell, but that would be just because I hope to pick up their portfolios. They're going to be out there. As I've said before, the barriers to entry into the core business of Constellation are a telephone and a checkbook and some knowledge about vertical market software. And -- however, the barriers to entry in our individual businesses can be enormous. And so the underlying software businesses that we own are wonderful businesses and are run by people who really know what they're doing. And that means that we can get away with being somewhat less good at head office. And I'm sure all of the emulators are in that same camp.

Thank you all very much. We're now going to move into the next subsection on geography as it concerns investments. And I'll turn it over for questions to Howard.

Thanks, Larry. So the first question about geography is maybe for Bernie and with an input from Robin. There are many operating groups that are active in Europe. How big do you think the M&A opportunity is in Europe compared to North America? And how does the competition for acquisition target differ? So who are you competing against differently?

Yes, it's Bernie. So certainly, there is competition across the board, whether it's in North America or Europe. And again, if you go to Europe, it's more regionally focused. So some countries, they're very, very strong competitors either from the fee side or from strategics. I don't see many differences in terms of being able to find businesses that are attractive. The question is really a matter of putting out more resources out there. And I think that Robin has done a very good job in his organization to bring on more M&A resources within Europe. So we're uncovering more and more prospects that could be interesting for us. Whereas we've been in North America for quite a while. I think Robin could probably answer more of that question.

Yes. Robin here. Yes, happy to do so. I don't know North America. As TSS, we totally focus on Europe. But I think over the last few years, like Bernie just mentioned, I think we learned our way through Europe. And I always say Europe doesn't exist. Each country is different, different history, different language, different vertical sometimes. So what we try to do is what we did with TSS in the Netherlands. We try to duplicate that in other countries and step by step we learn to do that. We make our mistakes. But to get back to the question, I think in each country, you will find PE players competing. You will find financiers. You find local players. You find also the copycats there in Europe. So I think it's heavily competitive. But again, I can't compare it to North America because I'm not present there. But I guess it would be like Bernie, that it's probably similar.

So the next one is -- this next question is about -- it's for Mark Miller and John Billowits. So Volaris and Vela and maybe even others as well have made several acquisitions in South America. Can you compare and contrast the acquisition opportunities and software companies in South versus North America?

I can start, John, if you like. So it's Mark here. I would say similar. One of the challenges is we haven't had as many companies down there. So we haven't got as many experienced operators in South America. But that is changing since we have owned businesses now for a little while down there. As far as the businesses themselves, they're very similar. There are vertical market software companies that are solving a problem for a sector in Latin America -- or in South America, I should say. So I see them as very, very similar to businesses anywhere around the world that we operate. I'd say there's a lot of access to very well educated, strong technical people as well, which sometimes can be a little harder to find in North America and Europe. There's a lot of competition for talent in both of those areas, whereas I think there's probably more access to get highly skilled technical resources at reasonable prices inside of those geographies. That's all for me. You, John?

Yes. I think, first of all, the economics of the vertical markets software companies are the same in South America they are all over the world. They're intrinsically very good businesses. Secondly, like Robin said, you can't address South America with one brush. It is a composition of many different countries with many different customs, and you've got to be aware of that. And then third, I think we're very fortunate in that we bought a company that had many satellite offices in South America about 5 or 6 years ago. And we inherited some extremely competent local managers who had no investment experience but knew the local markets very well. And so we feel very comfortable making a few investments down there. And we're quite excited about the longer-term prospects building around those teams.

That's great. So it seems like the key for all these questions so far is to build out a great local team in those geographies. I guess this kind of goes into my next question. This is more about kind of frontier in newer markets. Just from the group, can you comment on how things have gone in other relatively newer markets like Japan, Croatia, India, France?

It's Mark Leonard. I can talk to Japan. It's been very slow there. I mean, culturally, it's probably the most different part of the world that I dealt with. And we've had one acquisition. It's been -- it just came off a very successful year. So that's encouraging. But the challenges of communicating Constellation best practices to a Japanese management team across language and across culture are significant. And -- so I'd say cultural difference makes for slower gain is the conclusion probably.

Robin?

Yes. So we made quite some steps last year in France. And this may be a little bit strange story because I was talking about local. But one of my general managers, his name is Hahn. He lived for many years in France. He lost the country, he lost the culture. And he really had, as an objective, to build out our business in France. He spent a lot of time down there. And I think he did a great job. And he acquired several companies. And also there, we learned certain things. It's just the size of the company. The Netherlands is a very tiny country. You can drive everywhere. And France is already a bigger geography. We learn all kind of things. But he is willing. I think Jeff mentioned it before. He's curious. He's open-minded. He's willing to learn. And he loves to move it through the French situation. I think the experience is fresh. So we will only know a few years down the road. But I think people like that make the difference. And he starts now to find the great people who will really live in France and try to develop them, learn our best practices. And that's how we try to do it. But it's different. Although it's still Europe, some things are really different. And even if we do academies, English language was sometimes tough. And he does them now locally in France in the French language. And then he finds Bernie who speaks French as well.

MSL. Anybody else with experience or comments about any of the new market? I guess this -- so then the next question then maybe flipping on its head. Are there any countries or verticals you've tried to make acquisitions and that just don't work for some reason or another. I guess Mark talked about difficulties of Japan, but are there any other countries or markets that you've tried as well?

Well, I think we did try France very early on in Constellation's history and we failed to get traction. And I think that was probably a bit of an eye-opener. And even in England, it was pretty slow going initially when we reached out from Canada. So it's -- I think it's a learning process. And hopefully, we'll get better at it. And that quality local people thing seems to really make a difference. Bernie?

Right. Yes. I just wanted to underline that actually. Mark, it's Bernie here. When we try to do those acquisitions in the early days in foreign countries, it was so hard trying to get to the right people, the right contact, having to prove yourself, tell them who you are, very, very difficult from a road location, not speaking the same language. So very, very tough. I think we've learned a big lesson in actually putting people on the ground in those locations and things are coming in so much easier. The local folks are able to explain the story, explain Constellation, who we are, what we do, what our strengths are and what we can do to help with the business. And so since that time, since we've started putting people out there in the local geographies, it's helped a lot.

Right. So there doesn't seem to be really any markets that you've decided to not go into. It's just -- it's more of a question of putting in the right local talent in there?

That's right. It's -- we really do need local people to get us out there and speak to potential businesses for us.

That's great. So we've gone around the world and those -- with those questions. So I'll turn it to Will.

Just one. This is Lawrence interrupting, Will. And I noticed a question that we received in the queue on this topic. So we'll slip it in. It's from [ Jay Costa ]. And he wonders around this theme of investing in emerging markets where software platforms are less mature and relationship problems and so on that Bernie talked about, whether it would be attractive to try to establish partnerships or minority stakes with large platforms in those areas? He gives the example of Jio in India. Is that something that has -- is being considered? Or would we consider it?

I mean -- it's Mark Leonard. We definitely consider it, and we've obviously done it. We have -- in TSS, we have a significant minority shareholder there. And in Japan, we also have a significant minority shareholder. So yes, definitely.

All right. Moving on -- Will Pan here again -- go ahead.

This is Dexter. I just wanted to tell some of my experience in emerging markets. And so I have a manager up in Pakistan that manages in some of our offshore group. And I've asked them to try to find kind of companies billing software to local companies. Most of the emerging markets are actually going and providing software to the developed world. And there aren't a lot of -- or at least so far, we haven't been able to find any substantial software companies that are serving their local market. So we're still looking, but I'm trying to find some companies and facts stand that might deal only with the local market.

And we've tried to do the same in Romania where we have a group of very talented programmers working for us. We looked around for local vertical market software companies to buy in and have yet to have had success in that area. So we keep looking, but some markets just haven't been big enough or have had real success with custom-developed software and, hence, have not developed up as big a vertical market software sector.

Great. Will Pan here. Moving on to the next topic which is larger acquisitions and sort of the private equity realm. Last year, the company lowered hurdle rates on large ring-fenced deals in an effort to be more competitive in that arena. At the time, Mark Leonard had expressed hope that the company would do 1 or 2 of these larger transactions a year. How has that gone? And can you talk a bit about the learnings over the last year? Some quantifying comments could help.

Mark Leonard continues to express hope to do 1 or 2 large ring-fenced acquisitions here. So lessons. This has been a tumultuous year, but if you look at it up until the end of January, never before have people paid so much for large vertical market software companies. All of the price indexes indicated that it was getting ever more competitive and there was ever more dry powder available to investors, private equity investors in the space. So it didn't pan out great last year. We didn't do a whole lot. But we have our fingers crossed that perhaps with increasing debt costs for the highly leveraged transactions, that pricing will improve. We haven't seen it yet, but we're hoping.

Maybe you could talk a little bit about how despite the changes in the environment and how that's gotten tougher, the efforts that Constellation has made internally, gearing up to try to make these acquisitions. Can you comment at all about what a large deal pipeline might look at this point or field of candidates? And how are you raising awareness that CSI is a potential acquirer in this market? What kind of awareness do you believe you've achieved?

It's hard to find a broker of any size and significance who doesn't know Constellation. Now we win little awards for having done so many transactions in the space and people who follow it know us at that level. Some large transactions are probably aware of us, either through their broker or directly. And our visibility into those transactions has improved. So I think brokers had been more willing to show them to us over the course of the last couple of years. So our coverage ratio, if you wish, in that space, has been better. But our winding ratio has not. And so it's not as if that sector is booming either. We track how many transact. And it hasn't been growing by leaps and bounds. And a lot of the private equity guys are selling them back and forth to each other. And generally, we're not going to be competitive once the business is highly optimized, perhaps overoptimized and leveraged to the gills. There's not much there for a long-term potential holder.

That does dovetail with a question that we got, which says you've commented on private equity activity inflating valuations in enterprise software, even in the past. And then Charlie Munger recently criticized the daisy chain of private equity software transactions amongst themselves, saying there's "wretched excess in the space". You mentioned debt costs. What other underlying assumptions do you think are potentially going to break down here, such as customer retention, cost of funding and ability to realize maintenance price increases, et cetera?

Yes, it's going to be situation-specific. I think, Will, it very much depends on what the venture group does and how involved they are. If they're nearly doing financial engineering, you jack up the amount of debt, you do a couple of dividend recaps, you put the management team under tremendous pressure to generate cash, it then depends how management generates that cash. They have many levers they can pull. And inevitably, some of them will hurt the long-term prospects of the company, whether that be market share or customer relationships. It's -- at some point, it costs you. And that's the grand experiment that goes on as these things change hands 5, 6, 7x, this same asset. And ultimately, you know that the pension funds will end up buying them directly, as opposed to through venture groups because someone's got to be left holding the bag.

Returning to the prior question about building the large deal pipeline and internal capabilities. I was wondering if any of the operating group CEOs would like to comment about their willingness or readiness to do large ring-fenced acquisitions.

It's Barry here from Jonas. I'll go first, I guess. We had a couple of deals we worked on in 2019 that would have qualified for this sort of definition. So definitely, the willingness is there. And I think on one, we came reasonably close. The other, not as close. But we're definitely searching for these and in contact with these, especially ones that relate to some of the verticals that we're in. But it's a low probability process. And so, if you're lucky, you'll get 1 every 10 years type of thing, but that's kind of been our experience.

Yes. Robin, TSS. For us, the same. We would love to do them. We gained some experience in the field. But like Barry said, it's a low probability event. And I think also, depends on the unique situation of these larger acquisitions. I think, Mark, said it, as well. Some might be suitable and others might not, so you have to focus on the right ones. But we would definitely love to do them.

Good. Zooming back out a little bit in light of the experience so far, and also the fact that interest rates have fallen again in the last year, does it make sense to reduce the hurdle rate again?

Yes. It's a difficult one. I have this strong belief that discipline around hurdle rates is very hard to maintain and it's really hard to make it a cultural norm. And that every inch you give, you never get back. I think there's probably an analogy in monetary easing. Once you start printing money and dropping interest rates, it's really hard to tighten up the monetary system. And I'd really rather not drop the rates until I'm absolutely certain that we're not deploying capital, that we're failing. So we'll probably make an error here. We'll probably fail to drop our hurdle rates early enough, but that is certainly our bias, is to keep them high for as long as we can.

I would just say from -- Mark, here, just obviously, you'd like to see our coverage ratio improved, as was asked earlier, right? And if you don't feel your coverage is great, you would think of a hurdle rate as well.

Right. Over to you, Larry?

Thank you very much during that dialogue, we got a couple of interesting questions on point from the people gathered in the call. So I'll ask them -- I'll read them before we proceed. One, just on that question of rates, it comes from [ Mikhail Mahajan ], and he wants to know, what's your view on the impact of ultra-low interest rates on the expected return on invested capital and potential acquisitions today versus a decade or 2 decades ago?

That's a history question and obviously, interest rates have come down largely, consistently, over the last 4 decades. And that has led to a remarkable boom in anything that's interest rate sensitive. And obviously, LBOs, leverage buyouts of various kinds or leverage acquisitions of various kinds are among those highly interest-rate-sensitive assets and the prices have accordingly gone up enormously. The bizarre thing to me is that interest is tax deductible and dividends aren't. So you can return capital to one class of instrument holders but not to another without having different tax treatment. And so there is this huge bias created by the tax system towards using debt, and we're going to see ever larger amounts of leverage because of that, assuming it's still tax deductible. So yes, if interest rates ever go back up, it will tend to bring asset prices down, but can you imagine any government that wanted to get voted back in and allowing interest rates to go back up, particularly now that they've figured out how to influence the Federal Reserve Bank and the Bank of Canada and the various other banking institutions around the world that govern monetary supply and interest rates. I think we're kind of stuck at low interest rates.

Thanks, Mark. And the other question that came in related to geography, and it's from [ Kyler Hassen ], who has post a couple of good questions here this morning. Here's his question about this -- about India. A couple of years ago, Mark, and I think it Mark Leonard, mentioned that when they try to expand in India, the churn was too high to make the investment work. Is that still true in India and/or in other emerging markets?

I don't think it was me. It must have been Mr. Miller.

I can speak to that question. Mark Miller here. Yes. I mean, to be specific, we actually had a few customers in transit -- in our transit vertical in India, and they were very, very large projects, and one of them fell away. So I think the attrition data is -- it's just a small data set. I don't think I could extrapolate the conclusion from it. It was just a large project that went away ultimately.

Okay. Good. Well, that concludes the subsections on investments around geography and large acquisitions. So we complete the sections on investments with the investment universe beyond vertical market software. We've received quite a few questions around this topic. We'll start with one that we just got in this morning from [ Mo Anwar ], and the question is, in light of COVID-19, would Constellation diversify into new verticals and make new investments beyond vertical market software?

Well, we'd certainly go into new verticals in vertical market software, and we do that every year. Outside of vertical market software, definitely, but you're hard-pressed to find a business that you like better, at least, I am, than vertical market software. It's about as nice a business, as you can imagine. It tends to have a big moat around it, and it's not capital-intensive. And it tends to attract a class of employee that you love being associated with intelligent, hard-working ethical people who are providing service to their customers that is important and makes a huge difference. Really, really hard to find anything comparable. Obviously, we're looking and we think we'll probably find less good businesses, but we're hoping that we can find less good businesses at attractive pricing. And those businesses will be as robust as our existing businesses in troubled times like the ones we're in right now.

Do you have any time estimate, Mark, on how many years it would be before Constellation reaches that point beyond vertical market software?

It's when we stop being able to invest the bulk of the capital that we produce each year. We're not looking to raise billions of new capital. As you know, we haven't issued any shares for, I think, it was 2000, was the last time we issued shares to raise capital. So we've got plenty of capital that we generate each year. We have access to debt that is on good terms so that if we have particularly good years, we can dip into that, but then hopefully, refinance it with equity. And yes, that -- if we can't deploy the capital, we will then have to certainly either find places to invest it or return it to shareholders.

Have you considered any common stock investments in the current environment? And if you are thinking about that, do you analyze that differently than you analyze full 100% investment?

So the challenge here is going to be true to your philosophy -- investment philosophy. If we want to be permanent shareholders, investing in public companies is hard, if you can't have influence. So what we found last time around was in '08, '09, we did find some good public company investments, and we made good rates of return on those investments. But the average tenure of those investments -- and by the way, the rates of return were better than we generate on our permanent investments. But the tenure of those investments was low. I think it averaged less than 3 years. And the reason why those companies tended to get taken out. So what we had done was end up targeting underperforming companies that got cheap, those that got into a bit of trouble. And our underlying hope was that we would eventually get to buy those companies, and we did indeed buy one of them. But it was a process that ended up going hostile. I don't mean hostile in the true sense of hostile. It was just we couldn't convince management to listen in any way, shape or form to our advice. The company was doing poorly, and we wanted to have more influence. And so we bid to -- for the entire business, and we did succeed in getting that one business. And I think we have done, at that time, 15 public company investments, and we'd only succeeded in getting one, and private equity has gotten the vast majority of them. So good rate of return, poor investment philosophy, poor use of energy and time. So would we, again, invest in a public company that was performing poorly? And I think the answer is no. We would invest in a public company that was performing well, where we had respect and trust for management and didn't feel the need to have significant influence. We would hope that we would have significant influence and would be on the Board, but we wouldn't do it unless we were a control investor.

You mentioned dividends as the other way to allocate capital. There are a couple of questions around that. One that came in a couple of weeks ago was about last year's special dividend and the question was, if you could do it over again, would you have done it, why or why not? And one that came in this morning from [ Mark Gaskin ] says, last year's special dividend was interpreted as a lack of acquisition opportunities. If so, was that a sign of the times, prices being high? Or is it a reflection of where Constellation is in its life cycle, and so our shareholders to expect more frequent returns of capital?

Interesting question. It sort of suggests that it's the life cycle of the marketplace for vertical market software companies, as opposed to the demand/supply dynamics of a huge amount of new capital targeting the sector. And I think it's much more the latter. If we had not seen as many competitors trying to buy vertical market software companies, I think we would have been able to deploy that capital and would not have needed to pay the dividend. Now does that supply of capital for small, medium or large and troubled companies dry up in the current environment, or in the next 6 months, or in the next 12 months? I don't know, and I wish I did. And if it does dry up, then I think we'll be investing for many years to come. Don't predict the future, however, we can just react to it.

Third possibility, or another possibility, were spinouts. This question came in a couple of weeks ago, and it said, in addition to joint ventures, you have recently raised the idea of spinouts. Could you expand on what that might look like and what the rationale might be?

The rationale would be to create focused groups, whether that be geography or industry, and to get the employees within those groups to have a sense of identity that isn't a Canadian holding company for vertical market software businesses but is an entity that does industry-specific software for industry X or geographic-specific vertical market software. And I think that sense of belonging works particularly well at a sort of 50-person level, and I think it's fine at 500 people, but it's less cohesive at 5,000 and way less cohesive at 50,000. And so I think we're, what, 11,000 now, it's some large number of employees. And I don't even get to all of the countries we're in. I certainly don't get to the offices and their sense of identity with me, I think, is low. But their sense of identity with their individual business unit, their individual customers, the employees with whom they work is high. So to the extent you can push down autonomy, I think it helps. Now doing so by spinning off a business means that the employees of that particular business get to be shareholders in that particular business because that's how we do our bonus plan. We pay out cash bonuses, but require that the employees purchase shares of those businesses. That would make them much more focused on that particular business. So I think it's a healthy idea. I don't know that anyone has done serial spinouts successfully and proven the model, but we're certainly hoping to try a spin out of 2.

The follow-up question as that anticipated by -- this morning, by [ Christopher Burnand ] whether you'd consider spinning out the operating groups, the -- one of the existing 6, let's say? And would that be more or less appealing, depending on whether the stock was reflecting a conglomerate discount or not?

Yes, I don't see any discount reflected in our stock. So that wouldn't influence me. So the advantage of an operating group, if it was a single entity in a single geography or a single industry, it would be very clear. The advantage of an operating group, if the operating group manager wanted that additional responsibility and sense of obligation that comes with being a public company, which certainly influence my thinking. So if any of the operating group managers approach me and passionately pitched that idea, I would certainly give it consideration.

Any concerns -- this one just came in, [ Ryan Olden ], any concerns about how that would create capital allocation competitors for the routine businesses?

I think that is something that we can manage. We have a process whereby we coordinate between the businesses, how we pursue prospects, and I think we'd have to maintain that if we did spin out.

Excellent. And in closing out this theme going in the opposite direction, do you anticipate any new unit being elevated to the level of an operating group in the near future? That's a question that came in this morning from [ David Landry ].

Yes. And it sort of has the implication that I want to work harder and have someone else report to me, and I have no particular desire to achieve that end. I love the people within my work. It's just a remarkable group. And it has taken years to get to this point, and those relationships don't happen overnight. I would not welcome another one to the group easily. It would basically take me some time to do so. I mean, obviously, if, for instance, Japan grew into 1,000-person, 2,000-person business, I'd be delighted and I would start calling it an operating group, as opposed to an experiment that we're running in that particular geography, where I personally am very involved and very keen to see it succeed. But it's not an operating group. It doesn't have the resources, the talent and the experience that our operating groups have developed over 20-odd years or how many it is that they've each been doing what they've been doing.

Thanks, Mark. Final question on this segment before we move into operations. And before I do, just thanks to several shareholders who sent notes on the question of spinouts around examples and studies and so on and I'll archive those comments for the rest of us later. Thanks for sending them in. So the final question in the segment on investments is looking out to the future, say, 5 years from now, what do you think Constellation's investment strategy will look like at that point, average transaction size, average IRR? And how would you be sourcing investment? Do you have your crystal ball there?

Yes. You got to ask someone else.

Larry, I'll take a quick stab at it. I think it's a pretty simple answer from, I think, the lens that I would use. I would just say, more verticals, more geographies, right? I think we're becoming more and more comfortable with more and more variety within the vertical markets that we serve and taking these best practices that we've developed and honed and continue to develop over the years. And then I think, again, we're getting the same comfort with geographies. As I watch what my peers are doing, what John is doing, what Robin is doing as they sort of enter these new verticals and new geographies and do well, I think it's informative for me and for the people within the Harris Operating Group. And then I think there was a question before, I think, on some of the sourcing. So I think, obviously, we'll continue to, I think, develop and maybe refine our in-house nurturing, our in-house sourcing, in-house nurturing, combining that with sell side. So I think, again, as Bernie commented, we do work with a lot of investment bankers and brokers who are selling -- representing sellers to the businesses, and then I think you'll probably to see us expand on a bit more with buy-side brokers as well in different geographies and different circumstances that might be able to, again, help us uncover and find these great businesses that we would like to bring into the family.

Well, thanks, everyone. That concludes the segment on investments. I'll now turn it to operations, and the first set of questions belongs to Howard. Thank you, Howard.

All right. So the first question is for Mark Leonard. Last year, you mentioned a project you're undertaking on post-acquisition attrition. Is there anything you can share from this study?

Yes, it's really difficult to get the data and get anything out of it. Fundamentally, what tends to happen is we do a pretty good analysis of the data prior to the acquisition. And then keeping track of it afterwards tends to devolve to the individual business unit managers, who tends to have the finger and the pulse of what's going on when they lose clients and when they acquire clients, things of that nature, and on almost daily or weekly basis. Trying to get that into a database where you can analyze it is just an enormously painful exercise. They did it personally for 2 of our acquisitions and realized that I was totally overwhelmed. So I shoveled it over to Jamal, who actually, also, try to get some analysts involved and discovered that didn't work. We needed very high-level people who have the ability to reach down into the groups and ask penetrating questions of people who were busy doing other things. And I shoveled it over to Jamal, and he and I sort of need to do some more work on it. It's stalled for the time being. So I think it's really, really important, but we haven't gotten to it.

I guess this ties into one of the audience questions from [ David Polansky ]. You used to post churn numbers in your annual reports. You believe they were -- they hovered around 4% to 5%. I guess, this is for maintenance revenues. What was churn in 2019? And what about right now in the current environment?

Yes. We no longer actually pull those numbers together at a consolidated level, and I was becoming increasingly uncomfortable with how we were bucketing a bunch of the statistics we were doing. So I no longer wanted to publish that analysis. Now we look at it on an aggregate basis and say, what's happening with the organic growth in each of our revenue lines.

Right. And I guess is that -- because you look at our organic growth, is that -- did that lead to kind of that note in the financial for Q1 where you mentioned that you're seeing some customers starting to cancel subscription contracts?

Yes. Jamal, what were you thinking when you wrote that?

Yes. It was sort of a catch-all comment that it is happening. It's just trying to tell you what could happen in the future as opposed to anything specific.

Okay. Makes sense. This next one is for Jeff. So Harris...

Let me comment before go on, Howard. I think one of the things that people have lost sight of is that most of the companies reporting are reporting quarter ended March, and March was not hard hit by COVID. Nearly everyone has been decimated in April in all industry sectors, maybe not all, but nearly all industry sectors. And so I think we're going to see some terrible financial results from the S&P 500 in the coming quarter. And so I suspect that the accountants everywhere are foreshadowing those events in their comments in the MD&As for Q1.

Makes sense. We'll look for Q2 then, as the harbinger. So the next one is for Jeff. Harris has made several acquisitions of health care software companies, which operate with high margins but negative organic growth. What gives you confidence that CSI will achieve its higher hurdle on these acquisitions in light of negative organic growth?

From my perspective, and maybe it's changed a bit as we get more comfortable in the health care vertical, I mean, we actually only entered that vertical in 2013. So as verticals go, I would say, we're still learning more about as we progress. So I don't see negative organic growth, actually, as the challenge in the IRR. So it really, all comes back down to discipline. So you have to understand the cash flows associated with any investment we make. So we spent a lot of time focusing on that. So obviously, negative organic growth is going to change the cash flow profile of the business. But as long as you pay the right price for the business, I think you've been incorporated right, what the negative organic growth is in the business. So I guess the question is, are we able to reasonably forecast the downward pressure on cash flows that comes from declining organic growth over a period of time? And I think with the way we put our models together and our experience today, we've been reasonably good at doing that. I think we also gained some benefit by, again, sort of the point that the businesses, we are buying have reasonable margins with them. So we have a bit of a margin of safety as it comes to how we're able to react if we get -- if we were maybe slightly off in some of our forecasting on the decline in growth. And by itself, I don't think negative organic growth is a -- is necessarily an IRR challenge. I think the bigger challenge relates to the talent of the people and the staff that we have in those businesses, and that think the pressure that is required and the level of focus and discipline to stay true to understanding the cash flows and making the difficult business decisions in face of the reality that we have can make for a more challenging environment. So again, we don't want to be in a situation where we have great people in these businesses but necessarily, the opportunities in that business don't necessarily give them the experiences or the, again, the opportunities that they want. So we -- I think we try and apply a different -- we try and bring a Harris lens to our talent management. So that basically, we make sure that if we have talented individuals that maybe can't do the things that they want to do in that business, we're able to move them to another business in health care or potentially even another business within the Harris family or even the Constellation family. So I would say it's more of a challenge on the talent side than it is on the pure IRR side.

Okay. That makes sense. And then I guess kind of stepping back, what is the group's general attitude towards what bucket you might call cigar butts or what businesses with limited lives ahead of them, but available at an attractive IRR?

I think you'd rather have perpetual holds that continue to grow and prosper, but it isn't an either/or decision, Howard. If you're looking to deploy capital at high rates of return, you do some cigar butts and you do some businesses that work out well. And one of the things to keep in mind is that there are embedded options in most cigar butts. Those embedded options come in the form of people sometimes. And I know in one of our declining businesses, we've had a wealth of talent come out of that business and go into our other business units. Some of the embedded options include knowledge of the industry, whereby you get opportunities to buy other companies that you wouldn't have gotten if you hadn't gotten into the industry in the first place with the cigar butt. So not all bad. And then sometimes the cigar butt management take the techniques that they use on that business and acquire other cigar butts so that we don't have to have stranded teams. They become the guys who look after an installed base for far longer than people expect because they provide a level of service and customization that you wouldn't get from a normal vertical market software business. They change the lens of how they focus on the business from one of market share to one of customer share, and they just do an intense job of servicing those clients.

Right. So the strategy would be to try to lengthen -- try to reduce the annual churn for those customers for -- by servicing and hoping to stay on for longer?

Yes, it's not a question of hope. I think it's a deliberate strategy and one that you can invest in by making the client become a co-investor, basically have them provide the funds to do customization, and you become available for customization in a way that isn't available to them through most of their other vendors.

That makes sense. The last one I have here is on Constellation's IRR hurdles. So they likely ensure that the first few years of cash flows coming strong, but in your models, what about years 5 and beyond? We have seen an enormous amount of investment in the software industry, as a whole, some competing with Constellation assets. So how do you protect the long-term viability of your software assets?

I think if you have -- yes, before Bernie takes it. If you have competitors who do not care about return on capital and can invest in perpetuity in the businesses, you will have to concede market share, and you will get your best way of return by focusing on your installed base and doing a great job for them and differentiating yourself and becoming a different business than they are. So in other words, you end up sub-segmenting the market and differentiating your offering against irrational investment by whomever over the long haul. If you have short-term oriented competitors, you can tough it out. You can go head-to-head. But if you've got long-term [indiscernible] competitors who are willing to take negative rates of return, good luck.

Going to be a struggle.

Yes, it's Bernie here. Just to add to that. Our businesses pour an enormous amount of R&D into the products. It's not like we buy a business and we just leave it alone and say good luck. We continually invest in products and services for the customers so that the customers stick around for the long haul. On some of the businesses that -- we could talk about them shrinking. Some of the shrinkage is actually customers going from one platform to another platform that we have, say, newer technology, better functionality, or circumstances change within the customer that gets them to move over. So there's a lot of that. But we're still pouring a whole lot into our product lines.

You can see -- Howard, and I think we might even break out headcount by function, and I think it's our largest function.

Right. Great. And so doing some defensive R&D helps as well. That's it for me. I'll pass it to Will.

It's Will here, again. Actually, the next section is very fittingly on product development and SaaS, software-as-a-service. So on that topic of rewriting, refactoring, do you track either at the central level or at the individual operating groups, the success rate of rewrites and refactors? And what is it like, if you can give us any idea?

Why doesn't Barry take a crack at that?

Yes, I'll start. Yes, we do keep it at the operating group level anyway. So it's Barry from Jonas. As far as success rates, I guess there's a couple of different ways to measure the success of a rewrite. And so the #1 way we do it is obviously IRR and so we put together a business case. If it's a material amount of investment in business case in terms of how much the rewrite is going to cost and what we hope to get out of it in the future, and then we track that IRR on a quarterly basis for several years to figure out if we're even close or not. And so we've done a few of these within Jonas. We've also inherited a bunch in acquisitions. So we bought companies that were -- had a legacy product, you want to call it a legacy product, and also had started the rewrite process and maybe got 90%, even 100% of the way there. And we track those ones separately as well to see how they've been doing and how they continue to do. And so I can say that on the acquisition side, I can think of at least 10 acquisitions we've done where they did the rewrite, and we bought the company at the end of the rewrite, probably because they ran out of money doing the rewrite. And I can say every one of those was a "failure" from an IRR perspective. And internally, we've done a bunch as well, and I would say the vast majority would be below our typical hurdle rates. They're still positive returns. For the most part, some are, but for the most part, positive returns, but not our typical hurdle rates that we expect to get on our acquisitions. So overall success rate, not great. The other piece of it that's hard to measure in the IRR is what I call the insurance value you get from doing a rewrite. So if you have an older piece of technology that sort of passed its time, and you have a great customer base, and you're a market leader or close to a market leader in your market, doing those rewrites might not produce an IRR, if you just measure how many clients are on that product and how much they pay you and versus what you spent on the product. But what you can't measure is what I call the insurance value, which is how many clients stayed on your older product with the comfort that they knew that whenever they were ready, they could switch over. And so we have a couple of examples of that where we did rewrites in markets where we had decent market share and we're leaders in those markets, and what we saw was our attrition rates kept stable and people weren't dying to go to the new product, but they were very happy that the option was there. And so I think I would call those successes because you're protecting a customer base that's a great customer base in a market-leading segment. But it doesn't really factor into the IRR because you can't really determine if the customer stayed or didn't stay on your older product because of that insurance value. But I'd tell you, it helps me sleep at night in some of our verticals. So that's kind of what I would summarize it as.

Does anybody else want to take a crack at that? And also the -- to Barry's point, the ability to retain customers moving from one platform that you own to another platform that you own. It's not without friction. Can you keep customers when you do the rewrite?

Well, what tends to happen at least from what I can see from the office is that we do the rewrite, and then the clients like having the insurance but usually don't adopt the new platform as quickly as we would have hoped. And so they don't go -- and it's because of the pain of switching even when we own both products. And so the conversion cost and the training cost and just the normal bumps in the road as you change all your interfaces and all your reports are such that switching costs are high. Even if the client knows, trust and like you, they don't naturally want to jump to the new product.

How would you respond to the criticism that in a number of cases, Constellation SaaS rewrites or off-prem rewrites put lipstick on a pig, failing to fix fundamental underlying problems while repaving the user interface?

I mean, if you have fundamental underlying problems, then I agree with you, the plastering over the cracks, there's no solution. If what people want though is a new UI and the ability to access the software from a browser anywhere, anytime, then what your questioner has called lipstick on a pig may well be the right solution because you end up with your presumably tried and true distillation of business logic preserved, and you just get the browser-based UI.

I'd just try to add to that, Mark. It's Mark Miller. One of the challenges we actually have is getting -- convincing our companies to actually move that user interface forward. Many of the companies have been around for many years and are really product-oriented and feel that a rewrite is the right way to go, and it's a shame not to evolve that user interface over time. So lipstick on those pigs sounds like an awful expression but getting people to incrementally move their user interfaces and their customer experience forward is sometimes a challenge. And the development heads in many of our companies are very strong, very powerful and could be bottlenecks for allowing that to evolve because they would like to rewrite the underlying technology. So we really encourage our companies to do this. I don't see it as a negative the way it's worded here. I think it's a real positive that we're trying to do that, and I wish they would do it more. And it's hard to encourage them to do it. They always think a complete rewrite is going to be the solution for all future issues, and it turns out it's not.

Another question for the broader group. Would you comment about scale, if any, the company gets with third-party license providers at this point, so things like Microsoft, Visual Basic or .Net, InterSystems, Oracle with Forms. Are the groups or the company as a whole becoming important customers of these platforms in aggregate?

I guess, Mark, you led a little delegation that went out to visit Microsoft about a year and a bit ago?

Yes, we did. We actually took 100 people out to visit Microsoft, and it was actually a pretty interesting session because we rarely do that. Well, we do get our heads of R&D together, I'd say, at once a year, usually at sort of a summit. But it's pretty interesting meetings because every head of R&D really has their own platform, their own product that they've been developing over time and there's some of them are common tools, some are not common tools. And so it's pretty interesting to get together and just sit and listen to what Microsoft had to say. So we though, still leave that decision up to each of our development leaders. We don't go and suggest, hey, we think you should follow this path. We just try to allow them to sort of connect with each other and see what each other is doing. If any, they think they can learn from each other. So there is really no encouragement to follow one path or the other. Because as soon as we do that, we will then own the responsibility as to what that path is, and that's a big job to take on. I wouldn't want to be the one recommending which platforms we should use for dozens or hundreds of business units across the world that are all in different situations, with different customer bases, with different needs, some with many, many users, some that are tools that are used by few users and makes for an interesting discussion at the meeting, which is the best route to follow.

So you're able to get -- wrangle a group together to go visit Microsoft. Has anybody found that by putting a lot of these businesses together in a portfolio, you unlock a different level of interaction with platforms. For instance, sometimes, acquisitions are built on various platforms that are end-of-life, certain versions of Oracle Forms, VB6, for instance. If you acquire many of those, does that change your relationship with the platform vendor at all?

I could -- Mark, just speaking from a Volaris perspective, it really hasn't. In fact, it can be frustrating for a Microsoft to deal with us because they really have to work with each one of our businesses. And so they tend to like to work with our larger businesses with inside of the world of Volaris, but I'd pass it on to maybe some of the other operating group managers have some comments on that and I've had some ability to leverage it. But at least we can pick up a phone and get them to go visit someone or talk to someone if they need some help. So we can get some high-quality help if we need it from the platform vendors.

We have a question from [ Sujay Desouza ], who's a registered shareholder and works for Harris. He says, "In my time working at Harris Computer, I have seen a push to use various cloud services such as AWS, Azure, et cetera. It makes sense having a central IT unit/office driving down various functions such as overall direction of the various units, bulk purchase agreements, care and protection of IP, integration of products and services in various acquisitions, et cetera, for possible future organic growth. The way it is right now, it is totally decentralized and the BU is responsible for their own direction with much a little oversight to the possibility of impact and benefit to CSI. This would have a greater impact for the company as a whole, especially during this time. Would there, can there be a push for an office/function such as this? Does this make sense for CSI?"

Yes. I mean, it's Jeff. It came from one of the Harris employees. So I think obviously, Mark can speak to the CSI piece. I think if I was to forecast or predict what he'll say is Constellation doesn't really look to drive this level of synergy from really sort of almost anything that we do throughout Constellation. And I would say the Harris focus or the thinking is sort of similar in terms of -- we do want the -- we run the decentralization, we want the autonomy at the business unit level. We do try and encourage similar businesses that have similar challenges that are sort of looking to centralize or use similar technologies or tech stacks to work together. I think I would be remiss if I didn't say that I appreciate that continues to be challenging, and I would say that we have more examples where we're not able to get that to work as seamlessly as we would like versus examples where it does. But I think as we continue to move forward, we try to do that. But I think this is a -- it's a good example. I think there's many benefits to the organizational structure that we pick, and I think there are subanswers or some consequences to that same decision, and I think this is a good example for that makes it a bit more challenging. And we really need leaders in these businesses to stand up and bring that together. So I think it's possible, but we have certainly -- I've certainly not seen a great number of examples where we've been able to do it successfully.

And another question come in from [ Carmen Duis ], no affiliation. Please discuss how you think about technical debt and staying close to your customers' needs?

I'll go, Mark. I mean they are earlier related. So I think staying close to your customers' needs is really the way that we actually build long-term enduring businesses that are successful. So I think we're always encouraging all of our employees, not just our business leaders, to be as close to their customers as possible. Through the pandemic, it's something that we talk about actually on our calls all the time. What are we hearing from our customers? What are we talking about with our customers? What opportunities do we see? What challenges are they facing? Mark Miller and I talked about this morning, right, what problem can we help them solve. These are all conversations that we're having. I think technical debt-wise, there's no question that a lot of the companies that we purchase come with a level of technical debt. I am not sure we're always the quickest to be addressing it. So actually, one of the things that we're doing now because we think there's a short-term opportunity is actually we're looking actually to address some of the technical debt situations or instances that we have in some of our solutions and trying to maybe move those faster on our product road maps than they might otherwise get. But I think we always are looking to understand the levels of technical debt and how that's going to impact our ability to be successful from a sales and a customer support perspective moving forward. And I know our road maps when I see them always have elements of addressing technical debt. But it definitely is something that we sort of keep on top of and make sure that we're mindful of so that it doesn't sort of get in the way of future success.

This is Dexter. And you always inherent technical depth, especially when you acquire small businesses where the owner kind of cuts costs and it's just a matter of you can't go and fix it all at once. You have to kind of focus month-by-month, quarter-by-quarter on the issues and get rid of the top priority issues first. And we work very hard to go and take out the box and make sure that they don't happen again. But it doesn't happen all at once. The best example is our home builder group, where for 14 years, they've been getting out the technical debt out of their software and their support ratios are 2 or 3x higher than the rest of our group. It just -- it comes over a long period of time and it takes a lot of effort, and it takes a lot of concentration. But we realize it, and we just have procedures to eventually push it out. And it's not all in kind of one rewrite, they're all fixed it all at once. It's just one thing at a time, and starting with the highest priority.

Just to add to that, I think it's a really interesting question. I think really, we don't lose share because of technical debt. I think we lose share because of poor customer observation. I'll push this one out for our employee shareholders in there because we're not watching our customers carefully, we're not setting them, we're not spending time with them, we're not noticing changes to their business because we've taken them for granted because we've been in the sectors for 10, 20, 30 years at some point. So I think the technical debt challenge, it's small compared to the -- us being much better at understanding our customers' needs, and that's where we will get into trouble when we lose that ability to study the customers and adapt our platform -- existing platforms to their need.

Another question from the dashboard. Kyler Hassan writes, "On the rewrites, could CSI start to do more of those in the future if the company is generating cash greatly in excess of what it can deploy into M&A? In other words, are there many rewrites that have good IRRs, but just not good enough to compete with inorganic capital deployment?"

So that's kind of like asking if we should drop out hurdle rates.

I suppose it's also asking if there are a lot of rewrites in the pipeline that just aren't done because they don't come at good prospective IRRs.

Yes. I don't know that they'd be in the pipeline if they didn't have good IRRs. Fundamentally, there are an infinite number of things you can do with cash, right? You can do rewrites, you can do new products, you can go into new markets, you can buy companies, you can pay dividends. And so the things that make it into the analysis are those that are high probability, significant uses of cash and high potential rates of return. And so the issue that Barry raised, the insurance value of rewrites is the really difficult one to assess, where if you didn't think the clients were going to switch over to the new platform, but having that platform there gives them comfort to stick with you for the long haul, what's that worth? And that's where the judgment calls get made by the general managers of these businesses, the ones who are closest to the business.

[ Ben Betcher ] asked a question that touches on insurance value. In a world where the biggest software companies keep getting bigger and more dominant, but barriers to create new software have never been lower, how do you see vertical software business creation playing out over the next 5 to 10 years, given that most will be cloud-based? Is there increasing immediacy to create that insurance value that Bernie described?

I mean, I'll take that. I mean, I've heard many -- over many years now, I guess you could say, unfortunately, or for decades now, how this new platform will get you a quicker product because of whatever, it's cloud-based or it's client server or whatever the reason being. However, it's still, I think, takes the same amount of time to develop a comprehensive vertical market, software product that's specific to a set of customers' needs. And I don't see new development platforms accelerating the speed of being able to write products that solve our customers' needs, independent of what a new group of developers will tell us.

Yes. When I tend to look where at the venture-backed vertical market software companies, for the most part, I can't believe the amount of money they're spending building those companies. It's enormous. And the way they tin themselves up to spending that kind of do is, they talk about total addressable markets that are much bigger than how I would identify them. They throw in all kinds of other related segments, if you will, but they're not inherently well suited for when they designate the TAM as being x billion dollars. And as you know, most of them don't get anywhere near those kind of levels once they get into the real world and find that it's subsegmented in many, many different ways. So often, what they do is they attack the value chain and they try to bundle more than just software into the value chain. And so they attack payments and services and hardware and try and create a bundle that makes the TAM sufficiently big the venture capitalists will keep on funding tens or hundreds of millions of dollars per annum of burn. So that has kept the game going for a long, long time. And I think you then get a lottery effect of the occasional IPO and valuations of 10x revenues with no cash flows. And as long as people think that's the exit and plan for that is the exit, then venture money will keep playing along. But eventually, the public markets will no longer support 10x revenues and no profits and the game will end. And it's just a question of when.

I think that's the end of that section. Back to your, Lawrence.

Thanks, Will. The next section is type of organic growth. Let me just read a few questions and then turn it over for the answers. One that came in a couple of weeks ago. So if the level of organic growth, which seems low due more to temporary weaknesses in current business unit performance or to the acquisition of more distressed assets and turnarounds at great prices, one that came in this morning from David Henry, organic growth has been trending down. Is this mix driven by acquisitions or something fundamental? Another one this morning, Alexis Fortune, how much observes to lower organic growth? How much of that is due to acquisitions of declining businesses, such as in health care? And how much is the reduction in growth in your median organization? And finally, from Charlie Brody this morning. To Mark Leonard, in your 2009 letter, you said you would target 15 -- excuse me, 5% net organic growth over long term. Organic growth in constant currency has been flat at just around 1%, how concerning is that to you? And do you have an updated target? So lots of questions around organic growth. I tried to combine those with virtually similar theme there in one go. So I guess any manager can comment and there's a specific call out to Mark.

So thanks to the original IPO and related President's letter. We actually made a 5-year commitment to grow the business. I think it was 15% to 20% per annum. And I think we came very close, and I think organic was a significant part of it. Times change. We've been public now for a very long time. And I would be happy to buy low organic growth, big moat businesses at attractive IRRs with 100% of our capital, in fact, 200% of our capital, if I could get access to the right kind of debt. Just as I would be happy to buy high organic growth businesses that had good moats per annum as well if the IRRs look good. So we're driven by IRR, not by organic growth in and of itself. It's, obviously, more comfortable to have organic growth. It's, obviously, more comfortable to have growing market share. But if you get greedy on either, you're likely to do a core job. If you get greedy on organic growth, you'll overspend on organic growth, and you'll generate a poor return on incremental capital. If you get greedy about acquisitions, you'll do the same thing. Why don't we get some input from the other managers as well in question? Larry, do you want to repose portions of your omnibus question?

Yes, sir. I think the thing that came out as much of the questions was to what extent is relatively low organic growth due to fundamental problems in a business unit or because of a certain acquisition to our investment strategy.

Well, John, why don't you talk to the travel business and say why it was a great and growing business before co-vising, much also after it? Really, the answer is at the individual business unit level.

I guess you're looking for me to say something Mark, I thought you're being prestigious.

No, no, no. I was -- I think looking at the aggregate level and trying to generalize how the portfolio is silly. And so I just wanted you to talk maybe to some examples.

Sure. Yes. I mean, it's very difficult to make generalizations. We're in so many different countries, so many different verticals. I mean, there is one comment I would make is we do favor growth in recurring revenue above other revenue streams. And some of that is happening naturally as our customers are moving more to off-premise solutions that we're offering. And so that's happening over time. So we definitely do emphasize the growth -- the organic growth in recurring revenue. And as you know, we operate in ton of geographies. So you do need to strip out the impact of currency, but some specific examples, Mark alluded to a business that we have in the travel space. It's for well over a decade. It's growing double-digit organically with very high margins. Done that through a combination of things, primarily through investment in sales, growing geographically, acquiring new customers, but also through growing through share of wallet. And then just naturally, that vertical has been growing slightly above GDP for a number of years. But, obviously, now, they're in a situation where it's at a complete standstill. Now they're using that -- in the short term, they're using their financial strength to try to go after some of their competitors' customers who aren't necessarily as good a shape that we're in. We'll see how that develops. And -- but that's just one story out of hundreds of different verticals we're in. So it's tough to make generalizations.

You can certainly imagine that there are verticals that are inherently declining and those are getting smaller and that are getting more concentrated. And in fact, most industries tend towards concentration. And so you end up with a smaller number of clients who have a bigger reason to focus on their input costs. And so the dynamics of that, I'm going to lead to leaps and bounds growth. Now if you're doing Internet shopping, then that tends to be a growth industry and it's going to be a good business right now, but will it continue to be a rapid growth business in 10 years' time? I don't know if that will be the case or not. We are in certain verticals that aren't growing by leaps and bounds, but we are in many of them, the market share winner or a significant player and they're doing a great job for those concentrating clients. And I think that's what we basically hope to be is a provider of high-quality solutions that help people run their businesses better for the whole economy. We are going to look an awful lot like that economy. And we're getting to the stage now where we're exposed to every sector of the economy and we're going to perform organically like that economy.

Anybody else want to comment on that series of questions?

Well, I think organic growth is one. We studied yesterday a case where the revenues were relatively flat, but our business increased dramatically in recurring revenues, a strong market position. And the way we run that company now and a solid position in that. So there is more to it than just the organic growth.

I'll just add, I think -- this is Mark here. It's just in many, many of our businesses were such a small percentage of the overall customer operating costs and there's an opportunity in some of those markets for us to grow our businesses by expanding a little bit more and doing more for customers. And I think some of our leaders do this better than others. And it's one thing we challenge our leaders to try to do that. So I think there is opportunity to do it. But it's really sometimes a question of the competency of the leadership team inside of that particular vertical market software company to be able to move into new areas of the customer in some cases.

I think these comments are very helpful to the shareholders. And here's another question just came in as we're having this discussion that I think your answers would help the shareholders. This is from Bob Yardi, and he says it's to the operating group managers. To what extent, if any, has keep your capital resulted in lower organic growth as more employees spend time on M&A.?

I'll start. It's Jeff from Harris. So I think from our perspective, I think when we first started rolling, I would keep your capital. I think there was definitely a bit of a shift to sort of grab our best and brightest and have them focus on deploying more capital than we were deploying before. And before that, they were spending more of their time looking at the businesses. I think as we sort of understood more about keep your capital and understood some of the consequences of those decisions, we sort of shifted that back. So I think at this point in time, I cannot say that, that is the reason that Harris, I think, continues to have some struggles on the organic growth side. I don't believe that keep your capital has anything to do with our success to growing organically. I think it's like my peers have said, it's a number of factors. We look at it business by business. Every single business that we have is challenged and encouraged to find ways to grow. Each business has different opportunities in front of them to do that. Some of them are more successful than others based on the quality of the team, the dynamics of the market and any other competition in those markets. But I -- from a Harris perspective, I don't think keep your capital is what's driving the organic growth challenges.

Okay. Concerning new products and initiatives, is there a general attitude at Constellation or within your groups towards product development and new initiatives?

Larry, I'll go first. It's Jeff from Harris again. So I think at the macro level, if you look at the data and our experience, building new products is probably the most difficult thing that we do and oftentimes our initial expectations of what the returns that we will earn on those initiatives, it do not occur. So the initial returns, IRRs are much lower than what we initially thought they might be. And so I think really what we want our business leaders to think about, is it -- what is the business case and what -- and we want them to use sort of a return sort of perspective and the discipline of expecting a return? It's not a question of build it and hope that they will come. And I think some -- we definitely -- we need businesses that have that philosophy. And I think it's -- it can be a fun place to work for a short period of time. Some of them get it, right? Most of them don't, but that certainly is not the way that we're wired. And I think if you're in a business, I think that can be challenging. I think the level of discipline that we require to make the decisions that we want to make to allocate our capital and return and earn returns on that capital is challenging. It's not for everyone and I think a lot of people struggle with trying to figure that out. And I think a lot of people perceive that is that we're not interested in making these investments. And it's just not true, I just think is how do you find the balance to do it and do it well, knowing what we know about how typically turn out. And I think that's probably the tension, certainly that I see or I hear when I talk to our business leaders about maybe why they're not doing more or thinking about doing more. I think that, that's the tension that you see within the organization.

This is Dexter. And we do encourage initiatives and organic growths. And it's in conjunction with you and the customer, and it varies by segment. And so some segments are -- work very well in this building kind of initiatives around it, you have a large. So when you have a lot of customers, you can go and build something and sell to all the customers. If you have half of those that are, let's say, 2 dozen large customers because they're big companies, it's hard to find something that you can build that all those 24 customers will want. And so it varies by segment, it varies wide industry. We encourage people that -- and it all comes from talking to customers, finding out where their pain points are. And I think that's kind of what drives the organic growth. And so the divisions that are closer to their customers and know what they want are the ones that have higher organic growth. And the ones that have many customers also have more opportunities for that organic growth. If you have a huge number of very small customers, then you can't -- it's harder to get those initiatives to the small customers because the small customers like real estate agents may not be willing to pay for that additional functionality. So again, it varies tremendously by business unit, by industry. If your industry isn't growing, how are you going to do an initiative to generate organic growth?

All right. Let me finish out this segment with a follow-up question for Mark we just received into this morning from -- Mark Leonard -- from Joseph Davis. Shouldn't software spend still be growing faster than the global economy? This refers back to comments you made a few minutes ago.

Yes. I'm sure the software spending is growing faster than the global economy.

Excellent. Nothing more to add then, we'll switch now to the final segment of questions, which is more of a potpourri rather than a particular theme. And Howard is up first for that. Howard?

Great. Yes. Larry mentioned it's -- I've got a grab bag of questions here. The first one is about adjusted net income and free cash flow. So last year, ANI was dropped as a non-GAAP metric in favor of the free cash flow metric. But a version of ANI is still used for management comp in the form of ROIC and employee comp as well. Have you considered evaluating each view using free cash flow growth in absolute terms instead? And what are the pros and cons of this approach from Mark and Jamal get some of their thoughts.

Great. I'd like to start off by saying to try to get cash flows by business unit is almost impossible. Like we run business or maintain businesses or bank accounts or legal entities and trying to allocate that out would be very difficult. I mean, any -- or our bonus net income is a very good proxy for cash flow. And hence, we continue to use it. And I think it's a good measure of profitability. Mark outlined in the MD&A in Q4, or was it Q3, why we moved away from ANI. It wasn't that it wasn't a good measure, it was because of the add-back of amortization and Mark was just uncomfortable or we were uncomfortable telling people that you should constantly ignore that number, even though today, we believe you can add it back because we're developing more products than we are business have businesses that might be shrinking. But it is still something that should be considered. So I don't have -- at least as far as I know, I don't see that we need to change our internal bonus calculation.

If there was wide divergence, Howard, I think we would definitely look at changing compensation systems, but there currently doesn't seem to be wide divergence.

Good. The next one is maybe a little of a sensitive one. The agreement between L6 Holdings and the corporation, it looks like it's going to be expiring on August 5, 2020. And is there plan to extend that agreement?

I've cited the idea with the Board of creating basically a lockup for anyone who wants to say, I'm going to be a long-term shareholder. I'm going to guarantee you that I won't sell my shares for the next x number of years, which is pretty much what is sort of implied by the L6 agreement, which is where we had to -- the family had to talk about what we were doing with their shares. And I'm saying, let's take it a step further. Let's get all shareholders the opportunity to be permanent long-term owners of Constellation. That obviously means giving up some liquidity. And then what do we get out of that? Well, I think we get much more committed shareholders who care more about the prospects for the company. I'm more willing to think deeply about it and provide feedback and advice and be supportive of the company. So what are you willing to give shareholders for that? If you really believe that great shareholders create great companies, what do you give them? So that was the question I posed to the Board. And I actually -- well, to a couple of members of the Board, actually, it came up with their suggestion, which was basically that we would treat those shareholders in a preferential fashion, we would give them a superior rate of return to people who weren't willing to commit to the company for the long term. Anyway, people have gone off and are thinking about it.

Right. And is it the plan that you're thinking about for this year or kind of a longer term.

I think it's more of a philosophical plan because it's something that, obviously, all shareholders would -- well, the majority of shareholders would have to approve. And it's something that not everyone, I think, would buy the idea that committed long-term shareholders contribute to the success of a company. But to have the opposite point of view is certainly interesting as well. So I think it will make for a fascinating debate amongst shareholders and Board members and is a debate the society needs to have, too, about ownership. Should their ownership be this flash? Should it be something that happens among day traders? Or should it be something that happens between informed people who care deeply about the things in which they invest? 's

Right. Yes. I remember you talked about the concerns about -- I think it was last year or 2 years ago where a significant number of shares were traded in the year, representing a big portion of the total shares outstanding. So that's where it comes from, I guess.

Absolutely.

So kind of on the share purchase and disposal note, there is a last year, both the President and the COO announced automatic share purchase and disposal agreements last year. Assuming those expired, why were they not renewed if the share price is still trading above the high end of the ASPD range?

Yes. I thought I was signaling to shareholders where I thought the fair value of the shares was. Apparently, shareholders didn't believe me, so I didn't bother signaling again this year.

Did you think about tweeting that the stock price is too high?

Bid on bid. Beat me to it.

It might work. And the last one for me is just kind of a bigger picture question and maybe give everybody a chance to reflect. What is the biggest success and failure of management over the past year?

Yes. I certainly -- well, a, I think it revolves around the same thing. And b, I'm not going to tell you because it would be educating our competitors. Here you go. Others may feel differently. Any others want to talk about their successes and failures of the last year? Very quiet here.

All right. I understand, trade secrets. I'll end it there, then pass it to, I think, if Larry has any questions.

Yes, we're doing pretty well. We've got 40-plus questions in the queue. We addressed about half or a little more. And so let's nip away. I doubt we'll be able to ask all these before people are exhausted. But let's pick out a few, and then -- and then Will has some further final questions too. Here's one on from Andreas Wyckoff, who says, you are promoting a culture of sharing best practices. What are the boundaries of that, of sharing best practices? And on the scale of 1 to 10, how well are you doing, 10 being the ideal, 1 being the reality or the worst. Anyone want to take a crack at that?

I think maybe Mark made the biggest single investment and event of any of us last year. Why don't you talk about that, Mark? And whether in retrospect, you do it again? And whether you could do it in a COVID world.

That's a great question. So we ran at that in London last year where we brought 600 of our leaders to -- throughout Volaris. And we ran basically 4 days of sessions, but we ran 1,000 different 12-person breakout groups that rent for 45 minutes. So the concept was to bring to give people an agenda of a whole bunch of topics that they could go to. And they could choose which sessions they got to attend. And within that session, there's only 12 people, and they would talk about a very specific topic. So it was extremely well received by the team. I think they managed to make some new connections that they continue to keep. And we are planning on doing it every 2 years. And in 2021, we are going to do an event with 1,000 people, but we've decided to postpone that. We think 2021, actually September is probably too soon. We'll probably try to do that again in 2022. But that's the way we tried to do was sort of an accelerated ability to put 12 people together for a very short period of time, and then they move to the next session, so you could cover a lot of different topics. And you could come from one part of the organization, let's say, you're a Head of Sales and sit in, let's say, an M&A session and learn what M&A was all about. So it allowed people to see a lot of different aspects of what's involved in running a software company. But my biggest test of this is when I go meet with 1 of the leaders of a business that we're about to potentially acquire or join Volaris on Constellation. And it's really nice to hear that the -- our values, our principles, the way we think about things has been communicated to them and sometimes the first time I've gotten an opportunity to meet people. I think that's really, really wonderful to see. And that happens across the world. So that's where I really feel the best practices being shared is, you can just feel when you're talking to new acquisition to do a company that was newly acquired. There's a lot of consistency, I think even amongst the different operators as well.

I was worrying yesterday when we were on the video call, my JSU10 sweatshirt. The best perk in my job is wandering around, talking with entrepreneurs. But the second-best is wandering around talking at the various education academies or sessions, good on operating groups run and invite me too. And nearly always, you get a sweatshirt. And they figured out my size. So I now have an infinite supply of sweatshirts, but I also get huge amounts of positive feedback from visiting with the employees that I get to meet at these affairs and then nearly always designed around sharing best practices. They're not usually just IRR sessions. They're far beyond that. They have real content and real learning and relationship building that goes on at these events. And JSU was joined at Software University. It was their 10th anniversary event. And what are you up to now?

Barry?

That was -- I think we -- last year was 12. So it was a couple of years before. So -- and unfortunately, this year it won't happen because of everything that's going on. So we're trying to figure out what we do obviously, but obviously, won't be able to pull something like that off because we usually do it in August.

Our next potpourri question comes from Kevin Gray who sent in this morning. When you think about your study of high-performing conglomerates, what commonalities in these businesses prevented return minimizing or destroying behavior? Examples would be useful. And second, what are the lessons Constellation has applied from that study to its own organizational structure as it continues to push capital allocation responsibilities to a broader group of employees and cast a wider net in new geographies and new verticals? And the bottom line, it says, the real question is, what are the biggest opportunities for improvements in how Constellation solves this problem?

I don't know that we can solve the problem. I think we're just a different float. And so what we saw in the high-performance conglomerates was increasingly lower hurdle rates acquired to acquisitions, nearly all of them were relatively low capital intensity businesses that generated excess cash and nearly all of them deployed their cash on acquisitions. And those acquisitions became increasingly expensive over time. And to partially offset that, the amount of debt they used over time went up. So the 2 key trends you saw were lower returns on total capital and higher amounts of debt capital and generally associated with larger acquisitions done from head office. So we're trying to not do the larger lower return, highly leveraged acquisitions from head office. We're trying to stick with the smaller acquisitions done down at the branches with good IRR discipline, good hurdle rates and debt used sparingly. That was the complete answer, Larry.

Thank you very much, Mark. Let's now turn to Will. Will has the final surge of very, very interesting questions and then we'll still, I think, have a little bit of time to try to get through a few more of the queue questions. Will?

Great. So I was wondering if I could first take another stab at the Joseph Davis question. Which was, I think, commenting on the rate of growth of software in the global economy. And if CSI has now diversified across the global economy and software across the global economy, but continues to perhaps undergrow GDP, nominal GDP, just a consequence of the fact that the company has been able -- has been willing to give up prospective organic growth in acquisitions in exchange for a lower price and, therefore, better IRR? And should we expect that to obtain going forward?

So let's say we never acquire another business again, what would happen to organic growth?

We hope that it would go up?

Exactly. I would think it would go up. And I also think that the distraction factor would go down. And so your best and brightest would be more focused on organic growth as the avenue for growth. We probably would also see over time, our growers outpacing, by definition, our shrinkers. And so you see growth going up for that reason as well. They become a higher proportion of our total revenues. You also have to take into account the competitive environment. So when we venture-backed and then subsequently IPO-backed vertical market Software Company goes into a vertical and starts grabbing for share at very low IRRs on marketing investment and R&D investment, the only rational response is to pull into your shelf, to focus on your existing clients, to differentiate to target a subsegment of the overall market. And that, by its nature, tends to shrink you but make you a more defensible, better business. And I think that happens for as long as irrational capital is available to new entrants. And predicting that is very, very hard. It no doubt been the case for the last decade across multiple verticals, will it be the case of the next decade? I don't know. We may see a renaissance of rationality in the investment world over the next little while. And if that is the case, then I think one of the consequences will be better organic growth across our existing portfolio. So I thought of the answers, I know that growing by leaps and bounds above GDP would be difficult for us. I certainly hope that we do better than GDP from an organic growth perspective. But you've always got to factor in what we're acquiring on the margin.

Great. Thanks for that answer. And the next question is on incentive and bonus plans. I think there's a little bit of confusion as to whether the bonus and compensation plans have changed year-on-year from being based on ROIC to being based on a measure -- or measures of profitability and growth. So perhaps we can just address whether the compensation plan has changed.

No, it's still ROIC in growth. And we probably use ROIC as a measure of profitability. At lingo, it is probably the confusion.

Okay. Great.

Mark, so I think the confusion also comes because in the -- I think the AIF, we relaxed the language to incorporate the bonus plan to exist within the entire organization. As opposed to the Nick, we're talking about the bonus plans for just the executive team, which is based on just ROIC. And that's the issue.

Yes, yes. Okay. So down at various levels within the corporation, there are different programs that run, and it's really a function of how the operating group manages or their portfolio managers believe that people should be compensated.

Right. So that's the next question is given that the operating group managers each have a little bit of a twist or have discretion in how they apply their own incentive plans, what are some learnings or some thoughts on each of your own riffs on the overall incentive plan? What do you like about it? What you dislike about it? What you might have changed with respect to your own operating groups, things like keep your capital, for instance. Do you push it down?

I'm happy to start. There's no perfect incentive plan. I think we have what I've seen probably the best one out there. It's been predominantly consistent over a very long period of time, which I think is very good for our managers. When we buy companies, particularly spinouts from large corporations, we get a high degree of skepticism over our incentive plan. And that's usually because they're coming from a culture where they're changed every single year in order to hit quarterly numbers or whatever. So that's always something that we can tell our employees. It's been the same for a very long time. Secondly, it rewards absolute performance. It doesn't reward how you're doing relative to some budget. So we have a lot less gains than ship when we're dealing with our subsidiaries because they understand that their bonuses are based on how they do, not how they do to some forecast sent a year ago. So there's tremendous advantages to both of those things. Now when you get right down into the business units, who don't have the necessary opportunity to acquire and didn't have any say in the capital that was used to invest in them, there is some benefit to changing the ROIC metric to just profit. So a number of our managers have chosen to do that at the business unit level.

I can speak to it, too. I've tried to keep it consistent as much as possible throughout the whole leadership team. The -- particularly the portfolio leaders, the ones who are deploying capital, I think KYC been a very useful tool. And then underneath them, where it made sense for them to also use KYC. And I believe having that consistent thought of compensation when you're speaking to any senior leader in the organization, it's been very helpful to me. And they really sort of share the pain and the opportunity of performing well. So consistency has been a major focus of ours. And it means, in our case, we're not just running 1 or 2 different bonus calculations. We're running probably like 150 to 200 different ones throughout the organized, like there's many, many calculations, but they're all consistently done on the same principles as my compensation is calculated. And I should have -- I have spoken earlier, I do believe it has had an impact on organic growth, KYC. What has happened, of course, is some of my top leaders who were very good at organic growth are very strong -- just strong business leaders, and they've been promoted to be capital allocators and are really no longer completely dedicated to that one business. So you've gained the ability of having a stronger leader who's just got generally good judgment. And they definitely have successors in place who are getting better at it, but you lose a little bit for a period of time. So KYC has had an impact because they definitely felt the pressure to deploy capital more than they had previously.

This is Dexter. And I would agree with Mark, and we try to follow the original kind of CSI plan and as much as we can. And also, I add to John's and I've had to do the same thing where you have the managers that are involved were involved in the -- that are getting bonus were involved in the investment decision, and there has to be some adjustments there. I told Mark, well, we had talked at the management group of both changing it and it was overwhelmingly rejected by the management team because we feel the consistency of the bonus makes it very believable. People know how they're going to get bonus. They know the results and they know what to do. And so giving them the opportunity to adjust their own compensation by performance, I think, is a great tool.

Great. Next question is about how employees are receiving -- how they perceive the incentives, I supposed. How is CSI's employee churn tracking compared to previous years? How does employee churn differ by seniority? And what strategies has CSI implemented -- in the groups to minimize employee churn? And how important do you think the stock price is as a factor?

I think this is one that we've got to answer from the operating groups. We don't really track churn from the Constellation head office level, employee chain. Obviously, we do for the operating group managers who's been 0.

Mark, I'm happy to start. It's Barry from Jonas. We track our churn every quarter. And so we do know the numbers. And we've been pretty consistent over the last several years on what our churn rates have been. Not much movement at all in the last 3 or 4 years until, obviously, what happened in the last couple of weeks. And just commenting on sort of senior versus junior, there is definitely a huge trend to retention, the longer someone's been in within the organization. So our highest churn cohort is the 0- to 1-year cohort. It's significantly higher than any other cohort. And as we move up to -- we measure it 0 to 1, 2 to 5, 5 to 10 and 10-plus, I think, is what it was. I'm trying to remember the study now. But as you move through those various boundaries, we really have very low churn when you get to the sort of 5-year or 10-year-plus mark in the Jonas organization anyways.

All right. Question for Mark -- sorry.

Again, I was just going to say, in talking with the managers, I don't get the sense that people are increasingly concerned about churn. I mean the role was concerned about churn because it implies either poor hiring or the people are finding that it's better to go elsewhere. But I don't sense a trend at all, but just the normal sort of level of concern.

All right. And any thoughts about stock price? I suppose since the employees have a lockup on shares, then it would be natural for them to subscribe to the sort of preference shares that you're talking about that may have a higher rate of return?

Yes. If such shares did exist, that would be the case. In fact, we -- because of various tax reasons in Canada, we can lock up shares for longer periods of time and get them larger discounts on those shares already. So for employees, it's already a thing, so to speak, that is driven by tax legislation.

Great. A question for you, Mark Leonard as well. How is Mark splitting his time now? And how does he see the next year?

I guess during the lockup, I've been working mostly on M&A. And that has been the primary sort of focus over the course of the next year. Each day, I will decide what I'm doing that day and priorities may change.

Great. And last question for me. Does anybody here have a 10-year plan or vision for Constellation or their operating group they'd like to share?

Yes.

I don't think -- this is Jeff. I don't spend a ton of time thinking out 10 years, certainly not reasonably anyway. We've been much more focused on some of our shorter-term challenges. But I think my answer would be for the Harris organization, where we've been much tighter in terms of verticals and tighter in terms of geographies. I definitely see us expanding into many more vehicles and being much more global in nature, where we're right now, we're still fairly North American-centric outside of our larger operations in Germany, Spain and Israel. So I would say, more verticals, more geographies, likely more -- we have 4 operating groups within the Harris organization, I think more than 4 operating groups as well, if I was to sort of make a general prediction.

The others are doing, what do they call the start-ups that they don't talk about? What -- where are they again? They're doing the sort of [indiscernible] type operations. When we had our rush to South America, that happened very quietly. Obviously, both John and Mark got there at the same time, but they did it surreptitiously, and it appears to have been successful for both of them.

Okay. Finally, Lawrence, again, take a few more questions from the queue and then probably wrap up. We're seeing a little attrition in the number of attendees. We still have 400, but down from about 6. There's a question from Richard Liley. Compared to the last recession when you were able to acquire some large corporate carve-outs, is the competition from other buyers in the current period make this less likely? Also, is the nature of the recession with capital seemingly widely available, reducing seller's incentive to sell based on urgent need of capital?

My sense is the latter that we've seen government's capital substituted for market's capital and that the penny hasn't dropped yet. And there may be opportunities to buy bigger companies at reasonable prices if the economy continues to stumble along.

Anything in particular on corporate carve-outs?

Well, those would be the places where we would get the larger ones for the most part.

There's another one from Mark Gaskin. Is there a scenario where you would do an acquisition for stock?

Yes. And it's a fascinating question. When you're trading value for value, you have to come up with a assessment on what you own and what you're getting. And I've already started leering the Board down that path.

There's one from David Landry, and it's a free for any manager. What are the 2 or 3 most powerful best practices across Constellation or within a given group, the best 2 or 3 best practices? And how much discretion do the business unit managers have to follow them or depart from them if they choose?

I can throw one out that comes to mind. It's really hard for people to stop doing things that don't make sense because they've done them for a long time. And if you can encourage a business leader to have a look at some of the things that don't -- aren't a good use of their business as time and they're getting low returns doing, it's really a wonderful thing because then, they'll get better at what they do well. And it's just a real challenge to do, especially in the mixed messaging of how important organic growth is or deploying capital. So sometimes, up to that as one stopping doing things is really important.

I would add that one of the best -- one of our best practices is not disclosing our best practices.

They have and you told them, John.

Larry, I think we leave it up to the managers of our businesses. They have to judge for that situation, which of these best practices they implement.

Anybody else?

Here's a final -- I think we want to make this the final question here. This is from Michael Gielkens from Vimco Luxembourg, who says, Constellation software has been dubbed the "Berkshire Hathaway of the software world." To what extent do you deem this comparison accurate? And what are the most important differences and similarities?

I think probably the biggest difference is that you have a group of colleagues here. It's collegial as opposed to a straight-up holding company. I think we're trying to share best practices a lot more across the group and look for lessons across the group and the sort of model of 2 master capital allocators sitting at the core. It isn't how we think about it. I think when each of our operating group general managers thinks about their individual businesses, they think about great leaders of those businesses. And in turn, they try to help provide those leaders with inputting best practices from other colleagues. So we had to sort of trickle down, keep it small, the breakdown at the business unit level approach, across not just operations that are similar, but also with capital allocation. So it's a slightly different configuration. Anyone else have a view? Larry, you should have a view. Here you go. This is where we can turn the question around.

Well, I think as far as similarities, I think a culture focused on patient disciplined capital allocation is a similarity. A difference is, obviously, that this is our focused organization and vertical markets up. We're pretty much willingness to maybe invest beyond it. But Berkshire covers the waterfront. This is a very focused operation. And as you say, I think the sharing of best practices and so on. And I guess, back to similarities, I mean, I think the culture of long-term, owner-oriented, shareholder-oriented, focused on returns on invested capital, I think, is probably what leads people to say that if they do, the Constellation is the Berkshire Hathaway of software. So -- and since I'm a big fan of both companies, I really like the comparison.

Well, it's a lovely comparison, and we appreciate it.

Well, we've gotten pretty well down to the end, both probably of our attention. The number of shareholders in the group is declining. So that's a signal probably that we've delivered as much knowledge as we probably can today. So I will at least thank the 2 panelists for helping with these questions. Thank you all the managers for answering these questions. Thank the shareholders for sending in such great questions and for staying with us today and turn the meeting back over to Mark.

I think, Larry, you have to say goodbye. Mark just dropped the note. So Mark's disconnected. He got disconnected.

Well, then. I will step in into this technological breach. Delighted to see that we didn't have any technological problems. There are 1 or 2 people, I guess, who had some password trouble, but most people were able to join and listen, and we appreciate it very much. And so into the technological breach, I will declare that the 2020 meeting of Constellation software shareholders is hereby adjourned. Thank you all very much.

Thank you.

Thank you, everyone.

Bye.

Thank you.

Bye.

Thank you.