WEBVTT - Thoma Bravo Co-Founder Orlando Bravo Talks Mega IPOs, SaaSpocalypse

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, private market deal maker

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<v Speaker 1>is Gantherine.

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<v Speaker 2>At the annual Super Return conference over in Germany, Danny

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<v Speaker 2>Berger focused on many of these issues.

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<v Speaker 1>She joined us now from Berlin.

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<v Speaker 2>Hey Danny, Hey, John, that's correct. And there's one issue

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<v Speaker 2>I want to focus in on particular, and it is

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<v Speaker 2>the state of software and private equity. And we have

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<v Speaker 2>the leading voice to talk about that. It is Orlando Bravo,

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<v Speaker 2>the co founder of Toma. Bravo, Orlando. Always a pleasure

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<v Speaker 2>to see you here.

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<v Speaker 1>Danny, So good to see you. This is our yearly tradition.

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<v Speaker 2>It is our yearly I would be gutted if we

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<v Speaker 2>didn't meet, same place, same time.

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<v Speaker 1>Every one of the reasons I come here to do this.

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<v Speaker 2>Okay, hopefully among the top. And I know this year

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<v Speaker 2>you have a particular message. I remember earlier this year

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<v Speaker 2>you were talking at Soon and saying the SaaS apocalypse,

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<v Speaker 2>the worst is over. Does it go further in your

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<v Speaker 2>mind just the worst being over?

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<v Speaker 1>But is this thing over? Orlando? Where are we in

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<v Speaker 1>the world of the SaaS pocalyptse?

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<v Speaker 3>Danny saspocalypse for whatever term, and that's a terrible term,

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<v Speaker 3>by the way, I really don't like that term. It

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<v Speaker 3>is finished no more, and it's pretty simple. You know,

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<v Speaker 3>people are realizing that these are unbelievable companies, and you

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<v Speaker 3>look at the numbers coming out even after the first quarter.

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<v Speaker 3>And secondly, and more importantly, people are realizing that SaaS

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<v Speaker 3>companies just don't stay still.

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<v Speaker 1>They're not static.

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<v Speaker 3>They evolve with infrastructure, they evolve with opportunity. And SaaS

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<v Speaker 3>and agentic are going to merge very very very quickly.

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<v Speaker 3>And these companies are the future of agents in the enterprise.

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<v Speaker 3>And the market is realizing that as well.

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<v Speaker 1>So the freak out is over.

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<v Speaker 2>Essentially, is that what you're saying in private markets is

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<v Speaker 2>this stuff's starting to be realized your portfolio, maybe some

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<v Speaker 2>of your peers at the valuations that you think they

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<v Speaker 2>should have. Where is there still some frozen assets, some

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<v Speaker 2>stickiness that has yet to come unglued.

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<v Speaker 3>In private equity, the environment is pretty stuck right now now.

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<v Speaker 3>I do think that private equity is the voice of

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<v Speaker 3>raising in a lot of this because it makes sense

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<v Speaker 3>that the electivity is a lot slower, because if you're

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<v Speaker 3>going to buy a technology company or a software company,

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<v Speaker 3>a solution provider to the enterprise, now you really want

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<v Speaker 3>to see that they're making a lot of progress around

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<v Speaker 3>their AI offerings. Enough time has passed that you should

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<v Speaker 3>see that in the business because.

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<v Speaker 1>That's where the whole world is going to evolve to.

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<v Speaker 3>So why not wait a little longer before you pull

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<v Speaker 3>the trigger and have a little bit more clarity?

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<v Speaker 1>Doesn't that make sense to me?

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<v Speaker 2>It doesn't sound like the worst is overall Lando. It

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<v Speaker 2>seems like there's still things that need to be tested

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<v Speaker 2>and figured out.

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<v Speaker 1>So what is the aspect.

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<v Speaker 2>Is it just where you're saying our companies are healthy

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<v Speaker 2>or is there something else that the worst of the

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<v Speaker 2>freakout is truly over?

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<v Speaker 1>Well, the freakout really happened in the public.

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<v Speaker 3>Markets, true, right, and you've seen since April software stocks

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<v Speaker 3>have rebounded really really strongly. But the other thing that

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<v Speaker 3>you notice, and this is really about public investors sentiment,

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<v Speaker 3>is that whenever there's an announcement about one of the

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<v Speaker 3>great llm's coming out with an amazing model like today,

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<v Speaker 3>the whole software industry doesn't collapse or react to it.

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<v Speaker 3>A big place where you saw the freak out, as

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<v Speaker 3>you call them, be completely over is where we invest

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<v Speaker 3>fifty percent of our dollars in cyber. This is a

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<v Speaker 3>huge tailwind to cyber and that's one of the sectors

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<v Speaker 3>that has rebounded really strongly over the past month.

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<v Speaker 2>What about in lending, what are conversations with your lenders

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<v Speaker 2>like is I remember we had out of conversation saying

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<v Speaker 2>the constant capital has gone a little bit higher because

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<v Speaker 2>the concerns. Has that come back down or are there

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<v Speaker 2>still difficult conversations to be had.

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<v Speaker 3>Lending is very difficult because, and I'm going to be

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<v Speaker 3>completely upfront about this, there are many large asset managers

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<v Speaker 3>that need to raise so much money monthly and from retail,

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<v Speaker 3>and it's not the most popular thing right now to

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<v Speaker 3>pile the money into software. So it is a much

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<v Speaker 3>tighter environment now. On the buy side. Of course, that

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<v Speaker 3>help hurts you with financing, but it means you pay

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<v Speaker 3>a lot less.

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<v Speaker 1>And funds like ours we do a.

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<v Speaker 3>Lot better in down markets than markets because we're value investors.

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<v Speaker 3>So we're really enjoying this opportunity. But once again, we're

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<v Speaker 3>treading carefully because we want to buy companies that are

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<v Speaker 3>part of the future now, companies that are stuck in

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<v Speaker 3>the past.

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<v Speaker 2>By the way, Tom Abravo more than most companies has

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<v Speaker 2>been very successful with exits. You've also had some really

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<v Speaker 2>successful IPOs too. We're going to get SpaceX. This week

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<v Speaker 2>we learned that open ai is going to be coming

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<v Speaker 2>to market. Anthropic also filed for an IPO.

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<v Speaker 1>Is this good or bad for the.

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<v Speaker 2>IPO environment and prospect of exits because for one thing,

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<v Speaker 2>it starts the capital flowing. But there's also this question

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<v Speaker 2>is at all just being funneled? Are these just black

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<v Speaker 2>holes of capital if you're competing for the same institutional

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<v Speaker 2>money exactly?

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<v Speaker 3>Some both points are so true. I was talking to

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<v Speaker 3>my partner, Seth Borro about this. He's in charge of

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<v Speaker 3>a lot of companies along with Holden Space that looked

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<v Speaker 3>like they're great IPO candidates in the twenty five billion

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<v Speaker 3>thirty billion dollar valuation range based on about a billion

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<v Speaker 3>dollars for free cash flow and their growth rates. And

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<v Speaker 3>both of them told me last year, we won't be

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<v Speaker 3>able to do anything this year because all the attention

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<v Speaker 3>and all the time, let alone the dollars are going

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<v Speaker 3>to be focused on these massive historic IPOs. So these

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<v Speaker 3>smaller caps which we are now, I guess, are much

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<v Speaker 3>more difficult to get the attention in the short term

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<v Speaker 3>now medium term. I really hope they do well because

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<v Speaker 3>are really important moments for capital markets and their depth,

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<v Speaker 3>and if they do well, you'll get more confidence in

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<v Speaker 3>the IPO market.

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<v Speaker 1>Well, what is a typical period for that?

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<v Speaker 2>I know SpaceX is you don't really have a historical

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<v Speaker 2>corollary because it's just so large in size. But what

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<v Speaker 2>would be your estimation of when you can enter back

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<v Speaker 2>into the IPO market after these come.

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<v Speaker 3>In hopefully nine months a year after Now that's a guess, right.

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<v Speaker 3>So many things are up in the air. What happens

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<v Speaker 3>with interest rates, what happens with valuations? Is there a

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<v Speaker 3>slow down in the infrastructure build There's so many questions right,

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<v Speaker 3>It's a wild investing environment. People are saying a lot

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<v Speaker 3>of strange things in investing right now. And the toughest

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<v Speaker 3>thing for people that have a core competency in something

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<v Speaker 3>is to stay the course. And of course, once again

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<v Speaker 3>you have to be part of the future, but you

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<v Speaker 3>have to stick with what you.

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<v Speaker 1>Know really well.

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<v Speaker 2>Remember you and I last year and had this discussion

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<v Speaker 2>that this industry had lost its way. Do you think

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<v Speaker 2>people have had that come to Jesus moment? Have they

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<v Speaker 2>kind of come around or are there's still lessons to

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<v Speaker 2>be learned.

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<v Speaker 1>You think they're having it now.

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<v Speaker 3>Look if you see some of the software troubled credits,

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<v Speaker 3>which there are, it's out there.

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<v Speaker 1>It's not yet a product of.

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<v Speaker 3>AI having impacted those companies or those companies failing to

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<v Speaker 3>transition to the new platform, which, by the way, is

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<v Speaker 3>the biggest.

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<v Speaker 1>Opportunity in the software industry. It really, really, really is.

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<v Speaker 3>It's an issue of how those companies were run. People

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<v Speaker 3>thought ten years ago, after they saw all this money

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<v Speaker 3>being made in private equiting software, that.

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<v Speaker 1>It was really easy.

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<v Speaker 3>I buy subscription revenue, ninety percent gross margin, I cut

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<v Speaker 3>some cost, and I'm good to go. They forgot to innovate,

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<v Speaker 3>and they forget to invest in R and D, and

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<v Speaker 3>they forgot the domain much of existing management by replacing them.

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<v Speaker 3>And that's coming back to create some flatness in the environment,

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<v Speaker 3>which is very difficult for those businesses.

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<v Speaker 2>By the way, any huge calls of how many people

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<v Speaker 2>are going to be losing their.

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<v Speaker 1>Jobs, look at this conference.

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<v Speaker 3>As you know, I'm an optimist, but what we're seeing

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<v Speaker 3>in development, the great use case for AI is we're

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<v Speaker 3>hiring a lot more developers.

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<v Speaker 2>Alander is so great to see you. Thank you so

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<v Speaker 2>much for joining, always the pleasure