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Coronavirus Impact: Micro Focus Pulls Dividend, Shares Plummet

‘We think it is right to approach the next twelve months with a reduce risk appetite and heightened sense of caution,’ Micro Focus says in announcing a suspension of its $194.8 million dividend.

Micro Focus’s board is recommending the software giant no longer pay a $194.8 million dividend in light of increased macroeconomic uncertainty stemming from coronavirus.

The Sunnyvale, Calif.-based vendor said it had more than $600 million in cash on hand at the end of February, and hasn’t experienced any material impact on its business from coronavirus to date. But Micro Focus’s board said it was looking to maximize the company’s resilience in the face of external shocks and minimize any real or perceived financial risks arising from the current crisis.

“We believe it appropriate to be prepared for a level of disruption to our new sales activity even though the majority of our revenues are contractual and recurring in nature,” Micro Focus wrote in a filing with the U.S. Securities and Exchange Commission early Wednesday. “As a result, we think it is right to approach the next twelve months with a reduce risk appetite and heightened sense of caution.”

[Related: Micro Focus Fuses Legacy HPE Software Channel Into New Partner Program]

The company’s stock is down $0.85 (17.35 percent) to $4.10 per share in trading midday Wednesday. That the lowest Micro Focus’s stock has ever traded since becoming part of the New York Stock Exchange in September 2017 following the close of its $8.8 billion acquisition of Hewlett Packard Enterprise’s software business. Micro Focus didn’t respond to a request for additional comment.

Micro Focus said its final dividend for the fiscal year ending Oct. 31, 2019, would have been for $0.58 cents per share, and the company has 333.94 million shares outstanding, according to Yahoo, meaning the dividend payout would have cost the company $194.8 million.

The company will consider paying a second interim dividend for the 2019 fiscal year in lieu on the final dividend once there is some visibility into the effects of coronavirus on Micro Focus’s business. In addition, Micro Focus is encouraging shareholders to appoint the chairman as their proxy with their voting instructions rather than attend the company’s March 25 annual general meeting in person.

Micro Focus has doubled down on the channel in recent years, bringing the company’s own and the legacy HPE software channels together into a single partner program in February 2019. The company was hoping the program would increase the share of business flowing through the channel from between 40 percent and 45 percent in 2019 to between 50 percent and 55 percent a year or two later.

The company was recognized for having a 5-star partner program in the 2019 CRN Partner Program Guide.

The company has also invested heavily in its security practice, purchasing Kanata, Ontario-based cybersecurity startup Interset in February 2019 to unlock machine learning and user and entity behavior analytics (UEBA) capabilities. The Interset acquisition was expected to drive deeper data insights and help Micro Focus customers quickly and accurately validate and assess risk.

Novacoast has seen Micro Focus’s Fortify application security testing tool and Voltage secure data encryption offering gain significant traction with clients over the past year to address significant customer needs, according to Paul Anderson, CEO of the Santa Barbara, Calif.-based company, No. 235 on the 2019 CRN Solution Provider 500.

Micro Focus has good tools, Anderson said, and he hopes the company will continue innovating and making new software that customers want. Although Anderson hasn’t heard of any of Novacoast’s other vendor partners suspending their dividends, he believes Micro Focus will be able to pick up where it left off once things get back to normal.

“I just think all these stock issues are going to rebound once the virus settles down,” Anderson said.

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