Q2 2020 Earnings Call
Gentlemen, thank you for standing by welcome to the comp <unk> second quarter fiscal year 2020 earnings conference call. At this time all participant lines are in listen only mode. After the speakers presentation. There will be a question answer session.
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I like to have the conference over to your speaker today, Michael Melnick direct of Investor Relations. Thank you. Please go ahead Sir.
Good morning, Thanks for dialing in today for a call to discuss our fiscal second quarter 2020 earnings results.
Before we begin I'd like to remind everyone at the statements made during this call including in the question and answer session. At the end of the call May include forward looking statements, including statements regarding financial projections and future performance all the statements that relate to our beliefs plans expectations or intentions regarding the future pursuant to the.
Safe Harbor provisions of the private Securities Litigation Reform Act 1995.
And the based on our current expectations.
Actual results may differ materially due to risks and uncertainties, such as competitive factors difficulties and delays inherent with development manufacturing marketing and sale of software products and related services and general economic conditions.
For a discussion of these and other risks and uncertainties affecting our business. Please see the risk factors contained in our annual report on Form 10-K , and our most recent quarterly report on Form 10-Q , and our other FTC filings and then the cautionary statements contained in our press release and on our website. The company undertakes no responsibility to up.
The information in this conference call under any circumstance.
In addition, the development timing of any product release as well as features or functionality remain at the sole discretion I don't sole discretion. Our press release related to today's announcement was issued over the wire services earlier. This morning and has also been furnished to FCC as an 8-K filing. The press release is also available on our Investor Relations.
Website.
On this conference call, we will refer to non-GAAP financial measures reconciliation between the non-GAAP and GAAP measures can be found on our website. This conference call is being recorded and a replay is available for the webcast. An archive of today's webcast will be available on our website following the call.
As a reminder, our acquisition of had big closed on October 1st as a result, our second quarter results discussed. This morning do not include headache.
With me on the call. This morning, our Sanjay merchandise, President and Chief Executive Officer, Cabo and Brian Carolyn Chief Financial Officer Telecom Ball Sergeant, Brian will each share opening remarks and commentary before we open the call for Q and <unk> with that I'll turn it over to Sanjay. Thank you Michael Good morning, and thanks for joining us today.
You saw from a press release. This morning, we delivered results above expectations for both revenue and operating margins. This performance as well, it's a positive outlook reflects the good headway, but making on the simplification innovation and execution priorities, we established at the start the fiscal year.
We have worked.
Well, we're making real measurable progress and we remain focused on setting achievable goals and meeting them.
Key actions since our last earnings call include of course major acquisition with how big the introduction of metallic new SAS offerings Relaunching, our brand and hosting nearly 2000 customers partners and thought leaders are comfortable conference early this month.
Brian will provide more context on our financial results in a few minutes, but first I want to highlight our priorities and positive work underway, let's discuss them one by one.
First we're simplifying how we do business during the quarter, we continue to improve our org structure, and our and reexamined redesign and simplify core processes, the resulting operational efficiencies not only contribute to our profitability, but enable us to reinvest in growth driving initiatives. We also continue to implement streamline analog.
On the tools and processes to drive predictability and better linearity in our sales pipeline.
Enhancements are being extended to our customers and partners as well, we are making it easier and more beneficial for that to do business with confidence the feedback from these efforts has been positive as noted by Dr. telephony Upton AG, a longtime partner who said quote.
We are excited about these changes and enhancements to become ballpark and advantage program, the new levels of simplicity and transparency will help our resellers achieved greater profitability faster than before and cool.
We plan to do more to simplify our business.
And empower our ecosystem to build on his enthusiasm.
Next on innovation.
Commvault has always been a leader in developing innovative solutions for our customers. This was validated once again when we were named as an innovator in the most recent horst away for data resiliency solutions and well the eighth consecutive year combo cited as a leader in Gartners plenty 19 magic quadrant for backup and recovery.
These are two of the most influential and analyst. So ITD decision makers and we are proud of the recognition we have received.
We're continuously innovating a combo complete portfolio and we expect to release, new updates and capabilities. Roughly every 90 days. We also built machine learning and artificial intelligence into our products and extended our capabilities across numerous public cloud providers and industry leading applications.
As a result, we have a loyal customer base and strong customer satisfaction ratings, which I reflected not high renewal rates.
We're also focused on giving our customers technology to use and analyze the data. We recently launched a re imagined combo activity product with more intuitive compliance ready workflows to provide the insights and analytics need if a customer sensitive data governance requirements not only is it feature rich.
Let me made a simpler and easier for our partners and customers to buy in years.
Vincent Chao Wang President of AEROSURF solutions noted cool.
We're particularly excited about the new licensing and pricing model, which will make activate easier to buy and for us as a partner easier to sell inflow importantly, we're turning our innovation into new market opportunities.
For example, we recently expanded our portfolio to a two metallic and enterprise grade software as a service data protection solution.
Built as an internal startup angamos proven technology metallic sets a new standard for SAP data protection that unrivaled flexibility scalability and simplicity.
No customers can easily leverage our technology in any form factor on premise in the cloud as it applies for as a service metallic is available today in the United States through an initial set of launch partners what truly excited about the offering Steve Guggenheim a corporate Vice President, Microsoft said, well many of us.
Our mutual customers are migrating their applications and data to the cloud wonder could really interesting use cases for metallic is providing additional protection for individual user information within Microsoft Office, 365, and quote and we Didnt stop there. We also closed off first major acquisition heavy on October 1st we put in place a world class bet.
Oh hectic and Conversely, there is to drive our innovation roadmap and go to market strategies. This includes had picked co founder and CEO of Inovalon and industry veteran David Wigglesworth, Gilead had big global sales organization.
We believe has begun metallic represent a compelling growth opportunity for comfortable at big gives us entry to the software defined storage market, an approximate 2.7 billion tan growing solidly into double digits.
In addition, metallic opens in a problem approximate 1.6 billion addressable opportunity within the broader data replication and data protection public cloud service market. This market is projected to grow at a high single digit rate together these new offerings enable us to expand our 10 by almost 60% when combined with our.
It's Craig well established customer base and focus on execution, we believe that company has meaningfully enhance its growth potential.
Finally, I'd share how we're working to improve execution, particularly in go to market.
These efforts are showing signs of paying off evidenced by having landed seven figure deals in all three regions during the quarter.
Structurally we've installed a completely new segmentation based go to market strategy to drive focus and clarity.
We've added key leaders to build off this initial success across comp off VP, Anthony Postini to lead our new Global Enterprise segment, there will be working to land and expand opportunities among key fortune 500 clients.
We hired David Boyle.
31 year industry battery and that's our Vice President of America sales, David was instrumental building deli and see the enterprise business and we expected to have immediate and meaningful impact.
We're also making progress on the dressing capacity by filling more than 100 open field positions. We believe all of these measures will enable us to better capture new customers and increased share of wallet with existing customers.
Supporting a partner ecosystem continues to be a priority. Our initial program indicators are positive and inline with expectations.
Specifically, our pipeline is healthy and apartment driven deals are up sequentially and year over year.
And we're seeing strong momentum from our largest partners like net app Wipro and HBV.
Further enhanced this program we are delighted the two world class leaders chose to join comp all in October , including Mercer ROE on your global head of channels and alliances and Edison Perez, who will serve as a strategic go to market advisor.
From an execution perspective, we believe the building blocks are in place Andrew remained extremely committed to growing up partner ecosystem.
Looking ahead Commonwealth is dedicated to helping our customers become data ready. This means we enable our customers to protect control manage and use data today and as they move from one technology to the next on Prem in the cloud in containers on virtual machines any application anywhere.
While multi cloud cloud native applications automation and Dev ops.
For customers tremendous competitive advantages. They also create potential complexity and data fragmentation. This is hard to manage especially with their multiple generations of infrastructures and applications that never stop creating data to meet business needs and drive value I see professionals must be data ready. This is our sweet spot.
They can get a critical step further with the acquisition of headache, we're rapidly bring in data and storage management together to help our customers to create value for our shareholders get relentlessly pursuing and executing the strategy is the drive responsible and predictable growth. This quarter, we delivered improved financial results we continue before.
Listen our priorities, we added new leaders closed a major acquisition and launch new products. It was a heavy lift but it was executed with precision.
I'm confident in the actions we're taking on the road ahead and I believe we're on the right track to deliver even better results in the future.
With that let me turn it over to Brian to give you more financial details Brian .
Thanks, Andre and good morning, everyone I will now cover some financial highlights for the second quarter fiscal 2020.
Total revenue in the second quarter was $167.6 million, a decline of 1% year over year and growth of 3% sequentially as expected and consistent with our prior guidance FX was a moderate headwind in the second quarter on a constant currency basis total revenue.
Increased 1% year over year and 4% sequentially.
Software and products revenue was $68.6 billion represented a decline of 1% year over year at an increase of 8% sequentially on a constant currency basis software and products revenue increased 1% year over year and grew 9% sequentially.
Our largest region the Americas increased double digits sequentially with growth, primarily driven by large deals EMEA performed well with revenue flat sequentially and growing 22% year over year.
APAC grew 2% sequentially and increased 7% year over year.
EMEA and APAC year over year growth would have been 28% and 10% respectively on a constant currency basis.
Revenue from enterprise software deals, which we defined as deals over $100000 represented 64% of software and products revenue for the quarter.
Revenue from these transactions was down 3% year over year with up 12% sequentially.
Our average enterprise deal size was approximately $328000 during the quarter up 15% year over year and 10% sequentially.
As Sanjay mentioned, a moment ago, we had seven figure deals in each region during the quarter.
Total services revenue was approximately $99 million a slight year over year decline.
Growth was tempered by changes in foreign exchange rates some of our customers moving to subscription models and the year over year decline in professional services.
Gross margins were 81.8% it decline of approximately 280 basis points year over year, the cost of third party royalties related to our Hyperscale software solutions and the cost of hardware related to our Hyperscale appliances is included in the cost of software and products revenue.
Total operating expenses were approximately $110 million for the quarter down 5% year over year.
We continue to optimize our overall expense base by reallocating resources toward investment in our go to market strategy innovation and other growth driving initiatives.
Operating margins were 14.8% for the quarter, resulting in operating income or EBIT of approximately $24.8 million.
Net income for the quarter was $19.2 million or 42 cents per share based on a diluted weighted average share count of approximately 45.7 million shares.
Now I'll touch on our subscription pricing models and our continued shift some more repeatable revenue.
We see customers continuing to transition to consumption models that provide flexibility to adapt to changes in their business.
We have highlighted to revenue metrics to help investors track the growth and progress of our subscription revenue transition.
These two metrics are repeatable revenue and annual contract value or ACB.
I will start with repeatable revenue.
As a reminder, our primary repeatable revenue streams, our subscription software and maintenance services.
We consider approximately 73% of our Q2 fiscal 2020 total revenue to be repeatable in nature.
This represents a 200 basis point improvement from the prior fiscal year.
These repeatable revenue streams, which were up approximately 1% year over year continued to outperform our non repeatable revenue.
Our second metric is annual contract value.
This metric demonstrates the growth of our subscription and utility based pricing models that we expect will drive new customer acquisition land and expand growth and enhance upsell opportunities.
As of Q2.
CV has grown to $121 million up approximately 60% year over year and up 14% sequentially.
As a reminder, our weighted average subscription contract length is approximately three years in.
And Thats why 21, we expect to start seeing a meaningful impact of the renewals of the subscription agreements that we sold into Fyeighteen.
Which was our first year of adoption of FC six so six and when we started focusing on more repeatable software and services revenue streams.
I'll now shift gears to our balance sheet and cash flows.
As of September Thirtyth, our cash and short term investments balance was approximately $475 million up $24 million from our balance on June Thirtyth 29 team.
Subsequent to quarter end, we closed the head big transaction.
For the terms of our purchase agreement, we paid approximately $166 million and cash as part of the transaction.
After this acquisition our cash balance was just over $310 million of which approximately half reside outside the U.S.
As a result of the timing of the head Vic transaction and other anticipated restructuring costs, we did not repurchase any stock during the quarter.
Approximately $160 million remains in the core current authorization that expires on March 30, Onest 2020, and we intend to remain opportunistic in our repurchase program.
Days sales outstanding or DSO was 77 days. This compares favorably to 81 days in Q2, 19, and 92 days in Q1 20.
The improvement was the result of better linearity throughout the quarter.
As of September Thirtyth 2019, our deferred revenue balance was approximately $321 million, an increase of 2% year over year.
On a constant currency basis deferred revenue was up 4% year over year.
Nearly all our deferred revenue is services revenue that has been invoiced to customers.
Free cash flow, which we defined as cash flow from operations less capital expenditures was approximately $23.4 million for the quarter up 35% over the prior year.
This strong performance was driven by our improved operating results and better linearity during the quarter.
Note that our free cash flow will be impacted by approximately $10 million of restructuring costs accrued in Q2, most of which will be paid out in Q3.
Now I'll discuss our near term financial outlook.
Our Q2 20 results demonstrate that we're beginning to make progress on our simplify innovate and execute agenda.
We are encouraged by our progress, but we recognize that we have more work ahead of us as we positioned the company for a return to predictable growth.
With that said, we believe that the current Q3 20 consensus forecast for approximately $73 million a software and products revenue is within our expected range. This includes a nominal contribution from had big.
Services revenue should be up modestly sequentially also in line with current consensus expectations.
Keep in mind that while we exceed our Q2 expectations and we are confident about the second half outlook.
Factors, such as deal size and timing of close rates can cause volatility in our quarter to quarter results.
As we noted on our last call. We believe that Q1 20 marked a baseline quarter and we expect to show continued sequential growth throughout the rest of the fiscal year.
Now ill discuss our EBIT margin expectations for Q3 over.
Over the course of the next couple of quarters. Some of the cost savings achieved will be reallocated to hiring quota carrying sales reps as we optimize our go to market efforts. In addition, our annual customer event. Commvault go was held earlier this quarter and represented a significant investment.
Even with these additional cost pressures, we expect EBIT margins to be approximately 14% in Q3, which is above the current consensus forecast of 11.6%.
Looking ahead, we expect fourth quarter EBIT margins to increase sequentially from Q3 levels.
Lastly, let me briefly update you on our share count as a result for the stock issued as part of the consideration for the had big transaction, we expect a diluted weighted average share count of approximately 46.5 million shares in Q3 20.
Now I'll turn it back over to Sanjay for some closing remarks, Sanjay. Thank you Brian .
As I've shared since joining the company Commvault has good bones, great technology outstanding people, a loyal customer base and a balance sheet that allows for growth investments.
For the past two quarters, we simplified our internal operations enhanced our go to market capabilities strengthened thought team and remain laser focused on innovation.
Finally, our reputable portfolio of technologies is only getting better the introduction of metallic and acquisition of head big have expanded Tam by almost 60%.
Im confident but we have the portfolio, we need to win new business and take share from a traditional competitors as well as the upstarts industry.
If the success of our recent go conferences and indication we believe our customers and partners are excited and see where we have taken combo.
But don't take my workforce during the conference SGS Christophe Bertrand said quote Commvault is not changing it has already changed the comfort companies actively morphing into its next phase of evolution and quote.
In closing I am proud of what our team has accomplished in just a couple of quarters and I'm optimistic about the opportunity half a combo and the shareholders to capitalize on it we must continue to deliver on our simplify innovate execute agenda. This will enable our return to predictable and responsible growth.
Before I wrap up my prepared comments I'd like to take a moment to thank l. bumpy, a former chief operating officer, who stayed on as an advisor when I joined the company.
He has decided that time is right to stepped off them as advisory role. Although he will continue to serve our board of directors his contributions to the company and our employees for two decades were instrumental and measurable so on behalf of the entire team. Thank you I'll now, we'll open up the call to questions.
As a reminder to ask the question you will need to press star one on your telephone to withdraw your question press the pound Keith.
Please standby compiled acuity roster.
Our first question comes from Jason Adler with William Blair. Your line is open.
Thank you just two questions.
First just looking at the sales and marketing line. It was definitely quite a bit below where we were anticipating it to be.
You can talk Sanjay a little bit about.
Specific changes that you've made I know you've talked about reallocation of any more detail.
Streamlining that's going on with sales and marketing I understand it will be up chief in Q3, but.
Any anymore color on that would be very helpful.
Good morning, Jason It's it's Brian here I'll start and then I'll hand, it over Sanjay.
As you can see in our fiscal Q2, we made a number of.
No restructuring adjustments and we're pivoting more towards as we indicated our last earnings call more towards quota carrying resources.
Additional sales capacity, we recognize that we were a little bit behind on that front I think we're making some good efforts.
This quarter, thus far and you're going to see an increase in our.
Direct quota carrying resources in support of our partner network as well that weve.
We've enhanced this past quarter, yes that and the only thing I'd add to that.
Jason is the fact that we've we've been actively working on our segmentation model that that allows us to be more focus laser focused on the resource allocation that we won we've realigned our partner go to market pieces, we brought onboard some new leadership, we feel pretty good about where things are lending from a from a strategy and and early results.
In that direction.
And what does the head count from quarter to quarter.
Excluding had Vic.
We didnt, we didn't comment on that specifically.
Okay. If you have that that would be helpful. Okay. Then second question.
Brian just on guidance methodology.
Has anything changed obviously had a better than expected result in Q2 did you change your methodology all.
Over the last couple of quarters, and then any comments on visibility relative to where it has been over the last year. So.
Domestic in terms of in terms of guidance and expectations were now firmly focused on sequential growth for the rest of this fiscal year.
We feel good about where we are we feel good about the progress we made in Q2.
There's there's more work ahead of us I think.
In terms of evolve visibility I'd say, it's it's good it's consistent with what we've been seeing recently.
But it's early and we've got we've got some new leadership on board.
They are bringing in and attracting new talent.
And it's going to take a little bit of time for us again.
Some resurgence to more more repeatable and predictable growth.
Just on but I'm just gonna supplement one thing to do what Brian said, so it's about making sure that they predictable also.
Super focused on linear Saturday inside the business and inspecting to make sure that we've got the idling, adding up business. Both look I think you and the sequential quarter on quarter.
Thank you.
Thank you. Our next question comes from Aaron Rakers with Wells Fargo. Your line is open.
Yes. Thanks.
Couple of questions, if I can as well.
As you look at the deferred revenue.
Trends that we've seen I know, it's up on a year over year basis in constant currencies.
Factor as well, but it's still down about 5% give or take relative to where we exited the last fiscal year. So I'm just curious as we think about the company and hopefully some re acceleration of billings growth for how should we think about deferred revenue trends.
Over the next couple of quarters as you see sequential growth in revenue.
Good morning, arent as Brian here, yes, so in terms of deferred revenue the risk some seasonality to that number, especially this quarter.
We expect to see a resurgence of that in our fiscal Q3, often tied to our support renewals that tend to be heavier in fiscal Q3, and then just our sequential growth in general.
We will contribute to that line.
Okay, and then kind of also know when you talk about.
Annualized contract value you also throughout the comment that.
You have opportunities to up sell billing for can you talk at all about what you've been seeing as far as your ability to up sell on your customer base and then also Brian you've talked about as we look into fiscal 2021, you see an opportunity to see some pretty good renewal contributions on on some of the subscription.
How do you think about that manifesting itself in terms of the model.
Be it I know that you're going to give guidance for fiscal 2021, I'd just love to understand what we should be thinking about in terms of that comment.
Hey on Sunday I'll go first I'll sort of get to the first part of the question then how did over to Brian . So just at a high level. The very excited about the fact that between headache B. The 90 day drop that we're doing with every 90 days that were doing with combo complete metallic.
Reimagine to activate and other products that make up the portfolio. We've really got a great set of capabilities now we just need essentially launched all of this couple of weeks ago. It Commvault go we've got a great sort of keep a set of capabilities for our customer customers of all sizes.
I'm not to forget a hyper scale technology.
Look at all of that we've got a great set of capabilities now for customers that allow us to go back at and help them do the entire spectrum of what we call data ready not just manage the beta of protected but actually be able to use and analyze that data in different ways. So that's what be that's what we're sort of alluding to when we say we have we have the upscale capability and I'll hand, it back to Brian to sort of address the other.
So Eric so we've been we've been talking about this for.
For quite some time that we're really excited as we enter at slide 21, because it's going to be the first year that we're going to see.
Some meaningful what we expect to be meaningful renewal of the original subscription contracts that we sold in Fyeighteen.
To create an opportunity for some upsell and cross sell.
Well as some of our new technologies that we recently acquired and.
It's early days.
That's going to be first time that we're we're dealing with that in any kind of magnitude but.
But we think it creates opportunity as well.
Okay, just to give you some more color and the pace of head Big we've set up a specialized gift instead of selling capabilities inside the organization go to market capabilities that are dedicated to taking that software defined storage portfolio into market. So we thought this through pretty pretty well in overlays nicely with our go to market segmentation.
Okay. Thank you.
Thank you. Our next question comes from differential with Jefferies. Your line is open.
Hey, guys. This is Joe on for Brent Congrats on the results good to see the hard work starts to show up in the numbers.
It looks like the results in EMEA were strong I believe you guys had noted some macro weakness there last quarter any update there and then just on the demand environment in that region in general.
Yeah, I know, we had some cautionary statements around the macro environment, especially in the UK.
Could have showed some signs of just softening.
But overall EMEA wide, we're actually very pleased with the performance there.
Like I mentioned on a call that there were seven figure deals in each one of our geographic regions, including EMEA and we're really pleased with the.
The year over year ads sequential growth there.
Awesome great to hear.
And then just as a follow up you guys have been very busy adding products organically and Inorganically. We've always viewed you guys is the most complete enterprise ready solution I guess Sanjay you've been there three quarters now what's left is there anything you're missing or I guess asked another way was the biggest customer requests come out of go.
Short of giving away products.
Giving away anything that might be working but surely I will say to you that be the bit that that the we're sharing with customers that that is really resonating is that the that the hard the hard problems that customers are going to have to tackle the data as they move to multi cloud cloud native applications deep Dev ops engagement and automation.
Are going to look a whole lot different than the data problems of yesterday.
We believe that bringing together data management and storage management is truly going to allow us to do things that no. One has done we feel very good about that add.
The head Big acquisition was well thought through the technologies amazing the dot incredible traction from from what the what that building. So we feel very good about the coming together. So I think our portfolio in times, you will see that our portfolios or bring these pieces together will look.
Like no one else is and I think we're way ahead of everyone else.
Good to hear thanks, guys Congrats again.
Okay.
Thank you. Our next question comes from Eric Martinuzzi with Lake Street. Your line is open.
Question on gross margin assume for next quarter I know you gave us an EBITDA.
EBIT outlook non-GAAP EBIT outlook for Q3.
Okay.
14.
Okay.
Q3.
Curious where did the gross margins go.
81.
Two.
Hi, Eric it's Brian here.
Yes. Good question actually in Q2, we actually saw the best quarter ever.
In terms of our appliance sales for Hyperscale. So we're pleased with that.
That obviously put a little bit of pressure on the on the gross margins, we'd expect that probably flattened out and continue into fiscal Q3.
And probably for the remainder of the year and one other point I want to make going back to Jason's question about head count.
We were actually down 130 had sequentially from.
Fiscal Q1 levels.
Okay.
And then the software sales in the Americas.
Obviously, you know as much as you've seen strength outside.
The Americas.
Really been a sore spot for you.
The success that you're having in EMEA and APAC.
Could you kind of contrast that with what are you doing right there because obviously, we're stumbling in the Americas.
I wouldn't say, where I want to use that exact nephrology of the Americas I'd say that we've been very transparent that we've been working through a rebuild of our business in the Americas and for us.
We had a good quarter.
In Q2 sequentially up over Q1 in the Americas, and we're building back.
I mean, I could give you give your data points, but the fact that matter is we're rebuilding a lot of that opened headcount in the Americas wave, we need more capacity. The partner program is aligning while we closed our single largest largest appliance dealing to use this last quarter. So the hyperscale technology is working well, we just launched metallic only into.
Yes, So we're building back to us very capably abuse high David oil to come in and input in conjunction with what they've up Anthony for C to do with the global segment, we're doubling down on the last focus.
And this work in progress I've never I've never shied away from that.
Okay, and then I know as far as had big contribution in Q3, you characterized it as.
No.
Is there an internal timeline for for when had big is no longer nominal in other words when does headaches started bringing the register for us in the top line.
Yes, Eric it's up Bryant here, we would probably ambition that if you ask why 21.
We're not saying that there won't be contribution from had a big this year, but the majority of that with coming up with 21 and I just wondered remind folks that the reason we went into two had big as an acquisition was around the strategic.
Impact it has on our portfolio of the future not to say that the that'd be the financial impact isn't isn't isn't going to be there. We have some deals on the pipeline for this for the second out but.
I just.
We went in for this because of the long the longer term strategic technical impact that that IP has on the portfolio.
Hi, I get then from what just from the conversation.
Larger enterprise accounts. It go there definitely excited about it was just trying to get appeal for for winning yes, certainly appreciate the strategic impact.
Okay.
Thanks.
Thank you.
Thank you. Our next question comes from James Fish with Piper Jaffray. Your line is open.
Hey, guys congrats on the quarter.
Maybe just to kind of couple of quick kind of prior questions.
The primary storage vendors evolves in the downtick and spending over the last month I guess what are your views on the macro environment moving forward as it relates to sort of the secondary environment and what you're seeing specifically with large enterprises given concerned there.
Sounds like you guys had a really good quarter on large enterprise that.
This quarter, but just curious how you're thinking about it moving forward.
If you look at its a great question. If you look at if you look at the look at opposition, then where we've been wherever weve been investing in secondary storage with our Hyperscaler. That's an area, where we felt MB feel is continuing to grow at this is the simplicity of the solution that we bring for customers.
Key that's what's causing this business is getting some good traction now would head vig, what we what we were able to do for our customers today and over time.
In a more more composite way, it's truly bring together.
The next generation applications that they want to bills, which is obviously coming off a virtual machines and and sort of a vmware environments over into any kind of containerized environment in the multi cloud will we get we believe that the ubiquity that that so software defined storage layer brings will will blur lines between traditionally thought through prime.
And secondly storage plays so it's really about ubiquity and the ability to be able to build applications on the platform and move it around any cloud anyway, that's sort of mindset that we've got here.
Got it and then Brian maybe for you two quarters under your belt.
Quarter now under your belt any update as to what you think this business could look like longer term.
Yes.
So James we're not going to really comment on any specifics, but I will tell you that we're encouraged.
By the longer term growth potentials, especially as we increased our Tam.
Expansion with the acquisition that had big with the launch and metallic.
And just the overall go to market adjustments that were making and adding increased sales capacity for the remainder of the year that encourages less as we move forward.
Congrats again.
Thank you. Our next question comes from Dan Bergstrom with RBC capital markets. Your line is open.
Yes, Thanks for taking my question around metallic and the additional protection around office 365 did you have a previous product that fit the partner sales motion around 365 upgrades or is that is that essentially a new opportunity for you and then they are early any early partner.
Customer feedback there.
Dan this subject so.
We.
We have a product combo complete absolutely and absolutely supports office 365.
Capability today has for a while we've taken we've taken some of those capabilities not just officethree hundred 65, but endpoint.
Files thinks that we are studies have told us.
Our our data has told us that customers in the size of 500 to 2500 employees need us predefine workflows to get going.
But the soft surface or the so the office to 65 piece was a very demand it sort of capability that we built into the product, but you've had that technology.
Obviously in house for enterprise customers for Awhile.
Sorry, It was there another part of your question that I missed.
Any early feedback on the product, yes, so we've got lots and lots of of trials on lots and lots of activity on the website. Since we launched in two weeks ago partners seem to like it the the and I want to reinforce that this technology is deliberate only through partners.
As our commitment to the to the partner community and our and our programs. The feedback so far is very positive.
Great. Thanks.
Thank you. Our next question comes from Alex Kurtz with Keybanc. Your line is open.
Yes, thanks for taking a couple of questions here, Brian did you mention to sort of what the impact was the the topline from subscription adoption in the quarter.
We didnt call it out specifically, Alex but as we've been moving over the past year again, we think thats probably in the low seven figure range in terms of a moderate headwind as we go through our transition and again, we're kind of looking forward to next fiscal year when those headwinds hopefully start turning into a tailwind for us.
As we start to renew some of the early agreements.
And just on the the hiring of North America reps, just the timing of that how long you think you'll take to ramp and productivity and kind of what that means for the next fiscal years I guess would you say a lot of your productivity assumptions are really base in the second half because it's going to take at least six months to get this crew up and running.
Just sort of way hazier linearity of that productivity impacting next year.
I think when you're when you're looking for the profile of an enterprise sales rep. It does take 234 quarters for that to get fully productive.
So a lot of the impact will be seen.
In the beginning of next fiscal year, then in terms of the hiring activity I think we're encouraged by what we've seen so far.
This quarter.
There's a there's an active pipeline.
I think we're encouraged also by the new leadership, we have in place David oil and recorded the Blasio.
Anthony fell standing there those are those are attracting new talent to combat that we havent seen before so we're in workers and.
We once we've opened this up we've got a lot of lot of attention.
On the open positions, we have and I think I think we're at a place where you just working as hard as fast as we can to fill them now while I have you guys in the call. If you know really good sales reps.
What we can going faster.
Well take all the helping guide.
Thank you and I'm currently showing no further questions at this time, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Thank you very much.
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