Q1 2020 Earnings Call
Standing by and welcome to the Mechanics, Q1 fiscal 2020 earnings conference call.
This time, all participants are in listen only mode.
After the speakers presentation will be a question answer session.
The question during this session you'll need to press star one on your telephone if you require any further systems. Please press star Zero I would now like to hand, the conference over to your speaker today Tanya Chen.
Nice precedents Investor Relations and corporate communications. Thank you. Please go ahead Madam.
Good afternoon, and welcome to today's conference call to discuss the results of our first quarter of fiscal 2020.
Also being broadcast over the web and can be accessed any investor relations section of in Indiana website.
Joining me today are geared Sunday, you can access CEO and Duston Williams, new tenants as CFO .
After the market close today, you'd Haneke issued a press release announcing financial results for the first quarter fiscal 2020, if you'd like to read the result, the release. Please visit the press releases section of the new Tenda website.
During today's call management will make forward looking statements within the meaning of the safe Harbor provisions of Federal Securities laws regarding among other things the company's anticipated future financial performance in various period.
Including anticipated revenue software and support revenue or TCV revenue fillings suffering support billings or TCV billings.
Gross margin operating expenses net loss net loss per share weighted average shares outstanding and annual contract value or ACB.
The assumptions underlying our anticipated future financial performance in various periods, our plans to provide future projections and financial guidance, our plan and timing for and the benefits and impact of our transition to a subscription base and recurring revenue business model, including anticipated impacts there Rob on our.
Business and financial results and our ability to come.
Fleet, the transition successfully and in a timely manner, our business plans initiatives and objectives and our ability to win chief such business plans initiatives and objective successfully and in a timely manner.
We anticipated benefits and impact on our business competitive position and financial performance.
Demand for.
And customer adoption of our products and services and our ability to retain and expand upon existing customer relationships.
Our continued investment in talent technology, including our subscription based product and marketing.
And the success and impact of such investments.
The benefits and capabilities of our platform products services and technology or customers plans regarding their adoption or deployment of our products our plans for it and expectations regarding new products services product features and technology that are under development or in process.
The interoperability and up and feel ability of our solutions with and on third party platform competitive in industry dynamic market size and potential market opportunity and other financial and business related information.
These forward looking statements involve a number of risks and uncertainties some of which are beyond our control, which could cause actual results could differ materially and adversely from those anticipated by these statements.
These forward looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation and expressly disclaim any obligation to update alter or otherwise revise these statements. After this call for a more detailed description of these risks and uncertainties. Please refer to our annual report on Form 10-K for fiscal <unk>.
2019 filed with the FCC on September 24, 2019, as well as our earnings release posted a few minutes ago on our website.
These are these documents may be obtained from the FCC or by visiting the Investor Relations section of our website. Please no unless otherwise specifically referenced all financial measures. We use on this call today are explicitly are spot on a non-GAAP basis and have been adjusted to exclude certain charges.
Provided to the extent available reconciliations of these non-GAAP financial measures to GAAP financial measures any investor Relations section of our website and in our earnings press release.
Turning to our upcoming conferences, you tannic management will be at the Wells Fargo TMT summit in Las Vegas on December 3rd the Credit Suisse Technology Conference in Scottsdale on December 4th Raymond James Technology Investors Conference in New York City on December 10, the Barclays Global TMT Conference in San Francisco on December 12, and the new.
Needham growth conference in New York City on January 14th we hope to see many of either lastly, please mark your calendar for our third Investor Day in New York City on Thursday March 26.
I'll turn it over to Derek.
Thank you Tanya.
Good afternoon, everyone. Thank you for joining us and I'm very happy Thanksgiving in advance.
In September we celebrated our 10th anniversary.
Reached $1 billion, an annual revenues faster than most software companies probably in the past 20 years.
Deferred revenue at almost $2 billion as well.
In the last two years, we have transformed our business model from a planes to software and an outgoing suke subscription.
As we look toward mix 10 years, we see even bigger opportunities to continue to work hard with where customers to ensure that awards friction less reliable and invisible remain synonymous with the attacks.
Q1 was a strong quarter froze based on better than expected for that should resorts.
Progress and subscription record large deals as well as continued new product traction.
Based on last quarter's strong momentum with.
$370 million in software and support Billings War, TCV, billings and $305 million and softens booked revenue or PCB revenue.
Both metrics, beating consensus.
Signed the second highest number ever both large deals in the core crude which we define as the deals greater than half a million dollars.
Subscription grew to 73% school buildings up from 71% last quarter.
He moved steadily towards the goal of more than 75%.
Which as I stated goal by the end of fiscal 2020.
Leader I'll talk more about why or move to subscription model would give us as a competitive edge in awarded that is increasingly going hybrid.
We also had strong 39% your weird deferred revenue growth in Q1, reaching nearly $1 billion in the quarter.
Milestone.
In this call a wonderful cousin to three pillars of for execution that are driving this improved financial performance our go to market engine.
Our move to subscription model as we established a new baseline.
And the organic adoption of for new products.
The headline over the quarter was our continued momentum in execution across both sales and marketing.
In addition to increasing our focus on lead generation.
Our global sales leaders continue to infuse rigorous operational discipline in our sales process around the world.
Americas region delivered record highs software and support for TCV bookings this quarter.
We also made excellent progress in sales hiring in the quarter with a record number of net new sales reps.
You made another key fields higher during the quarter with the addition of for new VP of Americas Channel.
A new leadership is focused on helping our partners.
True lies simplify and integrate the multi cloud experience for customers.
As we noted on last quarter's call. We spent the last three years building a robust enterprise business.
Our goal is now to balance stuck with an equally strong midmarket business as commercial customers are just as aspirationally as enterprises want to hybrid cloud transformation.
Not surprisingly, we discover menu $4 million account segment.
One Great example of a new customer win in this segment was with the U.S. based Internet service provider.
This deal, which was creek what was a billion dollars comprised of course it was operating system prison Pro filed a me too H.B. hypervisor to build a scalable private club.
The leveraging your tonics to run several of the enterprise adoption, putting their oracle databases.
We also recently added to see them technology veteran for executive team with a higher dark on manner as chief commercial officer.
And is multifaceted rule sarcoma lead business development, Emoney global system integrators service providers and selling for cloud and platform products.
I've watched our can be very meaningful companies in the last 15 years why is technologies and Nick Center.
He brings an entrepreneurial mindset in an acute awareness of the computing landscape.
He's authentic leadership style, a clear bias for action in a broad industry network.
I would have to create high energy companies in the space of end user computing and storage.
Thrilled to have an extremely hard working leader, whose passionate about cloud telcos people and Saturday and communication.
Speaking of clarity, let me share some of our progress and the simplification of our go to market messaging that emphasizes customer solutions rather than individual products. You focused on three solutions are on private cloud end user computing and databases.
The most common themes, we hear from customers is that they want their competing silos to work seamlessly.
Performance security enterprise and ease of use point of view.
This frictionless deliveries the focus of our new Global AD campaign launched this quarter that shows how new tonic softer brings it all together now to virtualize simplifying integrate deeper applications and infrastructure.
This outside in approach was very well received as our European got next conference. This October we brought together 4500 attendees in Copenhagen out our biggest EMEA event to date.
Customers prospects employees in more than 12 onward tennis channel partners participated in over 100 technical breakout sessions to hear about the why the how and the walk our future and how it relates to their multi cloud journey of the next three to five years, our customers now want to take our software to Hyperscaler substrates and the public cloud.
They realize that compute and storage mid does it need to sit side by side and these highly virtualized network environment at upon friends, we showcased albeit approaching this problem by making the private and public cloud symmetric for our customers. They can be is second to recites force computing to accommodate seasonal peaks.
And globally load balancer distributed application across these data centers with a single affordable software license.
Because treated by a single pane of glass that manages both sides of the Io.
It's events like Doc next that help us drive strong momentum in large deals with new and existing customers.
Surely after dark mixed in Copenhagen, we signed a multimillion dollar deal with a leading financial services form in Germany.
Attended the event there now using new tactics to run their mission critical financial services applications.
This win is a great example of how we leverage our premier marketing events to be trust with our prospects.
Customer will just one of the six to six customers, we signed in the quarter that will work over a million dollars record for us.
So do you know those customers also spend at least 1 million with those in Q4.
With 50% of them, increasing their engagement with us to support new workloads in Q1.
In addition, this quarter, we closed nine deals worth more than $3 million.
Finally, we are close to reaching a milestone of having nearly 1000 customers with the lifetime spend of more than a million dollars up 39% your where you're not.
Notwithstanding the compression in our topline due to subscription.
Our biggest deal this quarter was with the repeat marquee client that invested nearly $9 million in subscription licenses to modernize the infrastructure.
This global Fortune 10 company has lifetime bookings with us over $30 million.
The use cases fuels, a new edge computing solution that would manage their climbing use of sensors and provide additional security to their digital transactions.
This relationship accentuates, what we're known for in the market.
Liability reliability and reliability of our products, our processes and our people and customer support and customer success.
And finally this relationship also underscores how we're helping our fortune global 100 customers transform from ownership of technology.
Access to technology, we the subscription consumption motor.
To own music with I tunes or two stream music with Spotify is simply to think about crude offs of ownership versus axis.
Given how rapidly technology is changing the company the introducing new products enterprise customers are waking up to this idea of subscription to apart portfolio being stream to them in a very similarly.
Just a short amount of time be have shown strong progress in transforming our business to cater to this new cloud consumption mentality.
This transition was enables us to offer what we believe is one of the infrastructure segments only to license mobility models to protect our customers investments in multi cloud computing it'll help our customers to move investments.
I would leave it in private and public clouds.
As their business needs dictate our.
Our flexible licensing is a competitive differentiator in a clear customer benefit.
Equally important is how the subscription model paves the way you for a long term profitability.
As we said go to market incentives, respectively for hunting versus farming of annual contract value ACB driven by sales versus total contract value TCV.
Driven by customer success.
Speaking of customer success, one of our top subscription deals in the quarter came from a large civilian department in the U.S. government.
As was nearly $5 million the deal represents this customers first private cloud solution.
Our each we hypervisor to manage and skilled mission critical workloads the customers use new textural Oracle in addition to selecting era.
Database management and frame to deliver were true desktops to its growing user base. They chose us for a product quality and breadth simplicity and strong customer references.
Speaking of simplicity recently in your tax customer posted on an online forum about how easy it is to update mechanics clusters.
The customer said and I quote I.
I just wanted to give a shout out to new tonics on here, so everyone knows how greed and easy it is to set up an entire cluster from scratch encore.
This customer had previous experience with multimillion dollar project incumbents.
Which took weeks the said with mechanics, it would have taken two hours.
The went on to see and I quote.
I know new tonics talks about this but we need to be shouting this from the rooftops encore.
We intend to bring the same level of invisible ops, when customer things stand shooting workloads in Hyperscale data center of the public cloud.
Another example of a million dollars plus subscription deal in Q1.
Was with the new customer that to the high profile us based apparent manufacturer.
We hoping this customer modernize the infrastructure to move off for legacy three tiered solution into a cloud first architecture for their datacenters their primary workloads into databases and VDI.
We partnered with a global OSI who's helping us integrated Decitabine Com files.
Flow and Prism pro with our native virtualization technology H. we.
The customer chose us for a simple ease.
Fuse single pane of glass and the flexibility for their IP team to scale and elastic infrastructure.
On the topic of flexibility one of the key benefits of subscription is that it allows customers complete freedom to choose to spend operating or capital budget dollars.
The hybrid consumption model in this case unlocks mobility of the entire stack, including data.
Applications networks and license.
The putting 19 enterprise cloud index or Sci.
Issue, just two or two weeks ago supports these pieces of up mobility. The independent third party sort of be asked or 2600, good will likely decision makers about the state of global enterprise cloud deployments and adoption plans for hybrid cloud.
85% of easier respondents said hybrid cloud is the ideal I'd operating model.
95% reported that essentially desirable people to easily move applications in cloud environments.
Moreover, 73% said, they're moving applications back on premises, indicating a clear needful mobility.
Switching gears to our third pillar of execution in the quarter, which was traction for our new product portfolio.
Customers know and love us for a reliable HCR core and our customer success ethos.
Architecturally we brought together storage compute and networking into a platform combining the benefits of web scale architecture with the consumer grid simplicity for smartphone.
Delivered with a genius bar like customer support experience.
Overtime, This trust and loyalty meter customers realize the wondered and needing more from us higher up the stock.
Given how poor there other REIT to relationships are.
Our new products continued to gain traction in the market. In fact this holistic approach for hybrid cloud stock is often a critical reason why we win deals in Q1, our number of deals that include or at least one product beyond or core it say offerings increased once again to 28% in the rolling four quarter basis, showing nice progression from.
26% in the previous quarter.
Our software and services portfolio now covers the trifecta of decoupling control plane and management plane.
With a beautifully and comprised of the run time for the machines, which themselves a pure software in the world softer define.
The control plane is where the machines orchestrate other machines.
And the management plan is the humans interactive machines increasingly with the help of AI in an era of ops.
One example of the power of our product portfolio is that one of the world's leading organ transplant nonprofit organizations.
This customer purchase there were $2 million for software, including our core Aeolus operating system com flow files and each of you hypervisor to run their sequel databases.
They use of new tank software as a critical part of the full scale modernization of the computing platform.
When Trialing our software earlier this year. This all 1.5 times performance improvement will the legacy infrastructure. This customers now evaluating xiety.
Cloud based disaster recovery solution.
We also scored a competitive win with the largest organic farming co-operative in North America and the corporate.
Farming industry has been going to significant changes, which drove this customer to look at new and innovative I'd solutions to address that database performance issues and support future growth needs the turned to us to reduce operating costs, but significantly shrinking the database licensing fees.
In a great example for TCOS the cost savings on these licenses alone.
Under the purchase of our software.
On the topic of Hyperscale of platforms, we announced new tonics clusters earlier this year to enable our softer to run in public cloud data centers.
Our approach to multi cloud at architecturally deferred.
Just like eight CIA was so different than converged infrastructure or Cie.
See I was nothing more than a bandied striping large technology technology providers under one roof.
We founded this company on the premise that CIA was a hack a temporary coalition of big brands that would not would stand the test of time.
Because it was packaging expensive hardware and software under an umbrella term of convergence with no change to the operating and consumption models.
Eight CDAI on the other hand was a fundamental rethinking empty calculus of commodity servers commodity networks and enterprise grade software coming together with an elegant consumer grade design.
How we look at the new multi cloud ward of the new we'd see a challenge with their commodity so was there a commodity networks and our software and design is the journey of this decade.
I will share more about clustered in the coming months.
We hope to convince Gartner, one more time, but the real convergence of clouds magic quadrant.
What's utilizing simplifying and integrating them all together into one delightful experience is in our DNA.
Speaking delight, providing our customers are the freedom to choose which hardware platform to run our softer wasn't masterstroke for us in 2014.
When we decided to open our appliance route to market to competition from other software vendors, who started OEM our software.
We are pleased to see or new relationship with HP start to blossom.
This being the first quarter since the integrated products Jade.
HPV huge customer base can now easily adopt mechanics, as we announced the general availability for softer and HP pool aren't Dx orders.
Fully integrated with our enviable support.
He's hybrid cloud in the service Greenleaf solution built a new tonic CHP Hypervisor is also generally available now as a result, we saw number of new customer wins and be solution during the quarter.
In Q1 more than half of four HB Dx customers also new logos to new tenants.
Leading this new partnership and our software is increased exposure to a speed installed base.
One example of how our new relationship with HP is ramping faster than any of our past OEM partnerships is a nearly 2 million dollar deal in Q1 with a new customer which is a large EMEA based insurance company.
Early success is compelling this customer who already explore databases. So this use case with new clinics era.
When very critical initiative within the company is those site test drives service running on Google GCP.
To me. This is one of our most important projects to get right for a true digital transformation of the company.
Our prospective customers grew from a digital banner AD to trying out her entire Clark portfolio hosted in the public cloud in a one click self guided experience is a testament to how far we've come from being an appliance company a couple of years ago.
If we get this right it'll immensely improved profitability in the commercial mid market as most of the prospects would then be unable we had with a digital touch and only to self selected ones would require human touch.
I'm proud to say that in this last year. We also don't thousand on credit card transactions to sell our cloud services that zero human touch.
They do transactions are core to our future, including for subscription renewal and eventually to a profitability.
Finally, we were humbled to be recognized comparably as a great company for millennials to walk for in the San Francisco Bay area and also a Bloomberg intelligence is one of the 50 companies to watch for in 2020.
Before I turn it over to customers.
I want to bring it all together now.
Strong quarter.
Continued progress in the rollout of a subscription model.
Record number of large deals growing demand for new products and an increasingly digital go to market strategy.
Beneath it all the care attention, we give customers remains one of our most substantial competitive differentiators.
Proven track record and passion for simplifying complexity makes us a trusted partner for enterprise building the computing platform.
Our long term differentiation continues to be at the intersection of public and private clouds.
In how we virtualize.
Simplify and integrate the silos to make computing invisible anywhere.
Now I'd like turn it or duston lest.
Thank you Derek.
Q1 was a quarter during which we met or exceeded our guidance for software and support billings software and support revenue gross margin operating expenses and earnings per share.
We were pleased with the amount of pipeline, we generated in the quarter and that our backlog position showed very little change from Q4, why 19 Q1 half White 20.
This was in sharp contrast to the fact that over the last three years, we have experienced on average about a 25% decline in backlog from Q4 to Q1.
During the quarter. We also made good progress on our shift to a recurring subscription business.
In Q1 subscription billings accounted for 73% of total billings up from 71% in Q4 and subscription revenue now accounts for 69% of total revenue up from 65% in Q4.
The subscription shift for the quarter was inline with our guidance last quarter at which time, we mentioned that the subscription percentages would fluctuate a bit plus or minus for the next couple of quarters.
With a goal of 75% of billings from subscriptions by Q4 fiscal 2020.
Q1 marked our fifth quarter into the subscription transition.
We have strides during this transitionary period to find an ideal financial metric to portray an apples to apples comparison of our topline growth.
One that mixes the attributes of the old wife of device model with the new subscription model.
Historically, we've had one metric TCV or total contract value for software and support that we applied to show the growth rates for the entire company, which combined the old life of device model business model and the new subscription based business model.
Using TCV is a growth metric works well for the old life of device model, but not for the new subscription based model as TCV ignores changes in term length, and therefore significantly understates the true growth of the business in a period of decreasing term links.
As such we believe the single best metric to measure the true growth profile of the company during our transition to our new subscription based model is new annual contract value plus renewals or HCV for short booked in the quarter, which includes sales of life of device slices.
This is based on and assume five year term.
By calculating in this way we take into account the changing term lengths, while still showing the impact of our continued sales of life of device licenses.
Having aggregate HCV in any given period will allow us for a cleaner apples to apples comparison period over period growth rates.
And it's most simplistic form we defined ACB booked in the quarter as the annual contract value of new business plus the annual contract value of renewals.
And we calculate ACB booked in the quarter by taking the value of each transaction booked in the quarter, including renewals, but excluding professional services divided by its term length and then summing the total of those values.
We've updated our investor deck to include this new ACB metric.
The average dollar weighted term length in Q1 20, including renewals was 3.9 years versus 3.9 years in Q4 19.
This calculation assumes life of device licenses or five year terms.
Now moving onto some specific Q1.
Financial highlights again for simplicity purposes, and as we said last quarter, we use the term TCV or total contract value to describe our software and support revenue and billings.
TCV revenue or software and support revenue for the first quarter exceeded our guidance range of 290 to 300 million coming in at 305 million up 9% from a year ago and up 6% from the previous quarter, reflecting the revenue compression from accompanies ongoing transition to subscription in the significant.
Reduction of hardware revenue.
TCV billings or software and support billings were 370 million versus our guidance of 360 to 370 million.
Up 5% from a year ago quarter and up 3% from the prior quarter.
Also reflecting the billings compression from the company's ongoing transition to subscription and a significant reduction of hardware billings.
ACB booked in the quarter was 123 million.
And up 18% from the year ago quarter.
New customer bookings represented 24% of total bookings in the quarter. The same as Q1 19 and up from 23% in Q4 19.
Although we only had a partial shipment quarter of shipments are HP Dx related bookings got off to a good start with about 8 million in sales, including 25, new customers to tenants.
We will not normally disclose this level of detail, but we felt it was important to provide an initial indication of the progress early in the relationship.
Americas was our best performing region in Q1.
On a year over year basis, the enterprise related business outperformed the commercial business, our federal business performed slightly better than expected.
In Q1, TCV bookings, our software and support bookings from an international regions represented 40% of total bookings versus 40% in Q1 19.
Our non-GAAP gross margin in Q1 was 80% in line with our guidance operating expenses for 386 and at the lower end of our guidance range of 385 to 390 million.
And our non-GAAP net loss was $135 million for the quarter or a loss of 71 cents per share.
A few balance sheet highlights we closed the quarter with cash and short term investments of 889 million down $20 million from Q4, we used 26 million of cash flow from operations in Q1, which was negatively impacted by 10 million to be SPP outflow.
Free cash flow during the quarter was negative 44 million and this performance was also negatively impacted by the 10 million of DSPP outflow in the quarter.
Turning to our details of our Q2 guidance on a non-GAAP basis for Q2, we expect TCV billings or software and support billings to be between 410, and 420 million versus current consensus estimates of 410 million.
TCV revenue or software and support revenue to be between 330 on 335 million versus current consensus estimates of 328 million.
Gross margin of approximately 80%.
Operating expenses between 400, and 410 million versus current consensus estimates of 407 million in a per share loss of approximately 70 cents using weighted average shares outstanding of approximately 193 million.
The TCV billings, our software and support billings guidance assumes the dollar weighted average deal terms remain constant quarter over quarter at 3.9 years.
Based on the TCV billings or software and support billings at the guidance midpoint of 415 million HCV for Q2 would approximate 135 million, reflecting on approximate year over year growth rate of 24%.
Now turning to the fiscal 2020 guidance our guidance for fiscal 20 remains unchanged, which we believed to be prudent based on the uncertain macro environment referenced by many infrastructure related companies over the last several months.
So specifically for fiscal 2020, we expect TCV billings or software and support billings between 1.65 billion in 1.75 billion TCV revenue or software and support revenue between 1.3, and 1.4 billion gross margins of approximately 80%.
And operating expenses between 1.65 and 1.7 billion.
For representative purposes based on the TCV billings or software and support billings at the guidance midpoint of 1.7 billion HCV for fiscal 2020 would approximate 535 million.
Reflecting an approximate year over year growth rate of 25%.
The guidance for fiscal 2020 assumes no major economic downturn during their fiscal year and no change to the current dollar weighted average deal terms currently at 3.9 years.
And with that operator, you could now open the call up for questions. Thank you.
At this time I would like to remind everyone in order to ask a question.
Please press Star then the number one on your telephone keypad.
We'll pause for just a moment to compile acuity roster.
Your first question comes from the line of Matt Hedberg from RBC capital markets. Your line is open.
Hey, guys. Thanks for taking my questions first of all happy 10th anniversary and congrats on the strong results coast.
I wanted to touch on.
Baby is first of macro spending question and then I had a question partnerships.
Obviously good results here it sounds like you it could progress in the Americas strong large deal performance I'm curious if you could talk about rest of world and maybe some of the things you've learned in the Americas that can be applied to the rest of the world and maybe just your Russias overall comments on it.
Buying pattern spending patterns.
Well I think thanks for the question Matt.
I think at the high level.
When we look at our overall quarterly performance, 40% from international isn't being in line with what you did a year ago.
So we don't see anything unusual.
In it back in EMEA.
Lastly.
Chris his leadership has been telling in Americas, and would love to actually go and apply a lot of that rigor to both it back in to me as well.
Then I guess in terms of of eating your partnerships you specifically called HQ, which was it was great here some of the the success there and you commented briefly the rush on GCP, which is I am wondering if you can give us a little bit more of an update on GCP in particular, if there's anything that you have in terms of joint customer.
Over momentum that you could share there would be would certainly be helpful.
Yes, again on GCP, new I talked about what we're test drive.
One of our most important projects to get right.
For us to increasingly have would bridge to go to market motion.
And it's a very very important project for us to really really.
Improve the efficiency for commercial segment, we are working very closely on Qunar. This.
Common and costs are coming together will and our approaches to integrate and posted the control cleanup com rather than raw hypervisor like HP or something so there's some really good progress you've made over the last three to six months of course with GCP.
And then hopefully over the recent acquisition of cloud simple at low open up new doors for bare metal in the service and bring GCP on par with what we're doing with Pwc measure.
Super helpful. Thanks, a lot.
Your next question comes from line of Rod Hall from Goldman Sachs. Your line is open.
Yes, hi, Thanks for the question I wanted to ask for starters, Justin to double check that our math is right on the topline impact this quarter. So we'd be ACB grew 18% year over year, and then software and support up.
Nine to the difference in the two into I guess, what you would say the topline impact from the transition just double checking that Dustin.
Yes, it's not as simple as that necessarily because the ACB kelk obviously.
Different term lengths are weighted differently within the HCV.
But you can get some feel there for the difference, but I wouldn't take that literally.
Right, just kind of puts us in a ballpark anyway.
Okay. Thanks for that and then on the main thing I wanted to ask is HCV, the accelerating to 25% growth.
In the forward quarter at least that's kind of where we are in the mid point I Wonder if you guys could maybe comment on what's driving that.
Is that greenway career that there's some other thing that is.
Is driving that acceleration in HCV.
Well part of positive just creating a new baseline because that we just flushed through a big chunk of the transformation. We think we have a stable.
Tom lengths now.
Our salespeople are getting used to selling subscription our customers are getting used to hearing but subscription our channel partners.
Have gotten enabled we know how to defend value protect value of pure software, it's getting better as well.
In that sense. So I think all in all of this was a tough.
12 months for us, but I think is well worth it. So I think the to summarize it's really a new baseline and of course, we put some.
Real meat and bone, so with that it comes to pipeline and marketing and demand generation and things like that.
And do you guys. Just one last question then I'll give up before but do you guys dhiraj have hopes for expansion beyond greenlight to other.
On Prem cloud services like eight of U.S. outposts or other things like that I mean as it is that a good possibility maybe we'll see you in some of those in the future or can you just comment on what the strategy there.
Yes definitely wants their hardware outposts to really run our software as well. So we hope to actually do a lot of that stuff in a way that is reliable and stable and.
So we take longer at one of the things that people know about others how are we.
Tested the heck out of the flash drives coming out of the platform vendors have now our test suite is the industry standard.
And we've kept failing many of the very large SSD providers because of our rig or so we want to play but is similar rigor when it comes to these platforms coming out from Hyperscalers as well.
That's great alright. Thank you appreciate it.
Thank you.
Your next question comes from line of Aaron Rakers from Wells Fargo. Your line is open.
Mr. Recurrence your line is open.
'cause busy it with Palo Alto right now.
Your next question, Hey, guys, Hey, guys, Hey, guys can you hear me.
Yes.
Hi, Okay, sorry about that it's a it's a tricky mute button.
You guys congratulations on a quarter.
As you guys move through the subscription transition one thing that you've talked about in the past was the next kind of transitional phase for the company would move to more of a ratable type model can you just give us any kind of updated thoughts you have around that maybe the timing might be and what exactly that would entail as the next phase.
Sure.
Yes, obviously, our new products or are effectively mostly all ratable in nature now there's still a relatively small piece of the equation there.
And you know it's something that's.
That on our minds, but quite honestly I think we have a few more quarters to get through first.
Too I think maybe earn that right to to do another movement in the model.
And I think right now that focuses on consistent execution continuing to get the business back to.
A level of expectations that we have for the business certainly and that's the focus but ultimately.
We'll need to do that I think to ultimately complete.
The transition and get to a.
Very predictable.
Revenue model billing model et cetera, so and even before the rapidly change there's just a sales comps that.
At this involves change management and enabled menton.
You know obviously be more agile in our core to setting which is twice a year.
We do six month quotas. Unlike most other enterprise heavy companies. So we are.
Really trying to understand how when we moved to in HCV sales comp.
That's that's perfect and then and then the follow up question you know the number of deals now involving more than one products are one product above core at 28% that that's a notable trend you know that the company started to see over the last few quarters. You know I think last quarter. You also noted that you have yet to kind of drive.
More bundled sales approach across your organization.
Can you talk a little bit about what's driving the success of that continue to increase than and when you know looking forward. We could expect maybe a sales motion that bundles a bit more effectively the the additional or add on products.
Yes, we are approaching this more top down like customer in more solutions driven down product driven.
Each solution will drive a mini portfolio products and that's how we're educating our salesforce and our prospects. So in many which we are asking them to segment. There campaigns based on solutions and then they don't have to go and Green talk about six or seven different products, maybe just three different.
Products now Theyre not going ahead and created a skew out of this bundle, but at very least we really helping them think about a mini portfolio based on a solution that approach.
Thank you.
Your next question comes from the line of Katy Huberty from Morgan Stanley . Your line is open.
Hi, This is Elizabeth on for Katie.
Two questions, one well well, but your view of Ben on ACB growth. If you had a full quarter of of HP compared to that 18 growth that were supported and where do you expect ACB growth for the full year and follow up.
Yeah on the it's hard to to answer on the HP thing there HP thing and clearly depends on the length of the contracts and how much extra we could have done so that's a tough one to two.
To theorize on that one and then we did mention I think in the script here that HCV growth for the year would roughly be 25%.
But yes based on the the TCV billings that that we presented.
And also this greenlee thing, which is fully ratable consumption motor it's very early for us to comment I think over the course of the next four quarters as we understand.
The opportunity than the challenges in this hardware subscription model at HP has will be would come and talk more about it.
Thank you and then a follow up related to the deals outside of the core offerings. What doesn't have the software products that are most outperforming your your expectations and could you give us an idea of what percent of customers have purchased some something outside of the decor.
Yes on the former I think we talked about I talked about it my narrative as well, obviously HVB don't charge for and Thats being 40% to 47% for business on a rolling four quarter basis.
Prison pool has been doing really well in terms of attach.
Files, which is our.
Softer defined filer.
Our microsegmentation product called flow, which is now integrating with our SaaS product called beams with the together they will.
You know become the unified security posture for the company in a multi cloud war.
And then there is era and Freeman. So these products, we definitely see a lot of fall.
Conversations going on and lot of attach as well.
Thank you and to give us I give what percent of customers of purchase something outside of the core offerings.
Knotted, though.
Our hands right now I think is to a 28% afford deals this quarter on a rolling four quarter basis.
Got it thank you.
Your next question comes from a line of Jason Adder from William Blair. Your line is open.
Thank you.
On the macro guide on the guidance for the year or you talked about macro being a little bit weaker at some of your competitors just.
Just to be clear is that something that you have seen in your business up to this point.
It's early actually in it so mix because of your small Jason that it's hard to where you say, whether we are seeing something right. Now that said you know international business continues to be the weight was from four quarters ago averages and destiny want to comment on there yeah. It's something obviously that we keep our eye on Jason just because of the.
The frequency I think that you hear about it now and when we look at spending we trying to take a prudent approach to to the spending equation looking forward, but there's nothing.
That.
Significant that we can point to is you always hear story here or there, but theres no trend that we've uncovered from that perspective, and a large enterprise in Americas, we actually.
Do see doing well.
There is a lot of noise in in Brexit and China, and we continue to monitor that and be cautious about it.
Okay, and then just a follow up the Roche.
Clearly things have gotten better for you guys, but maybe you could talk about some areas or the business, where you know you still feel like you could be doing a lot better.
Well I think the big investments that are you, making in commercial and how we really need to make it.
Extremely digital and a lot more efficient is a big part of this.
How we can go and get even more developer productivity I think thats one thing that we don't talk about.
Externally, but we it's on my mind, the mines of for lot of our people as well.
Is how do we really bring delight toward developers who are also customers actually we think a lot about our customers outside but sometimes the corridors children them no no shoes. So I think thats one thing we really focused on for the last six months and I think it's going to bring a lot of sort of efficiency to our R&D as well.
And we we believe does a lot to begin to unlock there too so between commercial and doing things into with with test drive and.
Productivity.
What do you mean by debt productivity tourists is like more Dev ops practices, what I'm not quite sure what you mean by that.
Well, we have all sort of disaggregated our products in the last year and the more of a disaggregate the more independents, we give them to lead independent of each other because in a multi product portfolio does come up with the challenges of how do you do release management and how do you do integration and testing of integrated products and at the same.
Im provider part of me to individual product owners to go in release called at an even more.
More agile pacesetting due to the kind of things that unlocks a lot of value for growing companies.
Thank you.
Your next question comes from the line of Simon Leopold from Raymond James Your line is open.
Great. Thanks for taking the question I wanted to touch on the competitive environment given that.
Some of the others within sort of the Iraqi supply chain of talked about.
Some players, becoming more competitive and cutting price.
Whether or not you've seen any change in behavior from from the folks you are going up against and then I've got a follow up.
Yes, I think though when rates have not changed.
Much in fact, it's pretty much consistent for the last four quarters.
So I would say three four years ago, the competitive pressure was from converged infrastructure and big.
Incumbents in this space of storage and virtualization in networking and now.
Just happens to be a tool faas via Mariners and we are talking about.
How do you really navigate this multi cloud environment over the next five years and we think we have different approaches I think hyper convergence as a magic quadrant is really driven by software now as opposed to hardware.
And I think it was a battle that we had to win over the last three four years and I think the dust is finally settled at its really an operating system play.
And I would say that the multi product portfolio is probably the next big battleground for for both companies how do we really do this well when we're doing this organically with.
Small teams that we coming together with an acquirer.
And we believe that over the long haul I think this is a much better approached and going and acquiring revenue.
So we believe that there is obviously going to be competition, it's a very large market and large markets at red Ocean.
That oceans wheels, and Red oceans, a bloody so we got to be the faster shark that knows how to really navigate.
And will change and just in the last 18 months itself.
This notion of running our software and Hyperscaler public cloud environment was something that we probably didnt conceivable three years ago. So as we go in.
Really expand the surface area for software, we get into other backgrounds that we haven't talked about before.
And just as a follow up I wanted to see how you're thinking about getting back to generating cash you early in fiscal 19, you had.
Very strong cash from operations, and then you sort of pivoted to making more investments and I just want to think about what's sort of the trajectory to being a cash generating company. Thanks.
Yes, Thank you and I think this goes back to the transformation of our Salesforce.
Being more disciplined about extracting more value for software I mean, it's a big change for a company that used to sell appliances till about 18 months ago. So I would say that a lot of her does around operational rigor and on.
Setting those enablement goals for our sellers, who are now selling pure software and subscription and going educating the market on this transition itself.
Yes, and I think.
Clearly.
Over time and this is obviously through the next several years here, it's how do we.
Take advantage of the efficiencies that come from a subscription model.
And.
We have to have a flow of renewals coming in first.
But what we're doing in the interim is starting to structure of the business.
Thinking from a productivity perspective of channel productivity. So how do how do we kind of position some of some of the things that we need to in advance.
Of the subscription renewal in flow, if you will and how do we take advantage of those efficiencies. So that's over time, we're clearly going to help drive that now when we exactly going to get back to we've given you guidance for for F. Why 20, and you know what that looks like and then clearly give some update.
Right.
At Investor day back and upcoming in March.
Thank you.
Your next question comes from the line of that Husseini from some Connie financial your line is open.
Yes, thanks for.
Thank you my question, maybe on San Francisco International do I want to go to slide number 14.
And one of reference your view that industry is becoming more like a duopoly where.
New tenancies coexisting with Vmware and I think the bar chart to the lift off the slide 14.
Captures that.
Coexisting with your main competitor in that context, when I look like when I look at two three years from now what percentage of your billing shoot captured the entire stack of products that Youre, a marketing and other words, the second but bar chart on slide 14, when would you.
At present.
More than 50, 60% of the entire.
As a stack of products and have a follow up yes. Thank you maybe for the question.
So one thing is easy to show that the balloon can be made to look bigger by pressing it on the core side you can always financially engineer.
So things that come out of the floor and go into the new products to do it as a creative.
Revenue is where the real sort of goodness belongs to any multi product portfolio company and we are very much focused on that so actually improves seller productivity and channel productivity and.
Actually the creative dollars.
I'd say that in the next three years.
If you can actually get 25% for business Accretable new to come from there.
That will be huge actually you know and.
Doing this right methodically without having to take money out of the left pocket for the right pocket will be.
Keith this transformation.
So in the longer term two three years.
We should see.
Basically at least a quarter of your billing driven by the entire.
The stack of products is that what you say audits new product yet I mean.
Right now be tracking to like 10, 11% or something.
Got it and then one other question so the U.S.
Yes, there was a.
My question towards a multi cloud, but I still don't see more organized.
Hey of doing this.
Right.
Got it doesn't happen in North America, Europe , but not much in Asian market. How do you see you capitalizing on this in the past you've had relationship with the likes of Lenovo.
Is there anything there that you can capitalize on is there any any views or thoughts that you can share with us.
Yes, I think China definitely button in spring Lenovo as the so over platform partners, but the something there with Alibaba, we've not had the bandwidth to go much deeper there, but it's actually coming up more and more.
Alibaba is also pretty prevalent with Softbank in Japan.
So does this some regional players coming up in that part of the water that we have to get.
Really good with over the course of the next 12 to 18 months and.
You know a dark and as passionate about international and he talks a lot about some learning a lot from him as well I'm, telling these things, but I think but there is going to be.
The Japanese civil platform partners, you know Fujitsu being an important one any see hitachi.
We'll be doing a lot of good work with would you too in Germany as well.
So I think they'll be a lot of local partners that we have to go and share some of the profits with and that's the value of software that the cost of an additional units euro dollars. So you can actually expand the market by shedding some of the margins with with other partners and that's our intent really doing this with the Hyperscalers Ali.
Well, but in particular in APAC, but also the so platform vendors, who are regional players like Lenovo and Inspur.
And.
And you see in Fujitsu and Hitachi.
Should I be consume with Opex commitment does this required.
More investment to be able to drive incremental Billy.
No I wouldn't think it's going to be anything substantial or I mean, mostly a lot of this importing of software to these platforms are there is another one where we believe service providers in Asia Pacific will also be a.
Very important part of our overall go to market.
Transition as well I mean, we talk about design and Ziad right now is our Datacenters, but then.
In the next 12 18 24 months, we really want to do this with our software.
Running on partners capital for their Datacenters and their hardware investments and.
If they are willing to actually use our billing and our payments and our.
Identity than all of sudden we actually get a best double towards Britain and asset light model of new tonics with assets really coming from the partners.
Got it thank you.
Your last question comes from the line of Jack Anders from Needham Your line is open.
Great. Thanks for taking my question.
Justin I wanted to see if you could drill down a little bit more on your comments regarding the backlog I think you mentioned it was largely unchanged versus typically a sequential decline from for Q1 Q could you go into little more detail about what is comprising the backlog now do you have a a series of much larger deals at this point than you typically see.
I don't think the composition is that much different and again for us. It's just the backlog again is defined as the.
Appeal that we've received.
That we've have not build.
And.
There's a different mix of customers and transactions and things like that but there's there's nothing in there unusual that one customers dominating at or something along those lines. So its a.
It's pretty much.
Similar composition is just the fact that this point and this Q1.
We were able to hold that flattened usually Q1.
We rely on that a little bit more quite honestly with the weaker both the EMEA and APAC are typically weaker for us and.
In in Q1 Americas had a good Q1 for us federal had a pretty good Q1 and things like that so nothing unusual there.
Okay. Thanks for the color and then just as a quick follow up this you've gone through the the educational and enablement process with your sales force in the channel around all your new subscription products I mean, what what are people, most excited about which product or a couple of subsea subscription products do you think represents the most.
The significant upside from here.
So frame for sure the desktop as a service product.
Lot of good.
Bruce's comps concept going on files for those who are actually selling.
Hardware before we are really looking at how do you really connect with channel partners, who we entered two hardware, but these days will relate to similar services, except being pure software. So I think files as another one and then databases as though is a work in progress you know many of the Vars don't relate.
But the excise due to the global upsize definitely working on Dev ops and as they relate to era a lot.
I would say and many of the Midmarket resellers also relating to microsegmentation. So floors become a very big part of the each we drag. So we don't go in Philly H., we by itself because you can just cell free like Oh, it's cheap it's free you really don't have.
A good way too to sell that but if you go and talk about flow and micro segmentation and the factor to democratizing something that's very expensive otherwise people are actually embracing blood flow and HP.
Great Thanks, and congratulations on the results.
Thank you.
This concludes today's earnings call. Thank you for your participation you may now disconnect have a great day.