Q1 2020 Earnings Call
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I would now like to introduce your host for today's conference Mr., Jay Whalen, Chief Accounting Officer, Sir you may begin.
Good morning, Thanks for dialing in today for our fiscal first quarter earnings call with me on the call are Sanjay Mirchandani, President and Chief Executive Officer, and Brian Carolyn Chief Financial Officer before we begin I'd like to remind everyone that the statements made during this call, including 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 are pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and are based upon our current expectations.
Actual results may differ materially due to a number of risks uncertainties, such as competitive factors difficulties and delays inherent in the 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 in Form 10-K , and our most recent quarterly report and Form 10-Q and in our other FCC shot filings and in the cautionary statement contained in our press release and on our website.
The company undertakes no responsibility to update the information in this conference call under any circumstance.
Our earnings press release was issued over the wire services earlier today and has also been furnished the FCC has an 8-K filing. The press release is also available on our Investor Relations website.
On this conference call, we will provide non-GAAP financial results reconciliation between the non-GAAP and GAAP measures can be found on table four accompanying the press release and posted on our website.
This conference call is being recorded and a replay is available for webcast.
An archive of today's webcast will be available on our website. Following the call I will now turn the call over to Sanjay.
Good morning.
And thank you for joining our fiscal first quarter earnings call.
In my first six months as CEO and President and I have spent a lot of time with our customers partners product teams and our employees.
Yeah I continue to believe we have what we need to drive innovation and customer value for years to come.
That said, we're not pleased with our Q1 results.
Rather than making excuses, we're going to talk about our progress to date and why we believe our future is bright.
As discussed on our last call we have work to do.
And you will hear on this call that we've taken decisive actions and believe we are making and making the right steps to lay the foundation for growth.
The foundation starts with having the right strategy and the right people to execute.
And very quick quarter, we identified and Onboarded the right people to build on comp all strong foundation, including.
Regarding the Blasio, our new Chief revenue Officer.
He brings his extensive knowledge of the industry and strong reputation for execution to reinvigorate our field and channel go to market initiatives.
He is already making an impact.
Sandra Hamilton's customer success expertise is critical to our progression of a company she's focused on evolving our customer engagement model.
Rob Calusdian Acampo veteran is driving on new business and condition team to test and launch an innovative new product next quarter.
I'll tell you more in a few minutes, we're really excited about this.
And Ronda Rajagopalan, our newly hired VP of products brings the deep domain expertise and product management experience needed to advance our already robust innovation roadmap.
During our last call I said I will share more details on the strategy to expedite our path to growth.
It is built around three priorities simplification innovation and execution.
Let's take a few minutes discussing <unk> progress with each of these.
Simplification is all about world class operational efficiency.
Led by Gary Merrill our operations team is focused on improving our tools and analytical capabilities sales and forecasting processes partner enablement portal and our internal employee experience.
Combined the Fannie Hamilton's focus on customer success. We are building what we believe is a world class engagement model. For example, we are extremely pleased with the progress to date.
Simplifying how we do business, both customers and partners will enable us to unlock the full potential of our solutions and increase the value of our customer relationships. This brings us to driving innovation our second priority.
Our technology is trusted and its mission critical to our customers and very encouraged by the workloads and use cases per se.
Simply said for our customers multi cloud is real.
Last quarter, we said that our customers are managing more than 500, petabytes and the cloud the combo.
This has now grown to more than 600 peptides and has doubled in the past year.
This matters for three reasons.
One from the viewpoint of a CIO customers customers IP strategy is always need what I'd like to call a from Twoq strategy that is most companies need to determine the best way to go from something to something existing technology to new technology, when I speak to our customers. This is a key differentiator and they rely on comp all could be the trusted partner to help them on this journey.
Number two.
Our customers and partners are also leveraging us in exciting new ways to support the cloud native applications to protect against threats like ransomware and to comply with the regulatory need discovery requirements.
Which brings us to our third reason.
As companies modernize infrastructure and applications. They must also pivot the workforce and skills accordingly.
Console software helps companies more efficiently manage complex and very tough so that employees can be more productive.
As customers pursue multi cloud strategies platform as a service will pass applications have become more strategic cloud native applications rely on path to deliver modern experiences.
We recently delivered new enhancements to our cloud services across Microsoft Azure, Amazon Cws and the Google cloud platform to complement their pass offerings and ensure that Dave is protected in a seamless way.
We're encouraged by a hyperscale appliance and software grew up year over year as well as by the customer feedback.
This provides flexibility and scalability and how they manage the on Prem hybrid and multi cloud environments.
And finally, we're excited to announce a new SaaS offerings that we will make available the beta customers in mid August .
With the initial launch during Q3 in the U.S.
Built in house with a startup like team focused on time to market and user experience. This offer will deliver the decades of capabilities and best practices combo is known for.
As a streamline sox experience that is fast and easy to try to buy and use.
In our early testing it is literally provisioned and backing up in minutes.
I'm confident that this offers good impressed the market no other vendor enough space offers such a robust set of capabilities delivered in a way that is so simple to use.
Simplifying our operational efficiency and advancing our innovation up crucial.
Additionally success hinges on our ability to flawlessly execute.
They begin to talk about execution in terms of geographies and partnerships.
Our goal is to be predictable in everything we do we won in Q1.
Brian will get into more specifics in a few moments, but let me provide you with a brief overview of what were seeing by geography.
In North America, the economy strong.
And we have a robust funnel.
Deal sizes are increasing and the volume of large deals in the pipeline is encouraging.
However, we've had challenges with deal closure given this we've acted quickly to put the right leaders in place and are actively increasing our quota carrying salespeople.
Ricardo working closely with the Americas team is squarely focused on those.
Youre, our second largest market is an area for improvement we saw a large cross border deal slow.
Which we believe is macro related we're also seeing a steady stream of large six and seven figure opportunities, which are more complex woodlawn larger closing cycles, we're adjusting accordingly.
Encouraged by the prospects. We're also excited about the opportunity in APAC, we're seeing strong trends in Australia, our largest market and India continues to show very impressive growth.
We believe there are significant growth opportunities in this geography.
Now, let's talk more about partners.
We continue to make great strides with our partner ecosystem.
In fact, a recent worldwide partner surfeit conform that Tom Paul is very highly regarded by apartment community.
This is further reinforced by each be recognizing us as a technology partner of the year for storage solutions.
Additionally, just two weeks ago, we launched the simplest most transparent and financially rewarding program for partisan complex history. This has been well received by partners. We're now poised to significantly increase their profitability and predictability full year incentives.
Combined with our leading technology and simplified enablement tools. This program based combo data back a partner of choice.
In closing, we expected by dramatically improving our execution optimizing our partner program and continually enhancing our customer experience combo will be the vendor of choice for our customers and partners both today and in the future.
We have taken decisive action.
And have made significant progress to our operational efficiency.
Our improved ability to execute and our innovation roadmap has never been richer.
Again, while we're not pleased with our Q1 results, we remain committed and optimistic about a return to predictable growth.
Now, let me turn it over to Brian to review the first quarter results, Brian Thanks, Andrea and good morning, everyone. I will now cover some financial highlights for the first quarter of fiscal 2020.
Total revenues in the first quarter were $162.2 million, representing a decrease of 8% year over year.
Software and products revenue was $63.7 million, which was down 15% year over year and down 13% on a constant currency basis.
Our performance in the Americas was the primary reason for the year over year decline. We also pointed to the European macro environment as a headwind this quarter.
While we are disappointed with the year over year declined in the first quarter, we expect to see improvements from our new go to market strategies, including our new partner advantage program.
Revenue from enterprise software deals, which we define as deals over $100000 represented 62% of software and products revenue for the quarter.
Revenue from these transactions was down 11% year over year. However, our average enterprise deal size was approximately $298000 during the quarter up 23% over the prior year.
We believe that growth in the size of our enterprise contracts underscores the value that these customers see in Cobalts innovation and it is why we are so focused on continuing to invest in innovation to support our growth in the enterprise segment of the market.
Total services revenue for Q1 was approximately $98.5 million a decrease of 3% year over year.
While we continue to have strong maintenance renewal rates year over year services revenue growth was tempered by changes in foreign exchange rates and by some of our customers moving to subscription models as well as the recent declines in software revenues.
Total operating expenses were approximately $116 million for the quarter down approximately 6% year over year.
We ended the first quarter with 2513 employees, which is also down approximately 6% year over year.
Operating margins were 9.6% for the quarter, resulting in operating income or EBIT of approximately $15.5 million.
Net income for the quarter was $12.7 million or 27 cents per share based on a diluted weighted average share count of approximately 46.3 million shares.
Let me now touch on our subscription pricing models, and our continued shift to more repeatable revenue.
We see customers continuing to transition to consumption models that provide flexibility to adapt to changes in their business.
For the past few quarters, we've been highlighting two 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 otherwise known as HCV.
I will start with repeatable revenue.
As a reminder, our primary repeatable revenue streams, our subscription software and maintenance services.
We would consider approximately 70% of our Q1 fiscal 2020 total revenue to be repeatable in nature.
These revenue streams continue to outperform our non repeatable revenue and were down 2% year over year.
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 gross and upsell opportunities.
As of Q1.
I see the has grown to $106 million up 66% from a year ago.
As a reminder, our weighted average subscription contract length is approximately three years.
The next slide 21, we expect to start seeing a meaningful impact of the renewals of the subscription agreements. We sold enough why 18, when we started focusing on more repeatable software and services revenue streams.
Let me now shift gears to our balance sheet and cash flows.
As of June Thirtyth, our cash and short term investments balance was approximately $451 million down 2% from our balance at March 30, Onest 2019.
Our DSO was 92 days versus 91 days in the prior quarter.
As a reminder, our DSO calculation includes the Unbilled receivables, we are required to record as part of the new revenue standard.
Deferred revenue was approximately $332 million, which is an increase of 3% over the prior year period on a constant currency basis deferred revenue was up 4%.
Nearly all of our deferred revenue is services revenue that has been invoiced to customers.
Free cash flow, which we define as cash flow from operations less capital expenditures was approximately $30 million for the quarter up 31% over the prior year period.
During the quarter, we repurchased approximately $40 million of our common stock at an average cost of approximately $48 per share.
Approximately $160 million remains in the current repurchase program authorization that expires on March 30, Onest 2020.
We will continue to be opportunistic with our share repurchases.
Let me now discuss our near term financial outlook, we do not believe our recent financial performance is indicative of commvaults with longer term potential.
We are actively implementing our plan of simplifying our business operations, driving Executional excellence and innovation.
In addition, some of the steps we are taking like adding quota carrying sales resources in the Americas may take time before they result in improved financial performance.
As a result, we will continue being measured with our outlook.
We currently expect Q2 software revenue to be flat to slightly up from Q1.
We also expect that services revenue will be flat.
As a reminder, large deal closure rates will likely remain lumpy, particularly in the near term.
As part of our refreshed partner advantage program, we believe our indirect routes to market should improve and provide more predictable run rate revenue overtime.
It is also worth noting that we expect FX to be a sequential headwind in the second quarter.
Let me now discuss our EBIT margin expectations for Q2.
Over the last year, we have taken significant steps to reduce costs. We will continue to identify areas of operational improvement simplify our business operations and improve execution.
However, due to our measured outlook on software, we would expect EBIT to be flat sequentially.
We are using this opportunity to reset the Q2 as a baseline for future growth.
Some of the headwinds we saw in Q1 persist in the current quarter. However, we believe that we have marked the trough for the year and we intend to show positive sequential growth throughout the second half of the fiscal year.
We are confident in our future and we expect to demonstrate predictable financial results for our shareholders.
Before I turn things back over to Sanjay you may have seen our press release regarding Michael Melnick, our new director of Investor Relations.
Mike comes to us with over 20 years of financial services experience and will be an integral part of our management team, helping us engage with all of our key stakeholders I'll turn things back over to Sanjay Sanjay.
Thanks, Brian .
While we have work to do we've made the right changes to our strategy, our leadership team and our partner ecosystem to get us back to predictable growth the industry is ripe with opportunity.
And we have a strong products and rich product pipeline that customers need as they move towards modern infrastructure and multi cloud environments.
This is barbara confident in our ability to create value for our customers partners and our shareholders for years to come.
This concludes our prepared remarks, and we will now open up for questions.
Ladies and gentlemen, if youd like to ask our speakers any questions. Today. Please hit the Star then the one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. You may do so by pressing the pound key we ask that you. Please mute your line once you've asked a question to prevent any background noise from coming through during the call again that is star then one if you'd like to ask a question.
Our first question comes from Aaron Rakers with Wells Fargo. Your line is now open.
Yes, thanks for taking the questions.
First of all Sanjay I know that.
You've had a little bit of time now at the company, we've seen two really tough quarters and so I can appreciate kind of the commentary around the three areas of focus, but I'm kind of curious if as you've gotten your arms around the story, just how you're thinking about the long term growth potential.
Of Commvault, just the addressable market growth.
Any kind of expectations from a topline perspective of how we should think about this as far as topline growth and then also as you as you make investments in a go to market and kind of sales organization Im just curious of what you think about the long term model in terms of operating profitability EBIT margin et cetera, and I have a follow a follow up as well.
Thanks.
Yes, it's been six months almost to the day and had my first full quarter.
In Q1.
Running the business after that the transition it's been good it's been good because I've spent a good amount of time in the field, we will be got into the details with a new partner program.
The innovation Roadmaps I talked about some of the newer technologies are bringing to market. So it's been it's been it's been a good 90 days for me I wish the results were stronger but again your question.
How do I feel about the longer term potential I think if you believe that our customers around the world are on a journey.
Then going from something to something CIO, almost five years and large.
And you all this transition.
And as a result customers after the Tri Pointe solutions come back to the fact that the need and integrated roadmap that even in a continued a company. They can count on a global basis to truly help them through what the next big problem is at the time so for.
We do that every day.
Well this multi cloud on its virtual outlets containers when doing that every game.
Our roadmap has never been richer.
We also attach ourselves to big trends, because that's what our customers want us to be so whether it be the work we're doing with with the public cloud providers. The addition of making parts technology on Microsoft Azure or eight up use all of this keeps our customers ahead of where they need to the next and the next big problem to trying to solve for.
We're spending a lot of time on our simplification. So innovation is one piece the second piece and I feel very bullish about so as a tech company innovation roadmap wasn't as rich as I believe it is we would be having a different conversation. So it's not about the innovation anymore. We have really investing in that simplification is something that I I feel very strongly about being operationally excellent allows us to not only drive some of the things that you asked me. The second part of your question the efficiency et cetera, but it also allows us to scale and so we're squarely focused on that we're making.
A little bit on that.
How we do things the sausage, making if you want I'll speak to the details, but needless to mentioned, we're making good progress there. So it comes down to execution of the flywheel of execution that I that I truly think that we need to be focused on.
Our karnow sandy wrought with a new SaaS product runs out with a product innovation with our product management, we're bringing in some some some talent for this company to truly get execution flows and.
That's what we're focused on that's what I'm focused on.
So we just need a little bit of time, if you would get that up and running we've identified where we need to be focused on 90 days of having the feel of healthy and now we're just getting getting itself. So the goal here is to return to predictable growth just as just as fast.
Perfect and then just maybe as a follow up to that that kind of discussion can you help us understand a little bit of what's going on in the Americas region.
Particularly around the sales force how much attrition have you seen and how much how do we think about how much sales capacity that you need to put in place.
Over the next couple of quarters and I'll cede the floor. Thank you.
So do you.
No problem. So the math does for us is the.
The economy strong demand.
Is the funnel looks good.
We'll be seeing both in Europe , and Americas was made seeing six and seven figure deals come up in the funnel. So I feel I feel much better about the pipeline and things across the U.S.
What weve seen a partner program that we put into place.
This is brand new and it's getting good accolades from the partner community. So I feel good that that will start giving us some traction.
The the.
On attrition, our attrition hasn't gone up quarter on quarter, but I think we're not we're not in any way huge be concerned about our attrition at this stage.
It's just that we are being super selective while the talent, we are trying to bring into the company and just need to do it right. So the sales culture that Ricardo is trying to build.
That I'm very supportive off and the fact that we need to bring in the right calibre folks into the into the sales organization is wonderful.
Thank you.
Thank you and our next question comes from Jason Ader with William Blair. Your line is now open.
Thank you.
Sanjay can you expand at all on the new SaaS offering is this just basically.
Backup.
Back of recovery solution, that's sold as a service and if so wouldn't that be competing with some of your partners that are selling backup as a service.
So.
The.
I'm, a little cautious before but thats, how they get too much by the product ever going to you're going to be launching so I'm going to give you a sense that this this is something that.
Really excited about because its a product that.
We've built like a startup inside the company. The team is working at an incredible pace they've they've turned the very design principles of how we do things on their head and it's all about the user experience really making it from the point when a customer thinks about the technology like ours to the point, where we were expanding with them. It's all about the user experience. We've taken the decades, a set of work and best practices and machine learning a things a brief we we've learned over the last so many years and have really make them.
Part of the products it Super easy and anticipates, what a customer wishes to do without getting into that preempting. The feature set and they are going into private beta intermodal a matter of weeks.
This product is 100% partner friendly because it's 100% sold through partners.
And so we don't see ourselves competing we see ourselves competing collaborating with our.
Part of it all up focus group sales is the best partners that should be like.
What we believe.
Okay. Thanks.
And then speaking of partners.
Can you talk about any specifics.
On the new partner program that.
Exciting some of those folks out there that you mentioned youre getting accolades from what are what are some specifics.
It's different than what you've had historically with your partner programs.
So we launched in July 15th and we.
Obviously spent a lot of time with partners and getting making sure we understood.
Where we needed to focus.
It's all about making sure that it's easy Fortunately, it's all about making sure each business.
So the portal the enablement the deal registration process, just the overall engagement model that we've completely the gathering and his team have completely reinvented for us.
And I think it's taken a step ahead of anything out there. So we.
We may have been a little late to the game, but weve actually step ahead as a result of that the mix.
The feedback some of the feedback we got was the cost structure of the bank.
I think that structure that they want it we keep a job where they want to annualize plans given them.
More business development funds, we sort of up the assay on that.
And then.
A whole bunch on enablement because.
That happens that caused the hidden costs apartment has been if it's not easy to get up and running given these up and running in the account managers up and running them.
It just makes it more and more difficult for partners as we all know so an incredible effort around.
The portal deal registration the engagement model sales the sales play videos and thought leadership content.
All of that stuff is.
It's built in so we're really excited but I think we and all the ongoing feedback we've gotten worldwide on the programming.
Great. So now.
Okay, Great and then last one for me.
Sanjay can you give us oh.
Bit of a window into.
Let's say some of your conversations with Ricardo on.
Essentially his diagnosis I mean, he's worked with a lot and a lot of different companies.
He came in he spent some time he's only been there.
A couple of months now the two lines okay. So.
What does he telling you.
That you can share with us.
On the problems that.
Exist today in the in the sales organization and their go to market organization.
Those if you've met Ricardo.
Hey, guys.
Just all energy and he's been in the industry.
A long time.
We have been talking and even before you came in a little bets in kind of a new the.
Well you know the landscape, while we have the domain expertise in the space his ramp up has been pretty quick.
The.
And in many ways.
How much of the same way.
Which is all about mix keeping things simple, having the right segmentation model, having a strong partner ecosystem. Thank you investing it going deeper just making sure that they really in the lead some of it looking at the compensation program, making sure that we are in place.
Going after use cases for customers that matters most of them are not spreading ourselves too thin. So I'll focus on the markets that we need to be focused on so these are all the things that you know.
No. We're in deeper into details, we've always kind of rolling the stuff out capacity you need more feet on the street because there is the math Andy into us. So all of these things.
We are focused on geographical expansion, where it matters I mentioned APAC as an example, so so there's a lot of.
There's a lot of work going back we've also begun turning on the inside Amp up our digital marketing and all of these were trying to do with customer success.
And bring those pieces together, so that had lost somewhere there and Jason It's Brian here I think were corridor also brings to the table just a wealth of experience when it comes to.
Deal forecasting pipeline diligence, just making sure that when we're calling forecast, it's something that we're going to take the heart and.
He is already having an impact that that area.
As we speak is all forecast cost.
Okay. Thank you guys.
Thank you and our next question comes from John Difucci with Jefferies. Your line is now open.
Thank you.
So Sanjay it's great to hear.
The new management team.
It's in place I presume most of the large pieces are in place here.
And.
All the questions about the long term.
Opportunity for you.
But I really think at this point.
It really comes down to just trying to hit some numbers and I know the guidance you gave seems like well it doesn't seem like something you can't do.
Software revenue flat quarter to quarter, but.
But the last two years in a row and actually declined sequentially. So when I look at stuff like that.
You look at your stock and the stock is cheap the stock we cover it four times recurring revenue at least the way we look at it.
And frankly I just think you just got to hit some numbers short term and the long term stuff Thats. Why you came here. When you came you started talking about the product and we we buy into that too.
Theres cobblestone is having good product.
Right now it really need some execution and I know you got team in place, but I'm just wondering if next quarter. We are in the last two years in a row software revenue decline this quarter.
Trinity flat at least that's true guided I know what's on offer.
Yes, really disappointing fiscal first quarter.
But.
I don't know I guess.
It goes along with one of those questions are one.
Just just happen.
How confident are you that you can get these numbers because investors.
After a while even.
Your words get tired.
Hey, John .
I can I.
I wouldn't say that in these execution at hitting our numbers are what we're focused on and.
They are the I will say on the innovation piece as much as we had great great.
Technology space and is moving so quickly that we have to keep keep focused on innovation or all we have an opposite problem. So im not saying thats, what we have been saying we have a pretty good flow of technology and listening to our customers continue to evolve and so I don't I don't take that likely that piece.
The rest, but everything you said I completely agree with we are so focused on pricing.
Get back to growth.
It's our singular focus everything internally is driven around that.
I'm not.
This is a business not excuse.
And.
I feel pretty good that we havent my team I feel pretty good.
Technology, I think pretty good we have the right strategy now it's just about.
Doing it every single day.
And Ryan and John just to add I don't think you can look at the last couple of fiscal years and our Q2 as a.
A good measure for what we're going to do this Q2, I think we understand the need to get back to predictable growth. So thats what were trying to do we believe we reset the baseline here, we want to gain back investor confidence, we understand the importance of that.
We do have the right motions in play we've got the right leadership team. We've got a new partner Vantage program will start seeing the hopefully the the renewal effect of the subscription agreements that I alluded to on the call.
So we've got a lot of things in our favour here and again, we tried to reset the baseline and we understand the importance of kind of hitting the number and growing it from here.
Okay. Okay.
In hitting that number I think it's the first thing you got to do and growth is great.
But.
On that point.
I think you said in the press release, a repeatable revenue declined 2% year over year Brian .
Is that what does it do on a constant currency basis.
Yes, I think it was slightly slightly more favorable than that.
I've got a point.
Okay and then the last thing I, just sort of point out or question. You said that Cisco 21 renewals you had a big renewal year coming up which implies it.
Some excitement there.
Around the opportunity to up sell and cross sell.
But given the performance and not just now but over the last couple of years. It also seems to me to be a huge.
Risk.
That that they don't renew and yes.
Yes, I think when you look at it you can look at it a couple of different ways and we'll give you more color on that as we get closer to 421.
But if you look at the our maintenance support renewals as a good proxy for.
How were going to do with subscription renewals I would say that it's pretty strong and so we're working closely with sandy Hamilton and instituting a kind of a world class customer success function and making sure that we handle these things with really good care and making sure that you know.
It's a win win for both the customer Commvault as we get to the renewal cycle.
Okay, but that repeatable revenue declined 2% this.
Okay. Okay. Thanks, a lot guys.
Thank you and our next question comes from Andrew Nowinski with Piper Jaffray. Your line is now open.
Great. Thank you I just wanted to follow up to a prior question as it relates to your long term profitability.
I think the prior management team and laid out a plan to reducing spending on sales and marketing as a percentage of revenue, but it sounds like you have a plan more for ramping up spending at least in the near term.
So I guess what are your views on that long term model and then second given that subscription growth did slow significantly.
Im trying understand how you might balance cost cutting initiatives wont, while managing through that transition to subscriptions and also trying to get growth back on track.
We understand that this is going to be a balanced approach, we understand the need to get to responsible and predictable growth and that means both topline and margin improvement over time.
I wouldn't say.
In terms of adding more resources to quota carrying that will probably require a little bit more of a recalibration than anything else and we're focused on putting our investments into the right resources to drive that near term and longer term growth.
We're confident that we have the right plans in place, we just need to implement and execute at this point.
Okay, and then I think you noted that Europe .
Wasn't area in need of improvement on and then it was macro related I guess I just wanted to ask you certain or how can you be certain that they deem wasn't putting pressure on your business in that region.
This thing up no.
We fundamentally laying the slow the macro or the slowdown that we think we are seeing is actually in a space that I don't think we play them, which is a lot of much larger.
Enterprise business, we've seen customers are the deals that are transactions that would have been cross youre a pan European.
Slow down a little bit some customers are looking at multi cloud.
In a very serious way, which means there is multiple layers of technology in that in that so that takes a little longer but the combination of that sort of thing and what we think are.
So.
Transactions have looked pan European.
Got it thank you.
Thank you and our next question comes from Alex Kurtz with Keybanc capital markets. Your line is now open.
Yes. Thanks, Thanks for taking a couple of questions here just back on the on the Big deal execution. Brian You know this has been something that has been a recurring.
Challenge for Burcon ball, both good and bad way right because you're in big deals you are competing.
It means your technology matters, but I mean, we could go over the years of.
How these big deals impact a quarter.
For combo. So what are you guys doing differently now as far as how you forecast.
Big deals in your pipeline then I have a quick hyperscale question.
Okay, just to take that Alex's Bryant here. So yes, I mean, the lumpiness that we refer to as a result of us not being predictable and our execution. So we understand the need to improve our forecasting methodology, our overall deal hygiene and become more predictable I think with the direction of Ricardo.
We're going to do that so thats step one secondly, as we rolled out this partnered program with the incentives that we put in place we're going to start seeing a more predictable revenue stream come from that and that's going to be both for new customer acquisition and also our existing customers and then third the subscription revenue business that we're going to start seeing that's going to add more predictability to the baseline again that will kind of come towards more F. What 21, but that should start taking effect and I believe thats going to have an impact.
Okay, and then on Hyperscale.
How does this product and there is so much.
Excitement about this product when you guys announced it and allowing you guys to go into the mid market and just compete more effectively against some of the some of the startup. So is there some kind of metrics that you can give us or some kind of context about how their products.
Performing over the last 90 days.
Well for hyper Steve the last 90 days, yes, I mean, we are I mean, hyperscale is the technology of the future I mean, I think that were no. We are seeing growth on a year over year basis with respect or hyperscale offerings and I think that again this is.
This is on a if you want to comment on that.
Let me let me.
Out of the way, we think about the Hyperscale the hyperscalers, both with the software and the appliance and and are pleased with our customers. On this is that it's one part of an overall approach that may want to take our technology works.
Works together customer has a cloud footprint they have an on trend footprint. They want to have overtime of SaaS Copeland and they want in certain cases, an appliance or hyper converged capability and.
I'm oversimplifying, it with the brand and our software costs to the other they all talk to each other it's the same backplane. So as a result, we've got customers that.
Start out talking with us about an hyperscaler in over time, so that will want to have the whole complete product in conjunction with it or a cloud enabled capability, so where it's for US it's an important part of an overall.
Solution as a customer can have any instead of in any way. They like it is very channel friendly. It is very easy to set up right that it is literally I have done this personally in 15 minutes setting it up from scratch it to it so it's a good piece of software partners like.
Like the reference architecture. So it's.
It's sort of beating and I would say exceeding our expectations as as technology.
We have a lot of repeat customers.
It is a product thats about a year in and it's doing that's doing well.
Okay. Thank you.
Thank you and our next question comes from Eric Martinuzzi with Lake Street. Your line is now open.
Yes, I have a question on the revenue recognition regarding this friction utilities for I was under the impression that that line just kidding grew sequentially as we added more.
Description.
Contrary to that base.
The decline between Q4 and Q1 could you refresh my memory on the revenue recognition there.
Sure Eric its Brian here.
So it really depends on the needs of our service providers that drive.
That component of our utility based revenue.
Sometimes we do enter into a multi year committed arrangement with them.
So if it makes economic sense for us and them what they'll do is they'll commit to.
I will commit to a couple of years at one point in time that actually then gets recognized as basically a committed subscription arrangement as opposed to utility.
Okay. So the assumption is that that.
Yes, it gets recognized.
Yes, the committed amount gets recognized in period and it gets pulled out of utility, but it does become part of our overall subscription revenue that becomes repeatable in nature.
Okay, Okay and then.
Second question here just.
We did see a little bit of a.
Hi, I'm trying to get a feel for normalized Capex I think a year ago, you guys still head.
And related to the new facility.
But the 841000 in the quarter.
Is that kind of a normalized capex was abnormally low what should we anticipate for fiscal 2000.
I think plus or minus a half a million on that number more to the plus we'll probably be appropriate.
Thank you.
Thanks, Sir.
Thank you and that does conclude our Q and a session for today and this does conclude today's call. Thank you for your participation in today's conference you may all disconnect everyone have a great day.
Yes.