Commvault Systems (NASDAQ:CVLT) Q1 2020 Earnings Call

0:00 Good day, ladies and gentlemen, and welcome to the Commvault Q1 Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions for how to participate will follow at that time. During the conference, if anyone should require assistance, please press star, then the number zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Jay Whalen, Chief Accounting Officer. Sir, you may begin.

0:30 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 in the question and answer session at the end of the call, may include forward-looking statements, including statements regarding financial projections and future performance. All the statements that relate to our beliefs, Plans, expectations, or intentions regarding the future are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on our current expectations. Actual results may differ materially due to a number of risks and 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.

1:22 For discussion of these and other risks and uncertainties affecting our business, Thank you for joining us. On this conference call, we will provide non-GAAP financial results. The reconciliation between the non-GAAP and GAAP measures can be found on Table 4, accompanying the press release, and posted on our website. This conference call is being recorded, and replay is available for webcast.

2:10 An archive of today's webcast will be available on our website following the call. I will now turn the call over to Sanjay.

2:17 Good morning, and thank you for joining our fiscal first quarter earnings call. In my first six months as CEO and President, I have spent a lot of time with our customers, partners, product teams, and our employees. And 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 we expressed on our last call, we have work to do. And you will hear on this call that we have taken decisive actions and believe we're making the right steps to lay the foundation for growth. The foundation starts with having the right strategy and the right people to execute.

3:04 In very quick order, we identified and onboarded the right people to build on Commvault's strong foundation, including Ricardo de 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's already making an impact. Sandra Hamilton's customer success expertise is critical to our progression as a company. She's focused on evolving our customer engagement model. Rob Galustian, a Commvault veteran, is driving our new business incubation 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 Ranga Rajagopalan, A newly hired VP of Products brings the deep domain expertise and product management experience needed to advance our already robust innovation roadmap.

3:59 During our last call, I said I would 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 to discuss our progress with each of these. Simplification is all about world-class operational efficiency. 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 with Sandy Hamilton's focus on customer success, we're building what we believe is a world-class engagement model for Commvault. We are extremely pleased with the progress to date. Simplifying how we do business with our customers and partners will enable us to unlock the full potential of our solutions and increase the value of our customer relationships.

4:51 This brings us to driving innovation, our second priority. Our technology is trusted and is mission critical to our customers, and we are encouraged by the workloads and use cases per scene. Simply said, for our customers, multi-cloud is real. Last quarter, we said that our customers are managing more than 500 petabytes in the cloud with Combo. This has now grown to more than 600 petabytes and has doubled in the past year. This matters for three reasons. One, from the viewpoint of a CIO, customers' IT strategies always need what I like to call a from-to 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 Commvault to 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 their cloud-native applications, protect against threats like ransomware, and to comply with their regulatory and e-discovery requirements.

5:58 Which brings us to our third reason. As companies modernize infrastructure and applications, they must also pivot their workforce and skills accordingly. Compile software helps companies more efficiently manage complex and varied tasks so that employees can be more productive. As customers pursue multi-cloud strategies, platform-as-a-service or PaaS applications have become more strategic, as cloud-native applications rely on PaaS to deliver modern experiences. We recently delivered new enhancements to our cloud services across Microsoft Azure, Amazon AWS, and the Google Cloud Platform to complement their PaaS offerings and ensure that data is protected in a seamless way. We're encouraged by our hyperscale appliance and software growth year over year, as well as by the customer feedback, that this provides flexibility and scalability in how they manage their on-prem, hybrid and multi-cloud environments.

6:53 And finally, we're excited to announce a new SaaS offering that we will make available to beta customers in mid-August. Thank you very much. Thank you. No other vendor in our 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 are crucial.

7:40 Additionally, success hinges on our ability to flawlessly execute. Today we're going to talk about execution in terms of geographies and partnerships. Our goal is to be predictable in everything we do. We work in Q1. Brian will get into more specifics in a few moments, but let me provide you with a brief overview of what we're seeing by geography. In North America, the economy is 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 America's team, is squarely focused on this. Europe, our second largest market, is an area for improvement.

8:26 We saw large cross-border deals 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 with larger closing cycles. We're adjusting accordingly, and we're 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 survey confirmed that Commvault is very highly regarded by our partner community. This is further reinforced by HPE recognizing us as their Technology Partner of the Year for storage solutions.

9:16 Additionally, just two weeks ago, we launched the simplest, Thank you very much. and continually enhancing our customer experience, CommVault 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.

10:04 Again, while we're not pleased with our Q1 results, we remain committed and optimistic about our return to predictable growth.

10:11 Now let me turn it over to Brian to review the first quarter results. Brian? Thanks, Sanjay, 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. Transcription by CastingWords Thank you for joining us.

11:33 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 2,513 employees, which is also down approximately 6% year over year.

12:23 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 shifts to more repeatable revenue. Transcription by CastingWords As a reminder, our primary repeatable revenue streams are subscription software and maintenance services. We would consider approximately 70% of our Q1 fiscal 2020 total revenue to be repeatable in nature.

13:32 These revenue streams continue to outperform our non-repeatable revenue and we're 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 growth, and upsell opportunities. As of Q1, ACV has grown to $106 million, up 66% from a year ago. As a reminder, our weighted average subscription contract length is approximately three years. In FY21, we expect to start seeing a meaningful impact of the renewals of the subscription agreements we sold in FY18 when we started focusing on more repeatable software and services revenue streams.

14:22 Let me now shift gears to our balance sheet and cash flows. As of June 30th, our cash and short-term investments balance was approximately $451 million, down 2% from our balance at March 31st, 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.

15:09 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 31, 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 Commvault's longer-term potential. We are actively implementing our plan of simplifying our business operations Thank you for joining us today.

16:24 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 over time. 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.

17:11 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. Michael Melnyk, 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.

17:56 Sanjay?

17:57 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 the strong products and rich product pipeline that customers need as they move towards modern infrastructure and multi-cloud environments. This is why we're confident in our ability to create value for our customers, our 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 you'd like to ask our speakers any questions today, please hit the stars on 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 your question to prevent any background noise from coming through during the call.

18:49 Again, that is star then 1 if you'd like to ask a question. Our first question comes from Aaron Rakers with Wells Fargo. Your line is now open.

18:58 Yeah, thanks for taking the questions. You know, 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. Thank you, Aaron.

19:44 Yeah, it's been six months almost of the day. And, you know, I had my first full quarter in Q1 running the business after the transition. It's been good. It's been good because I've spent a good amount of time in the field. We got into the details with the new partner program, the innovation roadmaps. I talked about some of the newer technologies we're bringing to market. So it's been a good 90 days for me. I wish the results were stronger, but again, to 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, they're going from something to something.

20:29 I was the CIO for almost five years of a large company, and you're always transitioning. and as a result, customers after they try point solutions come back to the fact that they need an integrated roadmap. They need a company that can count on a global basis to truly help them through what the next big problem is that they're trying to solve for. We do that every day. Whether it's multi-cloud or it's virtual or it's containers, we're doing that every day with our customers. Our roadmap has never been richer. We also attach ourselves to big trends because that's where customers want us to be. So whether it be the work we're doing with the public cloud providers, the additions we're making to our technology on Microsoft Azure or AWS, all of this keeps our customers ahead of where they need to, the next big problem they're trying to solve for.

21:23 We're spending a lot of time on our simplification. So innovation is one piece of it. The second piece that I feel very bullish about, so as a tech company, if my 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're really investing in that. Simplification is something that I feel very strongly about. Being operationally excellent allows us to not only drive some of the things that you asked me in the second part of your question, the efficiency, etc., but it also allows us to scale. and so we're squarely focused on that. And we're making, you know, and a little bit of that is how we do things, the sausage making, if you would. I'll stay with the details, but needless to mention, we're making good progress there. So it comes down to execution and the flywheel of execution that I truly, you know, think that we need to be focused on.

22:08 Ricardo, Sandy, Rob with the new SaaS product, Ranga with our product innovation, with our product management, we're bringing in some talent from this company to truly get our execution flawless. And That's what they're focused on. That's what I'm focused on. So we just need a little bit of time, if you would, to get that up and running. We've identified where we need to be focused. That was the 90 days of having a feel of healthy, and now we're just getting it done. So, you know, the goal here is to return to predictable growth just as fast as we can.

22:40 Perfect. And then just maybe as a follow-up to that kind of discussion, can you help us understand a little bit of what's going on in the Americas region? Thank you for your time.

23:13 We've seen both in Europe and in America, as you speak, seeing six and seven figure deals come up in the funnel. So I feel much better about the pipeline and things across the U.S. What we've seen, our partner program that we put into place 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. Our attrition hasn't gone up quarter on quarter. We're not in any way hugely concerned about our attrition at this stage. It's just that we're being super selective about the talent we're 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 of and the fact that we need to bring in the right caliber of folks into the sales organization is what we're focused on.

24:05 Thank you. Thank you. And our next question comes from Jason Ader with William Blair. Your line is now open.

24:13 Thank you. Sanjay, can you expand at all on the new SaaS offering? Is this just basically a backup 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?

24:33 So, I'm going to give you a sense that this is something that I'm really excited about because it's a product that we've built like a startup inside the company. The team is working at an incredible pace. 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 that a customer thinks about and many more. This product is 100% partner-friendly because it's 100% sold to partners.

25:35 And so we don't see ourselves competing. We see ourselves completely collaborating with our partners. And all our focus group tells us that the partners actually like what we're building.

25:45 Okay, thanks. And then speaking of partners, can you talk about any specifics on the new partner program that is exciting some of Those folks out there that you mentioned you're getting accolades from, what are some specifics that are different than what you've had historically with your partner programs?

26:06 So we launched in July 15th, and we obviously spent a lot of time with partners and making sure we understood where we needed to focus. It's all about making sure that it's easy. The first thing, it's all about making sure it's easy to do business with us. So the portal, the enablement, the deal registration process is the overall engagement model that Gary and his team have completely reinvented for us and I think it's taken a step ahead of anything out there. So we may have been a little late to the game, but we've actually stepped ahead as a result of that. The feedback, some of the feedback we got was the quota structure, the rebate structure that they wanted, which we've adjusted. They wanted annualized plans, which we've given them.

26:54 More business development funds, we've sort of upped the ante on that. And then a whole bunch around enablement, because that happens, that's the cost, that's the hidden cost for partners. If it's not easy to get up and running, getting the SEs up and running, getting the account managers up and running, then You know, it just makes it more difficult for partners, as we all know. So an incredible effort around, you know, the portal, the deal registration, the engagement model, the sales kits, the sales play, the videos, the thought leadership content. You know, all of that stuff is, you know, is built in. So we're really excited. And all the early feedback we've gotten worldwide on the program is, you know, this is great. So now, you know, let's see how it all goes.

27:38 Okay, great. And the last one for me, Sanjay, can you give us a bit of a window into, let's say, some of your conversations with Ricardo on essentially his diagnosis? I mean, he's worked at a lot of different companies. He came in, he spent some time, he's only been there, what, a couple of months now? Two months. Two months, okay. So what is he telling you that you can share with us? on the problems that exist today in the sales organization and the go-to-market organization.

28:16 If you've met Ricardo, you know the guy is just all energy. He's been in the industry a long time. We've been talking even before he came in a little bit. He knows the landscape well. He has the domain expertise in this space. His ramp-up has been pretty quick. The In many ways, he and I approach it the same way, which is all about keeping things simple, having the right segmentation model, having a strong partner ecosystem that you're investing in, going deeper, you know, just making sure that we're really in the weeds with it, looking at the compensation program, making sure that any tweaks needed are in place, you know, that we're going after use cases for customers that matter the most and we're not spreading ourselves too thin. So, you know, focus on the markets that we need to be focused on.

29:01 So these are all the things that, you know, Thank you very much. There's a lot of work we're doing there. We've also, you know, again, on the inside, amped up our digital marketing and, you know, all the things we're trying to do with customer success and bringing those pieces together. So there's lots of work there. And Jason, it's Brian here.

29:37 I think Ricardo also brings to the table just a wealth of experience when it comes to deal forecasting, pipeline diligence, just, you know, making sure that, you know, when we're calling forecasts, it's something that we're going to take to heart and... He's already having an impact in that area.

29:54 As we speak, he's on forecast course. Okay. Thank you, guys. Thank you. And our next question comes from John DeFucci with Jefferies. Your line is now open.

30:06 Thank you. So, Sanjay, it's great to hear the new management team. It's in place. I presume that most of the large pieces are in place here. And all the questions about the long-term management and so on. 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 with software revenue flat quarter to quarter. But the last two years in a row, it actually declined sequentially. So when I look at stuff like that, I mean, you look at your stock and the stock is the cheapest stock we cover at four times recurring revenue.

30:51 Thank you for joining us. Hey John, good to hear from you.

31:47 I wouldn't say it differently than you said. Execution and hitting on numbers are what we're focused on. I will say on the innovation piece, as much as we have great technology, the space we're in is moving so quickly that we have to keep and many more. I feel pretty good that we have the right team.

32:37 I feel pretty good we have the right technology. I feel pretty good we have the right strategy. Now it's just about doing it every single day.

32:44 John, just to add to that, I think you can look at the last couple of fiscal years in our Q2 as a good measure for what we're going to do this Q2. I think we understand the need to get back to predictable growth, and that's what we're trying to do. We believe we kind of 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 our new partner advantage program. We'll start seeing hopefully the renewal effect of the subscription agreements that I alluded to on the call. So we've got a lot of things in our favor 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.

33:30 Okay, okay. In hitting the number, I think it's the first thing you've got to do. And growth is great. But on that point, I think you said in the press release that repeatable revenue declined 2% year over year, Brian. What did it do on a constant currency basis? Do you have that there?

33:48 I think it was slightly more favorable. Is that a point?

33:54 Okay. Okay, and then the last thing I just sort of point out or question, you said that fiscal 21 renewals, you had a big renewal year coming up, which implies some excitement there around the opportunity to upsell and cross-sell. But given the performance, not just now but over the last couple of years, it also seems to me to be a huge risk that they don't renew.

34:25 Well, I think you can look at it a couple different ways, and we'll give you more color on that as we get closer to FY21. But if you look at our maintenance support renewals as a good proxy for how we're going to do with subscription renewals, I would say that it's pretty strong. And so we're working closely with Sandy Hamilton in instituting kind of a world-class customer success function and making sure that, you know, we handle these things with really good care and making sure that, you know, it's a win-win for both the customer and Commvault as we get to the renewal cycle.

35:04 Okay. But that repeatable revenue declined 2% this year.

35:08 I understand. Some of that is driven by, you know, kind of near-term SOPL results. It goes hand-in-hand. But I think you can look at this not just within a 90-day window but in longer-term window.

35:21 Okay. Okay, thanks a lot, guys. Thank you. And our next question comes from Andrew Nowinski with Piper Geoffrey. Your line is now open.

35:32 Great, thank you. I'd just like to follow up to a prior question as it relates to your long-term profitability. I think the prior management team had laid out a plan for 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, I'm trying to understand how you might balance cost-cutting initiatives while managing through that transition to subscriptions and also trying to get growth back on track.

36:04 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 top-line and margin improvement over time. I wouldn't say, you know, 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, you know, putting our investments into the right resources to drive that, you know, 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.

36:38 Okay, and then I think you noted that Europe was an area in need of improvement and that it was macro-related. I guess I just wanted to ask, are you certain or how can you be certain that Veeam wasn't putting pressure on your business in that region?

36:52 No, we fundamentally blame, you know, the macro or the slowdown that we think we're seeing is actually in a space that I don't think Veeam plays in, which is a much larger space. Got it. Thank you. Thank you, and our next question comes from Alex Kurz with KeyBank Capital Markets.

37:42 Your line is now open.

37:44 Yeah, thanks for taking a couple questions here. Just back on the big deal execution, Brian, this has been something that has been a recurring challenge for Commvault, both in a good and a bad way, right? Because you're in big deals, you're competing, it means your technology matters, but I mean, if you go over the years of how these big deals impact a quarter of for Commvault. 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 out, this is Brian here.

38:20 So, yeah, I mean, you know, the lumpiness that we refer to is a result of us not being predictable in our execution. So we understand the need to improve our forecasting methodology, our overall deal hygiene, and and become more predictable. I think with the direction of Ricardo, we're going to do that. So that's step one. Secondly, as we roll out this partner 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 FY21, but that should start taking effect, and I believe that's going to have an impact.

39:10 Okay. And then on hyperscale, you know, how is this product? I mean, there was so much excitement about this product when you guys announced it, and, you know, allowing you guys to go into the mid-market and just compete more effectively against some of the startups, folks. Is there some kind of metrics that you can give us or some kind of context about how that product is performing over the last 90 days?

39:37 Well, for the last 90 days, yeah. I mean, hyperscale is the technology of the future. I mean, I think that we are seeing growth on a year-over-year basis with respect to our hyperscale offerings, and I think that, again, this is –

39:54 Let me, Alex, the way we think about the hyperscale, the hyperscaler is both the software and the appliance. And our play with our customers on this is it's one part of an overall approach they may want to take. Our technology works together. So if a customer has a cloud footprint, they have an on-prem footprint, they want to have, over time, a SaaS footprint, and they want, in certain cases, an appliance or a hyperconverged capability, and I'm oversimplifying it, but the brain in our software talks to the other person. They all talk to each other. It's the same back plane. So as a result, we've got customers that start out talking with us about a hyperscaler and over time sort of want to have the whole complete product in conjunction with it or a cloud-enabled capability.

40:41 So for us, it's an important part of an overall solution that the customer can have in any way they like. It is very channel-friendly. It is very easy to set up. Literally, I have done this personally in 15 minutes, setting it up from scratch. It's a good piece of software. Our partners like the reference architecture. So it's sort of meeting our expectations as technology. We have a lot of repeat customers. It is a product that's about a year in and it's doing well. Thank you. Thank you, and our next question comes from Eric Martinuzzi with Lake Street. Your line is now open.

41:27 Yeah, I have a question on the revenue recognition regarding the subscription and utility software. I was under the impression that that line would just kind of grow sequentially as we added more subscription contracts to the base. It declined between Q4 and Q1. Could you refresh my memory on the revenue recognition there?

41:52 Sure, Eric. It's Brian here. So it really depends on, you know, the needs of our service providers that drive, you know, 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 a couple 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 then is that... Yeah, 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.

42:42 Okay, okay. And then a second question here. We did see a little bit of a... I'm trying to get a feel for normalized CapEx. I think a year ago you guys still had been related to the new facility, but the $841,000 in the quarter, is that kind of a normalized CapEx? Was that abnormally low? What should we anticipate for fiscal 20?

43:09 I think plus or minus a half a million on that number, more to the plus would probably be appropriate.

43:16 Gotcha. Thank you.

43:19 Thanks, Gary. Thank you, and that does conclude our Q&A session for today and does conclude today's call. Thank you for your participation at today's conference. You may all disconnect. Everyone have a great day.