Nutanix Inc
NASDAQ:NTNX
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
40.51
73.37
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Nutanix Inc
You don't have any saved screeners yet
Good day. Thank you for standing by. Welcome to the Nutanix Q4 Fiscal 2021 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be Q&A - question and answers session to ask a question during the session. [Operator Instruction] Please be advised.
Today's conference is being recorded. If you require any further assistance, please press star 0 and I'd like to hand the conference over to your speaker today. Richard Valera, VP Investor Relations. Please go ahead.
Good afternoon and welcome to today's conference call to discuss the results of our Fourth Quarter in the fiscal year 2021. Joining me today are Rajiv Ramaswami, Nutanix's President and CEO, and Duston Williams, Nutanix's CFO. After the market closed today, Nutanix issued a press release announcing financial results for its fourth quarter in the fiscal year 2021. If you'd like to read the release, please visit the Press Releases section of our IR website.
During today's call, management will make forward-looking statements, including statements regarding our business plans, strategies, initiatives, vision, objectives, and outlook, as well as. Our ability to execute thereon successfully. And in a timely manner. And the benefits and impact thereof on our business, operations, and financial results.
Our financial performance in targets and use of new or different performance metrics in future periods. Our competitive position and market opportunity to timing and impact of. current and future business model transitions, to factors driving our Growth. Macroeconomic and industry trends.
And the current and anticipated impact from the COVID 19 pandemic. These Forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially. And adversely from those anticipated by these statements.
For a detailed description of these risks and uncertainties, please refer to our SEC filings, including our most recent Annual Report on Form 10-Q (quarterly report) on Form 10-K, as well as our Earnings press release issued today. These Forward-looking statements apply as of today, and we undertake no obligation to revise these statements after this call. As a result, you should not rely on them as representing our views in the future.
Please note, unless otherwise specifically referenced, all financial measures we use on today's call are expressed on a non-GAAP basis having been adjusted to exclude certain charges. We have provided to the extent available reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release.
Lastly, Nutanix management will be participating in the Deutsche Bank Technology Conference on September tenth, the Piper Sandler Global Technology Conference on September 13th, and the Jeffrey software confidence on September 14th, we hope to see many of you at these upcoming events. And with that, I'll turn the call over to Rajiv. Rajiv.
Thank you, Rich. And good afternoon, everyone. I hope you ended the last ones for healthy and safe. As we continue to navigate through the COVID pandemic. How Q4 was a strong hand to an excellent Fiscal year, which was marked by consistent execution and good progress across both financial and strategic objectives.
Your Dynex delivers a strong Fiscal 2021 across a number of areas. They exceeded our guidance. And we Quarter of the year. As our team consistently over the TV. We felt good linearity within each Quarter. As we benefit from ongoing operational improvements in our go-to-market engine.
And we also saw improved economics and the continued build-out of our renewals business, which will help drive the acceleration of our top-line as we approach the completion of our subscription journey. Importantly, we drove this top-line improvement while carefully managing expenses, leading to a substantially improved bottom-line performance compared to our prior Fiscal year.
On the strategic front, we received a $750 million investment from Bain Capital in one, which provided additional financial flexibility to fund our growth. And we made good progress on our alliance partnerships, extending our relationships with HP, Lenovo. And more recently, signing a new agreement with Rod Hall. Looking deeper at Q4, the outperformed on all our key metrics. Seeing all time, our recent record in a number of areas.
We reported record revenue up 19% Year-over-year. The best Growth we've delivered in the last three years. We saw a record ACV billing, which grew 26% Year-over-year. Our highest Growth rate in over two years. We again saw good linearity in Q4, which contributed to better-than-expected cash flow.
The underlying momentum in the business gives us confidence in providing strong guidance for the first quarter of our fiscal 22. And we believe for this investment well, to achieve our plan for the balance of the year. Overall, we were pleased with our Fourth Quarter and Fiscal 2021 Financial results. Which were identified against the continued challenging backdrop of COVID-19.
We saw strong momentum across our entire hybrid multi-cloud portfolio during the Quarter. Including both core and emerging products. On my thing, products, new ACV bookings, grew over 100% Year-over-year and saw a record rolling four-quarter a tax rate of 41%. One example of a complete portfolio solution was our largest deal of the quarter.
A multi-million-dollar ACV deals with a Fortune 100 Financial Services Company that expanded their use of our core Hexis software to run their mission-critical applications. Along with a large expansion of their era footprint to automate and simplify that database management. The sonics cluster, a key component of our hybrid multi-cloud platform, continued to see solid momentum during the Quarter.
One example, where the Global 2000 real estate e-commerce Company, that [Indiscernible] cluster on AWS to expand that [Indiscernible] footprint and enable that lift and shift data center consolidation. In Europe, a large government ministry to our cloud platform, along with our Unified storage solution, including Pfizer and ah, SMIC, has the primary cloud platform.
I'd now like to take a moment to highlight some key takeaways from our Investor Day in June. Be highlighted. Our leadership position in the large and growing hyper-converged infrastructure market. And the substantial additional opportunity we see in our decent markets.
Specifically, we noted a combined total available market opportunity in our core and different markets. As we expect to exceed $60 billion by 2025. We said our plan was to focus on delivering a single platform that fixed Nutanix hallmarks, simplicity, and performance into the hybrid multi-cloud market.
We laid out a roadmap for our solutions strategy and how we're streamlining our portfolio. Focusing on a fewer, bigger bet. In the area folk database-as-a-service, unified storage, and desktop-as-a-service. We also explained how we're expecting to see go-to-market leverage by executing on low-cost renewals.
Benefiting from solution selling and from increasing our focus on partnerships. And finally, we provided a model targeting free cash flow, breakeven. In the second half of calendar 2022 and 25% Annualized SEC filings. Both through Fiscal year 25. And we're tracking well on both metrics. Next, I'd like to also provide an update on some of our previously discussed priorities.
First on deepening our partnerships to provide more impact on how we go to market. Our recently announced partnership with Red Hat the world's leading provider of commercial OpenFlow solutions. Brings together Red Hat, industry-leading, Red Hat Enterprise Linux around, and its OpenShift container platform.
With the simplicity, flexibility, and resilience of our platform. Nutanix, it's now the preferred choice for hedge HCI on Red Hat's platform. And our HBE hypervisor is certified to support around and OpenShift on the Nutanix platform. Likewise, OpenShift. If now the preferred choice for enterprise full-stack Kubernetes on the Nutanix platform.
Finally, the two companies also have a neutral support agreement and a research and development roadmap focused on ensuring customer success and enhanced integration, respectively. This partnership provides customers with a full-stack platform to build, scale and manage containerized and virtualized cloud-native applications in a hybrid multi-cloud environment.
We see this as an important proof point in our strategy of furthering customer choice and enhancing our platform by partnering with other best-in-class providers. During the Quarter, we also announced an expanded partnership with HP, in which they are offering new Capex era are multi-database operations and management solutions bundled with HP Pro-Line servers as-a-service to HBP agreement.
In addition to our core platform, which is already a part of a [Indiscernible] offering. Now I'd like to turn to another of our priorities, diversity and [Indiscernible] We released our first environmental, social, and governance of EFC report. During the Quarter detailing our initiatives in the various and establishing a baseline. We can measure ourselves against.
This is an important first step in our journey towards having greater diversity and intuition and our workforce and enabling more sustainable businesses for both mechanics and our customers. We also held our first global women's Conference in July with Nutanix leaders and outside experts, both to our entire employee base about how we can redefine leadership to include diverse backgrounds and perspectives.
In closing, I'm pleased with the execution across the board. And our fourth Quarter has spent about a full Fiscal year, especially given the challenging backdrop created by the pandemic. And the fact that it was the Fiscal year of our ACV model. We are entering our fiscal 22 with a strong position.
Finally, I'm looking forward to connecting with many of you at our upcoming doc next user conference being held September 20th through the 23rd. Let me look forward to welcoming tens of thousands of our customers and partners. Please see our Earnings press release on our website for registration details. And with that, I will hand it over to Duston Williams. Dustin.
Thank you, Rajiv. Q4 was another quarter of consistent execution, as well as a great way to finish out the fiscal year. Sales were strong throughout the entire quarter. There was no unusual deal slippage, and we build a backlog during the quarter. In Q4, we exceeded all guidance metrics in our overall business model continues to be strengthened by the benefits of our subscription focus.
A few key highlights for the Quarter included record new ACV billings, record total ACV billings, record, total billings, record total revenue. Record emerging products, new ACV bookings, a record number of greater than $1 million transactions in the quarter. And we had the largest year-over-year total percentage growth in revenue since Q4, 18.
Now I move onto some specific Q4 financial highlights. And before I get into the specific details for the Q4 and FY 21 financial highlights. I would like to remind you that all future financial disclosures with aligned with disclosure and guidance metrics, the roadmap that we provided during our June 22nd Investor Day presentation.
For further details in clarification about our go-forward disclosure plan. I would encourage investors to review the slide titled Guidance and disclosure plan for FY 22 from my Investor Day presentation. ACV billings for Q4 were 176 million, reflecting 26% growth year-over-year above our guidance range of 170 million to 175 million. And ahead of the Street consensus number of 173 million.
New ACV bookings, which include new logo ACV, as well as upsell ACV, experienced the strongest year-over-year growth rate since Q1, 19. ARR at the end of Q4 was 0.88 billion growing 83% year-over-year. Run-rate ACV as of the end of Q4 was 1.54 billion, growing 26% Year-over-year, compared to our estimated Growth of the Mid-20% range.
Our average contract term blanks increased slightly to 3.4 years versus 3.3 years in Q3 21 as our largest deal in the quarter from an existing customer, was a 5-year term. We also had a few other notable 5-year deals from existing customers. At this point, we would expect our average contract term lengths to trend back down next Quarter. Most likely in the low 3-year range. As one usually carries a significant amount of federal business.
And our federal customers typically have much shorter average contract term lengths. Assuming contract term lines do approach the low 3-year range in one, we would approximate the TCV to ACV billings ratio to be somewhere around 2.25. Versus the 2.4 in Q4. Revenue was 391 million growing 19% from Q4, 20 substantially above the Street consensus number of 365 million.
We have not seen this level of Year-over-year Growth rate in revenue since Q4, 18 emerging products, new ACV bookings grew in excess of 100% year-over-year. The emerging products attach rate was 41%. The Q4 sales rep productivity significantly exceeded our assumptions set forth at Investor Day. Our non-GAAP Gross margin in Q4 was 82.9% versus our guidance of 81.5 to 82% Operating expenses were 373 million versus our guidance of 380 to 385 million.
Our Q4 expenses included approximately 12 million in severance expenses related to our previously disclosed sales and marketing headcount reduction. Our non-GAAP net loss was 55 million for the quarter or a loss of $0.26 per share. Q4 linearity remains very good. DFO's in Q4 were 48 days up from 37 days in Q3, 21 and down significantly from 68 days in Q4, 20.
Our free cash flow for Q4 was once again, aided by good linearity coming in at a negative forty-two million, sixteen million betters than the Street consensus. We closed the quarter with cash and short-term investments of 1 to 1 billion down slightly from 1.25 billion in Q3 21. Before I provide the Q1 guidance overview, let me first do a quick recap of FY 21. ACV billings were 594 million growing 18% versus FY 20 and versus the 590 to 595 million range we provided at our Investor Day.
Once again, as we mentioned last quarter, or a total Fiscal year ACV billing, uh, not derived from the simple addition of the four fiscal quarters. For our reported quarterly ACV billings. we annualized any deal that is less than one year in term length. And our yearly ACV billings calculations eliminate any duplication that happens with the renewal of a deal that occurs within the period and is less than one year in duration.
Based on this methodology. Over the last three fiscal years, with some of the four fiscal quarters of ACV billings have exceeded the adjusted annual ACV billings by six to 7% We would encourage investors to account for this distinction during the modeling process.
FY 21 new ACV billings, which includes new logo ACV, as well as upsell ACV, were 433 million growing 11% versus FY 20 and versus the 430 to 435 million range we provided at our Investor Day. Our renewal business performed well within our expectations for FY 21 renewals, ACV, including loads, support renewals, or a 161 million growing 38% versus FY 20 and versus the approximate 160 million estimates, we shared at Investor Day.
FY 21 renewals TCV, including LoD support renewals, were a 179 million growing 32% versus FY 20 Revenue was 1.39 billion growing 7% versus FY 2020. Yearly revenue growth was impacted by term compression during the year. Customer retention, including loads and subscriptions, closed the year at 96%. The gross retention rate for our subscription business continued to operate within the range of greater than 90% as provided during our Investor Day.
The net dollar retention rate, including the LoD business, was 124% versus the Investor Day estimate of approximately 125%. The net dollar retention rate for our subscription-based business only was 158% versus the Investor Day estimate of approximately 155% Emerging products, new ACV bookings grew 97% in FY 21. And we also added 61 G2K customers in FY 21. Now, turning to our Q1 22 guidance, the guidance for Q1 is as follows.
ACV billings to be between a hundred and seventy-two and a hundred and seventy-seven million representing year-over-year growth of 25 to 28% Gross margin by approximately 81.5% operating expenses between 365370 million weighted average shares outstanding of approximately 216 million.
The one ACV billings guidance, which calls for year-over-year growth of 25% to 28%, compares to the actual growth of 14% in Q1 20, 10% in Q1 21, and versus the street consensus growth for Q1 22 of 23% based on continued good execution and an increasing renewal base.
And a robust backlog, all supported by a strong product portfolio. We are pleased to project a Q1 22 year-over-year ATV billings growth rate, that is on par with our strong Q4 21 ATV billings growth rate of 26% Based on the 122 ACV billings guidance, we expect us to grow 65% or more Year-over-year. I'd like to make one final comment regarding our ACV billings trends for FY 20-22.
Due to our growing mix of renewals. For the second half of FY 22, where you would expect a higher amount of ACV billings in Q4 versus Q3 than what is currently reflected in the consensus estimates. This mix shift from Q3 to Q4 is a direct result of our growing ATR or available to renew base of renewals that show a proportionately larger increase in Q4 versus Q3.
We strongly advise analysts and investors to carefully look at their quarter-over-quarter ACV billings estimates to ensure that the strong growth in Q4 relative to Q3 is reflected in models. With that Operator. Could you please open the call-up for questions? Thank you.
As a reminder, to ask a question. On your telephone, to withdraw your question, press the pound key. Your first question comes from the line of Aaron Rakers with Wells Fargo.
Thanks. Congratulations on the Quarter. And just wanted to kind of maybe level set the discussion around the base of renewal opportunity and the linearity throughout this next fiscal year.
Duston is there any way that you can help us frame a just relative in size how large the basic renewal opportunity looks like this year, relative to fiscal 21. And what exactly that linearity doesn't look like as a progression through the quarterly, quarterly numbers through fiscal point here.
Sure. Aaron. We provided a fair amount of detail during Investor Day. We obviously just reported on the 21 numbers. We gave a 23 estimate; we gave a 25 estimate during the Investor Day to relative to. FY 22. Again, there won't be obviously a massive increase in FY 22 on the renewals just because you've got some offsetting load support renewals declining and then the subscription renewals are increasing.
I will tell you and I mentioned this in the script that, you know, the first three quarters of the fiscal year have a slight increase, but not much, but there is a large tranche in Q4 that starts to kick in on the subscription renewals.
And that's why the comment was. Just to kind of look at the quarterly splits there because there will be just based on the ATR, the available to renew in Q4, the amount increases quite a bit relative to certain in Q2 and Q3.
And then a real quick follow-on is that you talked about the average weighted terms coming down. Relative to 3.4 in fiscal 1Q. Do you think that we continue to trend downward through the course, the successive quarters through fiscal '22?
Well, probably not that much. Now, 10th here there maybe. But again, in Q1 the federal business ends up being a much larger percentage of the total business just because of the federal year-end in September and federal terms are quite a bit lower in general.
So and you saw the same thing actually last year. Quite honestly, from Q4 to Q3, you saw -- I don't have it exactly in front of me, but I think it's a three-tenths of a year decrease, something like that. From Q4 to one, and then it kind of flattened a little bit.
So definitely will come down as we see it today. And as we get through the first month and that's what we're seeing already. But then I would suspect that kind of be flattish a little bit, but I don't think there's any. Shane certainly from the kind of the 2.8 to 3 as we see it today, as we laid out at Investor Day.
You're going. Thank you, Duston.
You're welcome.
Your next question comes from the line of Jason Ader with William Blair.
Yeah. Thanks. I have 2 quick ones. First is, it seems like you're taking share in the HCI market in the first half of calendar 21, and I just was hoping you could talk about why you think that's happening?
Yes. Look, I mean, I think there's a knock. We are seeing nice quarter-over-quarter improvement in our window. They are obviously very focused on this market. VTM execution has continued to improve throughout the entire year.
And fundamentally, and goalie and dad with a very strong offering that we continue to get better. They're the best in terms of managing data, offering all forms of storage. Moving that to hybrid cloud, as you know, we provide the best freedom of choice across hypervisors, across Cognex dot farms, and get me the fact.
And of course, going forward across multiple cloud customers, like the simplicity of what we provide and then our NPS as 90 continues to be better than almost everybody else. So we have a sustainable launch this year, combined with the increasing focus. The improvements in our operational execution. That's what's leading to the focus.
Alright, thanks. And then just a follow-up on that is in terms of this whole cloud versus on-prem debate, how are your conversations with customers changing over the last year? And are you seeing any pendulum swing about towards the on-prem environment?
Yes. I mean, I think there's been a lot set of this recently right about the cloud. And I think customers are going to be more nuanced about how they go to the cloud. There. There's just. Both a cooking application, san, new applications that come into, come into play here.
And obviously, customers now are looking at different things, but I need to be in a multi-cloud world. I don't want to be locked. The one product going to be running lag applications across all clouds. And we are seeing very specific use cases that customers are looking at, right.
So one class of customers or people moving on-prem, wanting to migrate to the cloud. Our user cloud. We're seeing them use us to expand, take, expanding their existing footprints into the cloud.
Disaster recovery of the use case for customers that are having more public cloud-oriented historically, desktop to look at South costs. Just coming to look at that data governance security, they're starting to look at cloud lock-in and see that they're also looking at there are more of a multi-cloud environment, hybrid environment.
So I think there are definitely more conversations that were happening, happening with our customer base around these. And again, we're starting to see the youth. It doesn't come into play, right? In production.
Thanks very much.
Your next question comes from the line of James Fish with Piper Sandler.
Hey guys, thanks for the questions. Pretty so that's your biggest upside in four years versus our estimate. So nice to see the software side really driving that upside and coming out. This transition equity speed.
So kudos to you guys. At a high level, are you seeing a pickup or steady-state for the conversions of traditional three-tier storage architectures too hyper-converged? And going back to what you just said around used cases, any changes in the used cases for hyper-converged versus the last few quarters.
Yeah. David, as we said at Investor Day then the fundamental benefits of continued to apply, right? Simplicity in Operations Management, bringing these silos together but whining, good TCO, competitor tradition this year. And what we're seeing now with HCI, they are able to address a broad set of enterprise [Indiscernible].
And we've seen that. For example, our largest deal of this quarter was with a large financial services customer. And they are of course running all the databases of our platform. And that's a high-performance workout. And so we're seeing.
And broadening the adoption of HCI for lots of enterprise workloads. And so I think that trend continues. And then the second trend really is, as you go to the cloud, HCI becomes logical, it's not just an on-prem treaty or replacements, but it also becomes a platform that they can then take to the cloud.
Understood. And any further commentary you guys can provide on how sustainable this productivity can be, and how that compares to your Analyst Day expectations for increasing productivity over the next few years. And doesn't specify any change to how you're thinking about that mid to high teen’s growth for next year that you alluded to at the analyst.
Okay. Let me start with the productivity thing. We have so many things to help productivity going forward. As I said, we're running ahead of the Investor Day estimates, certainly in Q4. And we think the productivity will continue.
To be strong. We have a lot of things going on in the background as far as channel enablement and a lot of autonomous selling that we're trying to enable with the channel; we'll start some solution selling. Clearly, partnerships are picking up. Not to mention our renewals and things like that. So lots of good stuff happening.
From a productivity perspective, I think then if you've kind of backed up and even talk a little bit higher level there. The demand environment is good, the pipeline is strong. And not only as a pipeline strong has the quality of the pipe continued to get really stronger as we go on here. The products performing well.
Emerging products continue to increase deal sizes and ASP, or increasing the renewals of building and stuff like that. So when you step back on that, when you look at FY 22, we feel good about 22 obviously are planned for our FY 22 in media. The mapped and the modeling assumptions that we provided at Investor Day for FY 22, and that was obviously meant to be a kind of a one-time thing to help with the modeling efforts.
We're really happy with what happened in Q4. We're really pleased with what we can have guided certainly for one and the likes there. So we feel really good as we go into the fiscal year. And we'll address things as we move forward. But at this point in time, again, that was meant to be kind of a one-time look at 22, but in general. And while we feel very good, about 20 to going into the fiscal year.
Helpful. Thanks, guys.
Your next question comes from the line of. Pinjalim Bora with JPMorgan.
Great. Hey guys, thanks for taking my questions, and congrats from my side as well. Just taking a step back. Could you maybe talk about the demand environment are you kind of seeing the hesitancy around big data center transformation projects kind of fee that we at this point.
And how did the demand in them and get a trend through August versus, versus expectations that you're seeing any kind of slowdown due to Delta or anything in the revenue here?
Maybe I'll start there. Things have been here. So first of all, I think we're seeing a healthy demand backdrop. And it's being driven by this broad acceleration of digital transformation initiatives, like the [Indiscernible] and COVID actually capitalized, and there is some extent of pent-up demand.
Being realized style as customers have now become used to operating in a corporate environment. Now for us specifically, I would say the demand is being driven by four key areas Flex5, continuing the [Indiscernible] only question about this -- about continuing modernization of their legacy through the infrastructure.
Running more work on our platform helping extended as they move to the cloud, right? Are helping our customers migrate to the cloud. And then, of course, hybrid and remote work is here to stay. And that's another driver for what we're fee to overall, we certainly Delta has not. In fact demand. We're still seeing a good demand environment. And people are continuing to invest in these initiatives with us.
I understood. Okay. Thank you for that. And one thing about clusters, I guess I think it's now available in the AWS Gulf cloud. What has been the early feedback from federal customers? I know you're going into your biggest federal quarter. But the conversations forming in that area, how do you feel about clusters on the government side?
Yes, I think. As you know, fluxes have become available here in [Indiscernible] AWS cloud. And we do expect again a number of government agencies to be looking at operating in golf clubs. And so we're.
And the only knock-on relations with them, but essentially the scene use cases apply to them as well. Right. So how do I extend my sense of the public cloud, how do I do disaster recovery, how do I do the capacity expansion, how do I consolidate data centers?
So the [Indiscernible] used cases, they are starting to see also play out in government. And again, I think it's still early days for us. Has the offering just become available? And I hope to be able to talk to you about future government customers and government customers in future calls at some point.
Understood. Thank you.
Your next question comes from the line of Jack Andrews with Needham.
Good afternoon. Thanks for taking my question. I was wondering if you could unpack a little bit more of the various strong net dollar retention rates you're seeing, particularly the 158% excluding life and devices. Could you provide some more contexts on what's really driving that number?
Let me take it and Rajiv you may want to chime in here. But there are only a few inputs to that output of 158. And obviously the upsell, it’s continuing to get better. Again, the deal sizes are getting larger. I think as we continue to go up the stack with our product offering, that's a natural enhancement to total deal sizes slash up-sell in the business.
And the gross retention rate. A huge focus internally on that. But the gross retention rate is still a relatively small base. But what we've seen so far, we're happy with the gross retention rates. So that will come down a little bit as we showed in the Investor Day, but I think that will still be up at the top there as far as. Metric from a competitive perspective.
Again, the product continues to perform well, NPS scores still stay at 90 plus and all those things add up to a lot of upselling and increased deal sizes, and a pretty good net retention rate.
Yeah.
Well, makes sense. I appreciate that.
Yeah, I would just add to that saying all the [Indiscernible] and the larger scheme that we had this quarter, right, everything that Duston said, they don't -- not customer went in with the small deployment to start where they continuously expanded their deployment, they're continuously buying more and buying more of our portfolio.
That's great to hear. And maybe just as a follow-up, Rajiv, just given an increasing focus on solution-based selling, could you just speak to maybe how you navigate the relationships with some of your partners who also would typically look to bundle technology offerings into their own solutions.
Yeah, and I think if you look at the solutions that we're focused on today, it's clouded. Hybrid cloud being one. Its database management is another example. And of course, our traditional focus is on end-user computing.
And all of this plays very nicely from a solution perspective. If you look at some examples with partners. So when they go with HP, they're looking at bundling all software from a cloud platform perspective along with their hardware and offering all of that as a subscription, Greenlee.
And they're doing that for both our hybrid cloud risk, whether it's now database, has said that offering. So typically. What do you find us, ah, solutions selling combined with what we can do with partners, including Lenovo for example.
To end-to-end what's left our offering with several [Indiscernible] staff will stack from Nutanix at [Indiscernible] as-a-service. So it. Yes. Enhances the overall value of the solution and makes it easier for customers to push safe. And what would we need to see that business outcome in the simpler form. I appreciate that context.
Thanks and congratulations on the results. Thank you. Your next question comes from the line of Katy Huberty with Morgan Stanley. A good afternoon with all the demand indicators in sales productivity metrics tracking
Really well. Exiting last year, what's driving the October quarter ACV billings decline of 1% sequentially, if you look over the past three years, that was up about 3% on average, is it just a function of the business scaling, and so we'll see more seasonality in the business or anything else to read into that? And I have a follow-up.
Sure. You know Katie, as far as the guide as you saw there is still a year-over-year increase of 26% compared to the 14, and 10% from the prior 2 years. So it's a huge year-over-year increase. Q1 usually typically, when you look at it, is a bit slower for us.
Certainly IMEA. When you look at what the trends were there and the wildcard is kind of fed Roland so far. Federal was playing out, playing out fine in Q1. So we'll see, but I think we have a lot of things going for us. Certainly, not only in Q1 but net fly 22. So we'll see how things play out there. And obviously, a pretty robust backlog, which gives us a lot of comforts.
Got it. That's clear. And then Duston, OPEX is tracking below your prior guidance of 380 to 385. Is that tied to temporary dynamics around just the timing of reopening and labor market tightness or is this a more sustainable reduction and then what do you think the spending run rate as well
As we again, to Investor Day, you'll see single what were you expecting 22 was at that point in time, we were saying single-digit growth year-over-year. Clearly, one of the bigger variables is a travel and still continues.
To stay locked down for the most part. Anyway, so we will see some increases there. But I think the focus on expenses continues to be pretty robust from what we're doing on the expense side of the equation, it will continue that way.
We need to fund obviously, reps and engineering projects and things like that, which we're doing. But I think we're still assuming, we're still somewhere in that single-digit growth year-over-year, but we'll continue to try just like we did this quarter. And the guides for one to continue to drive it down, but still grow the business. At our 25% plus.
Dustin is the 170 reduction in sales and marketing heads this quarter, which is bigger than the prior quarter. Is that just the restructuring? Is that all related to the restructuring that you referenced in your prepared remarks?
Clearly, restructuring is in there, and not all of it, but clearly restructuring this is in there. And that's some of the servers that you saw that we booked in the quarter there.
Okay. Thank you.
Your next question comes from the line of Wamsi Mohan with Bank of America.
Yes. Thank you. And congrats on the results. Dustin, you did some seasonality in ACV billings weighted more in 4Q given what is available to renew, is that a dynamic that carries over into it? Quarters beyond that. And when should we expect stabilization of that, maybe a follow-up.
Well, you're not going to see ultimate stabilization for [Indiscernible] is going to continue to increase, right. And we've given an FY23 number in the Investor Day presentation there, so you're going to continue to see an acceleration of the renewals that, again, what we've been working on for the last three
Years or so, would the transition to a subscription more tranches are going to come in for renewal. So that's what you're going to see there. The comment I made on Q3 to Q4 was because still not massive in any given quarter. What I was saying there is we just had a pretty big bump up in ATR that we expect from Q3 to Q4.
Relative to the size of Q3 and that's why we thought we'd call that out just to make sure that was clear from a modeling perspective. But again, into FY 23, you'll continue to see it will be. A little bit more linear. But there'll be some bumps up and down, but more linear.
Certainly, we expect to see Q3 to Q4. It's obviously trying to why a little, little sort of not be as big of step-ups on a sequential basis. All one as well on honest, this quarter-over-quarter, you'll still you've got a benchmark again that we're running two for FY 20, that kind of gives you a feel for that type of growth from 22 to 23.
Okay, thanks.
Continue to increase, sorry.
Yes. No, I get it I'm just questioning on-trend sequentially if there's an abnormality in those trends that call out later points. As a follow-up, Rajiv on I thinks at the Analyst Day in order that VDI was 20 to 25% of workloads and curious, just given back to work in many places.
If you're expecting to see any impact from that at all. I mean, on the PC side, clearly, there are concerns of a demand roll-over. And I understand the distinction between media and PCs, but just wondering if you're seeing any signs of that business decelerating. Thank you.
No, I would say not once. I mean, no signs of that. And I think largely because we're going to continue to remain hybrid, even people come back to the offices, is going to be a mix. And so I would say is that business for us has trended to be in that 20 to 25% range overall. So I don't see any significance. Can you just one of those people come back to work here?
Okay. Thanks a lot.
Your next question comes from the line of Rod Hall with Goldman Sachs.
Yeah, thanks for the question, guys. I wanted to jump into the I think the comment you made us than on the five-year deal. And then I think you had said there were other five-year deals in there. Just curious if you can. Firstly, help us quantify that at all, give us any idea what the billings percentage that was five years in that billing stack looks like.
And then also any color around why these customers are doing five-year deals were they five-years before and they are just kind of renewing it five-years or you giving them better deals for five years. Any kind of color you can give us on why you're seeing that thanks. And I have a follow-up.
Yes. So the quarterly investor presentation should be loaded on the website routes and that will give you the ACV breakout by term. So that I think that answers that question for you. And on the five-year deal, yeah, these are existing customers that had been purchased.
On a five-year term. And again, once you have somebody in five years, it takes a little bit if we can to get them down to the 3-year or something like that. This happens to be the largest deal that has turned into
What we referred to sometimes. But I referred to as a chronic repeat purchaser. It's kind of a textbook example to a very large customer that just continues to eat away at different workloads and use cases.
In this case, there was a fair amount of emerging products in there also, which is really nice to see. But it's -- yeah, so there were existing. And then we had several others that we're already at the five-year mark, and they bulked up on some purchases. So that's what we saw therein
Q4. And as I said in one that will reverse and come back down to the low three's three-year Royal three somewhere around there.
Right. Yes. I'm sorry, I missed that in the presentation, but thanks for that. Does some of that's good color the other thing is on the terms. So I know you're saying it comes back down next quarter.
What are you thinking about term links now as we look out several quarters, I mean, we were thinking it kind of slowly slips I think towards three. But do you think it -- are we stabilizing now at this kind of 3.3, 3.2 level, do you think it keeps coming down just a little bit of kind of what are you thinking now on [Indiscernible]?
Yes. Same thought. I had a year or two ago that everything I see with the mix of new businesses and existing business, it's still -- and we put this in the Investor Day presentation, 28 to 30, somewhere around there.
I think this fiscal year and probably remains in the three, low three range somewhere around there. As we migrate into 23, maybe get a little more tweaked down there. But like everything that we see today, that would be the continued view on terms.
Great. Okay. So yeah, this quarter is just kind of an anomaly and we continue on that trend we've been on. All right. Great guys. I appreciate it.
Yes.
Your next question comes from the line of Mehdi Hosseini. With SIG.
Yes. Thanks for taking my question two follow-ups. It was great to see the booking and I'm just wondering if you can help me understand. Is there a way of qualitatively or quantitatively? You can talk about a booking. By like a native data application versus a hybrid model.
Okay. Maybe I can try. I mean, we've tried to quantify some of these by use cases, right? So the one that -- I mean, I think. In general, what I would just say today is large because of the bulk of our businesses, what I would call on-prem. Right.
And you're starting to see more of it, more to hybrid as TDS early use, customers migrating to the public cloud. And that portion is still related with small but growing nicely. Right? So the bulk of it today is on-prem, but I expect that over time we will see more and more of a mix of public cloud-based workloads.
In addition to our on-prem boatloads. So that's one piece of it. The other way to think about it if need also, is what kind of workflows TAVI running. And they're like we've said, the one was loads that we quantified is End-User Computing. And that typically runs between 20, 25% of our overall business.
The rest of it tends to be other workloads, like databases, which we haven't quantified, but the database is anything -- other solar virtualization type workloads. So perhaps let me give you a reasonable framework.
Sure, sure. Yes. You referenced I think if I'm not mistaking 60 billion TAM, and I think the native data is the fastest growth, but perhaps is the smallest piece -- is secular, but it's going to take some time for it to scale, right.
When you say native, are you talking about cloud-native or club? I mean, sort of I mean, I think that means when we talk about $50 billion TAM, we talked about a couple of different pieces of it.
One is our core ACI, hybrid, hyper-converged read, as we said, that's continuing to grow exceeding into three-tier. It's capturing more enterprise workloads and that business that continues to grow very nicely, right? Over the next several years. And then on top of that, it extends to the hybrid cloud, right?
Which is the publisher out component of this? We've talked about. And then on top of that, we talked about opportunities in Unified storage, which is all about files and optic, and. And Greg, where we're gaining share against service providers. And then the database is full, right? But also the component from the broke it down for you.
I actually don't share gains was premises on my question, just look at Slide 16. Your share gain, you're 53% of adoption, like eight quarters ago. It was in the mid-40, so you definitely are well over 50%. And as a follow-up, is there a cap? Are you're going to like a year or two from now. If you're going to be closer to 60 and where do we go from there?
I expect that our adoption will continue to pick up for multiple reasons. First, is that [Indiscernible] is getting stronger and stronger in the hypervisor in terms of broader and broader [Indiscernible] capabilities.
Second, for example, is that partnerships such as the one that we just did with Red Hat, there are now -- Red Hat Linux is obviously certified with a tweak. But why more confidence in our customers and adopting the HVS platform.
So I do expect that it's going to continue to pick up over time as more and more customers adapt to their workloads. So it's. So it's too hard to see whether there's going to be a ceiling on it or not at this point a little bit early, but I would expect it to continue to tick up and it certainly is something I'm sure.
And then just finally, just a quick follow-up and the scaling of your new products would complement as I imagine at some point incremental share gains would be more challenging. But how you scale new products could be -- could help sustain the growth.
Yeah, I mean, I think I'm very excited about our new products as Dustin pointed out, there were 41% above a number of our leaders. I think this last this last quarter.
And they're all unlocking great opportunities for our database management in the database as a service is a huge, big market opportunity than I forget relates me small but growing rapidly into that unified storage for us as all again, growing into a larger 15 markets, where our percentage related response for these newer emerging products are all sizeable markets where we have related with a small share. Opportunity to gain share and grow rapidly. And also attached to our core platform.
Great. Thank you.
And your next question comes from the line of Simon Leopold with Raymond James.
Thank you for taking the question. I wanted to ask about how we should be thinking. In terms of the percent of billings coming from renewals, this quarter was about 12% and you've provided a forecast for fiscal 25 of getting to 40, but I am imagining that this should not be a linear progression. And I think this quarter is very similar to last. How should we think about that rate of change for that particular metric?
Yeah. You'll see again that some of this varied into the Investor Day package. You might want to reference that Simon, There's a 23 number in there, so that gives you a feel there. So again, you'll see it ratcheting up in 23 as a percentage and both from an ACV percentage and a TCV percentage.
But that bigger increase will occur in FY 23 rather than the Netfly 22. And that's just a timing perspective on these deals that average 3 plus years or just they haven't come up for renewals yet. But in FY 23, there are just larger tranches that naturally come into play.
And I guess the other question, may be a little bit difficult to quantify, but it making the transition where you want to focus more on renewals and essentially. Been less on sales and marketing and new customer acquisition.
If hypothetically, you under-invest in underspend, how long would it take for you to observe that you've made a mistake in terms of your allocation? What's the sort of delay in productivity? Anyway, we could judge it. Thank you.
Well, yeah, I can mention that the energy might want to also pitch in here, but I just want to make something clear. It's not like we're taking massive cost out of the new and the up-sell part of the equation.
A vast majority of the leverage is going to come from the mix, right? As the mix of the renewal. Sales increased and those come in 80% less, less cost of new and upsell. That's where the leverage is going to come now, yes, we've gotten a lot more efficient on-demand gen and pipeline generation from that perspective, which is working well more from a digital perspective.
And our test drive and all that stuff, which is really helping those efforts. But it's not like we're cutting significantly on the new and the up-sell. This is more, we're continuing to focus on that, do whatever we can. But the majority of this leverage is going to come from that mix shift.
That's helpful. Thank you very much.
And your last question comes from the line of Erik Suppiger with JMP Securities.
Yeah. Thanks for taking the question. Congrats on the big quarter. I know you guys don't sell hardware, but can you comment? I think your software is often tied to hardware. Can you comment a little bit on what effects do you see from many of the component constraints that are out there on the hardware side? And then secondly, just curious if there's been any change on the competitive front. In particular with VMware.
Sure. Let me take that, Rick. So look, I think our software ramp kind of variety of hardware platforms and it's also not tie in one-on-one to new hardware sales price. So it's not that we're always selling along with hardware. Sometimes people buy software independent of hardware, they'll have they've already procured. And of course. I haven't talked.
So the supply chain impact on our business so far has been relatively modest. They've seen some customers pulling forward some orders to try and ensure that they have access to hardware. And we've also seen other customers that the eight placements a little bit, but the results so far have been pretty minimal for us.
And that said, we are very comfortable with that 1Q forecasts that we guided to and we will need to continue to monitor the situation here. [Indiscernible] second, I think you said [Indiscernible] the competitive dynamics in what we're seeing in the market?
I would say again in the fourth quarter, we so a nice quarter-over-quarter improvement of our win rates against your largest competitor, but also our ATI competitors. And I sort of said this earlier a little bit here, Eric, but fundamentally we're very focused.
Very focused in terms of execution on this category. Our product is strong. We provide simplicity fleet of choice. A great customer experience with our NPS sitting at 90. So the product offering is really strong.
Our go-to-market operations have continuously improved over the last several quarters, and we're benefiting from that as well because of that combination of a good product plus. Good, strong, and improving go-to-market execution is what's leading to.
These rates have increased, okay, thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.