Q1 2021 Nutanix Inc Earnings Call
And ladies and gentlemen, thank you for standing by and welcome to the New mix Q1 fiscal year Twentytwenty One earnings conference call at.
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I'd like to hand, the conference over to your speaker today.
Tanya. Please go ahead for that.
Thank you and welcome to today's conference call to discuss the results of our first quarter fiscal 2021.
This call is also being broadcast over the web and can be accessed in our investor relations website at <unk> Dot and mechanics dotcom.
Joining me today are geared for one day, you tend to CEO and dust and Williams, new tenants and CFO.
After the market close today and you take issued a press release announcing financial results for its first quarter fiscal year at 2021 if.
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 plan credit use and outlook, including.
Including our financial performance, you said financial targets and performance metrics and competitive position and future periods and.
Timing and impact of our current and future business model transition the factors driving our growth and.
Timing and impact of our announced CEO transition plan and the current and anticipated impact as a combination and tempt you.
These forward looking statements involve risk and uncertainties and 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 dr., please refer to our SEC filings, including our most recent annual report on form 10-K for fiscal 2020 filed with the FTC on September 23rd 2020, as well as our earnings press release issued today.
These forward looking statements apply as of today and we undertake no obligation to update 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 for use on today's call are expressed on a non-GAAP basis and have been adjusted to exclude.
Certain charges, we have provided to the extent available reconciliation for these non-GAAP financial measures to GAAP financial measures honor IR website and in our earnings press release.
Lastly, and you can imagine that will host virtual meetings with investors and the credit Suisse 20 for annual Technology Conference on December two Wells Fargo, T. and Keith Senate and December 2nd the Raymond James Technology Conference on December seven and.
And the Needham growth conference on January 11, we hope to connect with many of you there and with that I'll turn the call over 10 years search.
Thank you Tanya and good afternoon, everyone.
Q1 was a very good quarter for.
Positioning us for growth for the rest of fiscal 21.
Well the dust and when you go into more details on the financials day.
Headline is that we outperformed across all our key metrics.
She'd be billings for 14% and how did the midpoint for guidance.
And consensus and notably.
Q1 was our best beach and be booking Squawked <unk> and book the.
The pandemic multi and standing.
In addition, we delivered strong gross margin.
Yes and.
Free cash flow performance.
We are delighted with our continued progress and it goes and we look back and a journey over the last for years.
And see how far we have called.
Our product pieces for for hybrid and multi cloud future based.
Big and tall before industry, leading hyper converged infrastructure.
Yes, Yeah, your flash decade GAAP.
Combined with an ambitious transition to a cloud like subscription business model is bearing fruit.
Well, there's more to do so the hardest work is behind us and I'm proud and lead flow to what youve collectively accomplished to date.
There were a number of factors that contributed tortue and performance.
Last our HCV based sales compensation strategy delivered positive benefits for business.
In Q1.
Average contract from shocking and as a result, and the shift and you saw lower overall discounting.
And we sold more new products for driving significant run rate TCV growth of 29% you are where you are.
At a $1.3 billion Q.
Next as I mentioned, we saw strong adoption and for new products on profit growth you know core software.
On a rolling four quarter basis, our new product attach rate during Q1 was 35%.
<unk> seven percentage points from a year ago.
In fact, new HCV for new products grew 87 for single or where your and 27% portable courtroom.
Within our newer products you saw particularly good momentum, it's hard data center solutions files and flow.
As well as Deb shops, and data breaches and film and solution or calm and everything.
Not to be a significant number of new product deals and she can get more licenses for for software.
Moving our thesis that and we drive demand for our new products. We also to drive demand for a poor software.
And the foundation for our hybrid cloud infrastructure, and new which CIO for this decade.
Demand for our solutions was consistent across all our geography and.
And many verticals, including federal.
Which had a good quarter as expected weak the seasonality of the U.S. government fiscal year.
The fed sector also had a number of one your current got do we shouldn't use cash.
Contributing to the reduction of average contract durations, and the Cuattro, which Justin and aggressive in more detail.
As always our customer journeys are the best ways to speak for the quarter.
A customer wins during the quarter that combined and many of the themes that I've discussed was with one of the largest and oldest financial services firms and the ward providing investment management. So the thing that administration.
This existing customer, which has spent more than $20 million and lifetime.
And another $1.7 million in HCV extend their private cloud.
We also had a very similar story with one of the largest power companies and Japan, which.
Which is spend upwards of $15 million lifetime did you guys and got desktops and filers with.
Our software stack spending another 1.2 million and he's TV in Q1.
Our strong results both from driven by our go to market momentum and the era of cloud.
Specifically the successful launch for part D. TV sales compensation for them together with effective sales enablement and training around you see the benefits in.
In addition, our sales teams have done an excellent job for improving the quality of the sales process for building a robust pipeline.
And do you included 19 working towards me with parts names and adopting a multi product and multi walk through and sales approach.
The channel continues to play and extremely important role in how we help the ball, but customer journey.
To that and we announced a simplified channel program to deliver even more profitability and an accelerated road map to help partners embrace the cloud business more.
Additionally.
We made meaningful improvements 22 and its university.
Our educational and.
The program now provides more certifications across new skill levels and topology tracks to increase the stickiness and you're trying to make software.
And overall consumption for technology.
Quadrupled participation. This program the past year with 30000 donors and counting.
Our long term partnerships with HP, Dell Lenovo and others continue to be an important part for strategy for offering freedom of choice for customers. In fact, we had our best for her to between H.P.E. and Middle East TV as well as meaningful new customer acquisition.
A great example of for new customer we gained given this for cool, it's a large European for it shouldn't be too.
Who selected us for software.
Babies and the Soviet solution era, and automation software called the plant and coming to fully automate a distributed cloud solution.
The Jewish Ike implementation time from weeks to days.
No I P staff on site, especially as they navigate the 10 minute.
Speaking of the pandemic and the digital transformation it does help accelerate.
For the past several quarters.
We have become a meaningfully did you to marketing organization.
Cash and drive.
And your Dutch self service for prospects and.
And used to provide distinctive pulp and the funnel engagement and.
And has been shown to shorten sales cycles like delivering the highest converge and grateful for all for marketing programs.
We also continued to hold for children's globally.
And in Q1, and we had the largest event ever.
Luxury and force in company history.
Our 100%, which we bought next event had record attendance with over 40000 prospects customers and partners.
And it's on track for deliver strong pipeline generation, and the culture, and a significantly lower cost and inputs and events.
Let me also share with you how we are morphing from being apart and your and on trend hyper converged infrastructure.
Two being and authentic hybrid cloud infrastructure.
The new and <unk> company.
During the quarter, we announced the general availability of clusters.
T I M E W. S.
We also announced a significant partnership with Microsoft to bring up park portfolio for him to Azure.
This partnership substantially evolves or company strategy and.
Enabling us to provide solutions that can deliver seamless application data and.
And license from ability.
Including a singular experience and management across all the jobs.
This is a major competitive advantage.
As we become the for most infrastructure software company with a bring your own license approach to help our customers and the hybrid computing Jody.
At least standard and the past availability for many times cluster of any W. S for fall for the new benefits, including extending the simplicity and ease of use of for software to the public cloud.
This represents a significant step forward and realizing our vision for me computing and visible anywhere by delivering a unified fabric across multiple jobs public or private.
Financial services institution, the EPG region.
As an example from new customer who purchased clusters on eat and yesterday for two and a one year contract.
The selected neutron extra hopes for their growing test and Devon needs for services to their claims and.
And you can access for the need of U.S. provides them with the flexibility and.
Frictionless migration to any cloud they require.
We continue to innovate both our core products for and new products in the quarter. This.
It seemed to me and capabilities to look for software platform.
I've lived the launch for for coupon and the space pads and he's.
Got from as a service and.
And significant updates to our database as a service solution ever.
And subscription business models and can you go underscored the need for consumption and moves.
All product reliability and outstanding customer service.
And you need to be a big driver for loyalty and repeat business.
For the 70 yard and the low you were awarded the North face Scoreboard award from CR and my.
And recognition for customer Centricity.
And because the for sustained excellence for having won this award for more than five years.
And so going forward for north face from its class Award.
Which is a rare on there.
Finally.
As we think about our performance relative to a future opportunity.
I'd like to talk briefly about our addressable markets and how they continue to.
Grow and evolve.
Got it predicts that by 2025, 80% of organizations and be using hyper converged solutions.
Doubling from 40% and 2020.
They've been encouraged to see that I can spending has held up despite the pandemic as companies prioritize modernization, that's private and public clouds.
Hands free automation and remote work and business continuity project.
This is validated by the results for third and you enterprise cloud and mix, which we launched last week.
[noise] across free told and 400 I'd professionals around the world.
46 puts and respond and said being used for hybrid investments and as our independent.
Global like teaching the planning substantial infrastructure changes and collectively see hybrid cloud deployment and increasing 37 percentage points for the next five years.
In short these trends for quite a powerful tailwind and the lift and shift to the cloud both private and public.
With that let me hand, it over to dust and.
Justin.
Thank you rich.
Going into the quarter, we provided guidance that took into consideration, both and uncertain macro environment and our transition to and HCV base sales compensation model.
We clearly outperformed our expectations and are very pleased with the strong start for the fiscal year.
As we entered that's why 21, our overall pieces for the business going forward is centered on the following.
Our industry, leading product set that's seamlessly enables on prem off Prem and the convergence of both remains the best and most elegant solution and the marketplace and.
Next new products will continue to drive the growth of our core H.C.I. offering.
For further extending our solution to address new opportunities that were previously other reach with our core solution alone.
Optionality truly matters to our customers and prospects and offering subscription options with variable terms and their corresponding flexibility, we'll continue to add significant optionality.
And in turn leads to additional HCV growth.
Our HCV first focus will ultimately strength and our business model via term compression.
Leading to lower discounting better deal economics accelerated a CV growth and a shorter time to more efficient renewals.
And finally, we expect our go to market execution will continue to show improvement and this combined with a market leading solution ultimately becomes a very powerful combination for HCV growth going forward.
The business thesis set forth above clearly played out in Q1.
During the quarter, our core product continued to perform very well with new customer ACB bookings, representing 23% of total ACB bookings X renewals.
We also added about 680 net new customers in the quarter. Despite the ongoing macro uncertainties related to cogan.
And then he already was also very good during Q1.
We generated a record amount of new pipeline and we also added a substantial amount of ACB backlog compared to a typical usage of backlog and previous Q ones.
As you May recall during our Q4 earnings call. It was our belief that our HCV based sales comp would put a renewed focus on new product sales and not surprisingly new products performed very well in Q1.
That's dheeraj, noting we had a record quarter of new HCV related to our new products with Com era files flow and objects, all delivering record ACB quarters.
New products also played a role and improving our deal economics during the quarter.
Furthermore, the benefit up subscription Optionality clearly came into play during the quarter with more customers opting for the budget flexibility a one year deals.
Our outperformance and one year deals in Q1 has added an incremental 20 to 25 million for the renewals pool that will come up and Q1 F Y 22, which is over and above our previous plan.
We expect these renewals to be more predictable and transacted at significantly less cost compared to our new and upsell business, which will drive leverage and our model.
As we look ahead, we are very optimistic about the set up for the balance of the fiscal year.
In Q1, we experienced lower discounting that resulted in better deal economics, as well and some term compression all this we expected.
The specifics around the actual Q1 term compression also mirrored our previously communicated expectations, specifically that our new HCV based sales current plan would compress terms and we would see a shift from five year deals to more three year and one year deals.
And when terms did compressed existing customers would not experience any significant term compression.
While new customers would potentially see larger amounts from term compression.
In Q1 average contract term decreased to 3.5 years compared to 3.8 years in Q4, 20, which was somewhat lower than our expectations.
Federal completed several large one year deals, which contributed to the average decrease.
Since our federal business is usually a much smaller percentage of our total business and Q2 versus Q1, we do not expect the federal business to have the same level of impact on average term in Q2.
Well, we did not plan to disclose this level of detail every quarter average contract term of existing customers X renewals decreased by 110th of a year well average contract term of new customers declined by six tenths of a year.
Lastly, our go to market is showing consistent execution as evidenced by our top line outperformance over the last few quarters.
Although we only have one quarter under our belt and that's why 21, we're very encouraged with our progress to date.
And I'll move on to some specific Q1 financial highlights.
CB billings were 138 million, reflecting 10% growth year over year, well above our guidance range of 118 221 million.
Runrate ACB as of the end of Q1 was 1.29 billion growing 29% year over year compared to our guidance of at least 20% growth.
Revenue, which as expected was impacted by decreased average term length was 313 million down 1% year over year.
Our non-GAAP gross margin and Q1 was 81.9% for.
Versus our guidance of 81%.
Operating expenses were 341 million down 12% year over year and versus our guidance of 350 to 360 million.
End user computing as a percent of total business was flat versus Q4 20 as the spike in demand we started at the beginning of Kobin moderated.
During the quarter, we completed our previously announced a 125 million dollar and stock buyback.
We purchased 5.175 million shares and an average price of $24.15 per share.
As a reminder, the stock buyback was executed with the intention of offsetting the additional dilution that we will incur related to the pic or paid in kind interest feature on the Bane convertible notes.
Our non-GAAP net loss was 89 million for the quarter or a loss of 44 cents per share.
Our free cash flow for Q1, which was aided by very good linearity was negative 16 million. This performance was significantly better than our internal expectations.
We closed the quarter with cash and short term investments of 1.32 billion versus 720 million and Q4 20.
The Q1 cash total includes 750 million from the vein convertible note less expenses and 125 million stock buyback.
And Dsos and Q1 were 54 days versus 68 days in Q4, 20 also driven by good and linearity.
Now turning to our Q2 21 guidance.
ACB billings to be between 145, and 148 million representing year over year growth of 4% to 6%.
Gross margin of approximately 81.5%.
Operating expenses between 360, and 370 million representing year over year decline of 7% to 9%.
Weighted average shares outstanding of approximately 202 million.
Now a few modeling assumptions.
Our guidance for Q2 includes a slightly negative cobot impact as we continue to be cautious and the light of the second and third waves of cobot that could create additional macro uncertainty.
On a bookings basis, the implied year over year growth rate over our Q2 21, ACB is expected to be substantially higher as we consume backlog in Q2 20.
As a reminder, similar to what we've experienced over the last two years, we would expect Q3 to exhibit sequential seasonality would suggest a slight decrease and HCV billings in Q3 versus Q2.
And based on the Q2 21, ACB billings guidance, we would expect run rate ACB to continue its strong growth trend and grow approximately 25% year over year.
We are projecting a slight decrease and term length and Q2 compared to 3.5 years and Q1.
From a free cash flow perspective, we are not currently expecting Q2 linear already to mirror that of Q1, and therefore, we expect our cash uses to increase in Q2.
Regardless of the exact amount of cash usage and Q2, we would expect free cash flow for the first half and that's why 21 to exceed our internal plan set forth at the beginning of the fiscal year.
Well, we maintain our focus and go to market efficiencies and we continued to benefit from lower travel costs. As we have previously communicated we anticipate fiscal 21 operating expenses to be flat to slightly higher than last year as we continued to grow and investing in the business.
And finally, as we did last quarter to help with your modeling included in our earnings presentation located on our IR website, our historical trends for HCV billings run rate ACB billings term length, and a bridge and how to model and convert our current and future ACB billings guidance the total billings.
[music].
With that I'd like to pass it back to Dheeraj for additional remarks before we take questions. Thank you.
Thanks, Justin.
I wanted to close this quarter's earnings call with a thank you everyone was participated and the journey to get maybe done now.
We had extremely encouraged with the progress for the last three years or for business model transformation.
Well, we still have work to do day.
These results demonstrate the power of the subscription thesis.
Our board continues to make progress and the CEO search.
And look forward to updating you and we have meaning for news.
Firstly, there's been a journey for lifetime to serve our customers and partners.
Working alongside nutrients because you called her employees.
And the future proof business model.
For customer base that for nothing P values reliability.
And it gets and all your portfolio that has such a strong product market fit.
Our best is yet to come there.
This is the decade to watch for a company that school values simple secure and seamless.
Now, we'll open it up for questions.
At this time as a reminder to ask the question you will need to press star one on your telephone.
To withdraw your question press the pound and we.
We do ask for participants limit themselves to one question and one follow up however, please feel free to queue up again, if you have any additional questions.
Our first question will come from the line of cheese and Hayter of William Blair. Please go ahead.
Yeah. Thanks, guys and my question is on the T.V. transition and seems like maybe.
Maybe there were a little bit of surprises but.
And maybe you can just talk about broadly speaking what I'm surprised me what doesn't surprise you and.
You know why you did better than and you expected.
Yeah, I'll take a shot and do and feel free to jump in here too.
And Jason you know I would say there was very.
Few if any real surprises and I think you know we had a which we talked about we had a and opinion and view going into Q.
Q1 and.
And pretty much all those.
Views played out as planned we thought terms would decrease we thought they decreased more and new customers a less on existing customers. We thought that that would lead to higher deal economics deal economics improved.
And Optionality, we knew mattered and it matter not only for our customers, but for our sales reps because they have more tools now to offer as they go attack their quotas. So I can't really think of anything yeah. It was maybe a 10th lower or so and the terms than we expected, but that's not.
On an exact science anyway so.
There was just very little surprises that we hadn't thought through quite honestly and.
And I think the ACB from a certain from a sales comp I think played out better.
Better than probably we anticipated and I think everybody is kinda rallied around that and you know optionality again matters and you saw what a delivered for a quarter and and a good guide for Q2.
And the demand environment other than you expected.
Well, you and you know based on record pipeline, Yeah, we were pretty pleased with the especially in this environment, obviously, it's not perfect and the other economies not humming at no 400% theres to still verticals that are very impacted here, yeah I think we.
We were pretty pleased overall from my perspective too.
Yeah, and I think the only thing I'll add to that Jason and dust and as.
Oh very much like a federal was for us for early on in 2011 2015.
I think the federal business with HCV has really embraced this and the kind of new IP and we were going into it that way and then there's going to be a friend and though because a lot of federal spend as operations and maintenance that you have to keep it under the radar in terms of spend and budgeting.
So it turned out to be a great quote for for federal for part of for does because for one year deals that dust and talked about and maybe the other pleasant surprises beat and how our sales people have embraced it to Oh, we think that this makes and we'll talk more competitive than selling 357 years.
Thank you.
Your next question comes from the line if you take it from Oppenheimer. Please go ahead.
Hi, Thanks, Hey, guys, a nice quarter a couple of questions from me.
First of all from a sales force capacity, how do you guys think about the evolution of <unk>.
The capacity going for Joe just given done renewal activity, you know and they start going to be done on an annual basis instead of a multi year basis. So more time and from a sales capacity standpoint would be dedicated to renewals and getting new business. How do you think about the evolution of credit capacity does that mean you need to.
Hire aggressively again on that front in order to create more new customer.
Capacity.
Yeah, So that every day status.
Sure go ahead or.
Yeah. So I think we see reps are all focused on on land and expand which is all a newly CV focused.
Now for people to get are doing if you didn't get the renewal, but all in all for you expect them to be focused on land and expand our gives you a customer success team, which is all on the inside on the food and that's really doing adopt and review and that's how they're going to be calm for slow.
Got it and then.
Yeah, no what I'd add to the anti is that the whole thesis around this and one of the one of the main premise here around the move to ACB is leverage right and that's the exact point all the renewals will not take aggressive hiring right because that's going to be handled predominantly by a separate team now we have to go.
Buildup that separate team, but all these renewals will not require and one for one sales rep adds. So that's that's where you know pretty much any subscription business gets a lot of their leverage we just haven't had the renewals flow and yet and you know you saw the impact from just the acceleration of one year deals in the quarter Weve.
Added 20 25 million to the pool than Q1 21 22.
And that's not going to require new reps to go attack that so that's that's the premise of the ACB moving.
Got it okay, and maybe as a follow up maybe just and on that topic, clearly you've done very well and cutting D. A contract term quite aggressively in the quarter for I guess it was just a little bit outperformance there but.
But does this help you make you perhaps think differently about were raised your long term steady state from a term standpoint or the pace by which you can get there.
[noise] and not dramatically you know federal played a role and some of the term compression and in Q1, they won't be the same per cent of the business in Q2, So there's some offsetting factors there.
You know we've got this view and kind of low three year average somewhere at the end of the fiscal year.
Yeah, we'll see how that plays out I think the more that our sales reps get used to this model and maybe to start doing the more customers get used to this model and with the Optionality and things like that and maybe we see a little bit bigger push but one quarters to early to give a real opinionated view spec.
Only because how federal kind of played into this a little bit but certainly we're encouraged from from what we've seen from a from a from the first quarter anyway.
And there's going to be all moving there's going to be opposing forces as well you know the large enterprises and and places like Japan to probably still going to be longer term.
Some of our very large customer list and longer term and then you look and federal and commercial and do you and decided that it will go shorter term. So I think it's going to be a healthy and Yang between these two.
Your next question will come from the line of Alex Kurtz of Keybanc. Please go ahead.
Thanks, and a question, but I want to start with a clarification dust and on the.
Contract duration target that threed this throughout because at the end of fiscal 22, you were targeting.
Well I was mentioning LOE per <unk>, you know and I.
Again, we've got one quarter, but what I was referencing there kind of in the low threes at the end of fiscal 21.
And do you think there's a chance that given what you saw with with the one year or opportunities that this thing could.
For dipped below Threex at some point in fiscal 22 or too early to tell.
It's too early to tell but you know we've got as David says you know you've got some older school customers that you know still hang and and cling to five year five year deals too. So I think you know again one quarter, it's just too early.
And the tell but I know, we're encouraged of everything that kinda, we thought was going to happen pretty much happened, but give us another quarter and we'll give her you know another I think a better opinion.
And then for quite a few derived from two.
I just want to say that we'll be able to go and we do this depending on how much cash we need to collect and little based on simple sales incentives and such as well as part of sales compensation. So.
We are Oh, what do you what did we see like now we have a great architecture and please.
And we can go and tweak because they want it.
Sure I appreciate that drives and a question to you about the person to replace you over that you know when that decision happened that and a lot of discussions with investors about.
You know what the right.
Ah profile would look like and and capabilities and experience and now that you're a little bit into this process, maybe you could share.
Your vision about the person that would take over your role as CEO and and what you would like to see that person bring bring to the table I know you touched on it a little bit last quarter, but if you could expand I think that'd be very helpful.
Yeah I think these are the big pieces, how do you balance the shock them and the long term because you.
You can't overdue for one or the other you have to be strategy for coast, you know be able to look for around the corner because you know computing is and industry, that's changing so fast and.
That you can take your eyes off the strategy ball you know basically you someone who can embrace a process people.
Technology and product. So I think we've gotten some great candidates and the pipeline and Oh, we definitely would like the relevance of infrastructure to be there and there's a lot of people who are out there and the business software space for looking at quite a for people and infrastructure as well.
And I think all in all a somebody who has a three to five year view and if they did it would be very very important for especially for our sales engineers and developers our system reliability engineers and a lot of engineering and the company and various different departments.
We also need to.
Look up for somebody for for a strategy and the.
For the public cloud landscape, that's held and try to close.
Our next question will come from the line of Jack Andrews of Needham. Please go ahead.
Good afternoon, and congratulations on a good starts for the new fiscal year I wanted to see if you could.
Cool down a bit more on the new product strength that you're experiencing you mentioned a number of products that you're seeing success with but could you drill down on the specific types of use cases are they mainly devops related or something else and the related question is are you seeing the success have you changed any sales incentives around new pro.
Products or is it you credit the shift to HCV is helping to drive this new product attach rate.
[noise] dust and younger ticked down for sure you take it.
And I'll, let you take the use cases, the orange, Okay cool yeah.
So first first of all day and it'll be small really good unit economics as best and said because of short for me tell him. Then so be narc became money other one pocket and putting it the other would be a very very mindful of that new products have to fend for themselves and they have to pull through the core. So a lot of work for you Hawkish you watch for is.
No financial engineering off money moving from the core business to new products.
I think all in all we saw some great traction and database and the service again amazingly good economic such large databases oracle's equal Oh, you know and fit be ethic, and health care and be seen tunnel large database for crude and we've made them. So simple that you know de beers and lumping this new arc.
Picture and the fact to do can drag and drop and from one cloud to another.
The other one is around.
Unstructured data files and objects, a bit, especially with containers you doing a really good job around and back Devops used case, and finally, you know desktop and the service and think there's a lot of work they've done not just for Citrix and being there for rising but also around GAAP.
Our own broker so all in all its inc. Databases unstructured data.
And desktop and the service hubs and some great use cases around that.
That's it and then just yeah, just on the and the sales comp part for the most part is something spread around but for the most part yeah. I believe it was it was the you know the help but it was certainly helped by the move to HCV, because you've got to remember now.
Now 100000 dollar one year deal for a new product or is it the same as a you know they and it was the same as a $500000 deal that they had to go you know tried and tried to do and a five year basis. So you know, there's clearly more optionality said not only on our customers for sector, but with the sales reps to go use.
These different tools from and HPV perspective, and go drive.
You know additional quota retirement with smaller terms and it well and I will say this played well no no there's obvious little things here and there have been and played well in all regions. I mean, all regions were above quota, which we love to see obviously, so you know that kind of gives you a little bit of feel the power of Optionality.
Great I appreciate the color. Thank you.
Our next question will come from lines of James Fish pipe for Sandler. Please go ahead.
Hey, guys. Thanks for the question current drill down on on the trains HCV based compensation can you give a further color as to what you're seeing from wraps and and whether this cause any additional turn and normal as your employee count in your sales and marketing down actually was down sequentially.
I'm sorry, Jim.
Jim on the last part of the question was what again.
Oh, just your sales and marketing and total employee count was down sequentially. So I'm just wondering on the change the ACB based compensation can you give us further color as to what you're seeing from reps and if it caused additional churn in the quarter than normal.
Oh, Yeah, I mean churn and general within the sales are and this isn't much different.
From what it has been over the last several quarters now there might have been a some more selective and maybe some forced churn and.
The focus maybe on a little bit more software selling and things like that but but overall the churn rates are and significantly different now you know what christa nurse and team have done, though and the field is they've certainly shifted to you know.
Incremental leverage how do we get more productivity out of the same reps theres been some realignment with resources amongst regions and and things like that so back the real focus right. Now is that we have and you know reasons lawn and reps, how do you get them, even more productive and certainly from an ACB perspective and things like that so that's the.
That's the main focus right now, we won't and a significant amount of reps and this fiscal year.
Got it most of my questions about NAV, so I'll keep back the current thank you guys.
Your next question will come from Matt Hedberg of RBC. Please go ahead.
Hi, It's Dan Bergstrom for Matt Hedberg, Thanks for taking our questions City Rich mentioned clusters and the prepared remarks, just curious around early use case for for early adopters. There are customers looking for that you know the last to see on them and bursting and mobility across clouds or optionality around the hopper.
Free model and just any any thoughts around early adoption or what you're hearing from customers.
Absolutely Yeah, I just want to have everybody probably also draw from the whole movement of what she's nation 15 years ago.
No a lot of the enterprises and moving from a Unix servers to Intel Xeighty six.
And so what's your vision had to find a great use case and that was tests and day and then it became a VDI and five years Citrix, we're going to be the biggest workloads for being there apart from test and burn in 2008 and nine.
So for us and I think we are again, they use case for because when it comes to clusters.
It's a very important piece of the puzzle lives around and very high Io intensive workloads low latency workloads.
Test and Oh, virtual desktops, and also lift and shift I think there's a big disaster recovery and sort of initiative coming with and the large enterprise and well and you know the best part about clustered and bring your own license bring your own contract us eat up U.S. and we'll do the same pressure as well so.
We expect that many of these oh use cases and large databases.
Jeff and Dan.
As you saw from one of the wins I talked about.
And finally, a lift and shift for the trial.
Great. Thanks, and then maybe for dust and on the expense side you provided some color you know around guidance for the quarter for the year.
You know from from here should we think and think about maybe for meeting remaining prudent and the expenses for now, but you know, but there would be a potential too.
Maybe accelerate investment and to accelerate growth or should we start to see that on the top line further out.
[noise] destination.
Oh, I'm, sorry, yeah, just on the and the.
You know in the in the near to mid term hopefully from a topline perspective, we're going to get most of that through leverage increased rep productivity.
So you won't see some great hiring surge.
To get a incrementally CV growth, we should be able to get reasonable out of incremental TCV growth with you know.
Most of the resources. We have currently now we can do need to continue higher here and there or whatever but I wouldn't clearly I wouldn't put it as a surge.
Of anything like that and I mean, we've got a fair amount of resources spread throughout the regions.
As it is here now so you.
You know at some point, there's some things that Weve just benefited from clearly and everybody else has obviously no travel right. So at some point.
Travel will come back online, but even even when and whatever thing whatever normal is and the future. We won't spend hopefully we won't spend nearly as much travelers, we had and Pat just because everybody has learned how to do things differently. So.
You know first and foremost its leverage rep productivity and then selective hiring as we need realignment of resources as we need and to make sure. Obviously, we're taking care of customers with products and support things like that and that's that's kind of the view here over the.
Near to midterm.
Your next question will come from the line of Katy Huberty of Morgan Stanley. Please go ahead.
Thank you just coming off the strong October quarter, ACB perform and why would a CV billings growth decelerate.
In January, especially given what you said about the record pipeline levels. The fact that you didn't eat into backlog like you typically do and the first quarter and the successful Dot next conference just some color as to as to why the outlook for a bit more conservative than the performance you just put and then I've a follow up.
Yeah again, we mentioned that a you know we haven't gotten real aggressive with the with the Q2 outlook. We're concerned what's happening obviously things are going and the wrong direction from a covert perspective, and shutdowns and second and third phases.
So that's clearly a encompass you know and.
Our billings, obviously to your point, we grew ACB billings, 10% and Q1 year over year, we guided for the six now again, though if you look at it you know or on a ER and a bookings basis, which.
We will not disclose and anymore, but that for the 6% growth rate is probably you know two X at least to EPS higher on a comparative bookings space and so there's some pretty good growth.
When you look at it on a on a book and service because again and Q2 20, we brought actually use some backlog, which was a little unusual from that perspective. So I think the combination of on a bookings, it's quite a bit better and again, we're a little.
Hi, Joe.
Dan We've got something baked in there from a from a cold and perspective to certain degree.
Just stuff, yeah lots and to that point I was just going to say are you seeing anything and in the month of net that under that would cause you to want to be more conservative and the outlook or is it just.
The news headlines and and the potential for rolled back of.
News going on and clothing, Okay, No news headlines and it's it's not much different than you know our prior approach and just think at this point I think to get a very.
Very aggressive just doesn't just doesn't make sense in this environment.
Yeah, sorry, Dear asked him into cut you off no sorry, I was just saying that look we've had one quarter, where we understand D.C.D. and.
And it's usually for a strategy but.
We get a second one we understand that be a coincidence that third one would be a pack and so I think next two quarters are going to be really important for us to learn about the sales to be flow strategy.
Okay, and then just lastly, dust and how do you think about from here the timeline to breakeven free.
Free cash flow, what has to happen to build confidence and.
And not becoming a and more near term cool.
Well, we need to get terms kind of compressed to where they're going to even out and I don't know if that's three or you know maybe a little bit about maybe a little bit below but we have to have that happen first because right. Now we've got two offsetting factors and how fast will terms come down for that that takes out obviously billings and revenue.
And then on the flip side, regardless of terms, how fast can we accelerate the CV growth, you're kind of offset that but but we need some stabilization and ER.
And the terms for us to have a have a good view and now we think that's probably you know as probably the first half maybe of a of F y 22.
And then I think you know the combination of.
Some more productivity, some and prudent expense growth.
You know products, all that stuff and set up quite well after that point, but again, we need some some stabilization and that's why I've always been that the view that the quicker we get through the term compression quite honestly the better.
And next question will come from the line of and see Mohan of Bank of America. Please go ahead.
Hi, yes, thank you and nice quarter or can you tell us if the renewal activity change much during the quarter and how we should think about renewal billings as a percent of total billings and in fiscal 21, as 15% sort off and the ballpark there and I've a follow up.
[noise], Yeah, we haven't given specifics on that but the good news is we've given you now quite a bit and data.
To go start modeling that on your own you now have a Q.
Q4, and Q1 HCV as a percent of ACB by term length.
And so you know now you know, obviously Q1, one year deals will flop and.
And for quarters, you've got the three year, the five year and things like that so we've disclosed quite a bit to do some pretty simple modeling and from that perspective, and a TCV basis over the last 12 months, it's been below.
Roughly 10% and below.
Renewals and things like that and that will start to kick off and.
Again, we've already added 20 25 million to Q1 22, just based on what happened here and this quarter.
And that will continue to accelerate you'll see some more and 22 and then again we've talked about this and that's why 23, you've got a pretty big tranche of three year deals that start to kick in now and from the initial push to subscription for years and though.
Okay. Thanks, and can you maybe help us think about the strength between enterprise and SMB and especially given the vaccine use now how how are you thinking about sort of a recovery and and SMB and maybe even just tell us like where your SMB exposure is.
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Well take that day.
Yeah, I mean, obviously, it's only its probably going or taken other three quarters for.
Administrative act vaccine itself.
And we'll be able to sell international business and will be up you know, we'll have Oh, you know their quotas and it should do about 45 50 per cent for business outside the U.S.
And when you talk about SMB, a lot of stuff midmarket or outside the U.S., we consider this and be.
Even the and it plays outside the U.S., we could look at that as commercial.
So I think given the fact that for your customers and about a 150 countries.
I'll be taking a view that it would probably take two or three quarters of free.
For administration and the vaccine itself in the Meanwhile, you know we are focused on new products, new workloads and whatever you can get from new customers I think we've done a fairly good job.
And the changing a lot of for you know practices like digitally prospecting and what can you do to.
Uhhuh reinvent ourselves transform ourselves so that when the pent up demand opens up the and an amazing digital business. So we'll be doing everything we can right now for you.
Open up for the SMB.
As as they actually feel safer.
Your next question will come from the line of Aaron Rakers of Wells Fargo. Please go ahead.
Yeah.
Oh, sorry about that.
Yep, Thanks for taking the question and congrats on the quarter you know.
Thinking about just the modeling variables I'm curious if you could talk a little bit about how we should think about you know HCV to billings ratio and how you think about billings to revenue I'm just curious because we did see some compression.
Other operations in the quarter I mean, how do we think about those going forward and I have a follow up.
Sure again, and you know we've we've given you I think all the tools to go do that as far as Ah you know and are working with and ACB and TCV and doing where you think terms are going to come down and so all that is is pretty easily doable.
With the tools that we've we've given you there again, you know with a 10th of a decline or two tenths or whatever it might be Q Q1 to Q2, you're not gonna see massive movement I don't think anyway, we'll sales quarter plays out in those ratios on the on the build to revenue ratio in general.
Not not talking easy, but total billings total revenue, that's probably a little easier to talk about you know with the term compression you've got a slower total revenue and total billings growth, but you still got a fair amount coming off the balance sheet and little bit higher rates. So that's why you saw the builder revenue come down this quarter.
And I think probably going forward for a bit it's probably you know 1.1 to 1.15 somewhere around there on that ratio, but again. The good news is you've got a lot of tools. There to go you know you can go pick where you think terms are going to be and you can back and ACB and then total billings and all that stuff. So it's a it's a pretty.
Exercise.
That's very helpful. And then as a quick follow up you mentioned on the other bigger and the transcript about eight of U.S. and Microsoft and the engagement. There I'm. Just curious can you go a little bit deeper in terms of the go to market engagement with those cloud providers.
Yes so.
The good thing is that you know this.
Bring your own contract is very helpful for consumption point of view I mean, both.
Both eat abuse and that your sellers get paid and consumption and it's you know it is a killer workload to you know really get rapid consumption of everything that the sold and commit they don't get paid and <unk>, they get paid and consumption.
So we are really working hand in hand, a you know at Microsoft for you've actually bake, a new clinics ready nodes and those things will be blending the sort of does a great job for customer growth plus for the sellers and blends. The credits are so that they don't lose them and have three years, which is what happens if you don't use Ah.
The club credits and for the sellers and they're just meet means that they have better a fast for consumption and that's how they get paid for the consumption is revenue recognition for the club players. So we are really working hand in hand with so both the.
The Oh cloud players and there are sellers and doing better than ours and.
A lot of joint prospecting and honestly, there's a there's a lot that deferrals for understanding and learning from the enterprise because the enterprise and has a lot of money. They will appeal to legacy workloads I was talking to one of the customer and the other day and they like the Windows and machine does not reboot and the public cloud or does not go up and the public cloud but.
They have legacy devices and things of that nature. So there's a ton of that lift and shift that we've come up and B and hope to actually North Africa for two years to redefine the operating system and who didn't do applications for the.
This can all come together.
Your next question comes from the line and Simon Leopold of Raymond James. Please go ahead.
Thanks for taking the question I first one I just wanted to maybe set some context, you talked about the strong growth rates of new products and you've rattled off some of what contributes to that but I'm not sure I got the baseline of what percent of HCV roughly is coming from new per.
Products and how should we see that evolve over time.
[noise], Yeah, we broke that out for a few quarters or are a couple of points that you know 15 per center. So.
And of new ACB is coming from new products and.
And you know we've got obviously, a goal and 21 to to accelerate that further I don't think there's any reason why it shouldn't we're off to a good start.
Again, yeah, we've got all the tools to go focus on these products. So you know we've got a continued acceleration as a as a percent of of new HCV built into the plan.
Great and then as a follow up and maybe somewhat related but when we see the duration trend one of the aspects you you mentioned in your prepared remarks once the high federal contribution and I guess my understanding is some agencies are restricted to one year.
Her deal so but that has to play something in the mix could you maybe help us understand.
How much the federal contribution influence that the average duration and how we should think about sort of what's normal and quarters that don't have that the big federal contribution hope that makes sense.
Oh, Yeah, and makes perfect sense I'm not sure we have a normal yet and with one quarter and obvious.
Obviously, but federal probably it was a it depends how you exactly look at with renewals or ex renewals or whatever but 10, maybe you could get it to almost two tenths of a year and.
But let's call it a closer maybe to attend.
So you know that the federal will obviously come down as a percent of the total business here in Q2, which it always does from from Q1.
And then you know do we get more knowledge with our sales force and were knowledge with the customer base going forward that you get from continued downward trend. That's why you know we assume it's a slight decrease.
And in Q2 I'd be surprised if it was a little more than that any more than that but again and it's just no. There's no normally and give us another quarter. We'll give you another opinion as I said earlier on but I again I'd be surprised if there was any drastic movement and again it comes back to the new customer mix and.
For the existing customer mix, and and new will go down faster and most likely and just like we saw and in Q1 and just on the new business by the way you know a 680 new logos.
But on a per cent of of HCV, a new business was actually up from Q4, I said it was better than Q3 was better than Q4 and I'm sorry in Q1. So we saw some encouraging signs anywhere as anyway as far as a new customer ACB as a percent and.
Total going up a little bit quarter over quarter. Two so so that's just a side note there, but that's that's kind of you.
And with that last question. That's all the time, we have left for today. This concludes today's earnings call. Thank you very much for your participation and things.
You may now disconnect.
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