Q2 2021 Nutanix Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to sit on your Tonics second quarter fiscal 'twenty 'twenty One earnings conference call. At this time all participants lines are in the leasing on the Mt. After the speaker's presentation. There will be a question and answer session and ask a question during the session you'll need to press star one on your.
A telephone.
Please be advised that today's conference is being recorded.
Any further assistance please press star zero.
I would now like to hand, the conference over to your speaker today Speaker, telling you cheat. Thank you. Please go ahead.
Yeah.
Yeah.
I apologize, we're having some difficulties on her on just give us a second.
Good afternoon, and welcome to today's conference call to discuss the results of our second quarter of fiscal year 2021. This call is also being broadcast over the web and can be accessed on our investor relations website at IR Dot mechanics Dot com.
Joining me today are Rajiv Ramaswami, <unk>, CEO and Duston Williams <unk> CFO. After the market closed today <unk> issued a press release announcing financial results for second quarter of fiscal year 2021, if you'd like to read the release. Please visit the press releases section of our IR website during two.
Today's call management will make forward looking statements, including statements regarding our business plan goals strategy and outlook, including our financial performance financial targets and performance metrics and competitive position in future periods.
The timing and impact of our current and future business model transition.
Factors driving our growth.
Success on impact of our CEO transition.
Macroeconomic and industry trends.
On 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 or.
For a detailed description of these factors please refer to our SEC filings, including our most recent annual report on form 10-K for fiscal 2020 filed with the SEC on September 23, 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. We 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 reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release.
Lastly, eugenics management will host virtual meetings with investors at the Morgan Stanley Technology Conference on March 2nd we hope to connect with many of you there and with that I'll turn the call over to Rajiv Rajiv.
Thank you Tanya.
And good afternoon, everyone.
Q2 was a strong quarter across the board.
We exceeded guidance across all metrics.
ACB growth spend less than expected on operating expenses gained.
Gained momentum and our renewals engine.
<unk> continued to make progress on our transition to subscription.
Before I get into more details on <unk>.
And by talking about how widespread my time since joining the timing from December.
And for wide my initial observations on the business end up on.
<unk> going forward.
In addition to some introductory meetings with shareholders.
Met with many of our major constituents, including customers.
Partners and employees since coming on board in December.
The observation skewing from these meetings has provided me with a good perspective, with which to pumps and priorities for our future.
These observations include the deep value.
Our customers get from the simplicity of our software.
The importance that our channel partners and growing our business at scale.
The significant opportunity ahead of us, but strategic alliances that will help us penetrate bigger comps.
Quality and engagement of our talented employee base, who are critical to the execution of our plan.
Feedback from these key constituents and collaboration with my engaged leadership team has enabled us to clarify several core priority areas to drive long term growth.
All of these priorities are part of the natural evolution for our company at scale.
We will drive more simplification, all book portfolio, and how we take our solutions to market.
Including on products and packaging.
On the benefit of our customers.
Second Veeva.
We will focus on deepening our partnership with <unk>.
More impact in.
How we go to market as.
As well as create more opportunities, which on larger accounts.
Good day.
We will continue our transformation of our business model to subscription.
With a significant focus on renewals on our part.
To cash flow positivity.
And fourth we.
We will continue to nurture and grow our talent pool as well as to ensure that our employee base has.
Diversity of talent products and experiences to create a better workplace environment and business outcomes.
Now, let me provide a little bit more detail on these conversations observations and priorities.
I've had many engaging and informative conversations with customers, including our advisory book.
When it comes from a product portfolio customers simplicity.
I think our solutions and support are exceptional.
The end to end nature of our portfolio.
They have also told me that the Chinese is a critical component of their business transformation plan.
On the constructive side from a expressed that they would like us to make it easier for them to adopt and consume our software by delivering more solutions.
That brings our portfolio together.
And to simplify on pricing and packaging.
We have built the feedback into our key priorities for our go to market strategy.
During the quarter.
Had the pleasure of presenting at a relative in the global partner, even when I met several key partners.
They see the value that selling new Chinese software and solutions can bring to their business as they help customers on their multi cloud journey.
Last quarter, we launched our elevate partner program.
Which focuses on partner competencies to training to increase the quality of partners working with us.
And partners enabled.
Including improving the deal registration process to income.
Volume.
With this focus we have seen a 12% year over year expansion in the number of partners, who transacted with us during the quarter.
As well as an increase in partner led.
Engaged and efficient channel partners will be a critical component of ensuring that we have the leverage needed to grow and scale our business towards subscription transformation.
Our partnership with HPE, Lenovo and other Oems remained strong.
Customers recognize tremendous value in having freedom of choice.
Net selection of hardware with these partners and in a broader ecosystem.
Allowing us to address the increasingly complex needs of large enterprises.
For example, <unk>.
Were selected by a leading financial services company headquartered in EMEA.
To modernize their data center.
And to provide Watson desktops to more than 90000 users.
This multimillion dollar one year subscription deal.
Our core software.
On <unk> Hypervisor.
Our <unk> solutions.
We partner with HPE, Citrix and one of our global systems Integrator partners.
To provide the total solution required for their use case.
I've been encouraged by the value that our customers see from our software.
<unk> idea of workload that deploy on our platform.
And our traction with our global 2000 customer base, we now count 950, global 2000 companies as our customers.
After adding about 20 in the quarter.
We continue to progress with our public cloud partnerships and integrations with both Azure and AWS.
And are exploring how to maximize these relationships to help our customers on that journey commodity cloud.
Our partnership with Azure, it's 10 minutes early days, but.
We're excited about its prospects.
With focus on deepening our integration and relationships in this area.
Finally, I've had the pleasure speaking with many employees at all levels.
I've been delighted to see that that has strong talent to this company and.
And I'm highly impressed with their passion.
No surprise to me that mechanics was named in both the Fortune Best book basis, and the Bay area.
Already won and a great place to work in India during the quarter.
I already mentioned that an area of opportunity for us is to advance our efforts to diversify our talented employee base and.
In addition, we will increase our focus on ESG and related disclosures.
Now, let me talk about the market opportunity in front of us.
Well provide more color on the momentum and execution, we saw during the quarter.
During the quarter industry analysts highlighted the market potential for hyper converged infrastructure, our hei and its book to multi channel.
IDC released report concluding that HCI can create a consistent experience across all platforms.
Whether on premises or in the cloud.
How multi cloud strategies are now the enterprise non.
And how a large majority of IC managers plan to migrate or repatriate workloads from public cloud to an on premises.
Ease of management.
In addition.
Gartner raised its forecast for HTS systems during the quarter to $8 1 billion.
Our five year CAGR of 16% from 2019 through 2024.
They noted that organizations.
Spanning the HCA system footprint.
On a wider set of enterprise workloads with.
With emphasis on a new set of software capabilities, such as orchestration in a multi cloud world.
Now let me provide some highlight the outperformance this quarter.
We delivered record ACB billings growth of 14% year over year.
Which included notable strength coming from emerging products.
Our opex was less than expected and.
And we will continue our disciplined approach to managing our opex going forward.
Our thesis of the benefits to a shift to term licenses.
<unk> has to play out with better economics, and reduced average stumbling driver.
Driving shorter renewal cycles.
As we have said.
Getting this right will be critical to our success.
Book and growing the top line and in reducing our operating costs.
A year into the pandemic.
We continue to see various industries and verticals impacted differently.
From industry headwinds.
There are a number that have the resources to focus on innovation and transformation with AST.
Asset enabler.
Does that day.
Strength in demand from the financial services health care and state and local government sectors in the quarter.
Our emerging products, particularly our database management solutions era and on.
File storage solution.
Had a strong quarter.
Emerging products ACB was up over 100%.
Year over year.
And we had a 37% attach rates to deal on a rolling four quarter basis.
We are encouraged by the fact that nearly half of the fortune 100 have adopted our emerging products.
Our average solution.
Its showing great momentum and market fit.
And I see this as a competitive differentiator for us going forward.
We've seen the peak, but just from large enterprises, who are early adopters.
This quarter.
U S based financial services company.
Error and of course software and a multimillion dollar deal.
They are using <unk> to provide a single database management platform to enable that app developers refurbishing new environments.
Claude and refresh multiple tier one workloads and now have the ability to replicate and recover large databases in a fraction of the time that that current solutions Inc.
Yeah that has become a competitive differentiator for us and the telco finance retail and manufacturing sectors in particular.
And we now call on three of the top 10 global 2000 customers.
Customers.
We saw growing interest in our clusters on AWS solution since its launch last quarter.
One customer exactly this quarter.
Pension services company in EMEA.
An existing customer who is building on the new <unk> hyper converged infrastructure software.
They continue their journey to multi cloud.
They were looking to increase the mobility of their applications and workflows across multiple clouds.
Well as you have options for busting.
And plus to us.
Ultimately the selected the <unk> solutions, so that they could get a single solution to consistently manage that private hybrid and multi cloud environment.
We remain focused on go to market sales productivity and execution.
We are pleased with our progress so far.
Flexion in part on Chris' guidance.
Leadership.
During this quarter, Chris was promoted to Chief revenue officer after leading the global sales organization for the last year.
We're also seeing material progress and demand gen productivity across the book.
Including on what sort of events and overall digital marketing performance.
At significantly lower cost, we also continue to see benefits from that site with.
We did see an increasing number of trials over the past year.
And has proven to increase conversion rates when compared to sales with bestbuy even use.
We are encouraged by our momentum.
We will continue to focus on overall go to market efficiency.
Continuing to innovate our storage operating with the recent release of new features enabling our customers to simplified data management and effectively manage costs.
Moving even closer to true hybrid and multi cloud operating models.
New capabilities include cloud peering, but object storage.
<unk> cloud storage and simplified disaster recovery for book object and flats.
Recently, we also announced new features in our cloud platform to help protect customers again ransomware attacks.
Which are becoming even more common as a result of increased book.
These new capabilities, all natively built into the new Tech stack add to mechanics, as rich data services for network security.
And object storage and business continuity.
Enterprises prevent detect and recover against ransomware attacks across multiple cloud environments.
We are pleased with the external recognition, we continue to see for our solution and our market share.
In Q2, we were recognized by Gartner as a leader.
<unk> magic quadrant for hyper converged infrastructure for the fourth year in a row.
And we're positioned best execution.
When compared to all vendors in their book.
Also.
Gartner released its software market share numbers for hyper converged infrastructure.
And <unk> was once again ranked number one in market share from hei.
And so on a market share increase year over year.
In addition in Idc's, new software only view of the market.
The software defined infrastructure factor.
<unk> is the leading vendor in the space. This new view, if not influenced by hardware sales let.
Let me conclude by reiterating how.
Im excited I am to be leading mechanics into its next phase of growth and execution, we remain focused on our vision of making cloud invisible.
And free customers to focus on their business outcomes.
And on lock stock continues to be our customers.
Believe on mission of delighting customers with a simple open hybrid and multi cloud software platform.
Rich data services to build run and manage any application that help us achieve that vision.
Strength in our significant experience designing software that is easy to use.
And then our expertise in key avs from the journey to multi cloud, including storage and data services.
I have confidence.
Continued momentum going into the second half of the year.
Balance with cautious optimism about the global macroeconomic environment.
We look forward to sharing more detail with all of you had on.
Investor Day on June 22nd I'd, now like to turn it over on the Duston.
For more details about our financial performance.
Thank you Rajeev.
Our sales team executed quite well in Q2 amidst an uncertain macro environment and our ongoing HCV transition.
Comparable to the quarter before last quarter, we provided guidance that took into consideration the uncertain macro environment. We are operating in.
Clearly, we outperformed our expectations for the quarter, while at the same time, adding to our backlog.
As we look forward our thesis from the business continues to be proven out that an ACB first focus will gradually compress term lengths, leading to better deal economics, and a shorter time to more efficient low cost renewables.
As the mix of our low cost renewals increases.
As a percent of our total business. We believe it will eventually add significant leverage to our go to market cost structure.
We are also seeing the result of our ACD based sales compensation plan, putting a renewed focus on sales of emerging products, which typically have shorter term lengths.
I have previously shared that we expected term lengths with compressed slightly in Q2.
Our Q2 average term length was three 4% decreasing by one and down slightly from three five years in Q1.
We are also pleased with the overall deal economics in Q2.
We build a record amount of subscription renewals during the quarter.
While the sample size is still relatively small and we are still early on the process. We are encouraged by the retention rates that we are currently seeing we continued to sign an increasing number of one year deals. These deals will add to the pool of low cost renewals available to renew in FY 'twenty two.
As we previously noted we had an outstanding quarter related to our emerging products with most of those individual products generating record HCV emerging products continued to play an important role in improving our deal economics during the quarter. So in summary, based on our strong execution in Q2, our thesis for the <unk>.
This continued to play out as expected as we move into the second half of our fiscal year, we remain very encouraged with our progress to date.
Moving on to some specific Q2 financial highlights in Q2, we had record new HCV renewal ACB and total ACB.
Billings were $159 million, reflecting 14% growth year over year significantly above our guidance range of $145 million to $148 million.
Run rate ACB as of the end of Q1 was $1 $3 8 billion growing 28% year over year compared to our guidance of approximately 25% growth.
Revenue was 346 million essentially flat from Q2, 'twenty driven by a five year decrease in average term length versus Q2 'twenty.
Our non-GAAP gross margin in Q2 rose to 82, 7% versus our guidance of 81, 5%.
Operating expenses were $354 million down, 11% year over year and less than our guidance of $360 million to $370 million.
We continue to benefit from overall spending reductions, including go to market efficiencies.
Our non-GAAP net loss was $74 million for the quarter or a loss of 37 per share.
We also saw good year over year increase on our pipeline in the quarter as well as continued improvement in overall pipeline quality.
Our linearity in Q2 was outstanding resulting in one of our most linear quarters ever.
Our free cash flow for Q2 was aided by good linearity coming in at negative $28 million.
This performance was significantly better than our expectations.
Dsos in Q2 were 45 days down from 54 days in Q1, 'twenty. One also driven by good linearity.
And we closed the quarter with cash and short term investments of $1 9 billion down slightly from $1. Three 2 billion in Q1 'twenty one.
Now turning to our Q3 'twenty one guidance.
The guidance for Q3 is as follows.
ACD billings to be between 150 and $155 million.
Presenting year over year growth of 11% to 15%.
Gross margin of approximately 81% on.
Operating expenses between 365 and $370 million representing.
Representing a year over year decline of 5% to 6% weighted average shares outstanding of approximately $207 million.
Now a few modeling assumptions.
Our guidance for Q3 continues to have a small conservative bias based on the ongoing uncertain macro environment.
As we communicated last quarter and similar to the seasonality we have experienced over the last two years on.
Our Q3 guidance anticipates, a slight seasonal decrease in HCV billings in Q3 versus Q2.
While at the same time, reflecting year over year growth of 11% to 15% and a raise of 5% to 8% from the current street estimates based on the Q3 'twenty one ACB billings guidance, we expect run rate <unk> to continue its strong growth trend and grow in the mid 20% range year on.
Per year.
We believe we are now to the point on our transition that we will not see dramatic quarter over quarter change in term lengths with terms fluctuating by one or so per quarter going forward as term length begins to stabilize we expect reported year over year revenue growth to move closer to ACB.
Billings growth overtime.
We also expect our operating expenses for fiscal 'twenty, one to now come in upwards of $50 million less than what we spend in the prior fiscal year.
From a free cash flow perspective linearity in Q3 is typically not nearly as strong as we experienced in Q2 and therefore, we expect our cash usage to increase in Q3.
Our Q3 cash usage will most likely approach the current street consensus numbers for Q3.
We are pleased with our overall cash management efforts, especially in the light of compressing terms and continued to exceed our internal plan set forth at the beginning of the fiscal year.
And finally to help with your modeling we continue to include in our earnings presentation located on our IR website, our historical trends for ACB billings run rate ACB billings term link and a bridge on how to model and convert our current and future ACB billings guidance the total billings.
We will continue to include this level of detail through the end of FY 'twenty one.
With that operator could you. Please open up the call for questions.
Thank you.
Yeah.
At this time, if they'd like to ask a question. Please press star one on your telephone keypad.
If you wish to remove yourself from the queue press the pound key.
Pause for just a moment to compile the Q&A roster.
Our first question comes from the line of Matt Hedberg of RBC capital markets. Please go ahead. Your line is open.
Hey, it's Dan Bergstrom from Matt Hedberg, Thanks for taking our questions Rajeev welcome aboard maybe after your initial listening and looking tour here Theres. Some things that really stood out to you based on your past experience.
Just curious if you.
Sort of a logical next step for logical second inning that day.
You see here.
Sure happy to take that.
<unk> had a vision around making computing invisible.
And what I've seen here that we are growing our portfolio, we are extending that vision to make cloud of invisible because our customers are increasingly really operating in a multi cloud world.
And the public from making cloud of invisible is to really hide the underlying complexities and freeing up our customers to focus on business outcomes.
Now when you look at our core market itself a T. I, we're very focused on meeting that market.
And extending that to multi cloud assets.
Said earlier, the ACI on frame market alone is growing at about 15% CAGR.
CAGR Gardner so within that I think our focus areas. If you would ask me today would be a product.
Product leadership in ATI, making sure we continue to be leaders, they're investing in it for Texas.
And really treating cloud as a first class citizen extending everything that we do into a hybrid and multi cloud world.
And as we do that there is an opportunity for us to also simplify our packaging and our solutions in terms of how we can take all of this to market.
And then I think the continued focus on shift to a subscription like we've been talking about on making sure we get to the other end of that journey.
As our newest start kicking in we build this efficient day new adventures.
And we've talked earlier also about disciplined focus on cost management and driving to free cash flow breakeven.
And again, the last but not the least is to really leverage on channel partners and strategic partnerships, because that's what's going to give us leverage in the market.
That's great very helpful and then maybe for duston.
<unk> billings guidance for the third quarter here like day decreased in absolute dollar value of our strong second quarter results you mentioned that in your prepared remarks, but could you just help us with how to think of the decline a little more quarter over quarter.
Sure Yeah as you mentioned you know we.
Talked about this last earnings call.
If you look at the last.
On to <unk>.
Q threes.
There was a decline of roughly four 8% in those quarters.
And if you look at this decline, it's roughly 3% to 6% decline.
But coming off a very big.
Q2, obviously and something that outpaced our expectations, but I think when you step back and just look at the guidance itself came.
Came off a big Q2, we message this last quarter. So it's completely within what we expected the guide delivers 11% to 15% year over year growth.
It increases the consensus on the high end by $12 million or so it's a 5% to 8% raise.
If you look below the bottom line there.
Below the top line there is additional gross profit dollars that would be delivered when you do your math for your model revenue will go up.
Expenses will come down 15 per $10 million to $15 million from consensus on the operating loss and again when you do your math would be substantially less than.
And then the consensus there so we feel really good.
About delivering the guide that we did we feel really good about Q2.
And we feel really good.
On how we're progressing and exiting Q2 with our backlog position. So when you add all that up I think it's a pretty strong guide and then something that we feel pretty comfortable.
That's great. Thanks for the insight.
Our next question comes from the line of Paddy Hubert.
Morgan Stanley. Please go ahead your line is open.
Yes. Thank you good afternoon, Opex was lower in the quarter as well as for the fiscal year. So maybe Dustin can you talk about whether those savings are temporary versus more structural and then Rajiv. If you can follow that up and just talk about areas of investment in the business that you think you might be able to scale.
Back or rationalize as you March towards the goal of breakeven and cash flow positive. Thank you.
On the on the first part their acuity.
It's a combination of both clearly.
No. We've been benefited from obviously lack of travel and things like that and travel will come back over time, I don't think we'll ever spend again as much on travel as we have in the past we've learned that we can do things differently. We've learned that we can do things much more efficient.
Having said all of that.
I think you know, we've got a great opportunity and Rajiv will talk about this.
Going forward there is clearly a different view on operating expenses and focusing now really on efficiency. If you look at the last three years outside of take FY, 'twenty, which was a kind of a COVID-19 year, but the.
The three on this current year, if you look at the three prior years, we grew expenses about 35%.
On average year over year for.
From a three year period. So we've got a lot of resources now the focus is how do we get those resources more efficient how do we get the go to market.
Model more efficient and that's what.
Rajiv has brought to the table here and there'll be a not only for this year, but I Trust me for FY 'twenty, two and FY 'twenty three.
We will see a renewed focus on that and maybe Rajiv go on a call that up a little bit sure sure Dustin in fact on that point I think with respect to efficiency, it's really around sales and marketing efficiency largely I feel that we're pretty good and dump a value add on the R&D side and we may even have a slightly look at re directing some of that.
The newer areas, but when you look at sales and marketing, let's start first with marketing.
In fact that Covid has been a blessing in some form because it forced us to go watch one.
But I think it's.
That has taught us that there is tremendous efficiencies to be gained by growing what true whether it'd be with what's on event.
And our demand generation being more digital and therefore, a far more efficient than better auto why on a cost and what we spend there and then more recently, we've been introducing desktop which is a feature that allows customers to try our offerings in the cloud.
And convert them from.
Trying to actually buying and so bad people of youth desk drive.
The combustion ratios have been much higher than based on where they haven't so all of these put together on <unk>.
On to make on marketing more efficient and in even in this post COVID-19 world as we come out of it.
That's number one number two on the sales side. The fundamental thesis here is that we are still largely doing new ACB deals.
Term license and it was still very very early in their lifecycle.
As Randy will start kicking in we are in the process of building an efficient renewal engine here, whereas the cost of sales is going to be much lower than the cost of sales from new customer acquisition or new ACB.
So that should fundamentally have.
The sales side of this from an opex perspective as well.
And we'll talk more about these by the way had that Investor day in June.
That's great. Thank you so much for the color and congrats on the quarter.
Thank you. Our next question comes from the line of Jason Ader with William Blair. Please go ahead. Your line is open.
Yeah. Thank you hi, guys Hi, guys.
I.
For you duston on the comment on duration.
You said, we will not see a dramatic fluctuation on duration going forward.
I guess I had been modeling, let's call. It by the end of 'twenty two that you guys would get down to like three years.
Is that not the correct assumption anymore.
I mean, I would think that if you're doing more one year deals and you continue to see increasing mix of one year deals in that three four will continue to sort of trend down.
Could you could you help us out with that.
Yeah, no. It's a good point when I was mentioning there is 0.1 or so per quarter.
And then you know you're kind of there at your at your three Oh, So I think.
Three O.
Would it be two way could it be three one somewhere around there I think it begins to stabilize but I think the main point. There is is from everything we know now there shouldnt be drastic changes quarter over quarter from a term perspective.
You kind of saw a little bit in Q1, but federal kind of did that initial push there.
And I think you know it could be flat, maybe this quarter or whatever but I'd just like in general, it's probably a 0.1 or so here per quarter going forward. So I think Q3 is still in the ballpark okay.
Okay, Great and then whereas.
Rajiv.
I wanted to ask you.
If you look over the next five years and I know, that's a long horizon in tech but.
I think that the issue that some people have with new tactics and other companies like these hynix is that it's more of an on prem.
For structure.
Company, and that's kind of a bad word on Prem right.
So how do you help investors get comfortable with.
Just kind of you know that that.
That kind of thing where new taxes on the right side of history.
Yes, I think there is no doubt on the market that our customers are going to living in a multi cloud world now I think it's equally clear that on premise not going away.
Again, Gartner forecast by the way, but for on premise infrastructure.
And they're saying that the market will grow at 15% over the next five years.
And that doesn't really include multi cloud as much right.
So we still see a lot of growth just purely an on prem, but we're not stopping there we're investing in making all our products really have a cloud first.
Mentality.
You saw some of our recent announcements side with cluster we are extending.
Our core product offering so that customers can buy a single license from us and use that to deploy workloads anywhere they want whether it would be in the public cloud of their choice or and then on from infrastructure.
With some of the recent announcements that we saw with the objects and five any type of storage offering that we provide has naturally theory into the public cloud.
Right so fundamentally Mir.
Have a long term play here in terms of helping our customers operate in this multi cloud world and that I think is a long term sustainable advantage on behalf.
Thank you.
Okay.
Our next question comes from the line of Jack Andrews with Needham. Please go ahead on your line is open.
Good afternoon, and thanks for taking my question I wanted to see if we could drill down a bit more on the strength you achieved in the emerging products could.
Could you help us understand what's happening behind the scenes is it are they helping you land new customers are these longtime <unk> customers who are going.
On new tactics.
Do you feel that your channel is fully educated on the capabilities of all these products could you just flush out maybe what's what's happening to drive helped drive that strength.
Yeah, I'll give you some color on and then duston can add on as well on top of this.
So look first of all having a broader solution with a differentiated multi cloud portfolio.
So as to satisfy more of our customer needs and drive increase demand, but I'd be on death selling core HCI.
So these emerging products are starting to mature very nicely and many of them saw record billings this quarter.
On the top emerging products this quarter were era files and flow.
And all of them have strong attached to our core product platform.
So for example flow with that.
Security right. So when people are deploying on core platform, they will deploy security with at Plaza.
<unk> bio storage right and that comes as part of the platform.
And I actually per sensei, a significant new opportunity on top because now we're going up the management of databases and that can help a insect and find customers new customers that haven't used the core mechanics platform in the past.
So these amazing products in some cases can actually help us open new accounts and win new deals in other cases, they are attached to our existing new tanks core platform.
Definitely you want add any color.
I think you covered it really well there I think would.
Not anything.
Well, thanks for the perspective on that and just as a follow up question Rajeev I was wondering if you could maybe shed some more light on your comments regarding the importance of strategic alliances, helping you penetrate larger accounts are you looking to engage with perhaps new and different types of partners or who among your existing you really.
Ships do you think could help you really achieve that goal.
Yeah at this point I think the.
Latest opportunity really lies with further deepening in developing the partnerships that we have already and I'll break that across three categories.
We've got OEM partners.
HP Lenovo and many others there.
Then you've got an emerging set of cloud partners like Azure that we talked about a bit also on AWS bare metal.
And then our ecosystem of technology partners, who are crucial for example, citrix if a if a key technology partner there right for all our what's on desktop workloads, we talked about the large deals that we won this quarter together, which was mainly citrix.
On the TANF and H B, all coming together to deliver deliver the solution.
And but all of these partners I think they've got room to also continue to accelerate our go to market.
Google is another partner co selling on desktop to the service with Google and and again.
Google Anthos signing on top of our stack that'll be a technology ecosystem type of partnership.
So I think with each of these like I said across OEM partners cloud partners and ecosystem technology partners, We've got more room to be building solutions, taking these solutions together to market.
Great that's helpful and congratulations on the results.
Thank you.
Our next question comes from the line of Alex Kurtz Keybanc capital markets. Please go ahead. Your line is open.
Thanks for taking my my question Rajeev welcome. It was great getting to know you at your prior company.
Excited to hear what comes next day analyst day.
Just back to your earlier comments about test drive Rajeev just.
At a high level a lot of your.
Kind of emerging competitors in the infrastructure space, we're very focused on delivering software that's not traditionally sold through a sales rep. It's as you said downloaded premium type model.
And then it ramps from there could you envision a future where.
The majority of new tactics.
Core hyper converged.
Activity is done through that type of a model, where theres very low touch at the beginning of the sales process. It in the reps come in at the end to kind of expand land and expanse.
Yes, I mean, Alex you are definitely.
On getting that in the right direction death.
With desk drive that is exactly what we're trying to do with this it's a zero touch self service for our prospective customers right. So it allows them to really go out there and try it out for themselves and that reduces our need to go do a high touch selling process, but that had been dead engaged by themselves and then from there on.
We'd like to take what they seen described and then convert that to a sales right. There yeah right over time, it's still early days for us, but that is exactly the promise now while we can take this I mean for simpler offering. So I think this will work now for a complex solution sales.
Theyre going to actually have to do a lot of hands on selling as well. So we expect that I think this is again a great day for us to get more efficient over time with assets.
Okay. Thank you.
And our next question comes from the line of James Fish of Piper Sandler. Please go ahead. Your line is open.
Hey, guys. Congrats on the great end to 2020 calendar 'twenty 'twenty and energy.
Mike I'll, just add you know welcome to mechanics on congrats on becoming CEO I'm looking forward to working with you more over here.
But I did want to actually ask just from first you.
You talked about good linearity, but just wanted to understand how much of the strength and the linearity was actually due to year on budget flush and what you saw in versus kind of what you saw in January to follow up with that.
Yeah, I mean, you always get pieces pieces of budget flush, but I don't think we saw really thing unusual there whatsoever, we had.
Many.
Large deals in the pipeline. The question was when those were going to close or not close and on.
I'm not sure really year end budget flush I mean, those were planned out in advance and things like that so.
From that perspective, I would label it as any different than normal.
Okay. That's helpful and then Rajiv as a follow up on.
On the first priority you did mention.
More consolidation around new tenants and customers, having that desire I know, it's kind of early but what types of bundles are demanded solutions are really customers wanting I mean, it sounds like era files and slower or kind of the part there, but any sense of kind of what bundles, we could see from new tactics on.
Months.
Yeah. Thanks, Dave So on that it's gonna be it on solutions and use cases per customers. So for example, you could I mean as we've talked about here, what's on desktops and enabling remote users. That's clearly a use case for richest specific subset of our portfolio comes together to deliver that as a solution for them.
Mission critical workloads, if youre going to run databases and managed databases than ever running on top of a.
Our core AOS.
S. H me right together with management.
If it is a good solution set for that so we're going to be focused on examples and solution sets like that.
On that that tie directly to what customers are buying if a customer is buying a <unk>.
Hybrid cloud and they're looking at our journey to the hybrid cloud then it'll be a O S H b.
Justice right.
So that's how we plan to packages.
Makes sense congrats again guys.
Thank you Dave.
Our next question comes from the line of Mahal, Chuck scheme of Northland Capital. Please go ahead. Your line is open.
Oh, yeah. Thanks, two questions first for duston.
I know that you guys continue to say that new AC remains the bulk of the ACD billings.
Can you actually give us the actual split between new ACD in renewing ACB.
And then also how much more quarterly new AC billings do you think you can get out of your existing sales force understand that are.
The renewals is.
Gonna be largely dependent a.
The new ACB capacity.
Yes.
On the splits we haven't actually.
Talked about the split specifically on an ACB basis on a T. C V basis, we've talked about renewals 10, 11, 12 per cent range and which really is the leverage you know where you got on garnished leverage as a percentage of T. C V from a P&L perspective, so from macro so there's still.
On a pretty small.
Now we're still in FY 'twenty, one as you get into FY 'twenty, two certainly into FY 'twenty three that profile changes and that's what we've been talking about for quite some time and then you know.
We would hope at Investor day that we start giving you some some really good views on our perspective.
Those renewal flows now we have a couple of quarters earned or above we're starting to understand retention rates a little bit we know when things are up for renewal obviously.
I think it would be really good to start providing the investment community a little insight there.
To what we think from renewals the percent of ACD the percentage of T C V and more importantly.
Try to give you a view of the cost profile.
Between new and upsell and.
And renewals so that it's kind of a TBD something we're working on now.
In which we'd expect to have a more wholesome discussion during investor day on the productivity side I'll, let rajiv chime in here too.
The answer is we should be able to get quite a bit more.
That activity on the existing sales force and you know theres really on.
No reason from that perspective.
Chris has done a.
Good job of trying to hire the right people and once you hire those people to enable them to sell on our environment to make sure. They have the right coverage, whether that's account base are geography based or a verdict vertical base.
So that's ongoing and getting more leverage as Rajeev said from partners and things like that so our view.
And which were massively focused on now in person team is to do exactly that and get more productivity out of the existing.
Sales force here so.
You might want to add a couple of thoughts there too.
No I think you've covered it the only thing I'll add there also with again, what we talked about earlier on the call about our portfolio of solutions.
Atlanta on solutions will also help us drive sales productivity income because it's that plus investing things that the 10th upsize the deal and sell a broader portfolio and second it makes consumption by the customer easier.
Great.
On the other points.
Yeah, great. Thanks, Rajeev and for you actually.
Have you seen any change in the competitive environment and I'm, specifically thinking about I believe that BMO recently pivoted cloud foundation as a linchpin to their hybrid cloud, which is basically HCI base. So has.
Has that changed the competitive dynamic for you guys at all.
That's particularly not new right I mean, that's always been the case that what I would say it's look as the competition is always good for our customer.
I feel good about where we are independent of anything happening at the competition.
Oh, gateau, showing that increasing on market share year over year to roughly about 50% of the market.
IDC shows isn't the number one market share position.
I do agree with the thesis that HCI is a foundation on the platform for hybrid cloud and I think that's an industry wide statement not just day inorganic statement.
And from that perspective as long as we continue to focus on delivering the best solutions from the best outcome for our customers.
I think people do define from a competitive perspective at that point.
Okay.
Our next question comes from the line of Rod Hall of Goldman Sachs. Please go ahead. Your line is open.
Yeah. Thanks for the question I guess I wanted to start with you Dustin on Dsos its about as low as we've seen them for five years. So really good job on on that I know you called out linearity in the quarter. It sounds like was there really.
Good linear quarter, but I wonder if you could dig into a little bit more on a sustainability of that DSO level and B I guess, leading on from that just kind of what drove the linearity. If you can give us any any color on that and then I've got a follow up.
Yeah on the on.
On the linearity in the DSO as we've always had I think.
Good Dsos.
We've always had good efforts there they've never really gotten out of control and in any way. There. So they've always been great now that I think it was about 45 days or whatever this quarter, it's not going to stay there rod.
There was a really good linear quarter, if you look at past Q threes.
Just the way Q3's go.
It's just not going to be as linear now we'll do the best obviously and we'll go to collect as much as we can and and ship as linear as possible, but that's not going to.
To continue like it like it was in Q2 now.
Early indications for Q3 is that you know linearity is kind of going as expected. So there's nothing out of bounds there.
When we look at Q3 from from that perspective on them.
I'm sorry, what was the second part of your question.
Oh, I, just I wondered what drove the linearity in the quarter was it just kind of a.
Circumstantial situation or was there something you guys did different from the execution.
It always comes down to execution.
At the end of the day and execution has improved Ah Theres no doubt that every quarter execution gets better and that comes with discipline and it comes with pipeline management and that comes with having good pipe in not only the amount of price, but the quality of pipe and we've seen the quality of the pipeline.
Go up go up a fair amount and then you layer on top of that.
The ACB base comp that give sales reps a lot more optionality. If you will to go maneuver things and things like that so I think it's a it's a it's abroad.
Reasoning, but it always starts with execution.
Okay.
On a follow up for Rajiv.
Okay.
Sure Ed.
Yes, Rajeev I just big picture.
I'm wondering if you could comment on where you see new tactics as niche from a customer size point of view looking forward.
Vmware has been a tough competitor up in the large enterprise new tenant seems to do really well with kind of these <unk>.
Large size, but maybe not fortune, one hundreds, but I'm just curious what you think in terms of future vision for where the sweet spot for new taxes.
Yeah, I mean, I think clearly rather as you indicate we had historical strength and what I would say a.
Media and smaller enterprises, I think that's a sweet spot.
But we've also penetrated a good amount of the global large customers as well that'd be count like 950 of the top 2000, globus as customers, but what I would say with these larger customers. If we're more focused on winning specific use cases right. We're not quite there yet in terms of.
Being able to say we are the platform of choice for everything.
We would like to get there so with these global for example, the the wins that we highlighted this quarter was okay large global complex environment, but very focused on what's on desktops and remote users now once it isn't there and we are actually used then we see opportunities to build a footprint that goal what I would say.
One use case at a time so that's the way to think about it I think we've got lots of under penetration here in the market.
Based on opportunities in the market, but you're right I mean, Dennis them and there are other players on the market theyre going to have to go on.
Our way into these customers and then what I would also say if there are some areas, where we are able to come in at the top for example era and database management, but then represents a potential to go in.
It's a fairly unique solution in.
In the marketplace.
And we're able to go use that as a way to get into new customers.
Our next question comes from the line of Guam BMO Bank of America. Please go ahead. Your line is open.
Yes. Thank you Rajeev Kenny can you share some more color on the on the first point you made around the simplification of the portfolio that you said was part of the customer feedback and maybe some color on on what.
Has differed from your expectations as you as you've joined the company and have a follow up.
Yeah, I think on the first one we covered it a little earlier I see an opportunity to really bring more of these products together right. Our portfolio has grown quite a bit over the past few years, it's no longer a difficult.
AOS in THP mature core.
Hei platform, but we've got management around that we've got networking and security around it we've got our files and objects are they've got their divested recovery.
And so and then we've got a frame as separate this out by the service and then they've got era, so very broad portfolio as you can see.
And then we have containers with carbon for example.
So what I see is instead of trying to send each of these products as an individual product in the market net as an opportunity to put these together into a solution if somebody's deploying a cloud native workloads. Okay. I mentioned, what's on desktops and I'll, let Scott talk about cloud native valve carbon plus AOS plus a a tree is a platform.
With object storage that makes sense for somebody to play and cloud native workloads and by packaging them, together and and making it easy for a customer to consume it.
It becomes more of a turnkey solution. So we see that kind of packaging for specific use cases that I think we can go drive and simplify.
And the market what is part of the question sorry could you repeat that.
Yeah, well, what's what's been different from your expectations as you know joined the company.
Yes.
Largely I would say, it's I've been pleasantly surprised actually on the upside there's still a ton of talent the very strong talent in the company.
Very strong very passionate talent and the team has done a lot.
But resources limited resources, especially on the product and the portfolio side.
So that's been a per center upward surprise for me and which is really good at it makes it. It makes me feel good about the strength of the product portfolio going forward.
And then no surprise I do realize that there is a lot of work ahead for us in terms of making this a journey to subscription.
And we're very focused on execution on that front as we've been saying all along.
Okay.
Thank you and that concludes our Q&A session and conference call for today. The reminder of the mechanics has on Investor day scheduled for June 20 seconds Omni channel would love to see you. There you may now disconnect.
The recording has stopped.
Okay.
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