Q4 2021 Nutanix Inc Earnings Call
Good day, Thank you for standing by welcome to the New <unk> Q4 fiscal 2021 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need press star.
One on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I like to hand, the conference over to your speaker today, Richard Valera VP Investor Relations. Please go ahead.
Good afternoon, and welcome to today's conference call to discuss the results of our fourth quarter and fiscal year 2021, joining.
Joining me today, Rajiv Ramaswami, new tactics, as president and CEO and Duston Williams <unk> CFO.
After the market closed today <unk> issued a press release announcing financial results for its fourth quarter and fiscal year 2021, if you'd like to read the release. Please visit the press releases section of our IR website.
During today's call management will make forward looking statements, including statements regarding our business plans strategies initiatives vision objectives and outlook as well as our ability to execute there on successfully and in a timely manner and the benefits and impact thereof on our business operations and financial.
Results.
Our financial performance and targets and use of new or different performance metrics in future periods, our competitive position and market opportunity the timing impact of her current and future business model transitions the factors driving our growth macroeconomic and industry trends and the current and anticipated impact from the COVID-19.
<unk> pandemic.
These forward looking statements involve risks and uncertainties some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements.
For a detailed description of these risks and uncertainties. Please refer to our SEC filings, including our most recent annual report on Form 10-K, and quarterly reports on Form 10-Q, as well as our earnings press release issued today.
These forward looking statements apply as of today and we undertake no obligation to revise these statements. After this call as a result, you should not rely on them as representing our views in the future.
Please note unless otherwise specifically referenced all financial measures. We use on today's call are expressed on a non-GAAP basis I didn't 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.
<unk> press release.
Lastly, <unk> management will be participating in the Deutsche Bank Technology Conference on September 10th the Piper Sandler Global Technology Conference on September 13th and the Jefferies Software Conference on September 14th we hope to see many of you at these upcoming events and with that I'll turn the call over.
To Rajiv Rajiv.
Thank you rich and good afternoon, everyone.
I hope you and your loved ones are healthy and safe as.
We continue to navigate through the Covid pandemic.
Yeah.
Q4 was a strong end to.
So an excellent fiscal year.
Which was marked by consistent execution and good progress across both financial and strategic.
<unk>.
<unk> delivered a strong fiscal 'twenty one.
Across a number of areas.
We exceeded our guidance every quarter of the year.
As our team consistently over achieved.
We saw good linearity within each quarter.
As we benefited from ongoing operational improvements in our go to market engine.
We also saw improved deal economics, and the continued buildout of our renewables business.
Which will help drive acceleration of our topline as we are.
Broach the completion of our subscription journey.
Importantly.
We drove these topline improvements while carefully managing expenses.
Leading to a substantially improved bottom line performance compared to our prior fiscal year.
On the strategic front, we receive.
What a $750 million investment from Bain capital in Q1.
Which provided additional financial flexibility to fund our growth.
And we made good progress on our alliance partnerships.
Extending our relationships with HPE.
Lenovo and most recently <unk>.
<unk>, a new agreement with Red hat.
Looking deeper at Q4.
We outperformed on all our key metrics.
Seeing all time, our recent record in a number of areas.
We reported record revenue up 19% year over year.
The best growth, we've delivered in the last three years.
We saw record ACB billings.
Which grew 26% year over year.
Our highest growth rate in over two years.
We again saw good linearity in Q4.
Which contributed to better than expected cash flow.
The underlying momentum in the business gives us confidence in providing strong guidance for the first quarter of our fiscal 'twenty two.
And we believe well.
Well this is the first well to achieve our plan for the balance of the year.
Overall, we were pleased with our fourth quarter and fiscal 2021 financial results.
Which were delivered against the continued challenging backdrop of COVID-19.
We saw strong momentum across our entire hybrid multi cloud portfolio during the quarter.
Including both core and emerging products.
I think product new ACD bookings grew over 100% year over ear.
And saw a record rolling four quarter attach rates of 41%.
One example of a complete portfolio of solution was our largest deal of the quarter.
A multimillion dollars ACB deal with a fortune 100 financial services company that expanded.
Their use of our core HCI software.
To run their mission critical applications.
Along with a large expansion of that era footprint to automate and simplify their database management.
The Chinese cluster.
A key component of our hybrid multi cloud platform.
We continue to see solid momentum during the quarter.
One example, with a global 2000 real estate E Commerce company.
That persist cluster on AWS.
Expands <unk> footprint and enable that lift and shift datacenter consolidation.
In Europe, a large government ministry.
With our cloud platform, along with our unified storage solution.
Including files and objects.
That's the primary cloud platform.
I'd now like to take a moment to highlight some key takeaways from our Investor day in June.
We highlighted our leadership position in the large and growing hyper converged infrastructure market.
And the substantial additional opportunity.
We see a decent market.
Specifically, we noted a combined total available market opportunity in our core and adjacent markets that.
That we expect to exceed $60 billion.
By 2025.
We set a plan to focus on delivering a single platform.
Mechanical hallmark simplicity and performance.
Into the hybrid multi cloud market.
We laid out a roadmap for our solution strategy and.
And how we are streamlining our portfolio.
Focusing on fewer bigger bets.
In the areas of database as a service.
Unifies storage.
And desktop as a service.
We also explained.
We are expecting to see go to market leverage.
By executing on low cost renewables.
Benefiting from solution selling.
And from increasing our focus on partnerships.
And finally, we provided a model targeting free cash flow breakeven in the second half of calendar 2022.
And 25% annualized ACB billings growth through fiscal year 'twenty five.
And we're tracking well on both metrics.
Next I'd like to also provide an update on some of our previously discussed priorities.
First.
On deepening our partnerships to provide more impact on how we go to market.
Our recently announced partnership with Red hat.
<unk>, leading provider of commercial open source solutions.
Brings together red hat industry, leading red hat Enterprise Linux Ral.
And it's open ships container platform.
With the simplicity flexibility and resilience of our cloud platform.
<unk> is now the preferred choice for ACI.
Red Hat's platform.
And on HB Hypervisor is certified to support rail and open shift on the new tactics platform.
Likewise open shift is now the preferred choice for enterprise full stack kubernetes on the new tactics platform.
Finally.
The two companies also have a mutual support agreement and our research and development roadmap.
Focused on ensuring customer success and enhanced integration respectively.
This partnership provides customers with a full stack platform to build scale and manage containerized and Virtualized cloud native applications in a hybrid multi cloud environment.
We see it as an important proof point in our strategy of further in customer choice.
Enhancing our platform by partnering with other best in class providers.
During the quarter.
We also announced an expanded partnership with HPE.
In which we're offering new kind of era.
Our multi database operations and management solution.
Bandel with HPE <unk> sellers.
As a service.
H B Greenland.
In addition to our core platform.
Is already a part of the Green Lake offering.
Now I'd like to turn to another one of my priorities diversity and inclusion.
We released our first and main rental social and governance or ESC report during the quarter.
Detailing our initiatives in these areas and establishing a baseline we can measure ourselves against.
This is an important first step in our journey towards having greater diversity and inclusion in our workforce and enabling more sustainable businesses for both mechanics and our customers.
We also held our first global Women's conference in July.
<unk> lead us and outside experts.
Book to our entire employee base about how we can redefine leadership to include diverse backgrounds and perspectives.
In closing I am pleased with the execution across the board in our fourth quarter as well as our full fiscal year.
Especially given the challenging backdrop created by the pandemic.
And the fact that it was the first year of our ACB model.
We are entering our fiscal 'twenty, two with a strong position.
Finally, I am looking forward to connecting with many of you.
At our upcoming docked next user conference being held Sept.
Number 20th through the 23rd.
We look forward to welcoming tens of thousands of our customers and partners.
Please see our earnings press release, our website for registration details.
And with that I will hand, it over to Duston Williams.
That's it.
Thank you Rajiv.
Q4 was another quarter of consistent execution as well as a great way to finish out the fiscal year.
Sales were strong throughout the entire quarter.
There was no unusual deal slippage and we built backlog during the quarter.
In Q4, we exceeded all guidance metrics and our overall business model continues to be strengthened by the benefits of our subscription focus.
A few key highlights for the quarter included <unk>.
Record, new ACB billings record total ACB billings.
Total billings record total revenue record emerging products, new ACB bookings.
Record number of greater than 1 million dollar transactions in the quarter.
And we had the largest year over year total percentage growth in revenue since Q4.18.
Now I'll move on to some specific Q4 financial highlights.
And before I get into the specific details for the Q4 and FY 'twenty, one financial highlights I would like to remind you that all future financial disclosures will align with the disclosure and guidance metrics roadmap that we provided during our June two investor day presentation.
For further details and clarifications about our go forward disclosure plan I would encourage investors to review the slides titled guidance and disclosure plan FY 'twenty two from my Investor Day presentation.
ACB billings for Q4 were $176 million, reflecting 26% growth year over year.
Above our guidance range of $170 million to $175 million and ahead of the street consensus number of $173 million.
New ACB bookings, which includes new logo ACB as well as up sell HCV experienced the strongest year over year growth rate since Q1.19.
Or are at the end of Q4 was <unk> eight 8 billion growing 83% year over year.
Run rate ACB as of the end of Q4 was 1.54 billion growing 26% year over year compared to our estimated growth of mid 20% range.
Our average contract term lengths increased slightly to three four years versus three three years in Q3 'twenty one.
As our largest deal in the quarter from an existing customer with a five year term.
We also had a few other notable five year deals from existing customers.
At this point, we would expect our average contract term lengths to trend back down next quarter, most likely in the low three year range as Q1, usually carries a significant amount of federal business and our federal customers typically have much shorter average contract term lengths.
Assuming contract term lengths do approach the low three year range in Q1, we would approximate the PCV to HCV buildings ratio to be somewhere around $2 two five versus the $2 four in Q4.
Revenue was $391 million growing 19% from Q4 'twenty.
Substantially above the street consensus number of $365 million.
We have not seen this level of year over year growth rate in revenue since Q4 <unk>.
Emerging products, new ACB bookings grew in excess of 100% year over year.
Emerging products attach rate was 41%.
The Q4 sales rep productivity significantly exceeded our assumptions set forth at Investor day.
Our non-GAAP gross margin in Q4 was 82, 9% versus our guidance of $81, 5% to 82%.
Operating expenses were $373 million versus our guidance of $380 million to $385 million.
Our Q4 expenses included approximately $12 million in severance expense related to a previously disclosed sales and marketing head count reduction.
Our non-GAAP net loss was $55 million for the quarter or a loss of 26 cents per share.
Q4 linearity remain very good.
Dsos in Q4 were 48 days up from 37 days in Q3, 21 and down significantly from 68 days in Q4 'twenty.
Our free cash flow for Q4 was once again aided by good linearity coming in at a negative $42 million $16 million better than the street consensus.
We closed the quarter with cash and short term investments of one point to 1 billion down slightly from 1.25 billion in Q3.21.
Before I provide Q1 guidance overview, let me first do a quick recap of the FY 'twenty one.
ACB billings were $594 million growing 18% versus FY, 'twenty and versus the $590 million to $595 million range, we provided at our Investor day.
Once again as we mentioned last quarter, our total fiscal year ACB billings are not derived from the simple addition of the four fiscal quarters.
For our reported quarterly ACB billings, we annualize any deal that is less than one year in term length.
And our yearly ACB billings calculations eliminate any duplication that happens with the renewal of a deal that occurs within the period and is less than one year in duration.
Based on this methodology over the last three fiscal years.
Of the four fiscal quarters of HCV billings have exceeded the adjusted annual ACB billings by 6% to 7%.
We would encourage investors to account for this distinction during the modeling process.
FY 'twenty, one new ACB billings, which includes new logo ACB as well as upsell ACB.
$433 million growing 11% versus FY, 'twenty and versus the $430 million to $435 million range, we provided at our Investor day.
Our renewal business performed well within our expectations FY 'twenty, one renewals ACB, including <unk> support renewals.
$161 million growing 38% versus FY, 'twenty and versus the approximate $160 million estimate we shared at Investor day.
FY 'twenty, one renewals T C V, including Allo D support renewals were 179 million growing 32% versus FY 'twenty.
Revenue was 1.3 dollars 9 billion growing 7% versus FY 'twenty.
The yearly revenue growth was impacted by term compression during the year.
Customer retention, including L O D and subscription closed the year at 96%.
The gross retention rate for our subscription business continued to operate within the range of greater than 90% as provided during our Investor day.
The net dollar retention rate, including the L. O D business was 124% versus the Investor day estimate of approximately 125%.
The net dollar retention rate for our subscription based business only.
It was 158% versus the Investor day estimate of approximately 155%.
Emerging products, new ACD bookings grew 97% in FY 'twenty one.
And we also added 61 G to Kay customers in FY 'twenty one.
Now turning to our Q1 'twenty two guidance.
The guidance for Q1 is as follows.
<unk> billings to be between 172, and $177 million representing year over year growth of 25% to 28%.
Gross margin of approximately 81, 5%.
Operating expenses between $735 million.
And weighted average shares outstanding of approximately $216 million.
The Q1, <unk> billings guidance, which calls for year over year growth of 25% to 28% compares to the actual growth of 14% in Q1 'twenty.
10% in Q1, 'twenty, one and versus the street consensus growth for Q1, 'twenty two up 23%.
Based on continued good execution, and increasing renewal base and a robust backlog all supported by a strong product portfolio.
We are pleased to project Q1, 'twenty two year over year ACB billings growth rate that is on par with our strong Q4, 'twenty, one ACB billings growth rate of 26%.
Based on the Q1 'twenty two ACB billings guidance, we expect <unk> to grow 65% or more year over year.
I'd like to make one final comment regarding our ACB billings trends for FY 'twenty two.
Due to our growing mix of renewals for the second half of FY 'twenty two.
We would expect a higher amount of ACB billings in Q4 versus Q3 than what is currently reflected in the consensus estimates.
This mix shift from Q3 to Q4 is a direct result of our growing ATR or available to renew base of renewals that show a proportionately larger increase in Q4 versus Q3.
We strongly advise analysts and investors to carefully look at the quarter over quarter <unk> billings estimates to ensure that the strong growth in Q4 relative to Q3 is reflected in models.
With that operator could you. Please open the call up for questions. Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Your first question comes from the line of Aaron Rakers with Wells Fargo.
Yeah. Thanks, congratulations on the quarter.
Just wanted to kind of maybe level set the discussion around the base of renewal opportunity in kind of the linearity throughout this next fiscal year.
Is there any way that you can help us frame of just relative to the size how large the base of renewal opportunity looks like this year.
Relative to fiscal 'twenty, one and what exactly that linearity does look like as a progression through the quarterly.
Quarterly numbers through fiscal 'twenty two.
Sure So Erin.
We provided a fair amount of detail during the Investor Day. We obviously you just reported on the 'twenty. One numbers. We gave a 23 estimate we gave me.
25 estimate during the Investor day too relative to <unk>.
FY 'twenty two.
Again, there won't be a obviously a massive increase in FY 'twenty two on the renewals just because you've got some offsetting L. O D support renewals declining and then.
The subscription renewals, increasing I will tell you.
And I mentioned this in the script.
That.
The first three quarters.
The fiscal year.
Have a slight increase but not much but there is a large tranche in Q4 that starts to kick in on the subscription renewals.
And that's why the comment was just to kind of look at the quarterly splits there because there will be.
Just based on the ATR the available to renew in Q4, the amount increases quite a bit relative to certainly Q2 and Q3.
And then the real quick follow on is that you talk about the average weighted terms coming down.
Relative to three four in fiscal <unk> do you think that we continue to trend downward through the course, the successive quarters through fiscal 'twenty two.
Well, probably not that much.
Now.
10th here or there, maybe but again in Q1.
The federal business ends up being a much larger percent of the total business just because of the federal year end in September.
Federal terms are quite a bit lower in general.
So and you saw the same thing actually last year quite honestly from Q4 to Q3, you saw I don't have it exactly in front of me, but I think it's a 310th servers a year.
Decrease something like that from Q.
Q4 to Q1, and then it kind of flattened a little bit.
So definitely will come down.
As we see it today and as we get through the first month and that's what we're seeing already.
But then.
I would suspect it kind of be flattish a little bit, but I don't think theres any chain certainly from the kind of the two eight to three point O as we see it today as we laid out at Investor day.
Very good thank you.
Youre welcome.
Your next question comes from the line of Jason Ader with William Blair.
Yes. Thanks.
I have two quick ones.
First is it seems like Youre, taking share in the HCI market in the first half of calendar 'twenty one.
I was hoping you could talk about why you think thats happening.
Yes look I mean I think the.
They said, we are seeing some nice quarter over quarter improvement in our win rates.
We are obviously very focused on this market.
<unk> execution has continued to improve through the <unk>.
That year.
And fundamentally we're going in there with a very strong offering that continues to get better there.
Where are.
The best in terms of managing data.
Operating all pumped storage.
That to hybrid cloud as you know we provide the best freedom of choice.
Across hypervisor across hardware platforms.
Cloud native stack and of course going forward across multiple clouds.
Customers like the simplicity of what they provide and then our NPS at 90.
Didn't use to be.
Better than almost everybody else. So we have a sustainable advantage here combined with the increasing focus on improvements in our operational execution, that's what's leading to the sofa.
Alright, Thanks, and then just a follow up on that is.
In terms of this whole cloud versus on Prem debate.
How are your conversations with customers changing over the last year and are you seeing any pendulum swing back towards on Prem environments.
Yes, I mean, I think there's been a lot said about this.
Certainly.
Right about about cloud and I.
I think customers are going to be a more nuanced about how they go to go to the cloud.
There are.
They're both existing applications and new applications that come in to come.
Come into play here and obviously customers now are looking at different thing, but I need to be in a multi cloud world.
I don't want to be just locked one cloud I'm going to be writing my applications across all clouds and.
And we are seeing very specific use cases that customers are looking at right. So one class of customer the people who've been on Prem wanting to migrate to the cloud our use of cloud we are seeing them use us to expand that take expanded 10 existing footprints into the cloud.
Look at disaster recovery as a use case for customers that are having more public cloud oriented historically, they're starting to look at cloud cost is starting to look at that data.
A data governance security Theyre, starting to look at cloud lock in and see that they are also looking at more of a multi cloud environment and hybrid environment. So I think this is definitely more conversations that were happening are happening with our customer base around beef and again, we're starting to see the use cases then.
Come into play right into production.
Thanks very much.
Your next question comes from the line of James Fish with Piper Sandler.
Hey, guys. Thanks for the questions I'm pretty sure that's as big as upside and some four years versus our estimates so nice to see the software side really driving that upside in coming out.
Transition at Great speed, So kudos to you guys at a high level are you seeing a pickup or a steady state for the conversions of traditional three tier storage architectures to hyper converged and going back to what you just said around use cases any changes on the use cases for hyper converged.
Versus the last few quarters.
Yeah David.
As we said at Investor Day.
The fundamental benefits stuff hits here continue to apply right.
Implicitly.
In operations management, bringing these silos together providing.
Good TCE compared to traditional <unk>.
What we are seeing now with HCA is able to address a broad set of enterprise workloads.
And we're seeing that for example, our largest need less of this quarter.
Was it a large financial services customer and they are of course running all the databases on our platform.
And that's a high performance workloads.
And so we're seeing broadening adoption of HCI.
Lots of enterprise workloads, and so I think that trend continues and then second plan really is as you go to the cloud ACI becomes logical it is not just an on Prem Carinthia replacement, but it also becomes a platform that they can then take to the cloud.
Understood and any further commentary you guys can provide on how sustainable this productivity can be and how that compares to your analyst day expectations for increasing productivity over the next few years and doesn't specifically any change to how youre thinking about that mid to high teens growth for next year that you alluded to it.
What's that.
Yeah, let me start with the productivity thing we have so many.
You know things to help productivity going forward.
As I said, we're running ahead of the Investor day.
Estimates certainly in Q4.
And we think the productivity will continue to be strong we have a lot of things going on in the background as far as channel enablement and a lot of autonomous selling that we're trying to.
Enable with the channel will start some solution selling clearly partnerships are picking up.
Not to mentioned renewals and things like that so lots of good stuff happening.
From a productivity perspective, I think and then if you kind of back up and even talk a little bit higher level. There. The demand environment is good the pipeline is strong and not only is the pipeline is strong the quality of the pipe continues to get.
Really a stronger as we go on here are the products performing well.
<unk> products continue to increase deal sizes and Asps are increasing.
The renewals are building and stuff like that so when you step back on that and then you'd look at FY 'twenty two we feel good about 'twenty two.
Obviously, our plan for FY 'twenty two.
And meeting that and.
The modeling assumptions that we provided at Investor day for FY 'twenty two.
That was obviously meant to be a kind of a onetime thing to help.
With the with the modeling efforts, we're really happy what happened in Q4, we're really pleased with what we could.
Have guided certainly for for Q1.
And in the likes there so we feel really good as we go into the fiscal year.
And you know, we'll address things as we are as we move forward, but at this point in time again that was meant to be kind of a onetime.
Look at 'twenty, two but in general we feel very good about 'twenty two going into the fiscal year.
Helpful. Thanks, guys.
Your next question comes from the line of.
Pendulum Bora with J P. Morgan.
Oh, Great, Hey, Hey, guys. Thanks for taking my questions and congrats from my side as well.
Just taking a step back could.
Could you maybe talk about the demand environment.
Are you kind of seeing the hesitancy around big data center transformation projects kind of fee that we at this point.
And how did the demand in Rome, and kind of trend through August.
Versus versus your expectations are you seeing any kind of.
Yeah.
And kind of what kind of slow down due to delta or anything in the.
If you remember here.
Yeah.
Yes, maybe I'll start there.
Pendulum here.
So first of all I think we're seeing a healthy demand backdrop.
And.
It's being driven by the broad acceleration of digital transformation initiative.
To some extent coed exited catalyzed and then to some extent a pent up demand.
Being realized now as customers have now become used to operating in a COVID-19 environment now for US specifically I would say the demand is being driven by four key areas.
The first is of course, continuing the what was already a question about this about continuing modernization of their legacy Tdm infrastructure.
Running more workloads on our platform.
Helping extend.
As they move to the cloud right aggregate, helping our customers migrate to the cloud and then of course.
Hybrid and remote work is here to stay.
And that's another driver for what we have seen so overall, we are suddenly you know delta has not.
Impacted demand, we're still seeing good demand environment.
And people are continuing to invest in these initiatives with us.
Understood Okay.
Thank you for that and.
One thing about.
Cluster I guess I think it's now available in the AWS golf cloud.
What has been the early feedback from federal customers I know you are going into your biggest federal quarter.
But are there conversations forming in that area. How do you feel about cluster is in golf and the government side.
Yes, I think.
Within ethanol cluster is if it became available here in golf cloud AWS Gov cloud and we do expect again, a number of government agencies are looking at operating in golf clubs.
And and so.
So they are fairly early in our conversations with them, but essentially the same use cases apply.
To them as well right. So how do I extend myself to the public cloud hardware do disaster recovery, how do I do with capacity expansion, how do I consolidate data centers.
It's exact same use cases.
Routing to fee also play out in government.
And again I think it's still early days for us.
The offering just became available.
And I hope to be able to talk to you about future government customers in abergavenny customer in future calls at some point.
Understood. Thank you.
Your next question comes from the line of Jack Andrews with Needham.
Good afternoon, and thanks for taking my question.
I was wondering if you could unpack a little bit more of the very strong net dollar retention rates youre seeing particularly the 158% excluding life devices could you provide some more context on what's really driving that number.
Yeah, let me take it and Rajiv I might want to chime in here, but you know there's only a few inputs to that output of 158.
And obviously the the upsell.
Continuing to get better again, the deal sizes are getting larger I think as we continue to go up the stack with our product offering that's a natural enhancement to the.
The total deal sizes slash upsell in the business.
The gross retention rate.
Huge focus internally on that but the gross retention rate, it's still a relatively small base.
But what we've seen so far we're happy with the with the gross retention rate. So you know that.
That will come down a little bit as we showed in the Investor day, but I think that will still be up at the top there as far as a metric from a competitive perspective again the product continues.
Perform while the MPS four still stays at 90, plus and all those things add up to a lot of upsell and increased deal sizes.
And a pretty good net retention rate.
Yeah, Thanks, guys I appreciate that.
Yeah, I would just add to that thing I mean, all this played out and there's lots of things that we had this quarter, but everything that that's been fed laid out large customer rent and with a small deployment to start with they are continuously expanded their deployment. They continue to stay buying more and buying more of our portfolio.
Yeah.
That's great to hear and maybe just as a follow up would you just given an increasing focus on solutions based selling could you just speak to maybe how you navigate the relationships with some of your partners, who also would typically look to bundle technique.
Technology offerings to their own solutions.
Yeah, I mean, I think if.
If you look at the solutions that we are focused on today is it's cloud, it's a hybrid cloud being one.
Database management being another for example.
And of course, I think you should focus on end user computing and all of these play very nicely from a solution perspective.
If you look at some examples with us with our partners. So when you go with H B Theyre looking at bundling our software from a cloud platform perspective, along with that hardware and offering all of that is a subscription but greatly and they're doing that for both our hybrid cloud xpress.
Our database.
Service offerings. So typically what we find is our solution selling.
Combined with what we can do with partners.
Including like Lenovo for example through end to end Watson.
What sort of desktop offering.
Several species.
Our staff will stack from their tanks at all delivered as a service so.
So it just enhances the overall value of the solution and makes it easier for a customer the first safe and what would they need to achieve their business outcome in a simpler form.
I appreciate that context, thanks, and congratulations on the results.
Thank you.
Your next question comes from the line of Katy Huberty with Morgan Stanley.
Thank you good afternoon, with all the demand indicators and sales productivity metrics tracking really well exiting last year, what what's driving the October quarter, ACB billings decline of 1% sequentially. If you look over the past three years.
That was up about 3% on average is it just a function of the business is scaling and so we will see more seasonality in the business or anything else to read into that and then I have a follow up.
Sure Katy as far as the guide as.
As you saw there it's still year over year.
Increase of 26% compared to the 24% from from the prior two years. So it's a it's a huge year over year increase.
Q1, usually typically when you look at it.
Is a bit slower for us.
Certainly EMEA when you look.
The trends were there and the wildcards kind of federal wins, so far federal.
It's playing out playing out fine.
Q1, so we'll see but.
I think we have a lot of things going for certainly normally in Q1, but in FY 'twenty. Two so we'll see how things play out there and obviously, a pretty robust backlog, which gives us a lot of a lot of comfort.
Got it that's clear and then duston.
Opex is tracking below your prior guidance of 380 to 385 is that tied to temporary dynamics around just the timing of reopening and labor market tightness or is this a more sustainable reduction in what you think the spending run rate is.
Well as we again set at Investor Day, Youll see single what were you expecting 22 was.
At that point in time, we were saying single digit.
Growth year over year.
Clearly one of the bigger variables is travel.
And that still continues to stay.
Locked down for the most part anyway, so we'll see some increases there.
But I think the focus on expenses continues to be.
Pretty robust from what we're doing on the expense side of the equation. We will continue that way, we need to fund, obviously reps and engineering projects and things like that which we're doing.
But I think we're still.
Assuming we're still somewhere in that single digit growth year over year, but we'll continue to try it just like we did this quarter and in the guide for Q1 to continue to drive it down but still grow the business at our 25% plus.
And Duston is 172 reduction in sales and marketing heads this quarter, which is bigger than the prior quarter is that just the restructuring is that all related to the restructuring that you referenced in your prepared remarks.
Clearly restructurings in there not all of it but clearly restructuring is.
Isn't there and that's some of the sovereign side you saw that we booked in the quarter there.
Okay. Thank you.
Yeah.
Your next question comes from the line of <unk> Mohan with Bank of America.
Yes, Thank you and congrats on the strong results.
Duston you you noted some seasonality in ACB billings weighted more in <unk>, given what is available to renew is that a dynamic that carries over into the quarters beyond that and when should we expect stabilization of that level of follow up.
Well, you're not going to see ultimately stabilization for a while because it's going to continue to increase.
And we've given our FY 'twenty three number.
In the Investor day presentation, there, so you're going to continue to see an acceleration.
Of the renewals that again, what we'd been working on for the last three years or so with the transition to subscription.
More tranches are going to come in for renewal.
So thats, what youre going to see there the comment I made on Q3 to Q4 was because it's still it's not a massive.
Amount in any given quarter, what I was saying there was we just had a pretty big bump up in ATR, we expect from Q3 to Q4.
Relative to the size of Q3, and that's why we thought we'd call that out just to make sure that was clear from a modeling perspective, but again into FY 'twenty three you'll continue to see it'll be a little bit more.
Linear, but there'll be some bumps up and down but.
More linear certainly we expect to see Q3 to Q4.
Obviously try and weigh a little it'll sort of not be as big of a step ups on sequential basis.
Oh, one as well on a quarter over quarter.
You'll still you've got a benchmark again that we're running two for FY 'twenty three so that kind of gives you a feel for.
That type of growth from 'twenty two to 'twenty three.
Okay. Thanks to continued increase right.
Yes.
I got it I'm just questioning the trend sequentially, if like there was abnormality in those trends.
I'll call out at a later point.
Sure.
As a follow up Rajiv on I think at.
At the Analyst day, you noted that <unk> was $20 to 45% of workloads I'm curious just given back to work.
Many places if youre expecting to see any any impact from that at all I mean on the PC side clearly there was concerns of a demand rollover and I understand the distinction between media and Pcs, but just wondering if youre seeing any any signs of that.
<unk> decelerating. Thank you.
No I would say not lumpy I mean neuroscience of that and I think largely the performance is going to continue to remain hybrid even if people come back to the offices.
Going to be a mix.
And so.
So I would say is that business for us has tended to be in that 20% to 25% range.
Overall, so I don't I don't see any significant changes what are those people come back to work here.
Okay. Thanks, a lot.
Yeah.
Your next question comes from the line of Rod Hall with Goldman Sachs.
Yes, thanks for the question guys.
Wanted to jump into the I think the comment you made does sit on the five year deal and then I think you had said there are other five year deals in there just curious if you can.
Firstly help us quantify that at all give us any idea of what the billings percentage that was five years in that billing stack looks like.
And then also any color around why these customers are doing five year deals where they five years before and they are just kind of renewing it five years or.
You're giving them better deals for five years any any kind of color you can give us on why youre seeing that thanks, and then I have a follow up.
Yeah. So the.
Uh huh.
Quarterly investor presentation should be loaded on the website routes. So that will give you the.
The HCV breakout by term.
So that I think that answers that question for you Ed.
And on the five year deal Yeah. These are existing customers that had.
Had been purchasing.
On a five year term.
And again once you have somebody in five years. It takes a little bit if we can to get them down to three or something like that this happens to be a.
The largest deal there, which has turned into what we refer to sometimes what I referred to as a chronic repeat purchaser, it's kind of a textbook example.
Large customer that just continues to eat away at different workloads and use cases and in this case there was a fair amount of.
Emerging products in there.
So which was really nice to see.
But yeah. So there were existing and then we had.
Several others that we're already at the five year, Mark and they bulked up on some purchases. So that's what we saw there.
In Q4, and as I said in Q1 that will reverse and come back down to the low threes three a lull III somewhere around there.
Right right, Yeah, I'm, sorry, I missed that in the presentation, but thanks for that does some of those good color. The other thing is on the terms.
So I know you said it comes back down next quarter. What are you thinking about term links now as we look out several quarters. I mean, we were we were thinking it kind of slowly slips I think toward three but do you think it are we stabilizing now at this kind of 3.32 level do you think it keeps coming down just a little bit kind of what.
What are you thinking no and term links.
Yeah, the same thought.
I had a year or two ago that everything I see with the mix of new business and existing business that still.
And we put this in the Investor day presentation, two eight to three zero somewhere around there.
I think this fiscal year and probably remains in the three low three range somewhere around there and as we migrate into 'twenty three maybe you get a little more tweak down there, but everything that we see today.
That would be the continued view on terms.
Okay. So yeah. This quarter, just kind of an anomaly and we continue on that trend we've been on alright, great. Thanks I appreciate it.
Yes.
Your next question comes from the line of Mehdi Hussaini with Sig.
Yes, Thanks for taking my question two follow ups.
Is great too.
Yes.
See the booking and I'm just wondering if you can help me understand is it qualitatively.
Qualitatively or quantitatively you can talk about booking mm bye.
Maybe data application versus.
Hybrid model.
Okay.
Maybe I can try I mean, we've tried to quantify some of these by use cases right.
So the one that I think in general what I would just say is today largely.
First of all the bulk of our business is what I would call on Prem right and we are starting to see more of it more to hybrid at these early customers migrating to the public cloud and that portion is still relatively small, but growing nicely right. So the bulk of it today on prem.
I expect that over time, you will see more and more of a mix of public cloud based workloads.
In addition to our on Prem workloads. So that's one piece of it.
The other way to think about it if he wants to know what kind of workloads have been running.
And then like we've had the one workload that we quantified it end user computing and that typically runs between 45% of our overall.
Business jet.
That tends to be other workloads like databases, which we haven't quantified but database as anything other server virtualization type workloads. So perhaps that would give you a reasonable framework sure sure yes.
Yes.
You referenced I think I think if I'm not mistaken 60 billion Tam and I think the native data is the fastest growth for perhaps is the smallest piece is secular but he's going to take some time for it to scale right.
When you say native video, you're talking about cloud native or cluster.
Right.
Yeah, I mean, I think when we when we talk about 60 billion dollar Tam you've talked about a couple of different pieces of it I had one of our core HCI.
Hydro <unk>. He said that's continuing to grow its eating into three tier it's capturing more enterprise workloads and that business that continues to grow very nicely over the next several years got you. Okay and then on top of that it extends to hybrid cloud right, which is the public cloud component of this pick Dr.
Talked about and then on top of that we've talked about opportunities in unified storage victory is all about fires and object.
And Greg that we are gaining share against traditional providers.
And then right database is a full right.
There's also a component from the broken down for you.
Yeah.
Actually that share gain is premises on my question. If I just look at slide 16 your share gain.
53% of HD adoption like eight quarters ago. It was in the mid 40. So you definitely are well over 50% and as a follow up.
Is there a cap.
Is it going to look a year or two from now is it going to be closer to 60 and.
Where do we go from there.
Yes, I expect that our <unk> adoption will continue to pick up.
For multiple reasons first is that HPA is getting stronger and stronger the hypervisor in terms of.
Broader and broader sets of capabilities.
For example, if that partnerships such as the one that we just did with Red hat.
Now Red hat Linux is officially certified with a tree, but provide more confidence to our customers and adopting HPA as a platform. So I do expect that it's going to continue to pick up overtime as more and more customers adopt <unk> for for their workloads. So it's too hard to predict whether there's going to be a ceiling on it or not at this point.
But I would expect it to continue to tick up and it certainly has.
Historically it I'm sure.
Sure and then just if I may just a quick follow up.
The.
It's scaling of your new products would complement.
I imagine at some point incremental share gain would be more challenging, but how you scale new products could be could could could help sustain the growth.
Yeah, I mean, I think they're very excited about our new product that's been pointed out there were 41% of our.
A number of our deals I think this last.
This last quarter and they're all unlocking greater opportunities for outside database management and database as a service is a huge big market opportunity that we are relatively small but growing rapidly into that unifies story for us is all again growing into it a large existing market, where our presence is relatively small.
So these these newer emerging products at all.
Sizable markets, where we have relatively small share and an opportunity to gain share and grow rapidly.
Also attached to our core platform.
Yes, great. Thank you.
And your next question comes from the line of Simon Leopold with Raymond James.
Thank you for taking the question I wanted to ask about how we should be thinking in terms of the.
Percent of billings coming from renewals this quarter. It was about 12% and you provided a forecast for.
For fiscal 'twenty five of getting to 40, but I'm imagining that this should not be a linear progression and I think this quarter was very similar to last how should we think about that rate of change for that particular metric.
Yeah, you'll see again, there's some some of those buried into the Investor day package. So you might wonder regret France that Simon.
There is a 23 number in there.
So that gives you a feel there so again, you'll see it ratcheting up in 'twenty three.
As a percentage in both from our HCV percentage and a T C V percentage.
But that bigger increase will occur in FY 'twenty, three rather than than FY 'twenty, two and Thats just.
On ATR timing perspective on these deals that average three plus years. It just they havent come up for renewals, yet, but in FY 'twenty three there's just larger tranches that naturally come into play.
Thanks, and I guess, the other question, maybe a little bit difficult to quantify but it.
Making the transition where you want to focus more on renewals and essentially spend less on sales and marketing and new customer acquisition.
Pathetically, you under invest and understand.
How long would it take for you to observe that that you've made a mistake in terms of your allocation, what's the sort of delay in the productivity any way you could judge this thank you.
Well, yeah, I can mention that Rajiv might want is also a pitch in here, but I just want to make something clear it's not like we're taking.
Massive cost out of the you know the new and the upsell part of the equation a vast majority of the leverage is going to come from the mix right as the mix of the renewals increase and those come in 80% less and less.
Less cost than new and upsell, that's where the leverage is going to come now, yes, we've gotten a lot more efficient on demand Gen and pipeline generation from that perspective, which is working well more from a digital perspective.
Test drive and all that stuff, which is really helping those efforts, but it's not like we're.
Cutting significantly on the on the new and the upsell this was more.
Continuing to focus on that and do whatever we can but.
GA of this leverage is going to come from that mix shift.
That's helpful. Thank you very much.
And your last question comes from the line of Eric <unk> with GMP Securities.
Yeah. Thanks for taking my question and congrats on a good quarter.
I know you guys don't sell hardware, but.
Can you comment I think your your software is often tied to hardware can you comment a little bit on what.
Effect do you see from many of the component constraints that are out there on the hardware side.
And then secondly, just curious if there's been any change on the competitive front in particular with Vmware.
Sure, let me take that Eric.
Look as you know our software runs on a variety of hardware platforms and if not also.
Tied one on one of the new hardware sales right. So it's not that we're always selling along with hardware.
People buy software independent of progress they'll have hardware that they've already purchased and of course, they have a choice.
So the supply chain impacts on our business. So far has been relatively modest.
We've seen some customers pulling forward some others to try and ensure that they have access to hardware. We've also seen other customers that delayed placement a little bit.
But the results so far has been pretty minimal for us.
And that said, we're very comfortable with our <unk> forecast that we guided to and we will need to continue to monitor the situation here.
So that was the first and then second I think you said about what about the competitive dynamics.
In terms of what we are seeing in the market.
I would say again in fourth quarter, we saw a nice quarter over quarter improvement of our win rate.
Against.
Our largest competitor, but also the ACI competitors.
<unk>.
I sort of said this earlier a little bit theoretical but fundamentally we are very focused.
Focus in terms of execution.
This category.
Our product is strong and we provide simplicity freedom of choice.
Great customer experience without NPA sitting at that 19.
So the product offering is really strong our go to market operations have continued to improve over the last several quarters and we're benefiting from that as well so that combination of a good product plus good strong and improving go to market execution.
It's what's leading to these vendors.
You said they have increased though okay. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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