Q1 2022 Nutanix Inc Earnings Call
Good day and thank you for spending by welcome to the New panics Q1 fiscal 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during <unk>.
The session you will need to press star one on your telephone if you require any further assistance. Please press star zero and now I would like to hand, the conference over to your first speaker today Rich Valera Vice President Investor Relations. Thank you. Please go ahead.
Good afternoon, and welcome to today's conference call to discuss the results of our first quarter fiscal 2022.
Joining me today are Rajiv ramaswami mechanics, as president and CEO and Duston Williams mechanics as CFO. After the market closed today mechanics issued a press release announcing financial results for its first quarter fiscal 2022, if you'd like to read the release. Please visit the press release 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.
<unk>.
Our financial performance and targets.
Use of new or different performance metrics in future periods, our competitive position and market opportunity.
Timing and impact of our current and future business model transitions, the factors driving our growth macroeconomic and industry trends and the current and anticipated impact of COVID-19 pandemic.
These forward looking statements involve risks and uncertainties some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements.
For a detailed description of these risks and uncertainties. Please refer to our SEC filings, including our most recent annual report on Form 10-K filed with the SEC on September 21, 2021, as well as our earnings press release issued today.
These forward looking statements apply as of today and we would 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 except for revenue 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 web site.
Right and in our earnings press release lastly.
Lastly, <unk> management will be participating in both the fifth annual Wells Fargo TMT summit, and the 45th NASDAQ Investor Conference on December one.
And the 24th annual Needham and company growth Conference on January 10.
We will also be holding our annual meeting of stockholders on December 10th we.
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.
Our first quarter was a good start to fiscal 2022.
Building on the momentum we established in our prior fiscal year.
Despite ongoing challenges from COVID-19.
We delivered another solid quarter.
Exceeding all our guided metrics seeing better than expected free cash flow.
Delivering significant new product innovation.
And making progress with our strategic partnership.
We saw healthy demand for <unk> cloud platform, driven by businesses looking to accelerate their digital transformation.
Modernize their data centers.
And adopt hybrid multi cloud operating models, what ongoing supply chain challenges have made it more difficult for our customers and partners to procure that hardware.
Thus far we.
We have seen minimal impact on our business, but we continue to watch the situation closely taking a closer look our fiscal first quarter reflected continued execution on our a C V based model.
And with marked by strong top and bottom line performance we.
We saw record ACB billings, which grew 33% year.
Year over year, our highest growth rate in over two and a half years.
We also grew revenue.
21% year.
Year over year.
Our highest growth rate in over three years.
Despite seeing expected term compression.
Once again, we saw excellent linearity.
Which combined with diligent expense management.
Enabled us to nearly achieve free cash flow breakeven in the quarter.
Putting us well on track to achieving our target of sustainable positive free cash flow by the second half of calendar year 2022.
We achieved these results while continuing to add to our backlog.
Overall, we are pleased with our fiscal first quarter financial results.
And believe we remain on track to achieving our target of 25% plus annualized ACB billings growth through fiscal year 2025.
We continue to see strong adoption of our hybrid multi cloud portfolio and solution during the quarter.
Our first quarter is typically a strong one for our federal business and this one was no exception our largest customer in the quarter.
It was a federal civilian agency.
That's substantially expanded their usage of <unk> cloud platform.
Including our unified storage and database automation solutions.
This customer is also using clusters on AWS to book additional resource capacity to the public cloud so.
So quickly augment their on Prem environment.
Having a unified environment between on Prem and public cloud allows them to leverage the same team to manage both environment.
And more readily meet their business service level agreements.
In another example, Nash.
National retailer Lance and.
Well it is a new tank car platform.
Including clusters on AWS to.
Enable busting off their virtual desktop into the public cloud.
During the peak holiday selling season, they're also utilizing our platform to run CPU intensive CRM applications.
More efficiently and support their security and compliance needs.
We see less and is a great example of the natural fit of our clusters offering.
For businesses with seasonal workloads finally during the quarter.
Our European based multinational pharmaceutical company substantially expanded their usage of our hybrid multi cloud platform include.
Including our unified storage and database automation solution.
There are number of what's your life applications and enable Watson desktop in their branch offices in September.
<unk> customers.
Aspects and partners from all over the World joined US for our dock next digital experience Veeva.
We were pleased with the attendance and engagement at our signature event.
Where we saw a record number of new metallic professional certification and viewership for our keynotes and breakout sessions.
We made several announcements at dock next.
Starting with the launch of a major release of our cloud platform.
S six darko.
With new integrated Zero Trust security.
Disaster recovery and.
And what's your networking innovation.
We also introduced new capabilities that make it easier for our customers the simplified data management and optimized database and big data workload performance.
And our new Calix cloud platform.
Finally.
We announced a new partnership with Citrix.
Through which the two companies will deliver remote work solution.
That can be deployed across private and public clouds.
Combining the simplicity of the <unk> platform with Citrix virtual apps and desktops services.
To provide secure on demand and elastic axis.
Desktop and data from any device in any location at any scale.
<unk> is now a preferred choice for HCI and hybrid multi cloud solutions for Citrix virtual apps and desktops services.
And Citrix is a preferred choice for enterprise end user computing on the <unk> cloud platform.
The two companies will also partner on customer support and product roadmaps to ensure a seamless customer experience and timely validation and interoperability respectively.
Finally, our go to market team will partner to sell to new and existing customers.
And enable channel partners.
We see this partnership as another proof point in our strategy of further in customer choice and.
And enhancing our platform by partnering with other best in class providers.
We're pleased with the industry recognition, we continue to receive for our solutions.
Earlier today <unk> was named as a leader in Gartner Magic quadrant for hyper converged infrastructure for the fifth time in a row.
And in a testament to the growing breadth of our platform.
The company was also recently named for the first time as a visionary and Gartner magic quadrant for this could be that file and object storage.
I am excited about our recent announcements that Dominic delfino will be joining Natalia.
As our Chief revenue Officer on December six.
<unk> brings deep and relevant domain knowledge.
Well go to market experience at scale.
It'll be a great spokesperson for us with customers partners and the industry at large.
And we expect him to hit the ground running when he joins us and a couple of weeks.
As I approach my one year anniversary as CEO and reflect on an eventful year.
The journey, so far has been unquestionably gratifying.
And I am proud of what we've been able to achieve against a challenging backdrop.
We unveiled a new vision shared our multiyear strategy and financial plan.
And deliver significant enhancements to our new talent to our platform.
Reshaping it with a focus on solutions.
We also made significant progress on our strategic partnerships.
Signing new or expanded agreements with red hat, Lenovo HPE and Citrix.
Finally, we began to see the benefit of our subscription transition in the form of consistent delivery of Russell ahead of expectations.
And accelerating topline and a meaningfully improving bottom line.
As I look forward.
I'm excited by what's ahead.
We had this large and growing market.
Benefiting from the secular tailwind of an increasingly digital world, we have a strong hybrid multi cloud platform to address this opportunity.
Our subscription business model positions us to continue to deliver strong growth.
But the opportunity for substantial sales and marketing expense leverage as when it will become a larger portion of our business. We are focused on disciplined and purposeful spending to help us reach our profitability goals through it all we continue to delight, our customers and they continue to love us.
In closing I am.
I'm pleased with our performance in the first quarter and optimistic about our ability to continue to deliver against the <unk> opportunity ahead of us and with that I will hand, it over to Duston Williams.
That's it.
Thank you Rajeev.
Rajeev provided a good overview for the quarter, so I'll get right into some of the specific Q1 highlights.
A C V billings for Q1 were $183 million, reflecting 33% growth year over year above our guidance range of $172 million to $177 million and ahead of the street consensus number of $175 million, our renewals business performed as expected.
As of the end of Q1 was point 95 billion growing 67% year over year and slightly ahead of our expectation of 65% growth.
Run rate HCV as of the end of Q1 was 1.59 billion growing 23% year over year.
As expected our average contract term lengths decreased to three one years versus 3.4 years in Q4, 'twenty, one driven by our usual Q1 surge and federal business on.
On average our federal customers typically have much shorter contract term lengths.
Revenue was 379 million growing 21% from Q1, 'twenty one above the street consensus number of $369 million.
We added approximately 560, new logos in Q1, 'twenty two versus the Q4 'twenty one new logo count of 700 and versus the Q1 'twenty one new logo count of 680.
And the prior three fiscal years, our Q1, new logo count on average dropped by 115, new logos versus Q4.
This year, we experienced a drop of 140, new logos from Q4 to Q1 slightly higher than the prior three year average of 115.
We'd note that our new logo average selling prices continued to rise which is in line with our strategy over the last year or so to focus on the quality and efficiency of new logo adds as measured by a S. P. Her new logo.
In fact in FY 'twenty, one a year that was influenced by the pandemic, we saw average selling prices per new logo increase by almost 25%.
Our new logo average selling prices were also up in Q1, 'twenty two versus Q1, 'twenty, one and versus Q4 'twenty one.
In short we are generating more new logo ACB bookings with less new logos.
Coming off a difficult prior year comparison of 86% year over year growth and following a very strong Q4, 'twenty one emerging product new ACD bookings grew 11% year over year in Q1 'twenty two.
We expect significant growth in emerging products, new ACB bookings in Q2, 'twenty two although the year over year comps will remain difficult.
In Q1 on a limited basis, we started to rollout our new solution offerings.
As we have previously stated many emerging products will morph into these new solutions as we move through the current fiscal year, and therefore any year over year comparisons will become less relevant.
We have also adjusted our compensation plans accordingly, no longer providing bonuses for selling most standalone emerging products.
The emerging products catch rate was 42%.
Q1 sales rep productivity exceeded our forecast and we increased our total net sales reps in Q1.
Our non-GAAP gross margin in Q1 was 82, 1% versus our guidance of 81, 5%.
Operating expenses were $353 million lower than our guidance of $365 million to $370 million.
Non-GAAP net loss was 47 million for the quarter.
Or a loss of 22 cents per share.
Our Q1 linearity remains very good and receivable collections were excellent.
In Q1 were 28 days down from 43 days in Q4 'twenty one.
Our Q1 free cash flow was once again aided by the good linearity in collections coming in at a negative $2 million over 40 million better than the street consensus.
We closed the quarter with cash and short term investments of 1.28 billion up from one point to 1 billion in Q4 'twenty one.
Now turning to our guidance.
With the continued progress we've made on our subscription model. We believe it's now appropriate to provide annual guidance.
Additionally, having gained a better understanding of potential fluctuations in our average contract term lengths. We are guiding to revenue on both a quarterly and annual basis.
The guidance for Q2 is as follows ACB billings to be between 195 and $200 million representing year over year growth of 23% to 26%.
Revenue of $400 million to $410 million.
Gross margin of approximately 82% to 82.5%.
Operating expenses between 360 and $365 million.
And weighted average shares outstanding of approximately $218 million.
The Q2, a T V billings guidance, which calls for year over year growth of 23% to 26% compares to the actual growth of 14% in Q2, 'twenty, one and street consensus growth of 21% for Q2, 'twenty two we expect a considerable quarter over quarter increase in emerging products, new ACD bookings.
In Q2.
Our average contract term lengths will most likely increase slightly in Q2 as our federal business will return to a lower percentage of the overall business mix.
Also.
Just a quick modeling reminder, regarding our Q3 top line performance.
In Q3 over the last three years, we have averaged a small sequential decline in HCV billings of approximately 3% to 4% we.
So you would expect a similar trend for Q3 'twenty two for both ATV billings and revenue.
We will use a bit of cash in Q2, mostly related to a slight buildup in receivables associated with higher projected Q2 billings.
From a free cash flow perspective, we would expect something close to the current consensus estimate of a usage of approximately $25 million.
The guide for FY 'twenty two is as follows.
C V billings to be between 740 and $750 million.
Representing year over year growth of 25% to 26%.
Revenue of 1.615 to 1.630 billion grew.
Gross margin of approximately 82% and operating expenses between 1.48 and $1 49 billion.
And one last reminder, about the annual ACB Billings guide.
As we have often mentioned our total fiscal year ACB billings are not derived from the simple addition of the four fiscal quarters.
For our reported quarterly a C V billings, we annualize any deal that is less than one year in term link in our yearly ACB billings calculations eliminate any duplication that happens with the renewal of a deal that occurs within the period and it's less than one year in duration.
Based on this methodology over the last three fiscal years, the sum of the four fiscal quarters of ACB billings have exceeded the adjusted annual ACB billings by 6% to 7%.
Some animals have applied the required adjustment to their annual FY 'twenty two buildings estimates and others have not resulting in an inflated FY 'twenty two ACB billings consensus.
That said if you apply this methodology to the some of the pre earnings call quarterly ACB billings consensus numbers. It suggest the current FY 'twenty two a C V billings consensus of approximately $720 million to $725 million.
We would once again encourage investors to account for this distinction during the modeling process.
With that operator could you. Please open the call up for questions. Thank.
Thank you. Thank you. Thank you Sir and as a reminder to all participants if you would like to ask a question. Please press star one on your telephone keypad again. It is star one on your telephone keypad. Please standby, while we compile the Q&A roster.
Your first question is from the line of James Fish with Piper Sandler Your line is open.
Hey, guys. Thanks for the questions here and great quarter. Appreciate all the details on guide moving forward Duston maybe.
Maybe rajiv I want to go back to your comments from the supply chain, you know a lot of push and pull from others around just the indirect supply chain impacts.
I guess, how much push report are you guys seeing and if you're it sounds like you guys were pretty insulated to it why do you think this was the case at hyper convergent specifically new tactics really moved up in the priority list here.
Yes, Tim so thank you for the question.
First of all I think in our case.
We run our software on a variety of hardware platform.
So our customers have a lot of choice.
Including by the way hardware platform on AWS and soon to be Azure.
So while there's certainly supply chain issues out there that would be at all a better.
Our customers so far have been able to get what they need by the choice that we provide.
Obviously, we've seen some pull ins and some push outs.
But the net impact is minimal so far.
Hi.
So we are comfortable with our forecast we continue to monitor the situation in terms of supply chain, but so far so good.
That's great and maybe just on the go to market.
Why the decision to no longer incentivize the sales team to sell those standalone emerging products and any update as to how that the early reads on the Red hat partnership are going thanks, guys.
Sure. So let me let me do that had had first and then I'll go to the emerging products.
I suppose the partnership is going I would say really well we've got good momentum in the first quarter, but it is really our first full quarter of the strategic partnership.
B, it's insulting and Vince for both Red hat Linux running on top of the new <unk> platform as well as open shift on being thanks to our platform and we are going forward. We are expanding our go to market collaboration, including bringing internal global systems integrator and our OEM partners I'll give you two specific examples.
So one example of this last quarter that a fintech customer who adopted open ships are running on the determine cloud platform to deliver banking software as a service. There. This is a SaaS company.
So that's one example of open shipped on an organic cloud platform.
Another example here.
A large bank for running their mission critical applications one of the important things. They wanted to make sure was that application runs on rail that had Linux on the tenants and the fact that we had a combined certified solution made them very comfortable to run that mission critical application.
On our platform. So that is a win that we got purely because of this relationship. So we're seeing good traction there.
Now to your question on the emerging product in the states there and so forth. So first of all as I said earlier in the call.
You had some difficult.
Year over year comparisons in fiscal 'twenty one.
We had an 8% comp in Q1 'twenty.
And as you know, Jim whether transitioning to social selling.
And we're also changing some of the incentives are at anyway.
We were expecting a deceleration for approximately 20% this quarter.
Now in fiscal 'twenty, one we had a sales accelerator that was tied exclusively to sales of imaging products now.
And I'll be removed that.
Because we wanted to focus on not just selling them separately by selling them first as part of our solutions portfolio.
And we wanted to drive both sales and consumption of the solutions.
Now, perhaps we should have been more gradual transition all of our emerging product incentives.
In Q2, we're implementing a revised incentive program, which will be more targeted.
It will include a planned component.
And that said, we continue to be excited by the market opportunity overall for our solution portfolio.
And your next question is from the line of Jack Andrews with Needham Your line is open.
Good afternoon, and congratulations on the results.
So rajeev when we think about your software alliances now you've got a red hat Citrix AWS Microsoft.
What do you what other areas do you think could be of interest do you think that there's anything missing from we'll call. It a new <unk> platform story perspective.
So Jack good question here, obviously, we have a lot of work ahead in terms of continuing to grow those partnerships that you. Just mentioned now in addition, I think there's more opportunities for us to do more work with our global system integrator.
We continue to use them, especially in larger accounts that I think we can get a lot more leverage through the DSI.
You know again I think the rest of it really is on expanding these partnerships and multiple vector we've done that this year with many of our partnerships. We expanded our HB partnership may expand out Lenovo partnership and now with Citrix and that had we had the starting early stages.
As your again I think we've got a great potential here lots of customer interest.
So a lot of execution ahead of us on these partnerships and in terms of nuance I look forward to doing more with global system integrators.
Thanks for the perspective on that and just as a follow up question is there any update you can provide in terms of just traction with ore in particular and around the database opportunity.
Indeed, I think this is one of our big bets as Steve talked about very excited we had a big quarter for us in Q4.
And we are actually.
Renewing doubling down our investment on both R&D and go to market for EDA.
We have a photo contingency plan that we're executing to.
And so very excited about the potential for this because clearly the vision is it's a multi cloud database as a service offering.
That can work with a range of database engine.
So we've got good product market fit we've got large customers.
Who have bet on this platform in a pretty substantial way and so we're excited about the market opportunity continuing to invest in it and.
Driving very hard.
Great. Thanks for taking my questions.
Thank you Doug.
Your next question is from the line of pitching in Bora with J P. Morgan Your line is open.
Oh, great Hey.
Grabs guys on the quarter and thank you for taking my questions.
Staying on that topic.
It was we picked up a data point.
During our channel work that that era is starting to drive eight figure deals on its own might be out there but.
I don't think people are really thinking of ore to drive such a big deals is that is that what's your I mean, you can see is that a norm or do you feel like those could be large outliers.
Yeah, I think what we see but it is the suddenly potential of lost days and last quarter, we talked about a large financial services company betting big on ore.
Particularly when start our smaller of course pendulum, so they'll start out by looking at a particular use case for one database.
And it won't be the most mission critical database that they have about something below that and once they establish the use case and validated then they actually go down and buy a lot more.
And so usually it's our second deal of the third deal with a customer that's going to be bigger right. The initial deals are going to be let me try this out for one use case.
Well, if I like it I'm going to go big So we are excited about the potential for error and the other thing is whether the stack.
What's more from an ACB per cohort that we can get right. So there's a lot of value that we can expect from the solution and the use cases are very strong because customers are they have a huge number of databases that they manage and simplifying the operation of those databases. They is a massive value proposition and making that work.
Work in future in a multi cloud world is another added value proposition on top of that.
So I think been to them and I'm excited about it I continue to co invest and believe in its prospects.
Got it and just taking a step back I guess.
When I look at the ECB growth, obviously really good you are trying I think when you guided to it you kind of guided to a sequential dip.
In Q1, when I look at the actuals now seems like the sequential is even better than two years ago.
What surprised you.
In the quarter or is there is there anything that it went up.
Much more positive than you caught in any particular areas to highlight.
I wish you luck.
Oh go ahead.
Yeah, No I think you know basically things came in as planned a couple of things ran a little bit ahead federal.
As we expected in Q1.
Had a good quarter.
Helped help things out and the renewals remain very much on track.
Which is good we continue to grow and mature that team internally.
And you know we had some significant upsell business as you might expect in the quarter too. So I think there was a little bit everything clearly as we expected, though like every every Q1 led by Frederic.
Understood.
Other thing I would add there.
I think b became close to breakeven on a free cash flow.
Again that was a little better than we expected.
Got that thank you.
Your next question is from the line of Matt Hedberg with RBC capital markets. Your line is open.
It's Dan Bergstrom for Matt Hedberg, Thanks for taking our questions really like the guidance around revenue and for the full year could you expand upon that decision.
What gave you the confidence to expand guidance and why now.
Sure Yeah, no I'd be happy to.
From a guidance perspective, we actually talked last quarter about doing it a little bit earlier are internally and I just felt comfortable getting.
You know one more quarter under our belt before we went back to annual guidance, but again as we're coming through the subscription transition. So much more known we've been done a pretty good job of estimating where terms fluctuate.
We do a little bit quarter over quarter. So we're we're clearly more comfortable with that the renewals have.
Started to play out as as planned which add predictability.
And I think with the backdrop of that at some point when we talk about all the.
Improvements that has happened to the business and as we believe it gets more predictable I think it becomes a bit awkward not to give annual guidance quite honestly.
And so that's that's what we've done we also heard it loud and clear from investors.
They were tired of doing a little math.
I completely understand and I say with the term stabilizing a little bit.
The big ask from the investment community was revenue.
Guidance and don't don't have a straight math just give us the revenue guidance. So we also did that not only on a quarterly basis, but an annual basis. So we hope that helps out shows our confidence in the business and we will continue to.
To that level of guidance are thrilled to fiscal year.
Yeah, that's great Duston, and then could you drill down into a little bit what you saw from the federal vertical in the quarter with fiscal year end sounded positive from the prepared remarks, it's been mentioned a few time, but times, but just you know more details there would be helpful.
Yeah, you know again.
No federal always comes in strong we saw a nice new customer wins, a lot of upsell business. There also.
Again pretty much as we expected a broad terms down federal usually has shorter terms that played out basically.
Basically exactly as we we had expected there, but overall a good a good.
Good federal performance and I should also mention in the quarter that EMEA, although typically not Q1 always.
But EMEA showed really well in the quarter, so really our top performing region in the quarter. So that was nice to see especially in our Q1.
Don't know if you'd add anything rajiv about the federal business or not yes.
Yes, I mean Q1 is always a strong quarter for federal.
Now one thing I would say is we are seeing.
The federal.
This is also starting to use our cloud offerings. So one of the largest deals this quarter, what would that federal agency that we talked about on <unk>.
Earlier and again there are they are using clusters on AWS.
For again temporary capacity expansions right when they need it.
So so we are starting to you see the multi cloud adoption hybrid multi cloud platform, that's being adopted in federal agencies are flat.
That's great. Thank you.
Your next question is from the line of Iron Rakers with Wells Fargo. Your line is open.
Yes. Thank you this is Michael on behalf of Aaron.
Could you provide any color maybe quantification if possible on what your backlog currently looks like.
We usually don't do that we give a qualitative.
Yeah.
Rajeev mentioned that it went up quarter over quarter, which we were pleased in Q1, because that's not always the case Q1's, usually a little soft in Q3s.
Is it a little bit soft from a seasonality perspective, but we were pleased to add a little backlog in the quarter and its been several quarters now.
That we've been able to add some backlog so we're happy with that.
Okay. Thank you and just looking into 2022, I'm curious, how you're thinking about the overall.
Man backdrop in terms of just enterprise spending environment.
There's ongoing server CPU refresh cycle I'm, just curious if that impacts mechanics to what degree.
Yeah I'll take that.
In General I think we have a good backdrop here.
As customers continue to come out of Covid and invest in the strategic initiatives and investing in digital transformation, they're investing in modernizing their infrastructure.
And looking at cloud use cases, and so all of these in general I think both to bode well to what we do in the last bit of posted everybody's nomine in a hybrid work environment as well and that will continue.
Into a into next year as well so all of these Ah lineup quite well with what we said from a solutions perspective.
And so I expect that the demand environment to continue to be healthy.
Hey, guys.
Your next question is from the line of Rod Hall with Goldman Sachs. Your line is open.
Hi, This is aki on behalf of Rod. Thanks for taking my question and congrats on the nice results.
Question could you give us an idea of how much Manhattan Native revenues you saw in the quarter and Rajiv can you talk about your strategy on how we approach the broader hybrid cloud software market between your wound product solutions partnerships. Thank you.
Yeah, I'll, let rajiv bunch of take take the Red hat piece there.
Yeah. So.
I'd had partnerships with pretty early right.
Right and what we're really doing its co selling together.
And in specific accounts and the go to market most of it really just started what.
What I would say is it's still early days. This was our first full quarter and as you can see the Vince is starting to come in now.
Talked about who wins here early early days, there, but again those two categories are quite solid at one <unk>.
Comfort with running mainstream applications onto that Linux on our cloud platform without hypervisor.
So that's a very clear that's an immediate opportunity here or we can go out there and prosecute that independently almost endless.
Secondly, when we do a lot of core work with that had us aren't open chip and with any start platform, providing a best of breed total in stack solution.
And both of those I think are.
That solutions are worthy off and we're seeing good starting great go to market engagement in the feed at this point.
It's only the first quarter here right. So offshore of the partnership really in motion.
Second question around the hybrid cloud and how do we think of hybrid cloud software.
Again, I think we look at this as us.
Providing a runtime.
Foundation right infrastructure as a service foundation without hybrid cloud infrastructure hybrid cloud management, and then on top of that unified storage and then database.
Our solution, so I need to be the automation solutions.
Our stack when it comes to a hybrid multi cloud and not all of it is available on every cloud today, our base platform available on AWS soon to be in Azure and while some of the database solutions that largely today on on our platform and not quite yet.
Native public clouds, yet, but that's our vision now how do we complement that for example that has delivered a path platform platform is established with open chip in a hybrid multi cloud world.
So red hat.
<unk> delivers a complete stack bass and I asked right platform and in protect us instead of all the way in a multi cloud world than we have ecosystem partners that are doing a added value functions things like backup for example.
That we partner with and data side, along with our platform and those also play in a in a hybrid multi cloud world.
We're looking at disaster recovery and are working with potentially satisfied our partners actually got to bring some of those capabilities to market as well.
So so that's the broad ecosystem and we continue to.
Continue to eliminate that ecosystem in addition to providing our own staff.
Thanks, Rajiv could you also talk about rich emerging products you are most excited about for Q2.
But I think look fundamentally we piloted our new solutions offering.
This quarter in select regions and I look forward to continuing to drive that into the marketplace.
The cloud infrastructure hybrid cloud management.
Unified storage database automation solutions.
So I'm excited about actually getting these solution sales rolling on a broader basis, and and really driving that into the marketplace. Because when we do that we sell more of our products.
For our customers to consume them.
And as we've talked about before database.
It is a big bet for us and I'm excited about that opportunity and driving growth there or.
Perhaps one of the big bets of Meara Murphy.
Great. Thank you.
Your next question is from the line of Niihau choke C with Northland capital.
Your line is open.
Thank you.
Congrats on very strong results.
It makes the billings acceleration well above your long term model on that.
In that context.
Why are you guiding to 24% mid point years, there both on the ACD buildings.
Accelerated.
Accelerated way above your target model here.
Yeah Nahal duston.
I've got a little different number I think you.
Somewhere around the 25% to 26%.
As is the number I have there so we can reconcile that offline but.
But that's right in right in line with what we've been saying matter of fact, we set a compounded through 'twenty five we didnt really.
We actually gave I think for 'twenty, two a little bit lower expectation that investor day.
So now we're happy to to provide that level of guidance and that that growth rate year over year.
Okay, Great and then you mentioned renewals didn't really wealthy Disney that up between.
LIFO device makes sense.
And term based licenses.
Yeah, So you've got the two pieces there both the going in opposite directions.
A device starts to get phased out over over time, and that's getting phased out.
Not quite as fast quite honestly, whereas we thought in the plan, but that's getting phase, though and as we've talked about certainly as we get into the second half of this fiscal year.
The subscription.
Renewals start to start to come in and.
We saw good traction in Q2 that.
And that will continue into Q3, and then we've got a bump up.
In Q4 so.
Basically both are both on track and performing as expected we still have some back office systems work that we're doing will continue to do that.
But overall.
Renewals are basically are playing out as planned and the LD support not quite going away as fast but.
Definitely coming down.
Any thoughts on why that LG is fading as fast as you thought it might.
Oh, Yeah, we have.
I had to kind of estimate in the plan as far as how that would transition and how fast people will do it in some folks wanted do it sooner or some folks waiting obviously they have the optionality of of increasing support one year for instance, if they want.
So they can run the run the hardware a little bit longer if they want to.
But it's not it's not all that different but just a just a little bit stronger.
Got it thank you congratulations.
Your next question is from the line of Jason Ader with William Blair. Your line is open.
Yeah. Thank you.
Quick one for Duston do.
I missed this I I've been jumping around but did you quantify renewal a cvs in the first quarter.
We didnt Jason.
Said, we would during investor day on that disclosure sheet, there that we would do that on an annual basis gotcha.
But well within our ran well within our expectations.
Perfect, Okay, and can you remind us.
Kind of roughly where that is as a percentage of total AC D right now.
Robert.
<unk>.
Well, we did that for the fiscal year, but we're not again breaking that out on a quarterly basis.
Where it ended at what percentage of the year.
So I'd have to get the last fiscal year.
Yeah, Alright, well don't worry about it.
Can just reference the Investor day there.
Okay and then.
Rajiv.
If you noticed any changes in the competitive environment with Vmware slashed Dell now that Dell has spun off Vmware is that changing any of the dynamics around competing.
With with VX rail.
Not not really at this point I would say there Jason I would say things are about the famous Dave we continue to focus on our value proposition with our customers and continuing to work with all the partners that we talk about right. So H b.
Lenovo et cetera, and I pointed to and many others that we continue to work so I haven't seen much.
So far in terms of.
Tina again.
The magic quadrant come out.
And we continue to be a leader there.
Diamond then you saw the new magic quadrant on files and objects and we were thrilled to be a visionary there. So.
So I would say at this point really no change in our in our in the competitive landscape. We continue to see a higher win ratio for us.
Partly but that's because our pipeline discipline have gone better and be able to be a much more disciplined in terms of our execution.
But really largely no change yet.
Thanks very much.
Your next question is from the line of <unk> Mohan with Bank of America. Your line is open hi.
Thanks for taking my questions is actually rupal filling in for onesie today, congrats on the quarter and on giving annual guidance.
I have one for Rajeev and a couple for Duston Rajiv.
Owned it in the prepared remarks, it sounded like new logo adds this quarter were a little bit weaker than expected is there any dynamic to that.
And what caused that and how do you expect that to trend over the next couple of quarters.
Yeah sure Duston, you want to take that you've got a detail.
Yeah, Yeah, you know as we as we mentioned in the call you know typically over the last three years, you just average them bounce around a little bit but average them.
You know Q1, new logos as I said it came down roughly 115 on average we came down 100.
<unk> 40, so it's not that much.
Different from from the prior.
Q1, Q4 to Q1 transition there and then also you know we've been over the last year or more really focusing again on the.
The efficiency of adding new logos and the quality of new logos and that shows.
Pretty pretty clearly when you look at the.
Just the asps on new logos going up 25% a year.
Year over year in 'twenty, one versus 'twenty. So you can see there that we're focusing we are again basically driving more new logo ACB dollars.
Per.
<unk> per logo there. So we're happy happy about that and we'll continue to have that focus but again, we'll we'll continue to look at new logos, then adjust comp plans, we always do that.
More outside of the conflict more spiffed and bonuses, we're always moving those around a little bit.
To to reflect what we need to do in the business and we'll continue to do that and I think the other question you had was Q2.
And what that looks like potentially from a new logo perspective. So obviously I can tell you is that I believe every Q1 to Q2 a.
New logos have increased but we'll see how Q2 plays out.
But every other Q1 to Q2, we've seen a increase sequentially in new logos.
Okay. Thanks for the details on that.
Paul.
Can I ask you on free cash flow I mean, you're almost breakeven even this quarter in fiscal <unk>. So why is the guidance still debt.
No.
Get to breakeven by the by.
By the end of the fiscal year or calendar second half of 2022 what are the dynamics happening in free cash flow over the next couple of quarters.
Sure you know clearly this performance and the performance over the last couple of quarters quarters gives us more confidence in our.
Our projection of the second half of the calendar 'twenty two to reach free cash flow positive, but again you know we've we've done an outstanding job.
Two fronts, there linearity and collections and the combination of those two things really.
Killer from a from a free cash flow perspective in a positive manner.
And so this quarter, we we hit both of them really nice and collections were great and if you go back to a year ago, we brought down I believe somewhere around 35% year over year, while billings have gone up 20%.
So we can't continue to keep that type of performance will continue to do very well on both those metrics, but in Q2, just because we expect.
Increase in just total billings naturally AAR was going to go up a little bit so we're going to pump a little bit back into the working capital that's going to use a little cash.
And then that kind of bounces around but again.
This combined with the with the overall performance of the business just gives us more confidence in that again, the second half 'twenty two calendar a projection of reaching a free cash flow positive.
Got it thanks for the details on that as well if I can just sneak one more in I.
Wanted to ask you about seasonality of ACB billings in the sense that.
I guess, you talked about <unk> being down 3% to 4% sequentially and I think in the last earnings call you talked about <unk> being sequentially up primarily because of the renewables business. So I wanted to ask you as Ted renewables business grows should we expect that seasonality to become more pronounced like with <unk>.
Floors.
More sequentially in the coming years and then four.
<unk> sees a more expanded recovery or not so I just wanted to get your thoughts on how the ECB billing seasonality trends is as your renewables business increases. Thanks, Yeah. Yeah. It's a good question and it doesn't really change it that much the only reason why.
We're seeing a pop up in Q4, it's just the it's the initial wave if you will of renewals coming in.
And there's nothing magical about Q4, there's at this point, we're not co terming a bunch of stuff to make sure. It goes into Q4, it's just where the ATR resides are they available to renew on kind of the the initial flow of renewals. So this isn't a.
Change in seasonality, it's just how the renewals are flowing and eventually once we get into.
A rhythm here with renewals that kind of starts to even out and use you'd see a natural progression upwards, a little bit more linear manner probably.
Great. Thanks, again, and congrats again.
Sure.
And your last question is from the line of exit feature with JMP Securities. Your line is open.
Yeah. Thanks for taking the question congrats on a good quarter.
Just curious about.
Hardware constraints.
You had said they didn't have much impact in the quarter, but I'm curious if your partners. If your hardware partners have some of them been constrained and customers are shift.
Shifting from one platform to another or have you been pretty free of any constraints across Europe across all of your partners.
No I would say and it got there.
Good question, we certainly see customers, having to pay more attention to managing that hardware supply chain for sure right.
And so if they can get what they need from one vendor. They go to another vendor and try to get what they need right and so definitely the fact that we've got some flexibility in terms of hardware choices.
As a bridge to gap or deal with the situation that our customer themselves get elaborate a variety of commodity server site at the end of the day. The hardware that are sub brands honest standard servers and.
So they have a lot of choice and they will suddenly think wow increasingly they might pick one that's available versus one that maybe from a preferred vendor for that so.
So I think the customers definitely are paying more attention to managing their supply chain for hardware and.
We see that like like we said earlier in the call it hasn't really impacted us from a software perspective in any way yet.
Do you anticipate.
Did it get worse during the course of the quarter in terms of the constraints and what do you anticipate in terms of constraints through the end of the year or through early next year.
I mean, it's still not for us and I think I mean, I think for US it's been essentially we've seen some pull some bush.
For the most part the biggest impact has been minimal now talk for me to predict here clearly the significant supply chain constraints out there in.
In the hardware space no doubt about it.
So we are comfortable with the second quarter I can tell you that for sure.
To monitor the situation here that as we go by and of course, you saw that would be provided annual guidance as well and we have confidence that in a minute.
Go ahead process flow.
Okay very good thank you.
If there are no more questions. He will now end the call. Thank you everyone for joining this concludes today's conference call you may now disconnect.
Thank you.
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