Q4 2023 Nutanix Inc Earnings Call
Good day, and thank you for standing by and welcome to the new to IDEXX Q4, 'twenty to 'twenty three earnings 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 to press star.
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Please be advised that today's conference is being recorded I would like to introduce your host for today's call Richard Valera VP of Investor Relations you may begin.
Good afternoon, and welcome to today's conference call to discuss the fourth quarter and fiscal year 2020 financial results.
Joining me today are Rajiv ramaswami.
CEO , Eric Moody said Robin mechanics.
After the market close today mechanics issued a press release announcing fourth quarter and fiscal year 2020 financial results.
I'd like to read the release please visit the press releases section of our IR website.
During the call today.
We will make forward looking statements, including statements regarding our business plan strategy initiatives vision objectives outlook, including our financial guidance as well as our ability to execute on them successfully.
Primary manner and their benefits and impact on our business operations and financial results.
Financial performance targets expectations regarding and the factors driving our growth and profitability.
Physicians and market opportunity customer demand.
<unk> of our business model transition and macroeconomic geopolitical industry customer and other trends.
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 more detailed description of these and other risks and uncertainties.
Please refer to our SEC filings, including our annual report on Form 10-K.
For the year ended July 31, 2022, and subsequent 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.
Our revenue are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We.
We have provided to the extent available reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release.
Lastly, I would like to remind you again that mechanics will be holding its 2023 Investor day in New York City on September 26.
Please go to the events section of Energetics Investor Relations website, if you'd like to register.
And with that I'll turn the call over to Rajiv Rajiv.
Thank you rich.
Good afternoon, everyone.
We delivered a good fourth quarter.
With results that came in ahead of our guidance.
<unk> off a strong fiscal credit credit suite.
The uncertain macro backdrop that we saw in our fourth quarter was.
Largely unchanged compared with the prior quarter.
And we continue to see steady demand.
For our solutions in Q4.
This is driven by businesses prioritizing that digital transformation at infrastructure modernization initiatives.
And looking to optimize the total cost of ownership.
Taking a closer look at the fourth quarter.
We were happy to have exceeded all of our guided metrics.
We delivered strong ACB billings growth.
And record quarterly revenue of $494 million.
And nearly $2 billion annualized run rate.
We also had another quarter of good free cash flow generation.
Despite some expected one time payments.
Overall, our fourth quarter financial performance.
Strong finish to our fiscal year.
Our full year fiscal 2023 vessels.
The mountain state the progress we've made with our subscription model.
Specifically.
We deliver healthy year over year, ACB billings growth of 27%.
Led by outperformance of our renewables business.
We also delivered our first year of non-GAAP profitability in the company's history.
With a non-GAAP operating margin of 9%.
Finally.
Despite the impact of several one time payments.
We generated free cash flow in excess of $200 million.
Our roughly 10 fold increase compared to our prior fiscal year.
Beyond the financials.
We made significant progress across all aspects of our business in fiscal 2023.
On the product front we.
We delivered general availability of entry to on Microsoft Azure.
Announced meaningful new products in areas, such as Kubernetes data services and cloud management.
And defined our data fabric vision with project beacon to enable companies to build portable applications.
We also enhanced our corporate governance profile through amendment to our bylaws and certificate of incorporation.
Finally.
On the go to market front.
Multiple large deals with major enterprise and government customers.
These wins demonstrate the strategic relevance of our platform to our customers' key transformation initiatives.
And the success of our focus on landing these larger more strategic transactions.
Overall for fiscal 2023.
We demonstrated consistent execution.
Solid top line growth.
Strong renewals performance.
Sharp improvement in profitability and free cash flow.
And continued progress on our longer term strategic priorities.
Moving on.
Gaining fifth leverage by our partners.
It's been a priority since I joined as CEO .
We said, we would focus on deepening our partnerships to provide more impact and how we go to market.
<unk> provide more opportunities with larger accounts.
This week.
Made a milestone announcements on this front with a global strategic partnership with Cisco.
This partnership is.
By combining the best of breed between the two companies.
Cisco will combine the organic cloud platform.
Along with their ucs compute and cloud management.
Deeply integrated with that networking and security.
It's a fully integrated solution with.
But joint engineering, and interoperability and expanded support that.
That will be sold by Cisco.
We are excited about working with Cisco on this partnership and having them sell our leading hybrid multi cloud software.
Elaborating that extensive go to market reach.
Now I'd like to talk about our customer wins this quarter.
Mr demand stayed the success, we've been having and landing large multimillion dollar ACB deals.
A good example is a significant expansion the one in Q4 with the UK Department for work and pensions.
DWP the Uk's biggest public service Department.
This win demonstrates the value customers are seeing in the broader capabilities of our platform.
DWP has already adopted our cloud platform, including mechanics, cloud management and mechanics unified storage to run its business critical workloads.
And we're looking for a way to extend its footprint into the public cloud.
In Q4.
<unk> chose <unk> to enable the shift of workload from the private cloud to the public cloud.
And that works.
Court.
<unk> entity to.
Allows DWP.
Seamlessly extend our on premise footprint into public cloud.
While avoiding the cost traditionally associated with lift and shift migration.
Furthermore.
<unk> cost effectiveness and ease of use and enable us to maintain a layer of abstraction.
Our most critical workloads.
Both platform and vendor lock in.
And quote.
We couldnt have said it better ourselves.
And are grateful for the opportunity to partner with DWP on their cloud journey.
Another notable win in the quarter.
What are the service provider partner in the EMEA region.
It was implementing a nationwide electronic health record, our EHR system for a government health Ministry.
This partner Joseph Calix cloud platform, including mechanics, cloud management and HP Hypervisor.
Most critical EHR applications across 20 strategically located sites.
They also chose mechanics of unified storage for managing the data on GPU based <unk> service associated with the project.
We see this win as a testament to the value our customers see and adopting our full stack offering and the growing contribution we're seeing from our service provider partners.
Now I'd like to talk about AI.
And what it means to <unk> now and in the future.
Today, we already have customers using our platform to deploy AI.
Often but influencing and redo our sensor data.
We're seeing the same agility performance and Tcl benefits from our platform.
As customers Ronnie other workloads.
They are deploying us for use cases, ranging from faster checkout and retail applications.
And sharing compliance with safety protocols at construction sites.
To quality assurance and manufacturing applications.
However, we see an emerging opportunity in the surging demand for generating AI.
To date, there's been a lot of investment in large language models are LLS are running in the public cloud.
However, as AI models become more compact and organizations become concerned with issue suggest intellectual property litigation compliance and privacy.
We expect there will be more demand to fine tune and run models on premises and at the edge.
We believe there is an opportunity to provide a turnkey solution.
Those looking to jumpstart these AI initiatives.
That's why we recently launched GPT in a box.
This is a full stack software defined.
Platform.
Along with services to help our customer size and configure hardware and software to deploy a curated set of elements.
Using the leading open source AI frameworks on our platform.
It allows customers to easily deploy AI ready infrastructure.
Thank you and Ron generative retain transformers, our GPT.
While maintaining control of their data and applications.
While it's still early.
We're pleased with the initial interest we've seen to date in GPT in a box.
Moving on I'd like to highlight the recent addition of Mark Templeton to our board of directors.
Mark's previous tenure as a public company CEO <unk>.
Combined with the strong domain knowledge of both cloud and data center infrastructure software makes.
It makes him an excellent fit for energetics.
I look forward to working with him closely as we execute on our hybrid multi cloud vision.
Finally on the back of our strong free cash flow performance in FY2023.
And in conjunction with our earnings release.
We announced that our board of directors has approved a $315 million.
Share repurchase authorization.
We see this repurchase program as a reflection of confidence in the company's long term market opportunity and financial outlook.
An important milestone in our subscription journey.
In closing.
We are encouraged that the compelling value proposition of our cloud platform.
And the strength of our business model.
Enable us to provide an initial outlook for fiscal 'twenty four that calls for continued solid topline growth.
Improving profitability.
And solid free cash flow growth from our strong fiscal 'twenty credit three level.
We look forward to providing an update on our strategic priorities and longer term financial outlook.
Our Investor day in September .
And we remain focused on delighting, our customers, while continuing to drive sustainable profitable growth.
And with that.
I'll hand, it over to Rob any favorite island.
<unk>.
Thank you Rajiv.
I will first provide commentary on our Q4 2018 is out in fiscal year 'twenty three results followed by our outlook for Q1, 'twenty four and fiscal year 'twenty four.
Q4, 23 was a good quarter in which we exceeded all guided metrics.
Billings in Q4 was $279 million.
Higher than our guidance of $240 million to $250 million.
Revenue in Q4 was $494 million.
Higher than our guidance of $470 million to $480 million.
At the end of Q4 was 156 2 billion.
Our year over year growth of 30%.
Similar to last quarter, we saw a modest elongation of sales cycles likely due to increased deal infection.
New logo additions were about 500 in Q4.
Average contract duration in Q4 was three years flat quarter over quarter as expected.
non-GAAP gross margin in Q4 was 85, 8% higher about expectation because of higher revenue than expected certain nonrecurring savings and timing of hiring.
non-GAAP operating expenses in Q4 were $361 million.
non-GAAP operating margin in Q4 was 13% higher than our guidance of 9% to 10%.
non-GAAP net income was $68 million.
Our EPS of <unk> 24 per share.
Based on fully diluted weighted average shares outstanding of approximately 286 million shares.
Billings linearity with Greg and Dsos were 29 days in Q4.
Free cash flow in Q4 was $46 million.
Implying free cash flow margin of 9% higher than our expectations largely due to better than expected billings and collections.
We ended Q4 with cash cash equivalents and short term investments of one point $43 7 billion up from 1.358 billion in.
In Q3 dollars 23.
Looking at our full year financial results, we exceeded all guided metrics for fiscal year 'twenty three as well.
Billings in fiscal year, 2003 was $957 million.
Higher than our guidance of $915 million to $925 million.
And representing a year over year growth of 27%.
A reminder, that the annual ACB billing is slightly lower than the sum of the ACB billings from the four quarters due to adjustments for deals with duration of less than a year.
Revenue in fiscal year 'twenty, three was 1.863 billion.
Higher than our guidance of $1 $84 billion to $185 billion and representing a year over year growth of 18%.
Mind, Eric that revenue in fiscal year 'twenty three benefited from the normalization of orders with future start dates, resulting from our partner supply chain challenges.
Largely because of this dynamic this quarter.
'twenty three revenue included the benefit of approximately $23 million in deferred license revenue that would have been recognized in late fiscal year 'twenty two instead.
We ended fiscal year 'twenty, three with an <unk> of 156 $2 billion as mentioned earlier, our year over year growth of 30%.
Jr. Our gross retention rate at the end of fiscal year 'twenty, three with 90 plus percent.
Our net retention rate was 123%.
Our fiscal year, new and expansion ACB performance was impacted by some of the macro uncertainty. We have previously discussed and performed slightly below our expectations entering the year and below what we believe its longer term potential is there.
The renewals business continues to perform well.
And it tends to be at a lower aggregate average contract duration compared to our new and expansion business.
Our relative economics under new ones have also continued to improve over time as did a nord steam is improved execution.
Average contract duration in fiscal year 'twenty three with three years.
Lower than the 3.2 years in fiscal year 'twenty two as expected.
non-GAAP gross margin in fiscal year 2003 was 84, 6%.
non-GAAP operating expenses in fiscal year, 'twenty, three where 141 4 billion.
An increase of 1% year over year.
non-GAAP operating margin in fiscal year 'twenty, three was 9% representing our first year of non-GAAP operating profit.
non-GAAP net income was $169 million.
Our EPS of <unk> 60 per share based on fully diluted weighted average shares outstanding of approximately 282 million shares.
Free cash flow in fiscal year, 'twenty, three with $207 million.
Implying free cash flow margin of 11%, representing a free cash flow margin expansion of 10 percentage points year over year.
Overall fiscal year 'twenty, three with a significant PR, marking our first yard with a positive non-GAAP operating margin at 9% significant free cash flow generation of over $200 million.
While growing <unk> at.
At 30% and growing revenue at 18% year over year.
All in an uncertain macroeconomic environment.
Moving on to Q1 the outlook for Q1 'twenty four is as follows.
<unk> billings of $260 million to $270 million.
Revenue of $495 million to $505 million.
non-GAAP gross margin of approximately 84%.
non-GAAP operating margin of 9% to 11%.
The guidance for full year fiscal year 'twenty four is as follows.
<unk> billings of 1.0 75 to 1.095 billion.
Exceeding the $1 billion threshold and representing year over year growth of 13% at the midpoint.
Revenue of 2.085 to 2.115 billion.
Representing year over year growth of 13% at the midpoint of the range non-GAAP gross margin of approximately 84%.
non-GAAP operating margin of 11% to 12% and free cash flow of $280 million to $300 million.
I will now provide some commentary regarding our fiscal year 'twenty for guidance.
First we are seeing continued new and expansion opportunities for our solution. Despite the uncertain macro environment.
However, as we mentioned previously we have continued to see a modest elongation of sales cycles.
Fiscal year, 'twenty, four new and expansion ACB performance outlook assume some impact from these macro dynamics.
Second the guidance assumes that our renewals business will continue to perform well.
And why are available to renew our ATR pool continues to grow year over year.
It is growing at a slower pace in fiscal year 'twenty four but is expected to reaccelerate in fiscal year 'twenty five based on our current view.
Before our guidance assumes that the average contract duration with decreased slightly compared to fiscal year 'twenty three as renewals continue to grow as a percentage of our buildings.
And regarding our bottom line guidance.
We'll continue to make targeted and prudent investment into our go to market and innovation engine to continue to invest in growth, while improving our profitability and free cash flow margin year over year.
Overall, we remain confident in our view around a large and growing market for our solutions combined with a growing mix of renewals is a significant driver of both billings growth and margin expansion over a multiyear period.
We also announced today that our board of directors has authorized a share repurchase program of up to $350 million.
We remain focused on investing in our business to support profitable growth and on delivering strong returns for our shareholders.
This share repurchase program is consistent with these objectives and a reflection of the confidence we have in our long term market opportunity and financial outlook.
In closing we are pleased that our fiscal year 'twenty three results reflect our continued execution towards our stated objective of sustainable profitable growth and we expect to continue that focus.
With that operator, please open the line for questions.
And thank you.
As a reminder to ask a question. Please press star one on your telephone and wait.
For your name to be announced to withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.
And one moment for your first question.
One moment, please and our first question comes from Punjab Bora from Jpmorgan. Your line is now open.
Oh, great Hey, congrats on the quarter, thanks for taking the questions.
Rajeev I wanted to talk about AI.
The GPT in a box help us understand is that largely in kind of an integrated offering kind of with a bundled pricing or is there any new functionality that.
That you have developed and it seems like it's spanned across hardware software and services. How are you kind of thinking of going to market with it.
One moment please.
Can you folks hear me now.
Yes, you can be.
Okay, sorry, so yeah.
So.
First of all in terms of the platform.
The same in your desktop platform integrated with.
Standard server platform Nvidia Gpus as part of the solution.
And on top of that what the AD is a curated set of MLR software and LLS largely open source models and we put that all together with the services offering that helps customers deploy this out of the box.
Now what do they use it for so what receive identity of AI is theres been a lot of focus about training these larger than our models in the public cloud, but when it comes to the actual usage of these what are you going to see as companies need to run. These AI models, whereas that data is and in a lot of applications enterprise.
Sensitive data stored on Frank.
Edge locations, where they're actually gathering the data in the first place.
So with TPG in a box they can run their AI application identity manager application by fine tuning. These large ela models that have been trained in the public cloud using what we call foundational models and public data. They can fine tune. This makes them more come back to run with their own data and use it on prem So thats the offering now.
In terms of go to market, we have a small tiger team, that's very focused on working with our customers as we produce gave US together. We're also building an ecosystem of Isps and Si partners that can help us take this to market and expand our scale. So it's still early days, but I'm excited about where this is going.
Yeah understood. Thank you and one for Anthony.
Can you just talked about ETR slowing this year, maybe help us understand why that would be the case is that just because <unk> was a.
A little bit slower this year is that kind of adding up to it and then are you baking in any upside from the Vmware opportunities from the guidance.
Okay.
Okay.
Hello, everyone and thank you for the question also on the first question on API. So we expect continued growth in <unk>.
I don't know what the ACD business in fiscal year, 'twenty hole and <unk> continues to be good at 90 plus percent, but as you noted and as we said in our prepared remarks, we do expect that.
There are no one's ACB well is expected to grow at a slower rate.
In fiscal 'twenty for Don in.
23, due to the shifting of some of the noise from $24 93, largely due to court arming and some natural variation right that we've seen the binding up Arnaud others.
Customers choose to renew based on their budget cycles or are other factors.
In fiscal year 'twenty five we expect renewals go through re accelerate based on our current view of avere.
Available at the venue or ATI and I think it's important to emphasize also that we continue to believe that this growing mix of renewals overtime as a proportion of our total billings continues to be a driver of both billings growth and margin expansion over a multiyear period.
Your second question pendulum was around have we baked in any benefit from them.
The MRO spending acquisition by Broadcom and so we can do you see significant engagement and opportunities related to potential concerns around that transaction and in Q4, we did see a few of these opportunities close.
Including a seven figure ACB deal with a fortune 100 company.
So while it's difficult to predict the timing of these wins that we've talked about before just because of some of the dynamics in the market.
Do expect some benefit from these deals influenced by this transaction and have factored that into our guidance.
Got it thank you very much.
Thank you.
And thank you.
And one moment for our next question.
And our next question comes from Jim Fish from Piper Sandler Your line is now open.
Hey, guys nice quarter nice guys.
Also see the new customers pick up again understanding there's some seasonality here.
But was there anything causing that in particular in this environment to see those 500, net new customers, including anything on the competitive front.
Last question.
I appreciate the details on the net retention rate in the quarter here.
But can you walk us through kind of how we should be thinking about net retention.
Into next year, given kind of what's going on with retention rates.
Does this mean with the cash flow guide being close to $300 million of this year that we could be thinking about well north of 300 million for fiscal 'twenty five or is that just an analyst day item that should be patient for.
Yes, I think there were three questions maybe I'll take the first two which is our new logos and the competitive outlook and then when you can focus on the financial message.
So on the new logos, we continue to focus on the higher quality higher ASP new logos.
Most of in depth, new logo count, but seasonally of course Q4 was a strong quarter for us in <unk> that you saw the.
The strength of new logos that we speaking.
Also we are focusing on larger more strategic transactions and we're seeing success on that front.
Our study so that's the new logo piece.
From a competitive perspective, <unk> already talked about the BMS dynamic there.
Clearly we've seen the engagement level grow there clearly we've seen some big starting to close.
And there's still a lot of variability.
In terms of.
Oh, the pendulum is going to swing on discipline from customers, who might just use us to get a lower price from BMS to customers, who are truly serious about bringing a second window, then reducing their risk with an alternative provider. So we'll have to see how that plays out the hybrid cloud piece is really starting to work in terms of customers using more robust in the public cloud.
So that piece of it is working well our partnership with Hyperscale is actually coming through actually also nicely in that regard. So we feel good about our competitive positioning as we get into FY 'twenty four.
So many you can perhaps.
I don't know the questions.
Yes, Hi, Jim.
We were happy with the 123% that we reported for fiscal year 2003, and in terms of supply of 24, Jim what I say.
I think you should still assume that all of our sort of new and expansion business. The majority does come from expansion like we talked about that before we're not giving out a specific number today, Jim but more more color to come on that at our Investor day, and similarly on free cash flow. Yes, we are happy to sort of buy $2 80 to 300 for fiscal year 'twenty four.
And again motoko much at Investor Day, what I will say, though as we continue to be focused on all elements of that profitable growth piece, which means that we do intend to continue to evolve and grow our margins free cash flow margins overtime, while growing the top line right. So that continues to be the intent.
But sort of hold on any specific free cash flow outlook beyond 24 for our Investor day.
Fair enough.
Last one for me Rajeev on the Cisco partnership I mean, how much demand where youre, giving for this just a nice to have that Cisco ucs with a much smaller shareholder of that server market relative to some of your other partners.
Understanding Cisco had one of the best sales motions out there.
With that but are there any minimums to think about or how should we expect the impact probably more for fiscal 'twenty five but any impact for fiscal 'twenty four yes.
Now, let me pass it out there.
So Jim first of all yes, we have seen customer requests in the past for customers.
Many large customers with ucs deployment.
We'd like to see those giant solution from us and Cisco. So we're happy that we're able to announce that also importantly for us.
The fact is Cisco is our go to market machine, that's much bigger than us.
They have about 20 to call it about 25000 customers roughly but our addressable market in terms of customers with at least 100000.
So Cisco is broad market reach could help us get those initial entries and.
Again, we're going to work closer with Cisco retro score is going to be the front in terms of selling this but we're going to be helping them along the way and this I look at this as an expansion opportunity for us.
The customer base looks.
Good for the customer in terms of them buying an integrated solution for everything they need in the data center the Watson platform.
Platform from us harder.
Hardware Francisco, both in terms of yeah.
<unk> and storage as well as the.
Networking features in the security aspects of this.
So we are excited about this now in terms of the numbers.
We expect this will be definitely announced at year end.
This whole process of printing, enabling the fee less.
So we are factoring in a small amount in the later half of this year like more likely in our Q4.
But we certainly expect the momentum to build here over time.
Helpful. Congrats guys.
Thank you.
Okay. Thank you.
Had one moment for our next question.
And our next question comes from meta Marshall from Morgan Stanley . Your line is now open.
Okay, great. Thanks.
Maybe just as a first question understanding kind of the new customer cohort you guys said it was kind of a focus on higher quality and larger customers is there any way to quantify just in terms of what that cohort.
Yeah.
Just in terms of kind of initial deal size or anything that kind of mix.
Makes the point on that.
Metric and then just on kind of the Reacceleration in and kind of general elongation of sales cycles right. Now do you think that that is kind of.
The catalyst for that reverting in fiscal 'twenty five is purely macro do you need to kind of see more multi cloud spending like what is it just a matter of macro what kind of do you think is the main catalyst for that re acceleration. Thanks.
Let me take a crack at the first Patrick maybe you can.
Add on so our new ASP for these new logo Asp's are certainly up year over year for us given the focus we haven't put a number on it.
But perhaps.
One of the things we could do take that as an action for an investor day to to come back to you with looking.
Looking at for example, how many customers we have with over $1 million for example, they add up.
It's a good question.
Come back to you with more color, but in general, yes, <unk> have been going up.
Results of our focus.
When do you want to take the rest.
Sure Yes.
Thanks for the question. So I think you had a couple of things in there it will get into your question. So what was I think around just sort of sales cycles, right, which as we've talked about in the past.
Continuous too we continue to see a modest elongation, there and that is really affecting only or a set of new and expansion business right and so.
That's sort of what we continue to see and some of those macro factors are factored into our 24 outlook and the new and expansion portion.
No.
And then you referenced I think re acceleration that we talked about in 'twenty forward as it relates to our renewals ACB growth rate. So just again to reemphasize internal ACB will continue to grow year over year.
For quite a while as we've talked about in the past what we started with a 24 the lowest ACB growth is at a slower pace in 'twenty three because of just some timing.
Jamie variations between 'twenty, three and 'twenty four.
Some quarter main but also.
Largely due to just some timing as it relates to when customers choose to make their purchases because their budget cycles and so on and so.
We view that as.
Affecting 24, but when we look at the available to renew point for 25.
We see that re acceleration in 2000, and so thats, what we were referencing and I just wanted to make sure.
Clear on the new <unk> expansion portion versus <unk> I hope that answered your question.
No that's perfect. Thank you.
Thank you.
Thank you.
And one moment for our next question.
And our next question comes from Mike <unk> from Needham. Your line is now open.
Hey team. Thanks for getting me on the line here I did want to come back to the ECB billings for a second and I know that Ah.
Congrats on the outperformance on the guidance I believe you guys decided outperformance stemming from.
Specifically renewals when I think about the ACB billings.
What drove that outperformance can you can you put some finer parameters around it whether it would be it sounds like macro was relatively stable, but was it just better execution.
Potentially conservatism to the guide like like how do we view the different pieces that contributed to that outperformance you guys were able to generate.
Hi, Mike Thanks for the question so they were.
A couple of components that.
Doctor and I welcome you to add anything else that you would like so the first one is that our umbrella right. When we what we say when we mean don't know what the outperformance is that we see some court army as we've talked about before which is sometimes more difficult to forecast and we have also seen continued improving diesel.
Planned around renewals economics, which is what we transacted on it was add compared to instead of what the original transaction was so those are the ones that are contributing to improve internal improvement <unk> outperformance and so that was a big driver.
I would say Mike.
Performance at ACB billings, so that was really the largest driver of our performance for <unk>.
Q4 <unk>.
Great.
It's a two quarter on a follow up one one kind of feeds off the ECB billings again, but if I think about the guidance that we have today for Q1, <unk> billings, it's actually down sequentially.
If I look over the most recent two years <unk> gone up from Q4 to Q1.
Can you help us think about why it would be down sequentially, maybe part of it has to do with this co terming effect there maybe.
Some of those deals that came in in Q4 from that.
Let's see the Vmware deal that we cited earlier.
Kim do you guys. The first question as far as the ECB will guide being down in Q1 sequentially. The second is our gross margins I know we started to benefit from.
Nonrecurring savings.
And the timing of hiring can you help us unpack, what or quantify what the nonrecurring savings were or what that dollar figure was and then the timing of hiring I guess, we should expect for you guys to.
The higher into that in the out years or is this this is hiring thats been you guys can actually prove more efficient versus what you had initially anticipated.
Okay. Thank you, Mike let me take that one by one so on the Q4 to Q1.
Our typical seasonality is actually.
Q1, being lower than Q4, Mike typically because Q4 is a seasonally high quarter for us given a clear and right and.
Sellers are motivated and ready to go and have a good Q4 last year was a bit of an anomaly right. Because if you recall in Q4 22.
Saw some of this impact from <unk>.
Light chain disruptions that are affecting our partners and therefore, we're also impacting us to some degree right. So the Q4 'twenty two number was actually probably artificially lower which led to a sequential increase last year. This is more normal.
How I would characterize that Mike and then to your question on gross margin. So we said a few things that at the Onewest revenue higher than expected I think that straightforward and your question was on the other two so what we say when we mean timing of hiring as I sort of attrition and normal levels of attrition.
But sometimes it takes time to backfill and so that can sometimes cross quarter boundaries and so we saw some of that in Q4. Those people, we would be expect to be hired and backfill and in short order here really probably in Q1.
The non recurring savings, where we're not huge amounts mic, but just remember that I think Q4 also has a high gross margin as well because cogs and operating expenses don't fluctuate as much over the year, but Q2 and Q4 are seasonally higher topline quarters for us. So you will see that those margins tick up higher in Q2 and Q4.
Sure.
And take a little bit lower in Q1.
Which is why as you look at our overall fiscal year 'twenty four guide, we're saying gross margins approximately in that 84% range.
Terrific. Thank you very much I really do appreciate all the color. Thank you.
Thank you Mike.
Thank you.
And one moment our next question.
And our next question comes from George Wang from Barclays. Your line is now open.
Hey, guys congrats on the quarter.
I just want to ask about any update on the repatriation trends.
Especially given tougher macro are you guys seeing so they increased repatriation 12, Brian which made benefit in your tenants.
Yes, so George I can say that we see increased replantation necessary. We have certainly seen instances of repatriation what I would say is interesting is we've also seen stuff.
The data, which is people have committed to some of these large public cloud spend commitments.
And what they say, they're not able to get that obligations legal public known as quickly as we'd like to see.
So then I'll start with saying I have to spend as much money as Republic clubs that are committed to it already and so we've seen that come to us because now theyre looking at this as anything yet available through the marketplace.
And AWS and we've seen people purchasing our software through the Azure.
<unk> marketplace, which has them retire some of their commitment or public spend so yes, I think we see the world being hybrid some workloads are being repeated it from the public cloud I wouldn't say, it's necessarily a wholesale trend.
We see that in <unk>.
Spot versus the systemic trend yet at this point, but the world is very much high but people are being much more conscious about how much to put in the public cloud.
The first place.
Okay, Great just a quick follow up if I can.
We simplified the portfolio kind of a platform approach can you talk about kind of the the.
The attach rate.
New tactics.
Cloud platform called manager on the kind of or maybe high level commentary on cross sell and upsell yes.
Yes, so I think two questions there on the attach rate of the portfolio.
Sure. The the biggest change that we have seen since we launched our revised portfolio with much higher attach for cloud management.
Along with our cloud infrastructure and in fact that is the easiest to thats really that everybody who built the cloud also wants to operate the cloud. So naturally adapting operated plant operations fraud management do an infrastructure. That's the best we've seen and we've also seen of course, <unk>, which is our public cloud extension as a natural extension natural attach in Italy, it ties together with tax laws.
Platform very nicely. So that's another factor is still relatively small for us, but growing every quarter in terms of customers number of customers and customer count.
Unified storage is the other element of the portfolio.
We see reasonable attach rate as well.
The ones that we have to actually really work with a specialist team to service, our new dice database portfolio, because that's largely sold.
Up in the stack to people, who are either managing databases are app developers and that requires more specialist skills and that's very much part of our specialists here.
Okay.
Okay, great. Thanks, Congrats again.
<unk>.
And thank you.
And one moment for our next question.
And our next question comes from Mehdi Hosseini from <unk>.
Your line is now open.
Yes. Thanks for taking my question wanted to go back to.
Your fiscal year 'twenty guidance, if I just take the midpoint it seems like opex would need to grow by 7%.
I understand you're honest is coming but.
Wood.
Would the collaboration or the deal with Cisco actually held.
Is some of these opex growth assumptions built into the model or does that already.
Taking into account or does it or do you account for any cost savings.
Cisco is scale.
Perfect.
Yeah.
Hi, Thank you for that question.
So let me first address the Opex point and then we'll talk about any potential impact from from Cisco say, if you look at our operating expense profile.
Oh is that we are making some very prudent I would say and targeted investments in our go to market and and not innovation innovation engine. As you know as we've talked about you know our market. We believe it's large and growing in order to go in to capitalize on that so we are making some targeted investments on back drunk.
No <unk> I think what we expect the physical partner should put us to do is to continue to help sort of our productivity go up and really be addictive to auto but all the top line right cause that's how we should think about operating expenses relative to <unk> last year, but also are allergic to.
<unk>, you know any potential impact from Cisco.
Okay, I'm going to follow up <unk> I just wanted to go back.
Two of <unk>.
I don't understand I couldn't agree with you the security privacy compliance with actually bodes well for enterprises to scale.
But.
But.
If you think about the tree moslems moving from a cloud infrastructure into <unk> with.
We don't actually recoiled, your existing or prospective customer with additional one time Catholics investment or no.
Yeah, so that depends on what they wanted me and I mean, obviously this requires computer resources <unk> with gpu's attached to it so clearly a visa new workload for the customer they're gonna have to buy new hardware.
Right, so and and put us off that on it what they would do the <unk> Foundation of models that are trained on publicly available data and a puffy cloud.
But then when they bring it on frame, they're gonna find you in this and pretend punish it makes it more contact with their own specific data.
A good example, just to see how this works <unk> <unk>.
Six support as an example, even after the support you know in terms of support we have a lot of internal documentation that you don't put in the public cloud internal design documents as well so imagine using a <unk> to be able to go through all of that and quickly trying to arrive at root cause I find out I have an access to customer support questions. So we can <unk>.
Run that promote in a secure location, where our data is Jordan and so we would typically run that on on you know again standard service would you be <unk> running DVI models without attack.
<unk> could come in and actually become a partner to facilitate that.
Additional investment because.
I think the the physical piece by the way just let me I think we should be couples that right. Because this aip's works with everybody service. So customers can buy some they'll always be on leno or any of our partners and we have a wide variety of them in visa, leaving supporting gpu's multiple ears, so we don't necessarily needs to be only.
Physical.
So they can buy that from poor they like their favorite partners. What we expect with Cisco was a significant expansion in terms of our go to market reached <unk> go to market their ability to send it to a much broader customer base and their footprint, we should be able to benefit from that in a long time.
Got it thank you for <unk>.
And thank you.
And one moment for our next question.
And our next question comes from Eric Superchunk from JMP Securities. Your line is now open.
Yeah. Thanks for taking my question and congrats on a good quarter.
First off on the on the G. P T in the box are those customers.
Developing their own large language model or are they using third party software on that box and then secondly in the in the.
We'll go ahead, yeah, I think that answers most of them are not <unk> with model David Youth Foundation models that are available. For example, this then you once coming out like llama too that are open source. They could have called you a D V D J like as well, but there are there are multiple models most customers in the enterprise I don't think you'll develop their own model could use <unk>.
Billable out there they would probably find your niche with the data that they have.
Okay that makes sense and then secondly in the partnership with Cisco Cisco sales Rep getting comped on on selling the new <unk> software, yes, they're getting <unk> they were sending a physical product so 100 per cent compensation for that service.
Very good okay. Thank you.
And thank you.
And one moment for our next question.
And our next question comes from <unk> from Bank of America. Your line is now open.
Alright, thanks for taking the questions. It's a real clue filling in for one thing today I had one question for Rajiv and one for <unk>.
Rajiv can you comment on a couple of things specifically demand by vertical you talk about some share gains this quarter. How is the pricing environment is that holding steady or using any pricing pressure.
And then can you talk about your view on the backlog heading into physical 24 has that normalized now or is it still elevated.
That's one of the the pricing we haven't seen any significant change in pricing this quarter compared to our last quarter and in general you know S. V. For example that that's more of our products. It's our portfolio <unk> sent to to go up right because because we simply it that'd be more of the portfolio. So we haven't seen any shift at the change in our pricing dynamics.
No on the backlog <unk> again, you know.
I can't say that there's any significant difference I think is more a function of <unk> dedicate discount and rather than any particular <unk> related factors for us now with respect to the backlog I'm gonna that many comment on that.
Yes. Thank you <unk> so on backlog as we talked about I think last year 23, you know backlog did move around during the course of 23.
But despite that we ended 23 actually with a slight increase in natural backlog dollars you're over here.
And we have <unk>.
The the outlook for physical your 24, so we expect some back up to be consumed a of course.
But just to be expected in and unpacking macroenvironment like the one <unk> I think the range of possible outcomes I, just whiter than usual and magenta of a as we continue to grow the absolute dollar number a backlog could also increased over time.
Okay. Thanks for the details there if I can ask you.
Looking at the guidance for a physical <unk> versus the full year physical 24, it looks like there's operating margin improvement as you go through the year. So what are the drivers for that and then if you can talk about the seasonality you expect in a C. V buildings again looking to should we think that going from two to three Q should we.
Expect the same level of decline your renewables business is growing so just any thoughts on how should we model ACD billings and physical 24. Thank you.
Okay. So there are a couple of questions that I think the first one was on Q1 operating margins versus <unk>.
So I think I'd, just remind folks that I can choose to in queue for our seasonally in general seasonally stronger quarter for us to do it because you have December and that will just annual budget slash for for many customers and so Q2 is stronger for that reason and Q40, <unk> from your end and so you would want to 14th any strong.
<unk>, which means that margins all the operating expenses and and cost of it so don't worry as much the top line does not stronger than she had 124 and therefore logins in general also tend to look stronger than <unk> compared to Q1 and Q3. So that's that's sort of one call out.
On the <unk> on the <unk> and then on seasonality I think it was your second question no more generally I would just say you know I think I said, you should expect something already in top line for a slight decline between two Q2. Thank you and that follow a set up a new an expansion decor generally and Jose T are also <unk>.
That's back on as well and to the extent, we expect any variation in that.
We'll make sure to call it that out but as if not interested unexpected somewhat fairly normal patterns with regard to that.
Okay. Thanks for the details.
Thank you and thank you.
And one moment for our next question.
And our next question comes from Neil Celski from Northern capital market. Your line is now open.
Yeah. Thank you and congrats on a strong quarter you have another one.
Fantastic.
Nice to see the five acting announce could you talk about what is the priority of allocating capital to buy back relative to say paying down debt.
Yeah sure. So you know I just stop any more generally our focus continues to be on sustainable pasqua throat as we've said and we continue to make prudent and thoughtful investment into our go to market and innovation agenda as I said earlier <unk>. Another question, we're happy to have generated over to her.
My date of cash <unk> and have $1.4 billion in cash and short term investments and so when you think of the sharing purchased authentication is a reflection of the confidence.
Longterm financial locked up by an attorney capital to shareholders, while ensuring that we have optionality to continue to invest in growth and for authentication priority and to your question on.
Paying down debt and all you know we do take a look at that of course, you look at all of the alternative uses up a bar cash at before making any any decision and a Republican birds, we pay 25 basis points on those and they're not due for another few years and so it made sense for us.
Think about that <unk>, we believe that.
Doing the sharing because authorization is instead of the best use of our cash given all of the other options.
Options available to us.
So what's your anticipation of of.
Utilization of that buyback authorization then.
We have not given a specific timeframe nahal and authenticate to does not have any exploration date, and so the timing and a monthly depend on a variety of factors that you can imagine driving coating basis condition stock prices and other factors.
And so I'll leave that there.
Would it be fair to say that you wanted to return a certain percentage of free cash flow on a go forward basis.
We are not giving onset of a certain percentage at this point and but we will just talk more generally about capital allocation and you know how we plan to use our cat at our Investor day as well right. So.
I'd be happy to take more technically you talk more about that than but at this point, we're not committing to a specific percentage.
Alright, great. Thank you.
Right.
Thank you.
Thank you.
And I am showing no further questions does conclude today's conference call. Thank you for participating you may now disconnect.
Mmm.
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