Q1 2024 Nutanix Inc Earnings Call

Good day, and thank you for standing by.

Welcome to the New panics Q1, 2024 earnings conference call at this time, all participants are in a listen only mode.

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Please be advised that today's conference is being recorded.

I'd now like to turn the conference over to your speaker for today Rich Valera VP of Investor Relations. Please go ahead.

Good afternoon, and welcome to today's conference call to discuss first quarter fiscal year 2024 financial results.

Joining me today are GE, ramaswami, <unk>, as president and CEO and Rick Municipal Robyn mechanics as CFO.

After the market closed today mechanics issued a press release announcing first quarter fiscal year 2024 financial results.

If you'd like to read the release. Please visit the press releases section of our IR website.

During today's call management will make forward looking statements, including financial guidance.

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 and fiscal year ended July 31 2023.

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 future views.

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.

I 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.

<unk> will be participating in the Raymond James TMT and consumer Conference in New York City on December 5th and the Barclays Global Technology Conference in San Francisco on December six we hope to see you at one of these events.

Finally, our second quarter fiscal 2024 quiet period will begin on Wednesday January 17th.

And with that I'll turn the call over to Rajiv Rajiv.

Thank you rich and good afternoon, everyone.

We delivered a solid first quarter with results that came in ahead of our guidance.

The uncertain macro backdrop that we saw in our first quarter was largely unchanged compared with the prior quarter.

However, we saw steady demand for our solutions driven by businesses prioritizing their digital transformation.

Such a modernization initiative.

And looking to optimize their total cost of ownership.

Taking a closer look at the first quarter.

We were happy to have exceeded all our guidance metrics.

We delivered record quarterly revenue of $511 million.

Exceeding $2 billion annualized run rate for the first time.

And grew our IRAK, 30% year over year to $1 7 billion.

We also had another quarter of strong free cash flow generation aided by good linearity.

Overall, our first quarter financial performance was a strong start to our fiscal year.

Our federal business.

Typically strong in our first quarter.

And this one was no exception.

We saw wins with several different agencies across all three of our expansion vectors.

Clothing additional capacity for existing workloads.

Capacity for net new workloads.

Adoption of additional portfolio products.

The wins also included expansion into the public cloud with NPT on AWS.

And our first win with a large existing customer.

Our GPT in a box.

Our recently introduced turnkey solution for deploying generated AI.

We view the breadth and diversity of our wins with this important customer as a testament to our ability to expand within our largest customers.

Another notable win in the quarter.

With a global 2000 and bank in the Asia Pacific Region.

This customer who signed a significant expansion of our agreement.

Selected mechanics at the solar platform for their future modernization initiatives and planned build out of multiple new data centers.

This was a departure from that historical dual vendor strategy.

They chose our new calix cloud platform, including the tax cloud management to run their containerized business critical applications.

Leveraging its simplicity and built in automation for infrastructure as a service.

They also adopted metallic database service for.

For managing and deploying their databases throughout their organization.

We see this win as a great example of our ability to partner with the largest and most demanding companies in the world.

They look to modernize and grow their businesses.

Generating leverage from our partners remains a key focus.

And towards this end I am excited with the early progress we've seen with our recently launched Cisco partnership.

This past quarter.

<unk> solution was made generally available to be sold by both sales forces.

We also saw good customer interest and thank you had a few wins for this new offering.

With your conversions with customers who had previously.

<unk> been planning to purchase Cisco's Hyperflex.

While it's still early days in this partnership.

I'm encouraged by what we've seen so far.

Another positive development on the partner front in the first quarter was a significant expansion deal we signed with a north American managed service provider our MSP.

This partner was increasing its capacity to handle the expected growth opex mechanics related business.

We see this win as reflecting the growing traction we're seeing with our MSP partners.

On the product front this quarter, we announced important enhancements.

<unk> cloud platform.

And the capabilities against ransomware attacks.

Factored data.

These new features enable organizations to detect a threat.

Defense from further damage.

As big as a one click recovery process.

Are within 20 minutes of exposure.

They build on the strength of the photonics cloud platform to protect and secure customers most sensitive data across clouds.

These enhancements reflect our ongoing commitment to investing in our platform.

The past quarter, we continued to receive industry recognition for our <unk> cloud platform.

Being recognized as a leader in the latest report from Forrester research in this area.

We view our position as one of only two companies named as a leader in this report as a reflection of our strong competitive position in the market.

Finally.

It was a pleasure seeing many of you in person at our recent Investor day.

We were happy to be able to provide an update on our large and growing market opportunity.

To discuss our long term vision of enabling portable applications.

To provide targets, calling for a compound annual growth rate of approximately 20% through fiscal year 'twenty seven.

And generation of $700 million to $900 million.

Our free cash flow in fiscal year 2007.

We've received great feedback so far from our Investor day.

I look forward to continuing to drive towards the vision and targets we set.

And with that.

I'll hand, it over to Rick Muni separate them.

<unk>.

Thank you Rajeev.

I will first provide commentary on our Q1 'twenty four results followed by the guidance for Q2, 'twenty four and fiscal year 'twenty four.

Q1, 24 was a good quarter in which we exceeded the high end of our range on all guided metrics.

Billings in Q1 was $287 million.

Above the guided range of $260 million to $270 million.

And a year over year growth rate of 24%.

Revenue in Q1 was $511 million.

Here than the guided range of $495 million to $505 million.

And a year over year growth rate of 18%.

The outperformance was driven partly by stronger than expected performance from our U S. Federal government business, which grew significantly year over year in new ACD bookings.

Our renewals performance also continued to be good.

<unk> at the end of Q1 was 1.664 billion.

Representing a year over year growth rate of 30%.

Similar to last quarter, we saw a modest elongation of average sales cycle relative to the year ago quarter.

Average contract duration in Q1 was two nine years slightly lower quarter over quarter and largely in line with our expectations.

Due to the higher mix of U S Federal government business, which typically has lower contract duration.

non-GAAP gross margin in Q1 was 85, 9% higher than our expectation due to higher revenue and a mix of factors leading to lower than expected cost of goods sold.

non-GAAP operating expenses were $360 million in Q1.

non-GAAP operating margin in Q1 was $15 6%.

Higher than our guided range of 9% to 11%, partly due to higher than expected revenue.

non-GAAP net income in Q1 was $85 million.

Our EPS of <unk> 29 per share.

Based on fully diluted weighted average shares outstanding of approximately 293 million shares.

Linearity was good and Dsos based on revenue and <unk> were 24 days in Q1.

Free cash flow in Q1 was $132 million implying.

Implying free cash flow margin of 26%.

Higher than our expectations, largely due to better than expected bookings linearity.

We saw a larger than expected proportion of Q1 bookings in the first two months of the quarter.

Since our payment terms are typically 30 to 45 days more of the bookings were billed and collected in Q1 than expected.

We ended Q1 with cash cash equivalents and short term investments of 1.571 billion up from 143 7 billion in Q4 2003.

Under the share repurchase program authorized by our board of directors at the end of August we began repurchasing shares in Q1 through a <unk> one plan.

Given the timing of the authorization, we were in the market repurchasing shares, but only a portion of Q1.

Moving on to Q2.

Our guidance for Q2 'twenty four is as follows.

ACD billings of $295 million to $305 million.

<unk> of $545 million to $555 million.

non-GAAP gross margin of 85% to 86%.

non-GAAP operating margin of 14% to 16%.

Fully diluted shares outstanding of approximately 297 million shares.

The updated guidance for full year fiscal year 2024 is as follows.

HCV billing of 1.08 to $1 1 billion.

Representing year over year growth of 14% at the midpoint of the range.

Revenue of 2.0 95.

So to point to one 5 billion.

Representing year over year growth of 13% at the midpoint.

non-GAAP gross margin of approximately 85%.

non-GAAP operating margin of 11, five to 12, 5%.

Free cash flow of $340 million to $360 million.

Representing free cash flow margin of 16, 6% at the midpoint of the range.

This updated fiscal year 'twenty for guidance is higher than our previously provided fiscal year 'twenty four guidance across all metrics.

I will now provide some additional commentary regarding our fiscal year 'twenty 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 average sales cycles.

Our 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 a reminder, that while our available to renew or ACR pool continues to grow year over year. It is growing at a slower pace in fiscal year 'twenty four but is expected to reactivate in fiscal year 'twenty five based on our current views.

Third the full year guidance assumes that our average contract duration would be flat to slightly lower compared to fiscal year 'twenty three as Linda was continue to grow as a percentage of our billings.

A reminder, that the fully our ACB billing is not the some of the ACB buildings of the four quarters due to contracts with durations of less than one year.

We expect full year ACB billings to be about 5% to 6% lower than the sum of the four quarters ACB.

Finally, a few thoughts on seasonality for the remainder of the fiscal year.

Based on our current view, we expect the trend in top line metrics in Q3 relative to Q2.

To be more or less similar to what we saw in fiscal year 'twenty three.

A reminder, that operating expenses tend to be slightly higher than Q3 versus Q2, all else being equal as Q3 includes the full impact of calendar year resets to payroll taxes.

In closing we are pleased with our Q1 results exceeding guidance and to raise our topline and bottom line guidance for the full fiscal year.

With that operator, please open the line for questions.

Thank you.

As a reminder to ask a question. Please press star one on your telephone and then wait for your name to be announced to withdraw. Your question. Please press star one again as well we ask that you limit yourself to one question and one follow up.

Please standby, while we compile the Q&A roster.

And our first question for today will be coming from.

Pin Jahmi Laura of J P. Morgan Your line is open.

Hey, Thank you Theres pendulum.

Thank you for taking the questions and congrats on the quarter guys.

Steve I was surprised to hear your first customer for <unk> in a box so.

That's what I'm going to ask what.

Maybe add a little bit more color.

One.

What this company is doing with <unk> is this more of a desk Dev kind of an environment or are they looking to actually do something in production using <unk> in a box are you seeing similar deals in the pipeline how should we think about uplift in HCV number of questions just surprised to see a new.

Customer signing up so quickly.

Yes, it's been denim so.

Thanks for the question.

It's still early days for <unk> in a box.

Actually we've seen good inbound interest.

From a customer perspective ecosystem.

Now we did land that first win for <unk> in a box it is a federal agency.

And the use cases that along the lines of what we've talked about around a lot of use cases has to do with document document that we will looking for patterns looking for potential <unk>.

Activity et cetera.

On the line for what this particular agency was was looking to do.

From an operating perspective, it's still very early days for us.

Too early to really comment on when its going to be a meaningful contribution to our numbers at this point.

So that's what I can say about DPT now, perhaps it might be worth recapping, a little bit on a broader basis of how we see this market for us if that makes sense.

So for US I look at AI and sort of said this at our Investor day, but the three parts to it first is landing new applications lots of companies looking at new applications like this particular customer and many others landing that on our platform and then again I think AI applications are going around where the data is.

And some of the data will be in the public cloud, but are definitely going to be sensitive they are going to be in the private cloud in secure locations for example, and.

And for those types of situations, we can help with our deep it in a box platform to provide a turnkey solution for them.

Fine tuned and train.

Modest in that specific data as well as to influencing.

That's the first piece in terms of landing new applications.

Second is of course about making our own products better.

And we do for example at our elementary that we gathered from customers and we can use backend AI to analyze that get insights.

We have a product around operations management and in fact that product as part of our operations.

And so again, there's a lot of AI behind it too.

To make the operating environment and optimize the operating environment, So just capacity planning et cetera.

And Thats the second letter in the third vector is really using it internally to make things more efficient and run us more automating more processes inside the company. We're starting there are for example with customer service.

So that's the broader picture is still early days for us with <unk>, but.

But again lots of interest and they continue to engage.

Understood one one follow up.

We in the channel we have been hearing that that red hat.

Has kind of thrown its hat on for the Vmware opportunity with group and shifts virtualization technology, you're obviously.

A strong partnership with Red hat, how do you kind of see that petition play out.

As both of you kind of go after the Vmware opportunity, Yes. In fact, I mean I think the this was actually the original thesis whether that had partnership that we complement each other very well.

And Dave from an open ship perspective, being providing a complete platform for modern App development and b being the underlying infrastructure platform and so from that perspective as they compete against Vmware on the application side, we compete with them or at least protect the site. So the comment was very very good.

That perspective, good synergies on our side now.

Several customers adopt open shift on top of the damage that continues.

And we've seen <unk> with <unk>.

George did you get banks for example, running <unk> on the mechanics platform. So it's a good synergistic relationship we look forward to doing more with them.

So in fact this particular.

<unk> Bank in Asia Pacific that I mentioned.

It was a good example, where they are running open shift on top of.

Our golf platform.

Understood.

Thank you one moment for the next question.

Okay.

Okay.

And today, our next question will be coming from Jim fish of Piper Sandler Your line is open.

Hey, guys great quarter.

To build off the last one and I'll get a little bit more directly.

You guys have talked about like a little bit of more contribution here this quarter, but maybe you could walk us just through the pipeline, what's the pipeline look now that that competitors acquisition.

We closed over to Broadcom and yes.

We've actually already seen them from what we've heard.

Our channel checks that we use about band kind of raising maintenance prices pretty significantly. So can you just walk us through a little bit more detail on what youre seeing on the beer more pipeline itself going forward outside of just the red hat opportunity okay. Good.

A good question and then of course very relevant given what happened what just happened with the transaction closing.

Even this last quarter, we did close some additional deals that I would consider to be influenced by the dotcom BMS transaction.

Again going back to that bank wins that we talked about strategically bank.

And then suddenly influenced by this transaction.

We mentioned it was a dual vendor strategy, but going forward, it's going to be a single vendor status EBITDA.

Now the timing and magnitude of the deal is not predictable and also attributing the primary motivation for these deals also can be a bit nuanced because we compete everyday right even before all of the acquisition you. So but there are certainly contributing now the transaction of course close recently, but.

But we don't expect that to have an immediate impact for us in terms of timing of potential risks.

Clearly yes.

Some many customers have signed multiyear elas with BMS.

Prior to the deal closing and for those that have signed that gives them. Some time to evaluate options going forward. There continues to be certainly a lot of concerns around all the stuff we've talked about in the past pricing increased by I think potentially dropping support levels et cetera.

So we have a significant pipeline of opportunities and it's growing.

And a good degree of engagement with prospects.

Given by these contracts, it's just difficult to predict timing and magnitude of Benson.

We continue to expect some benefit from these influenced by this transaction and we certainly factored that in into.

Into our guidance for this fiscal year.

Very helpful.

Surprised to hear a little bit about the Cisco partnership already picking up I mean to.

Two months.

Understanding it's easier with the installed base of Hyperflex to kind of sell are solving to that base, but any way to think about if there are larger periods of renewals at certain times within that base or if those renewals are accelerating understanding you mentioned that the.

Larger wins, there were more on the kind of customers evaluating hyperflex and you guys got substituted Dan.

Yes, I mean first of all I think we are happy that we are a joint solution with Cisco became available. This last quarter. So it is now in the field.

Both sellers are selling it.

And.

And those deals. The initial leads of course naturally are one square Cisco well either had already one of them or we're very close to many of them with hyperflex and now they're simply converting those over to.

So <unk> going forward.

So thats sort of the first part.

But with respect to new pipeline really I mean, we know that our pipeline. It takes six to nine months to go towards these four assets. So we don't expect a huge amount of fiscal of this year, we expect.

Yes, Sam and we factored that into our guidance. This year and then we expect that to continue growing next fiscal year and beyond.

Good stuff thanks, guys.

Okay.

Thank you one moment for the next question.

Yes.

Okay.

Our next question will be coming from Matt Hedberg of RBC capital. Your line is open.

Great. Thanks for taking my question guys and I'll offer my congrats as well really saw.

Solid quarter and guide, especially given the uncertainty of the macro environment.

I had a question for you.

You noted strong renewals in the quarter and obviously, its becoming a bigger part of the mix on the call you talked about some new wins as well, but I am curious can you just step back and.

You, maybe double click a little bit more on the new business side of it I know that obviously, it's been more of a renewables business of late but just where are we in the new business.

Sort of aspect of the story.

Yes, Hi, Matt. Thank you for the question.

So if we think about Q1 I'll talk about Q1 performance versus maybe working learning tool. But then also maybe talk a little bit about the full Dr. Mark to your point on just trends trends and so on so in Q1 specifically.

Overall, instead of topline performance or outperformance really was driven by a combination of good execution across our new and expansion business and within that we talk specifically about our U S Federal business, which had a really significant a nice year over year growth in new and expansion ACB.

So that was certainly something that we benefited from in Q1 now for the full year, Matt We've talked about I think some puts and takes that we're factoring into our outlook. One is that we are expecting some improvement in our new and expansion ACB performance compared to fiscal year 'twenty three.

We've talked about it as you just touched upon.

Some things that we're factoring in in terms of benefits, whether it be a little benefit from our from what's happening in the competitive environment or some benefit from the start of the new Cisco partnership and so on so we have some things that we are optimistic and excited about at the same time as you started your question Magic. There is also uncertainty in the macro which just means that it's harder for.

As I sit here and say exactly how the rest of the year is going to play out. So those are some of the things we've factored into our new and expansion performance for the for the year.

See I think as you pointed out right and granola tends to be much more predictable portion of the business just given on <unk> as you said before it is in the 90 plus percent range and we know when those renewals are coming up.

Sure.

For the next transaction.

So that that part continues to be predictable and continues to perform well and so hopefully that gives you a sense of when you would expect.

Super Super helpful.

I could ask one more the gross margin.

Performance has been great and obviously you guided to a really strong Q2 gross margin.

Maybe could you doubleclick there also.

What are some of the biggest factors driving.

That significant gross margin improvement.

Yes, so I think a couple of points.

Points that I would make again I start with the Q1 and maybe the Q2 guide Matt and then talk more broadly on gross margin. So for Q1, we attributed a gross margin outperformance so revenue coming in slightly higher of course, because we beat on revenue, but we also had a mix of factors that led to.

New comps coming in lower now there were a few things in there Mark I think that I would call out as one singular factor, but a mix of things some of which we believe will sustain.

Which is why we were happy to take up our full year gross margin number last quarter. When we gave you. The first night, we said approximately 84% and we're happy to take it up to approximately 85%. So I would say is just the mix of good execution on a few different funds and a reminder, that our Cogs has a good portion of it is our.

Support team both for our customer support folks out in the area of services costs in there and so across your different dimensions, we were happy to see gross margin do better and take some of that cost to the full year guide as well.

Got it thanks a lot.

Thank you.

Thank you one moment for the next question.

Our next question will be coming from George Wang of Barclays. Your line is open.

Hey, guys congrats on the quarter.

Yes, two quick ones, firstly, just given better than expected free cash flow generation, just given the kind of for you guys.

Scratches purchasing.

Stocks, just curious kind of any high level plan going forward.

To model come in terms of the share buyback just given together pre.

Free cash flow profile.

Hi, Josh. Thank you for the question. So as I mentioned in my prepared remarks, we did begin repurchasing shares in Q1 under the authorization that we had from <unk> that was approved by our board in August and we did that with MB five one program that we've set up due to the timing of the authorization we were only in.

The market for a portion of Q1.

Youll see in the financial tables that we put up with the earliest that we spent about 17 and a half million dollars repurchasing.

Repurchasing shares during that time, so for a portion of Q1.

$17 5 million and the timing and amount of future repurchases will continue to depend on a variety of factors, including stock prices just condition the market and so on and so.

I won't get too specific in terms of outlook, but I wanted to give you at least a better color on what we did in Q1 acknowledging it was only for a portion of the quarter.

Okay great.

Quick follow up if I can just.

Can you kind of comment on the backlog last quarter, you talked about backlog pricing improved in absolute dollars year over year, and you kind of factored into the FY 'twenty Guide just curious if he has any latest update in terms of the backlog level at any.

Plus or minus is how would that factor into the latest guide.

Yes happy to give you some color on that so we used some backlog in Q1 as is seasonally typical for Q1 and expect some backlog to be consumed over the course of this fiscal year.

As we've talked about before but as is to be expected in an environment like this where things remain fairly uncertain from a macro perspective, the range of possible outcomes is wider than usual.

And as we continue to grow the absolute dollar number of backlog could also increase overtime. So a few different factors, there, but but yes I think in Q1, we used some backlog as its typical for Q1 and we expect to use some backlog over the course of the yard as well.

Okay, Great I will go back to the queue.

Thank you.

Thank you.

One moment for the next question.

And our next question will be coming from Michael <unk> of Needham Your line is open.

Hey, guys. Thanks for getting me on the on the <unk>.

And congrats on the strong quarter.

Wanted to cycle back to some of the comments when we're describing.

The revenue and the ECB billings outperformance I know that we cited specifically U S. Federal.

Can you give us a better sense as far as what U S federal release.

As far as size or contribution to revenue <unk> billings.

Understanding that theres, probably seasonality with their year end, but would just be good to get a flavor for how big of a component that is to the overall business and then also.

If you could shed some light I know that you cited the improved linearity during the quarter.

Is it.

Has that improved linearity tied back to the the stronger U S federal business or is it.

Are those two independent items in your view.

So I can take the first crack at the federal piece.

But again for the rest.

So one of the things look lastly, we don't have verticals, but we have two exceptions.

That's in the U S. We have federal as a vertical and we have a pet scan at another vertical so from that perspective, a significant portion of our business, we haven't broken it out exactly in terms of the percentages.

Given the fact that it is one or two verticals and we have a focused team on it.

It is important for us.

And of course, there's always seasonality that Luke when he was alluding to here this quarter typically is strong.

So thats kind of what we have to say about <unk> you can comment on the linearity.

Yes, so on the linearity, Mike what we mean there is we have some expectations of how much bookings comes in in month, one month two monthly.

And the reason that's important for free cash flow because we invoice soon after we get the booking and we have 30 to 45 day invoice payment terms.

So what we saw in Q1 is that compared to our expectations going in so we saw a larger proportion of those bookings come in month, one and module.

And and you are right. It is the outperformance of inspired as well and of course that had.

And the U S. Federal government has therefore clear end in September so that was likely a factor in that and so what that meant was that given again, we invoice right. After we get the bookings we will be collected.

More cash from bookings in Q1 than we had previously expected.

It was a significant driver of that pick us up a college in Q1.

Understood. Thank you for clearing that up and I guess that you have.

Other question that I had this is more specific to the <unk> guidance that we have here today rukmini, but if I could just take a look I'm happy to see the revenues coming in above where we are in the sell side models were happy to see the strong gross margins and then the operating margins also coming in ahead of where we've been but one of the things.

But im looking at is the Opex the implied opex from Q1 to Q2.

Has a pretty material pickup.

After being relatively flat the last couple of quarters and I just wanted to see.

What is it that you guys are embedding in that is it more maybe targeted go to market initiatives are you focused on.

Hiring or potentially back filling open positions like how should we think about that opex ramp that you guys are putting now in the <unk> guide.

Yes, so a few points on Q2 opex relative to Q1, Mike.

Just wanted to ask maybe talked about when we laid out sort of our initial full year guide on the last call. We talked about the fact that we plan to continue to invest to drive growth, while continuing to improve the margin profile.

And that's the approach that we've taken for this year and we saw some of that in the last part, but also we've got some sort of idea of investor day as well.

And so in general we started those investments and as you can imagine it takes a week, we're continuing to hire and so as you can imagine thats what else needs to sort of an increase in Q2 as more of those folks come on board. The other piece here is this is only for one month of Q2, but in the quarter calendar year resets and I alluded to this in my script as well with payroll taxes and all of that reset.

For calendar year, 'twenty, four which means that we have one month of that in January that also has an effect on the Q2 Opex and that also had of course, we were pleased as you pointed out to be able to raise both of our topline and bottom line guidance for the full year.

That's great. Thank you for explaining that again, Rick and I will turn it over to my colleagues I appreciate the time.

Thank you Mike.

Thank you one moment, while we prepare for the next question.

And the next question will be coming from Eric Siebert.

J M. P. Your line is open.

Yes, Thanks for taking my question and congrats.

Two questions one.

You said the sales cycles continue to elongate are they still getting longer or is it just.

Kind of reached a level of extended.

Cycles.

Is it consistent with last quarter is it actually getting longer and then secondly.

<unk> had some time now to talk with customers about their chart GBT in a box.

<unk>.

What are the specific use cases.

Customers are using.

What department and they are using that for or how are they using that in particular.

Thank you Eric I'll take the first one and then I'll, let you go.

You can take the Netherlands or putting in a box question. So on sales cycles, what I said in my script that it was the burst seeing some increased.

Elongation right in a modest increase in average sales cycles on a year over year basis, I'm, comparing Q1 to Q1, it had gotten longer in Q1.

But if you look at average sales either in Q1, it was more or less the same as the last few quarters.

It's not like it's continue to lengthen necessarily quarter over quarter, but year over year. It remains elevated and again, it's hard to sort of forecast, what's going to exactly what's going to happen here given all the uncertainties you talked about but that's what we saw in Q1.

Okay.

Eric on the deepest in the box by debates Gpt's chat DPT.

Hello, So uninhibited box actually there are four use cases that we typically see and again I want to.

Thank you Stephanie.

Pretty early a lot of people are just trying to figure out how to use NII, but the full use cases right. Now first of course is a classic customer service use case that includes cat.

Thats one the second there is a whole bunch of operations, having to do with document documents document analysis documents. The three key information from unstructured data for example.

That's the second big.

<unk>.

I would say a use case.

The third use case will pilot generally providing assistance services.

Ample to software developers.

Researchers in pharma for example, that's a third use case.

In the fourth use case with avid broadly classify as our detection of Frac dimension.

And indeed.

Inkjet across multiple verticals I think as these tend to characterize verticals, whether it be financial services, a retailer or federal or other.

Last question is you talked about the classic customer service is that the majority of the use cases at this point or is it spread across those different.

For auctions I.

I would say it's spread across.

It's another one for example happens to be one that we.

We are ourselves internally driving right now.

Within your tactics.

But I would say, it's fairly broad based across all of those forward and it's still very early I would say to say hey, we can actually say this within one.

<unk> CAGR.

We are in the farming stages here.

Okay. Thank you.

Thank you one moment.

Our next question.

Will be coming from.

Meta Marshall.

Of Morgan Stanley Your line is open.

Alright. Thank you this is <unk> on for meta.

So just first question I understand its sort of a challenged environment today, but I guess just in terms of customer conversations or what are you hearing from customers in terms of 2020 budgets I guess what are you hearing from customers on those budgets are you seeing a pickup in RFP activity.

I wouldn't say, there's anything specific we are seeing in our conversations with customers I think.

Thirdly, I would say, they're still investing in the digital efforts and their modernization efforts.

Every customer call I have this conversation on how they can be using AI inside their companies.

So from a budget perspective.

I would say in general I think it spending will probably grow faster than GDP growth and within that I would say software modernization spending will probably grow faster than that but.

But we haven't seen any any specific trend other than the fact that there are customers still on us at least they're willing to spend the money. They want to make sure. There is a solid business case, and there's good <unk> and rois for everything that they do and they are certainly more inspection, which is what is causing the elongation of the cycle, where they want to make sure that that may be in there.

This level of accruals for example, before they sign up with projects, but they are still moving forward with projects.

Okay. That's helpful. And then a quick follow up sort of at the Analyst Day, you mentioned some of the Vmware share gains will likely take place, which is a little bit of share with each customer overtime I guess as you've started to see these opportunities take place are these shares maybe the share taking greater than expected or is it just more opt.

Unities or more at bats, or I guess, just any color around sort of the opportunities youre seeing in share gains there.

Yes, I think we commented on the overall situation from a BMI broadcom perspective.

Again, I think they are still at a point, where we have a a.

A significant and growing pipeline of opportunities that we're engaged in with prospects.

But it's hard to predict what portion of those will then how much was the for example bring us in as a second window the sole vendor.

Or just use it as a yes.

Negotiating lever to get a better deal from Vmware. So there's a lot of uncertainty and lack of predictability data for the long term. So this focus on the timing for example for when this might happen. So that's why we have.

Modeled in some level of share gains here into our.

Our forecast for the <unk> incorporated into the guidance, but it is going to be I would again emphasize that it is going to be a multiyear thing for us here.

And it's going to be a bit timing and the exact share gains are going to be a little unpredictable.

Okay, Great. That's helpful. Thank you.

Thank you one moment for the next question.

Our next question will be coming from Ben Bollin Cleveland.

Cleveland Research your line is open.

Thank you good afternoon, everyone.

Rajiv I wanted to ask about the global 2000 financials awards could you share a little bit about what that process looks like.

Long was the evaluation the pilot in.

How does the ACB ramp for that deal does it build over time.

They get more data centers to the commence at a full run rate just any color on that and then I have a follow up.

Yes. So this particular bank in Asia Pacific <unk> Bank has been a customer for a while.

Yes.

And what they've been doing of course is the classic they've been migrating from traditional legacy.

Yes, <unk> infrastructure over to HCI.

For many years I mean, they've been a customer for a while now and for many years. It was a dual vendor.

Situations with us and Vmware.

So <unk> been going down both paths they had us they had this end and this is a classic.

We were coming due for renewal and they are also looking to expand significantly increased their presence theyre growing.

They have multiple data centers.

So for them. This was the time for them to.

For us to do an expansion along with the renewal.

A substantial expansion and like we said the other day to get customers generally once we get in the door, they're pretty happy with us and they do expand with us over time. In fact, we are giving you some data at Investor day in terms of how much the expenses like I think it was $25 26 ex.

Overnight. So this particular bank with similar like that they were comfortable with US and then now they have this additional triggers that they were concerned about what would happen on the other side. So when they did do the expansion with us.

Rent with us as a sole lender.

So that's sort of how it played out for us.

Okay alright good.

Add to that Ben I think you had a question on ACB ramp and just to clarify right our contracts typically.

There are some evenly spread there isn't a ramp within the yard.

This transaction then typically most of our transaction it would be a total PCB amount divided by the contract duration that that's how we.

We calculate the ACB of any given transaction.

Okay, that's great.

The other item.

I'm curious you talked about the MSP Award can you share any thoughts about your strategy around go to market efforts do you have some programs specifically geared.

To pursue.

More of these partners that are potentially alienate by this deal that's it for me. Thank you.

Yes, I think Thats a.

Again, both in MSP specific thing here on a broader thing DRAM spending your vessel.

<unk> been so so on the MSP specific I mean for US independent of this transaction. This was.

An area that we want to do more and because traditionally we have not had a big developer market through MSP. So for the last couple of years, we've been building up our MSP presence and recruiting more of these MSP to come onboard as partners and that continues and this particular deal. This quarter was a good example of an expansion opportunity.

Does something small with us and notwithstanding significant expansion.

With us so I do think that.

With the transactions happening it's not.

Not only the customers.

That are going to be concerned, but there is also the partners and that includes the MSP partners. So so we are talking to the MSP partner effectively with other customers and trying to recruit more of them onto the onto the <unk> platform and.

And so this is still I would say, yes, we are a young when it comes to the MSP route to market and so.

Potentially in a lot more MSP that we do need to recruit over time and get a get on board.

As our partners and we have a team.

I'd note that because thats focused on recruiting these partners enabling them.

Okay.

Thank you Jake.

Thank you one moment for the next question.

Okay.

Okay.

Okay.

The next question is coming from <unk> Betcha Chara from Bank of America. Your line is open.

Hi, Thank you, it's actually lumpy here at the Bank of America.

I guess it worked.

If you could address seasonality.

Q2 revenue guidance.

At the midpoint is calling for 8% growth that is the lowest that we've seen over the last four or five years, but you're calling for Q3 seasonality.

To be down similar to fiscal 'twenty three.

It shows down the highest in the last several years and I'm. Just wondering are you seeing something around the macro that's causing you to.

View the seasonality this way, which is which is actually a law.

Little bit biased more towards Q3 than historical a little bit lower also in Q2 to the upside.

Just wondering if you could share any color there.

Hi, Ramsey thanks.

Question. So a few things I would say one on the Q1 to Q2 dynamic we talked about Q1 of course came in at a bit higher than our expectations given the beat across revenue and ECB buildings are lumpy. So I think relative to that Q2, I think to your point still going to look based on our guidance right higher than.

Q1 is the seasonally Steve I wouldn't read too much into them.

And to that dynamic and then the reason we sort of gave the color on Q3 is to just not what we're seeing right now based on pipeline and all the various factors we've talked about already as it relates to things that are driving.

The top line.

And.

Ill just remind folks again as we said in the prepared remarks as well that the full year ACB billing is at about a five or 6% accomplished some of the four quarters given the amortization that we do each quarter for contracts less than one year. So overall I would say one thing I think I wouldn't read too much into.

The seasonality point other than we're seeing this is what we're seeing in our pipeline and wanted to give folks an update on that.

Overall, we are happy to be able to raise our 2040 <unk> billings guidance. Following a solid first quarter, but we've also factored in some caution overall regarding how the rest of the year plays out given some of this back on track.

Okay. Okay. Thank you I appreciate the color and industrial free cash flow to clarification.

When you when you think about what you would have normally call them normal booking linearity in the quarter.

What was that what would you say is the delta of over achievement in fiscal <unk> is that over achievement primarily.

What's driving the full year free cash flow increase or are you expecting sort of you know.

Is that free cash flow ways beyond sort of the <unk>. Thank you so much.

Yes, great question.

One thing so two thoughts one on Q1, we of course don't buy two quarterly free cash flow. So I'm not able to sort of give you specifically how much we over achieved our expectations for Q1 free cash flow, but we did over achieve it and I will say that.

In addition to the billings number coming high upside given we had a beat on ACB billings as well for Q1, so that helped but the linearity was a significant factor in Q1, okay. So that did have a significant impact on the outperformance will free cash flow in in Q1, and I think the second part of your question is.

Our full year free cash flow guidance, and what I've said that is that.

In addition to benefiting from the raised top line guide and of course that's been.

The length of a very high correlation with the let's say cash flow rates in tobacco, we been able to raise our full year billings number. So thats one factor, but also expecting to see some benefit from somewhat better working capital management within the yogurt than previously expected.

Building from improved linearity, so that is helping us to raise our full year free cash flow guide as well.

Okay, great. Thank you so much congrats on the quarter.

Thank you Andy.

Thank you one moment for the next question.

And the next question is coming from Simon Leopold.

Of Raymond James Your line is open.

Okay.

Hey, guys. This is.

Victor Chu in for Simon vehicles.

Regarding the share shifts.

And competitive dynamics with Vmware or are there instances where customers use both.

Vmware and <unk>.

Paul.

A lot of customers.

We can do both we embed endodontics.

Again, I think just to clarify how you sometimes they'll use it.

I have a dual vendor strategy they'll lose some agreement somewhat.

There is also work together with <unk>, Thanks looks together with BMS Hypervisor effect. So we have a lot of customers who are deploying new techniques on top of Vms Hypervisor FX and over the years. Many of these have also migrated from <unk> to our own built and Hypervisor. That's included in.

The platform in fact again I would say over the years, we came up with our own hypervisor back in 2015.

And today, if you look at our workload across the entire spectrum of.

Customers about 65% of those workloads.

Greater than they are now on.

Jeff.

No Denny compromise it most of those <unk> hypervisor, but we are committed to continue to inter operate very nicely with BMS and so customers can have the choice they have.

It's all about providing freedom of choice for customers. So we interoperate with them, we can replace them fully it's up to the customer.

Okay. Okay.

Our.

Are you having discussions with customers.

Your visibility kind of.

Into what their plans are going forward.

Built into your assumptions.

Kind of the share shifts that come along with that is that kind of built into it.

Yes, I'm sure.

Some dry powder.

Potentially happens yes.

Sure Yeah, like we said, it's hard to predict the timing and how big these things are going to be right and so we have factored in some of this into our guide for the full year and we'll have to see how things materialize. There's a lot of engagement, but what happens to these engagements from do we win them fully do we win and partially or do we win nothing and just become.

Our leverage point for them to get a better deal on the other side.

Hard to predict ahead of time, so we have to see how it plays out and it's hard to predict both timing and the degree to which the play out for each customer.

Okay. Okay.

That's very helpful.

Let me see here.

Okay, Yes, that's helpful.

I'll jump back into queue and.

Yes.

That's very helpful. Thank you.

Thank you. This concludes the Q&A session I would like to turn the call back over to management for closing remarks. Please go ahead.

I don't think we have any closing remarks Louis.

No I think we conclude the call now thank you.

Thank you everyone. Thank you. Thank you all for joining the conference call Tonight, you may all disconnect.

Okay.

[music].

Yes.

Okay.