Q2 2024 Nutanix Inc Earnings Call

Okay.

Operator: Good day, and thank you for standing by. Welcome to the Nutanix Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Good day, and thank you for standing by walking to a new Tonics second quarter 2024 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question answer session.

Operator: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I will now hand the conference over to your first speaker today, Rich Valera, Vice President of Investor Relations. Please go ahead.

A question during the session that you need to press Star one telephone you didn't hear an automated message advising your harness race to a draw. Your question. Please press star one again, please be advised that today's conference is being recorded.

The conference over to your first speaker today, Rich Valera invest vice President of Investor Relations. Please go ahead.

Richard Valera: Good afternoon, and welcome to today's conference call to discuss second quarter fiscal year 2024 financial results. Joining me today are Rajiv Ramaswami, Nutanix's President and CEO, and Rukmini Sivaraman, Nutanix's CF. After the market closed today, Nutanix issued a press release announcing second 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 uncertainty, some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these states. For more detailed descriptions of these and other risks and uncertainties, please refer to our SEC filings, including our annual report on Form 10-K for the fiscal year ended July 31st, 2020, and our subsequent quarterly reports on Form 10, as well as our earnings press release issued today.

Richard Valera: Good afternoon, and welcome to today's conference call to discuss second quarter fiscal year 2024 financial results.

Richard Valera: Today, our Rajiv ramaswami.

Richard Valera: As president and CEO.

Richard Valera: And as we sit around them.

Richard Valera: CFO.

Richard Valera: After the market close today.

Richard Valera: Issued a press release announcing second quarter fiscal year 2024 financial results.

Richard Valera: If you'd like to read the release please visit the press releases section.

Richard Valera: Right.

Richard Valera: During today's call.

Richard Valera: It will make forward looking statements, including financial guidance.

Richard Valera: 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.

Richard Valera: Okay.

Richard Valera: These statements.

Richard Valera: A more detailed description.

Richard Valera: And other risks and uncertainties, please refer to our SEC filings.

Our annual report.

For fiscal year ended July 31, 2023, and our subsequent quarterly reports on Form 10-Q.

Richard Valera: Well as our earnings press release issued today.

Richard Valera: These four 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. Please note, unless otherwise specifically referenced, all financial measures we used on today's call, except for revenue, are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided, to the extent available, reconciliations of these non-GAAP financial measures to GAAP financial institutions on our IR website and in our earnings questions. Nutanix will be participating in the Morgan Stanley TMP Conference. San Francisco in March. We hope to see some of you there.

Richard Valera: Yes.

These forward looking statements.

Richard Valera: Yes.

Richard Valera: We undertake no obligation to revise these statements after this call.

Richard Valera: As a result, you should.

Richard Valera: Not rely on them as representing our views in the future.

Richard Valera: Please note unless otherwise specifically referenced.

Richard Valera: All financial measures, we use on today's call except for revenue.

Richard Valera: Are expressed on a non-GAAP basis and have been adjusted to exclude certain charges.

Richard Valera: We have provided you expect available reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website.

Richard Valera: Our earnings press release.

Richard Valera: The tenants will be participating in the Morgan Stanley TMT conference in San Francisco on March six.

Rajiv Ramaswami: Finally, our third quarter fiscal 2024 quiet period will begin on Tuesday, April, and with that, I'll turn the call over to Rajiv. Thank you, Rich, and good afternoon, everyone. We delivered a solid second quarter, with results that came in ahead of our guidance. The macro backdrops in our second quarter remain uncertain, but stable relative to the prior quarter. We continue to see steady demand for our solutions driven by businesses prioritizing their digital transformation and infrastructure modernization initiatives and looking to optimize their total cost of ownership, or TCO. Taking a closer look at the second quarter.

Richard Valera: Some of you there.

Richard Valera: Finally, our third quarter fiscal 2024 quiet period will begin on Tuesday April 6th.

Richard Valera: With that I'll turn the call over to Rajiv.

Richard Valera: Rajiv.

Rajiv: Thank you rich and good afternoon, everyone.

Rajiv: We delivered a solid second quarter.

Rajiv: That came in ahead of our guidance.

Rajiv: The macro backdrop, and our second quarter remained uncertain.

Rajiv: Stable relative to the prior quarter.

Rajiv: We continue to see steady demand for our solutions driven by businesses prioritizing that digital transformation and infrastructure modernization initiatives.

Rajiv: And looking to optimize their total cost of ownership our TCE.

Rajiv: Taking a closer look at the second quarter, we were happy to have exceeded all of our guided metrics.

Rajiv Ramaswami: We were happy to have exceeded all of our guided expectations. We delivered record quarterly revenue of $565 million and grew our ARR 26% year over year to $1.74 billion. We also had another quarter of strong free cash flow generation. Finally, they achieved quarterly gap operating profitability for the first time in Q2, demonstrating the progress we continue to make on driving operating leverage in our subscription model. Overall, our second quarter financial performance reflected continued disciplined execution. Our largest wins in the quarter demonstrated the appeal of the Nutanix cloud platform to organizations that are looking to adopt hybrid multi-cloud operating models, optimize the performance of their workloads, and improve their TCO, all while managing through some of the disruption from recent industry M&A. A good example is a seven-tricker win with a global EMEA-based provider of automotive technology solutions.

Rajiv: We delivered record quarterly revenue of $565 million.

Rajiv: And grew our ear are 26% year over year to $1 $74 billion.

Rajiv: We also had another quarter of strong free cash flow generation.

Rajiv: Finally.

Rajiv: We achieved quarterly GAAP operating profitability for the first time in Q2.

Rajiv: The MOSFET and the progress we continue to make on driving operating leverage in our subscription model.

Rajiv: Overall, our second quarter financial performance reflected continued disciplined execution.

Rajiv: Our largest wins in the quarter demonstrated the appeal of the <unk> cloud platform to organizations that are looking to adopt hybrid multi cloud operating model.

Rajiv: Optimize the performance of their workloads and improve their T C L.

Rajiv: All while managing through some of the disruption from recent industry M&A.

Rajiv: A good example is a seven figure win with a global EMEA based provider of automotive technology fruition.

Rajiv Ramaswami: This new customer had an existing three-tier footprint in need of a refresh, but it was frustrated by the recent price increases of their incumbent vendors and was also looking to have the flexibility to potentially move some of their footprint to the public cloud in the future. They chose our Nutanix cloud platform, including our AHP hypervisor, as well as Nutanix Cloud Management, based on its superior TCO, built-in automation for infrastructure as a service, and its ability to seamlessly transition workloads to public cloud via our NC2 solution. We see this win as a good example of the value customers see in our cloud platform for both modernization and providing a seamless pathway to the public cloud. A second good example is a win with a large North American-based hedge fund that is looking to mitigate the growing cost of its public cloud-hosted virtual desktop infrastructure, or VDI, and for a more responsive solution to meet the performance demands of its creators. They chose to migrate their VDI onto the Nutanix cloud platform on GPU-based servers.

Rajiv: This new customer had an existing carinthia footprint in need of a refresh.

Rajiv: Bulk of frustrated by the recent price increases of the incumbent vendor.

Rajiv: And we're also looking to have the flexibility to potentially move some of their footprint to the public cloud in future.

Rajiv: The tourist type metallic slot platform, including our <unk> hypervisor.

Rajiv: As well as metallic cloud management.

Rajiv: Based on our superior T C L.

Rajiv: In automation for infrastructure as a service.

Rajiv: And its ability to seamlessly transition workloads to public cloud via our <unk> solution.

Rajiv: We see this win as a good example of the value customers see in our cloud platform for both modernization and providing a seamless pathway to the public cloud.

Rajiv: A second good example is a win with a large north American based hedge fund.

Rajiv: That was looking to mitigate the growing cost opex public cloud hosted virtual desktop infrastructure our VDI.

For a more responsive solution to meet the performance demand Opex traders.

Rajiv: They chose to repatriate their VDI onto the new tanks Dart platform on TPU based server.

Rajiv Ramaswami: Resulting in a meaningful improvement in performance and an estimated 60% plus TCO savings. We believe this win demonstrates the ability of the Nutanix Cloud Platform to seamlessly run and manage workloads wherever optimal performance and TCO can be achieved, whether on-premise, at the edge, or in the public. And final example, is one of our largest new customer wins in the quarter with a global airline based in the EMEA region that was looking to modernize their three-tier infrastructure while enabling a hybrid multi-cloud environment. This customer chose the Nutanix cloud platform, including Nutanix cloud management, to run their business-critical applications, leveraging its simplicity and built-in automation for infrastructure. They also adopted Nutanix database service for managing Nutanix Unified Storage to service their unstructured data.

Rajiv: Resulting in a meaningful improvement in performance and an estimated 60% plus CTO Felix.

Rajiv: We believe this win demand space the ability of the metallics cloud platform to seamlessly run and manage workloads wherever the optimal performance and Tcl can be achieved whether on premise at the edge.

Rajiv: In the public cloud.

Rajiv: A final example.

Rajiv: One of our largest new customer wins in the quarter with a global airline based in the EMEA region that was looking to modernize that treat their infrastructure, while enabling a hybrid multi cloud environment.

Rajiv: This customer chose <unk> stock platform.

Rajiv: Including <unk> cloud management to run their business critical applications.

Rajiv: Everything is simplicity and built in automation for infrastructure as a service.

Rajiv: They also adopted mechanics database service for managing and deploying their databases throughout their organization.

Rajiv: And.

Rajiv: <unk> unified storage to service their unstructured data needs.

Rajiv Ramaswami: We see this win as evidence of the value companies see in adopting our full-stack solution. Moving on. Adopting and benefiting from generative AI is top of mind for many of our customers. As such, interest remains high in our GPT in a box offer, which enables our customers to accelerate the use of generative AI across their enterprises while keeping their data secure. Last quarter, we saw our first win for GPT in a box with a large federal agent.

Rajiv: We see this win as evidence of the value companies see in adopting our full stack solution.

Speaker Change: Moving on.

Rajiv: Adopting and benefiting from generated AI.

Rajiv: It's top of mind for many of our customers.

Rajiv: I thought interest remains high and our DPT in a box offering which enables our customers to accelerate the use of generative AI across their enterprises, while keeping their data secure.

Rajiv: Last quarter, we saw our first win for <unk> in a box with a large federal agency.

Rajiv Ramaswami: And this quarter, we saw multiple additional wins for our JNAI-ready infrastructure offering. While it's still early days and the numbers remain small, I'm excited about the longer-term potential for GPT. Finally, on the part of, I'm happy with the early progress we're seeing with our Cisco partners. We continue to seek good customer interest in our joint offer and saw additional wins for it in the second quarter, while it's still early in this partnership. I'm encouraged by what we've seen. Inclosed.

Rajiv: And this quarter, we saw multiple additional wins for our DNA I already infrastructure offering.

Rajiv: While it's still early days and the numbers remain small.

Rajiv: Im excited about the longer term potential for <unk> in a box.

Rajiv: Finally on the partner front I'm happy with the early progress, we're seeing with our Cisco partnership.

We continue to see good customer interest in our joint offering.

Rajiv: And so additional wins for it in the second quarter.

Rajiv: While it's still early in this partnership.

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

Rajiv: In closing.

Rajiv Ramaswami: We are encouraged that the compelling value proposition of our cloud platform and the strength of our business model enable us to increase our top and bottom line outlook for fiscal 2024. We remain focused on delighting our customers while continuing to drive sustainable, profitable growth. And with that, I'll hand it over to Rukmini Sivaraman. Rukmini, Thank you, Rajiv. I will first review our Q2 Fiscal 24 results, followed by guidance for Q3 Fiscal 24, and finally provide an updated view of our full year Fiscal Year 24 guidance. Results in Q2-24 came in higher than the high end of our range across all guided methods.

Rajiv: We are encouraged that the compelling value proposition of our cloud platform and the strength of our business model enable us to increase our top and bottom line outlook for fiscal 2024.

Rajiv: We remain focused on delighting, our customers, while continuing to drive sustainable profitable growth.

Rajiv: And with that.

Rajiv: I'll hand, it over to Rick many see Rama.

Rick: There are many.

Thank you Rajeev I will first review, our Q2 fiscal 'twenty forward results.

Rick: Followed by guidance for Q3 fiscal 'twenty four and finally provide an updated view of our full year fiscal year 'twenty for guidance.

Rick: Results in Q2 24 came in higher than the high end of our range across all guided metrics.

Rukmini Sivaraman: ACV billings in Q2 were $329 million, above the guided range of $295 to $305 million, representing year-over-year growth of 23%. The outperformance was driven by better-than-expected renewal performance due to a combination of good discipline around renewal economics, improved on-time renewal performance, as well as some early and co-term renewals. Revenue in Q2 was $565 million, higher than the guided range of $545 to $555 million and a year-over-year growth rate of 16%. ARR at the end of Q2 was $1.737 billion, representing year-over-year growth of 26%.

Rick: Billings in Q2 were $329 million a.

Rick: Above the guided range of $295 million to $305 million.

Rick: On thing year over year growth of 23%.

Rick: The outperformance was driven by better than expected renewals performance due to a combination of good discipline around renewables economics improved on time, they're nowhere performance as well as some early in quarter.

Rick: Revenue in Q2 was $565 million higher than the guided range of $545 million to $555 million.

Rick: And a year over year growth rate of 16%.

Rick: <unk> at the end of Q2 was 1.737 billion.

Rick: Representing year over year growth of 26%.

Rukmini Sivaraman: In Q2, we continue to see modestly elongated average sales cycles compared to historical levels; average contract duration in Q2 was 2.8 years, slightly lower than Q1 and more or less in line with our expectations. Non-GAAP gross margin in Q2 was 87.3%, higher than our guided range of 85 to 86%. Non-GAAP operating margin was 21.9%, higher than our guided range of 14 to 16%, largely due to higher revenue and lower operating expenses as a result of the timing of hiring. Non-GAAP net income was $136 million, or fully diluted EPS of $0.46 per share based on fully diluted weighted average shares outstanding of approximately 299 million shares.

Rick: In Q2, we continue to see modestly elongated average sales cycles compared to historical levels.

Rick: Average contract duration in Q2 was two eight years.

Rick: The lower than Q1, and more or less in line with our expectations.

Rick: non-GAAP gross margin in Q2 was 87, 3% higher than our guided range of 85% to 86%.

Rick: non-GAAP operating margin was 21, 9% higher than our guided range of 14% to 16% largely due to higher revenue and lower operating expenses as a result of timing of hiring.

Rick: non-GAAP net income was $136 million or fully diluted EPS of <unk> 46 cents per share based on fully diluted weighted average shares outstanding of approximately 299 million shares.

Rukmini Sivaraman: Q2 marked our first ever quarter of positive GAAP operating income of $37 million and of positive GAAP net income of $33 million, with fully diluted GAAP EPS of 12 cents per share. Given expected variability in quarterly revenue and timing of expenses, we would not expect to be consistently profitable at the gas operating profit level over the near term. DSOs based on revenue and ending accounts receivable were 31 days in Q2. Free cash flow in Q2 was $163 million, representing a free cash flow margin of 29% higher than our expectations due to higher billings and lower expenses in the quarter.

Rick: Q2 marked our first ever quarter of positive GAAP operating income of $37 million.

Rick: And a positive GAAP net income of $33 million.

Rick: With fully diluted GAAP EPS of <unk> 12 per share.

Rick: Given expected variability in quarterly revenue and timing of expenses, we would not expect to be consistently profitable at the gas operating profit level over the near term.

Rick: Dsos based on revenue and ending accounts receivable were 31 days in Q2.

Rukmini Sivaraman: We ended Q2 with cash, cash equivalents, and short-term investments of $1.644 billion, up from $1.571 billion at the end of Q1. We continued repurchasing shares in Q2 under the share repurchase program previously authorized by our Board of Directors. Our sustainable generation of free cash flow enabled us to transition to net share settlement to pay for employees' tax liability on RFU vesting in Q2 and going forward from our previous method of sell-to-cover. This, along with our share purchase program, will help us continue to manage dilution. Moving to Q3-24. Our guidance for Q3 is as follows. ACV billing of $265 to $275 million, revenue of $510 to $520 million, non-GAAP gross margin of approximately 85%, non-GAAP operating margin of 7.5 to 8.5%, and fully diluted shares outstanding of approximately 301 million shares.

Rick: Free cash flow in Q2 was $163 million, representing a free cash flow margin of 29% higher than our expectations due to higher billings and lower expenses in the quarter.

Rick: We ended Q2 with cash cash equivalents and short term investments of $1.644 billion.

Rick: Up from 157 1 billion at the end of Q1.

Rick: We continued repurchasing shares in Q2 under the share repurchase program previously authorized by our board of directors.

Rick: Our sustainable generation of free cash flow enabled us to transition the net share settlement to pay for employees tax liability on our few vesting in Q2 and going forward from our previous method of sell to cover.

Rick: This along with our share repurchase program will help us continue to manage dilution.

Rukmini Sivaraman: The updated guidance for full year fiscal year 24, which is higher than our previously provided fiscal year 24 guidance across all metrics, is as follows. ACV billings of $1.09 to $1.11 billion, representing a year-over-year growth of 15% at the midpoint of the range, revenue of $2.12 to $2.15 billion, representing a year-over-year growth of 15% at the midpoint, non-GAAP growth margin of 85 to 86%, non-GAAP operating margin of 12.5 to 13.5%, and free cash flow of $420 to $440 million, representing a I will now provide some commentary regarding our updated fiscal year 24 guidance. First, we are seeing continued new opportunities for our solutions despite the uncertain macro environment. However, as we mentioned previously, we have continued to see a modest elongation of average sales cycles relative to historical levels.

Rick: Moving to Q3 'twenty for our guidance for Q3 is as follows.

Rick: <unk> billings of $265 million to $275 million.

Rick: Revenue of $510 million to $520 million.

Rick: non-GAAP gross margin of approximately 85%.

Rick: non-GAAP operating margin of seven five to eight 5%.

Rick: And fully diluted shares outstanding of approximately 301 million shares.

Rick: The updated guidance for full year fiscal year, 'twenty, four which is higher than our previously provided fiscal year 'twenty four guidance across all metrics.

Rick: Hello.

Rick: HCV billings of one point or nine to 1.11 billion, representing a year over year growth of 15% at the midpoint of the range.

Rukmini Sivaraman: Our fiscal year 24 new and expansion ACV performance outlook assumes some impact from these macrodynamics. We are also seeing a higher mix of larger deals in our pipeline, which is driving greater variability in the timing of our new and expansion bids. Second, the guidance assumes that our renewables business will continue to perform well. Third, the full-year guidance continues to assume that average contract duration would be flat to slightly lower compared to fiscal year 23, as renewals continue to grow as a percent of our total billing. Fourth, a reminder that the full year ACV billing is not the straight sum of the ACV billing for the four quarters due to contracts with duration less than one year. We expect full year ACV billing to be about five to six percent lower than the sum of the four quarters ACV billing.

Rick: Revenue of two point wanted to two to one $5 billion, representing a year over year growth of 15% at the midpoint.

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

Rick: non-GAAP operating margin of 12, five to 13, 5%.

Rick: Free cash flow of $420 million to $440 million, representing a free cash flow margin of 20% at the midpoint.

Speaker Change: I will now provide some commentary regarding our updated fiscal year 'twenty for guidance.

Speaker Change: First we are seeing continued new and expansion opportunities for our solution. Despite the uncertain macro environment.

As we mentioned previously we are continuing to see a modest elongation of average sales cycle relative to historical levels.

Operator: In closing, we are pleased that our Q2 results exceeded guidance and that we raised our top line and bottom line guidance for the full fiscal year. We remain focused on driving growth to capture the significant opportunity ahead of us and on investing prudently for that growth, consistent with our stated philosophy of sustainable, profitable growth. With that said, operator, please open the line for questions. Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for a name to be announced.

Speaker Change: Our fiscal year, 'twenty, four new and expansion ACB performance outlook.

Speaker Change: Some impact from these macro dynamics.

We are also seeing a higher mix of larger deals in our pipeline, which is driving greater variability in the timing of our new and expansion business.

Speaker Change: Second the guidance assumes that our renewals business will continue to perform well.

Speaker Change: Third the full year guidance continues to assume that average contract duration would be flat to slightly lower compared to fiscal year 'twenty three as renewals continue to grow as a percent of our total billings.

Operator: To withdraw your question, please press star 11. Again, please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from a line called Jim Fish from Piper Sandler. Your line is open. Hey guys, thanks for the question. Austin Corder here.

Speaker Change: Fourth.

I know that the full year HCV building is not the street some of the HCV billings of the four quarters due to contracts with duration less than one year.

Rajiv Ramaswami: Look, I'm going to ask the obvious that's on the top of everybody's mind, and I'm sure you're totally prepared for. On the VMware opportunity, and Rukmini, you even just mentioned, you know, you're seeing a higher mix of larger deals in the pipeline. So my question to you is, what sort of pipeline or bookings built have you seen relative to this stage last year, between either direct customers kind of coming to you or partners coming over to you as well in terms of signups? Yeah, why don't I start Jim and Rukmini can give you color on the pipeline.

Speaker Change: We expect full year HCV billing to be about five or 6% lower than the sum of the four quarters ACB blix.

Speaker Change: In closing we are pleased that our Q2 results exceeded guidance and to raise our topline and bottom line guidance for the full fiscal year.

Speaker Change: We remain focused on driving growth to capture the significant opportunity ahead of us and are investing prudently for that growth.

Speaker Change: <unk> with our stated philosophy of sustainable profitable growth.

Speaker Change: With that operator, please open the line for questions.

Rajiv Ramaswami: So first of all, I think, as you said, there are significant concerns from VMware customers regarding the Broadcom acquisition. And we think that this is a significant multi-year opportunity for us to win new customers and gain share. Now, getting to your question a bit here, the timing and magnitude of these deals are a bit unpredictable. However, our pipeline is quite substantial and growing. Now, for a number of reasons, we expect contribution from the opportunity to build gradually, right? Here are the reasons.

Speaker Change: Thank you.

Speaker Change: We will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for it needs to be announced to withdraw. Your question. Please press star one again, please limit yourself to one question and one follow up please standby we compile the Q&A roster.

Speaker Change: For first question.

Speaker Change: Our first question will come from the line of Jim Fish from Piper Sandler Your line is open.

James Edward Fish: Hey, guys. Thanks for the question is awesome quarter here.

James Edward Fish: Look I'm going to ask the obvious that's on top of everybody's mind and Im sure Youre totally prepared for.

Rajiv Ramaswami: The first one, Jim, is that many customers signed multi-year ELAs, enterprise agreements, with VMware prior to the deal closing, you know, three to five years. So it buys them some time to make the decision. The second, converting from VMS three-tier accounts or legacy storage accounts, which is a good chunk of VMS footprint, in many cases requires a refresh of their storage and or servers, right, one of the two, which could also impact the timing of the potential software purchases that they would make with VMS. Okay, and the last piece is that, like with all these accounts, we typically have a land and expand motion. So the first deal could be smaller, and then there's a lot of potential for expansion further than that. And then Rukmini, do you want to take this?

James Edward Fish: We have more opportunity.

James Edward Fish: Maybe you can just mentioned you are seeing a higher mix of larger deals in the pipeline. So my question to you is what sort of pipeline or bookings build have you seen relative to this stage last year between either direct customers kind of coming to you or partners covering over Q as well in terms of sign ups.

Speaker Change: Yes, why don't I start Jim and maybe I can give you color on the pipeline. So first of all I think as.

Speaker Change: As you said I mean, there are significant concerns from BMS customers regarding the Broadcom acquisition, and we think that this is a significant multi year opportunity for us to win new customers and to gain share.

Speaker Change: Now getting to your question basically on the timing and magnitude of these deals is a bit unpredictable.

Our pipeline is quite substantial and growing.

Speaker Change: Now for a number of reasons, we expect contribution from the opportunity to build gradually right.

Rukmini Sivaraman: Sure, yeah, I'll add one thing, Jim, to your question. I mentioned in my prepared remarks about this higher mix of larger deals that we're seeing in our pipeline, and that is driving greater variability, we believe, in the timing of our new and expansion business, as well as potentially contributing to the longer average sales cycle because larger deals do tend to take longer to close. And we believe that this higher mix of larger deals in the pipeline is driven by, you know, one, our segmentation up market, as we've talked about before, and improved product readiness for those larger customers. And secondly, some of the dynamics that Rajiv talked about already regarding concerns from larger customers regarding the impacts of Broadcom's acquisition of VMware. And so we have continued and will continue to factor all of the impact from some of these dynamics into our updated fiscal year 20 forum. It makes sense.

Speaker Change: Here are the reasons.

First one Jim is that many customers signing multiyear Elas enterprise agreement with BMS prior to the deal closing.

Speaker Change: Five years, so it bites them some time to make decisions.

Speaker Change: The second converting from BMS TGF accounts, our legacy storage accounts.

Speaker Change: Which is a good chunk of Vms footprint in many cases requests a refresh of their story against our server site one of the two which could also impact the timing of the potential software, but they would make with us.

Speaker Change: Okay and the last piece is like with all these accounts and we typically have a land and expand motion. So the first deal could be smaller and then there is a lot of potential for expansion so other than that.

Speaker Change: <unk> you want to.

Speaker Change: Sure Yeah, I'll add one thing Jim to your question is that.

Speaker Change: Mentioned in my prepared remarks about this higher mix of larger deals that we're seeing in our pipeline.

Speaker Change: And that is driving the greater variability, we believe the timing of our new and expansion business as well as potentially contributing to the longer average sales cycles, because larger deals do tend to take longer to close.

Rajiv Ramaswami: And just to follow up here, you know, there's a bit of confusion out there from what I can tell in the conversations with with investors between what VMware can do that Nutanix can't, So, Rajiv, what differences actually exist, if any, or features exist, what differences kind of exist, if any, between vSphere, for example, and Acropolis, or the VMware platform versus Nutanix platform, or features, functions you plan to add in order to make it an apples-to-apples compare, or is it simply just a legacy market perception thing that you guys can't address really what most of VMware could do? And really, why wouldn't we start to see that Acropolis attach rate get closer to, you know, 100% on every deal that you sign from kind of here on forward?

Speaker Change: And we believe that this higher mix of larger deals in the pipeline is driven by one our segmentation upmarket as we've talked about before and improved product readiness for those larger customers and secondly, some of the dynamics that Rajiv talked about already regarding concerns from larger customers regarding the impacts from Broadcom is acquisition.

Speaker Change: And so we have continued and continue to factor all of the impact from some of these dynamics into our updated fiscal year 'twenty for Oklahoma.

Speaker Change: Makes sense and just a follow up here.

Speaker Change: Of confusion out there from what I can tell on the conversations with.

Rajiv Ramaswami: Thanks, guys. Yeah, so, Jim, I think, first of all, if you compare the full stack that Broadcom is offering with VMware Cloud Foundation, that, you know, and our Nutanix cloud platform pretty much goes head to head against that, right? We've got all the capabilities. So that's a full stack that includes the hypervisor, software-defined storage, networking, and management. So we compare very well, right, with that full stack, and we're able to do a very compatible offering. And indeed, as you can see, right, our AHP penetration, our hypervisor penetration, our install base is about 70%. And we are seeing new customers who adopt a full stack start with our own. That part is correct. Now when it comes to the lower tier offering, right, VMware does have a vSphere, and now it's called, I believe, VMware Virtual Foundation, VVF, that includes vSphere and some operations management capability.

Speaker Change: Investors between what Vmware can do that <unk> can do and so so rajeev what differences actually exists if any or features that exist.

Speaker Change: Exist.

Rajeev: That's kind of exist if any between the sphere. For example on Acropolis are the Vmware platform versus mechanics platform or features functions you plan to add in order to make it an apples to apples compare or is it simply just a legacy market perception thing that you guys can address really what most of Vmware could do.

Rajeev: And really why would we start to see that crop was attach rate get closer to.

Speaker Change: 100% on every deal that you signed for kind of here on forward. Thanks, guys. Yeah. So Jim I think first of all if you compare the full stack that Broadcom is operating with BMS Cloud Foundation.

Speaker Change: Yes, and our new tenants to our platform pretty much goes head to head against that that we've got all of the capabilities. So that the whole stack that includes.

Rajiv Ramaswami: Now, what I mentioned earlier in my response to the question was that there is some amount of VMI, in fact, a big chunk of VMI where it's only the hypervisor that's connected to legacy storage, right, a three-tier storage array. Now, the way we go to the market is not to just simply replace the hypervisor with our hypervisor, right? Because our hypervisor is also part of our complete solution, right, which includes our storage. So customers are actually making a shift from a legacy architecture that's a hypervisor plus external storage to a modern HCI architecture that includes our hypervisor, but also the rest of our stack. So there, it's not just a simple life for them, but it's a conversion and modernization of the infrastructure. So I feel pretty good about what we can do. We can handle all the workloads because we have a hybrid cloud solution. We have a modern apps platform that customers can run Kubernetes applications on. We have partnerships with Red Hat for OpenShift.

Speaker Change: Whats the Hypervisor software defined storage networking and management, so we compare very well with that.

Speaker Change: But that puts Jack and been able to go through a very compatible.

Speaker Change: And indeed as you can see right now.

Speaker Change: Iteration hypervisor penetration in our installed base is about 70% and we are seeing new customers, who adopt our full stack stocked with our own hypervisor. Okay.

Speaker Change: No when it comes to the lower tier offering <unk> and now it's called I believe Vmware Virtual Foundation Bvs that includes VCR, some operations management capabilities et cetera.

Now what you what I mentioned earlier.

Speaker Change: The other question was that.

Speaker Change: There is some amount of Vms in fact, a big chunk of BMS and it's only the Hypervisor that's connected to legacy storage rates GTS territories.

Speaker Change: Now the way we go after the market is not to just simply replace the Hypervisor without hypervisor right within our Hypervisor also as part of our complete solutions, which includes our story so customers.

Speaker Change: Are actually making a shift from a legacy architecture Thats, a hypervisor plus external storage to a modern HCI architecture that includes our hypervisor, but also the rest of our stack. So that it's not just a simple like for like but it's a conversion and modernization of infrastructure assets. So I feel pretty good about what we can do we can handle.

Operator: We have partnerships with our cloud partners like Azure and AWS. So from a capability perspective, we are very much. Thank you.

Rajiv Ramaswami: One moment for our next question. Our next question will come from the line of Jason Ader from William Blair. Your line is open.

Speaker Change: All the workloads, we have a hybrid cloud solution, we have a modern.

Rajiv Ramaswami: Thank you. Hi Rajiv, from the Harvard community. I just wanted to ask about that kind of the follow-up to the last question just on the three-tier architectures out there and, you know, most of those running VMware today. Does it feel like this change with the Broadcom acquisition actually could accelerate the transition away from three-tier architectures as customers, um, you know, maybe get a little bit disenfranchised and are looking for alternatives, and then it's like, well, we never really looked So effectively now, it's not just us doing HCI, but they're also putting it there, which puts a little bit of pressure on the three-tier storage piece of it.

Speaker Change: Platform that customers can then cobot applications.

Speaker Change: We have partnerships with the Nashville open shift we have partnerships with our cloud partners like Azure and AWS. So from a capability of the portfolio perspective, we are very much there.

Speaker Change: Thank you one moment our next question.

Speaker Change: Our next question comes from the line of Jason <unk> from William Blair. Your line is open.

Jason: Thank you.

Jason: Hi, Rajeev Harvard community I, just wanted to ask on that kind of followed the trucks and the last question just on the three tier architectures out there.

And most of those running Vmware today does it feel like.

Jason: This change with with the Broadcom acquisition actually could fix.

Accelerate the transition away from a three tier architectures as customers.

Rajiv Ramaswami: And so we are clearly focused on that opportunity, right? In terms of, and we've been doing that all day long, right? Since we've started migrating legacy three-tier over to HCI, and potentially, this might help, the other thing we should also keep in mind, just so we don't lose track of it, is that there are even easier insertion opportunities now because there is a substantial base of vSphere plus vSAN, and HCI out there. And so that's almost a like for like comparison, right?

Maybe get a little bit disenfranchised and are looking for alternatives and then it's like well, we never really looked at HCI that closely.

Jason: But now maybe we should or those kind of conversations happening.

Speaker Change: Very much so I would say Jason So in fact you are.

Jason: Right right. There is a lot of them that with what we can see here.

Jason: And one of the things that Broadcom. It says, let's do it has done by the way is that but that Vmware cloud foundation that includes HCI.

Jason: And that the default offer into a lot of the bigger customers.

Rajiv Ramaswami: Those customers have already made the HCI decision, and they might be looking, if they're looking to migrate away from VMware, we pretty much have a like for like solution that we can migrate over to. And we are doing, you know, we're not sitting idle here, right? We are doing a bunch of things to capitalize on the opportunity. I'd say three things that we're doing.

Jason: So effectively now it's not just us doing it but then also putting it puts a little bit of pressure on the TGF storage piece of it.

Jason: And so we are clearly focused on that opportunity right in terms of and we've been doing that all day long right. Since we started migrating legacy TTM.

Jason: And potentiate that.

Jason: Now the other thing we should also keep in mind, just so that we don't lose track of it as there are even easier insertion opportunities now.

Rajiv Ramaswami: Number two, we've also put in place incentives for our partners, who are helping customers get to our platform. For new customers, as partners bring new customers to us, we give them more incentives. Number three is that we're also helping end customers with migration. You know, when they have a VMware environment and they're looking to bring our environment on, there's a period of time where they might have dual operating costs, and we try to help them out on that front. So we're also taking some very specific steps to go after the operators. Great

Jason: There is a substantial base of <unk> plus <unk>.

Jason: And.

Jason: And so that's almost a like for like that those customers are already made the HCI position and there might be looked at as they're looking to migrate away from me and then we pretty much have a like for like solution that we can.

Jason: Migrate over to and we are doing they are not sitting idle here right. We are doing a bunch of things to capitalize on the opportunity I'd say two things that we're doing.

Jason: First is that we are and we have been targeting some more advertising dollars to maximize the awareness of <unk> as the simplest easiest viable alternative for these customers.

Rajiv Ramaswami: And then a quick follow-up on your comments on Cisco, that you're happy with the early progress. When do you think, Rajiv, that could start to really be a material contributor to the business? Yeah, we factored in a modest contribution this year, Jason from Cisco. I do expect that the contribution is going to be more significant than FI25, and we'll cover that when we get to, you know, when we already talk about that FI25 guide.

Jason: Number two we've also put in place incentives for our partners.

Jason: Who are helping customers get to a platform for new customers as partners bring new customers to us we give them more incentives.

Jason: Number two yes, we're also helping and customers with migration.

When they have a vmware environment and Theyre looking to bring our environment on Theres a period of time, where they might have dual operating costs and we try to help them out on that front. So we are also taking taking some very specific steps to go after the opportunity.

Speaker Change: Great and then what quick follow up just on your comments on Cisco.

Jason: That you are happy with the early progress.

Rajiv Ramaswami: But clearly, it takes time to build this up. Yeah, we focused on enabling the full solution, training their sellers. And, you know, we're happy with the progress we're making; we are getting new customers through that route now. And they are motivated. So I think over time, it'll build. Thank you. And our next question will come from Wamsi Mohan from Bank of America. Your line is open.

Jason: When do you think.

Jason: Do you have that could start to really be a material contributor to the business. Yes, we factored in a modest contribution this year, Jason from Cisco I do expect that the contribution is going to see more significant in FY 'twenty, five and well cover that when we get to.

Jason: When you're ready to talk about that FY 'twenty five guide, but clearly it takes time to build this up.

Rukmini Sivaraman: Yes, thank you so much. You drove very strong operating leverage in the quarter. Can you talk about if there were any one-time things in there?

Jason: We focused on enabling the full solution training that sellers and.

Jason: We're happy with the progress, we're making we are getting new customers through that out now and they are motivated so I think over time, it's a bit.

Rukmini Sivaraman: I think when you mentioned something around hiring, I didn't fully catch on. But was there any one-time things in there? And why is that rewarding lower next fiscal quarter? Yes, Hi Wamsi, thanks for the question. So the reference I made in terms of our operating margin performance in Q2, which came in strong at 22% and was higher than our expectation was, because revenue was higher than we expected, and expenses were a bit lower because of the timing of hiring and just overall good expense management. And we do expect that expenses will go up in the second half. So if you look at half over half operating expenses implied in the guide, that does go up in the second half, Wamsi. And of course, compared to Q2, seasonally, revenue is lower in Q3 than it is in Q2.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Yes.

Wamsi Mohan: And our next question will come from the line of <unk> Mohan from Bank of America. Your line is open.

Mohan: Yes. Thank you so much.

Mohan: You drove very strong operating leverage in the quarter can you talk about if there were any one time things in there I think look when you mentioned something around hiring I didn't fully catch but.

Was there any one time things in their lives that rewarding lower next fiscal quarter and I will follow up.

Yes, Hi, Ramzi thanks for the question.

Speaker Change: Once I made in terms of our operating margin performance in Q2, which was came in strong at 22% and higher than our expectation was one.

Ramzi: <unk> revenue was higher than we expected and expenses were a bit lower because of timing of hiring and just overall good expense management and we do expect that expenses will go up in the second half. So if you look at half over half operating expenses in <unk>.

Rajiv Ramaswami: So those are some of the things that are factoring into the outlook. But overall, you know, I'd say we have continued to be focused on investing and investing thoughtfully in this growth opportunity that's ahead of us. And so that's the approach we've taken, and overall, we've been pleased to take up our full-year outlook on both top and bottom. Okay, thanks a lot, Rukmini, that makes a lot of sense. And then, Rajiv, I mean, you made some comments already, but can you perhaps maybe quantitatively talk about the winds that are coming your way because of this M&A and sort of, you know, how many points of growth potentially we should be thinking about or how many points of share that you think you could see shift over to Nutanix given this disruption? Or maybe if you can talk about it in qualitative terms around the rate and pace of pipeline build, just quarter over quarter over the last few quarters, that would be helpful.

<unk> in the guide that does go up in the second half Onesie and of course Q3 compared to Q2 seasonally the revenue is lower in Q3 that it did in Q2. So there was some other things that are factoring into our into the outlook, but overall I'd say.

Ramzi: We have continued to be focused on investing and investing thoughtfully on this growth opportunity. That's ahead of us and so that's the approach we've taken and then overall we've been pleased to take up our full year outlook on both top and bottom line.

Speaker Change: Okay. Thanks, a lot.

Speaker Change: And then Rajiv.

Rajiv: I mean, you made some comments already but can you, perhaps maybe quantitatively talk about.

Rajiv: The wins that are coming your way because of this M&A and sort of how.

Rajiv: How many points of growth potentially we should be thinking about or how many points of share that you think you could see shift over to do panics given this disruption or even maybe if you can talk about it then.

Rajiv Ramaswami: Yeah, Wamsi, first of all, I think it's going to be hard for me to give you some very specific quantitative numbers at this point. But what I'll say is, For sure, right, if you look at our last Investor Day, we talked about our TAM and the SAM as part of that, right? The $60, $70 billion TAM and SAM.

Rajiv: In qualitative terms around.

Rajiv: Rate and pace of pipeline build this quarter over quarter or over the last few quarters that would be helpful. Thank you.

Speaker Change: Yes first of all I think it's going to be hard for me to give you. Some very specific quantitative numbers at this point, but what I'd say is.

Rajiv Ramaswami: And what we really expect is, I mean, we've always been going and continuing to grow market share and eat into that SAM. And what this event creates is an opportunity to speed that up, right? So it's the same, the TAM and SAM haven't really changed, it's still the same, but now we're able to get after more of it quicker. Now, the challenge with quantifying it is that it's very hard to predict, right? Yes, we've got that. But how much of this is gonna come, how quickly?

Speaker Change: <unk> is.

Speaker Change: For sure right. If you look at if you look at the last Investor Day, we talked about our Tam and defend that part of that.

Speaker Change: Yes, 60, $70 billion Tam and Sam.

Speaker Change: And what we really expect it.

Speaker Change: We've always been going and continuing to grow market share and eat into that Sam and what this event creators and the opportunity to speak to that right. So it's the same with Amazon hasn't really changed it's still the same but not been able to get after more of it quicker now the challenge with quantifying. It is that it's very hard to predict right. I mean, it's yes, we've got that how much of this is going to come out.

Rajiv Ramaswami: And this is what, it's a little early for us to say something there, right? So we've got, like I said, customers who want to do something different, but they've got these three, five-year ELAs. They're not in a rush. There's some time it takes to convert customers, and they have to depreciate the hardware that they bought, for example, and then you bring us in for a small portion and expand. So all of these things create some unpredictability in terms of timing and how quickly we can capture it.

Speaker Change: Quickly in and this is what it's a little early to for us to see something that right. So we've got like I said, we've got customers, who want to do something different but they've got these three to five year elas, they're not in a rush.

Speaker Change: There is some time it takes to convert customers and definitely appreciate the hardware that they bought for example.

Speaker Change: And then the.

Speaker Change: You bring bring us input a small portion of expense. So all of these things create some unpredictability in terms of timing and how quickly can we capture it but I certainly think that this.

Rukmini Sivaraman: But I certainly think that this provides us with an opportunity for us to capture more of that market quicker, and we're trying to move as quickly as we can. I may add one thing to that, Rajiv, which is that, you know, I think Wamsi, your question is specifically around what we can tell about this opportunity as a result of, you know, VMware's acquisition by Broadcom. And I say, you know, I think the other nuance here is that we've always competed against each other. Right?

Speaker Change: <unk> provides us an opportunity for us to capture more of that market quicker and we are trying to more equity as we can.

Speaker Change: I don't know looking any sort of provide any color on pipeline I may add one thing to that.

Speaker Change: <unk>, which is that.

Speaker Change: I think one of your question is specifically around.

Speaker Change: What we can tell about this opportunity as a result of being.

Speaker Change: <unk> acquisition by Broadcom, and I'd say I think the other nuance here is we've always competed against Vmware right and so in some cases, it's quite clear to tell this door wasn't open to us before and now it is because of what they may be seeing from our competitor, but in other cases, and we talked about an example on the last earnings call.

Rukmini Sivaraman: And so in some cases, it's quite clear to tell, well, this door wasn't open to us before, and now it is because of what they may be seeing from our competitor. But in other cases, and we talked about an example on the last earnings call, where existing customers of ours are maybe choosing to invest more in us or go single-source with us, partly influenced by this, right? So there's this idea of, in some cases, it's clear; in other cases, it's more of a factor, an important factor, but one factor.

Speaker Change: Where existing customers of ours are maybe choosing to invest modernized our go single source with us.

Influenced by this right. So there's this idea of in some cases, it's clear in other cases, it's more of a factor an important factor, but one factor and so that those situations. It's harder for us to attribute specifically you know dollars in pipeline and things like that.

Operator: And so in those situations, it's harder for us to attribute, specifically, you know, dollars and pipeline and things like that to this particular disruption in the competitive market. So, you know, all those factors combined are what makes us feel, you know, feel good that this is a multi-year opportunity, as Rajiv has mentioned, but difficult to get precise in terms of magnitude. Thank you. One moment for our next question. The next question comes from Jelena Pinjalim Bora from J.P. Morgan. Great. Thanks for taking the time to answer the question. Congratulations on the quarter.

Speaker Change: To this particular disruption in that in the competitive market. So all those factors combined.

Speaker Change: Are what makes us feel.

Speaker Change: Good that this is a multiyear.

Speaker Change: And opportunity as Rajiv has mentioned.

Speaker Change: But difficult to get precise in terms of magnitude and timing.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line pin Julien Bora from Jpmorgan. Your line is open.

Pinjalim Bora: Oh great.

Pinjalim Bora: For taking the question congrats on the quarter.

Rajiv Ramaswami: Rajiv, one of your partners compared the Nutanix-Cisco relationship and the buzz around it to the formative years of VCE and noted how VCE was kind of a game changer for VMware at the time. Do you think the Cisco partnership could be that pivotal for Nutanix? And secondly, do you think there are any learnings from the rise and fall of VCE that you can apply, I guess, to this relationship? Yeah, I was actually there at Cisco at that time with the VCE partnership, and it was clearly very successful initially. Now, it's hard for me to compare VCE back then, convergent infrastructure, with this, but I'll tell you. I'll give you the sort of the puts and takes, right?

Pinjalim Bora: Rajeev one of your partners.

Pinjalim Bora: Compared to the new tannic, Cisco relationship and the buzz around it to the format of years of BCE.

Pinjalim Bora: And noted how VC was kind of a game changer for Vmware at the time do you think the Cisco partnership could be that pivotal for <unk>.

Pinjalim Bora: Secondly, do you think there are any learnings from the ryzen policy.

Pinjalim Bora: You can apply I guess to this relationship.

Pinjalim Bora: Yes, actually data Cisco at that time with the BP partnership been clearly very cyclical initially now is.

Pinjalim Bora: It's hard for me to compare it with feedback then convergence as I said with this but I'll tell you the.

Pinjalim Bora: I'll give you the sort of the puts and takes so clearly Cisco has huge market leverage and market position right in terms of their sellers and their access to big accounts of their presence in these accounts.

Rajiv Ramaswami: So clearly, Cisco has huge market leverage and market position, right, in terms of their sellers and their access to big accounts and their presence in all these accounts. Now, if you look at this particular space in the market, their server position is not that, you know, they're a small, relatively small market share player when it comes to servers, right, compared to some of their other competitors. So they're not as strong in this segment of the market. However, I mean, they certainly have a big overall market share. So now, what could the two of us do together, really, to go into the market?

Pinjalim Bora: Now if you look at this particular space in the market. There. There are several position that is not that there are small relatively small market share player. When it comes to service that compared to some of their other competitors.

Pinjalim Bora: So they're not as strong in this segment of the market.

Pinjalim Bora: However, I mean, they certainly have a big overall market that cloud. So now what could the two of US do together really to go into the market and Thats really I think Matt I do see significant potential here over time again, it tends to take time.

Rajiv Ramaswami: And that's really, I think, where I do see significant potential here over time. Again, it has to take time to build up. And Cisco also has a complex selling process. They have generalists; they have specialists.

Pinjalim Bora: To build up and and.

Pinjalim Bora: <unk> also has a complex selling motion they have generalists staff specialist and.

Rajiv Ramaswami: And right now, we are more focused on the data center specialists that they have, working together with them. So to answer your question, I mean, it's a little early days for us to predict how big this could be for us. And I would say, I am optimistic.

Pinjalim Bora: Right now we are more focused on the data center specialists that they have and working together with them. So to answer your question I mean, it's early days for us to predict how big this could be for us.

Pinjalim Bora: And I would say.

Rajiv Ramaswami: And I think this opportunity is also going to build up over time. And certainly, and in fact, there's a lot of cooperation happening between our sellers and Cisco sellers in the field. So all good omens at this point in time, but still very early.

Pinjalim Bora: I am optimistic.

Pinjalim Bora: I think this opportunity is also going to build up over time.

Pinjalim Bora: And.

Pinjalim Bora: And suddenly.

Pinjalim Bora: No.

Pinjalim Bora: Continuing to in fact, Theres a lot of cooperation happening between our failures and Cisco sellers in the field. So all good.

Pinjalim Bora: Good elements at this point in time, but still very early.

Operator: Okay. I guess we'll stay tuned. One question for you, Rukmini.

Speaker Change: Understood I guess, we'll stay tuned.

Speaker Change: One question for you.

Rukmini Sivaraman: The ECB Billings Guidance for fiscal Q3 seems like it calls for maybe a little bit higher sequential drawdown. I want to ask you about the sales cycle elongation comment that you made. Was that versus Q1, the elongation Q2 that you saw, was that sequential?

Pinjalim Bora: Of your billings guidance.

Speaker Change: For fiscal Q3, it seems like it calls for maybe a little bit higher sequential drawdown I wanted to ask you. The sales cycle elongation comment that he made was that versus Q1. The location. In Q2 that you saw was that sequential and are you assuming kind of a similar sequential.

Rukmini Sivaraman: And are you assuming kind of a similar sequential, higher elongation in the Q3 guide as well? Hi Pinjalim, thank you for that question. So on this, I think the first part of the question was on seasonality between Q2 and Q3. And so on that front, you know, if you look back to sort of our initial guidance that we gave for Q3 last year, this time, Pinjalim was actually quite similar in terms of what we guided for Q3 versus Q2. But We were able to beat Q3.

Pinjalim Bora: Hi, relocation in the Q3 guide as well.

Speaker Change: Hi, gentlemen, thank you for that question so on.

Speaker Change: I think the first part of your question was on seasonality between Q2, and Q3 and so on that front. If you look back to sort of our initial guidance that we gave for Q3 last year. This time, a think of it is actually quite similar in terms of the what the guidance for Q3 versus Q2.

Rukmini Sivaraman: And so the actual, I think, is what you're referring to, was smaller than what we guided to. But the decrease, I would say, is more or less in line with what we'd expect for seasonality and what we expected at this time last year, as well. And then to your point on the average sales cycle and the modest elongation we're seeing there, it moved around a bit on the quarter to quarter pendulum, but what I was referring to is that when we look back at the historical levels, it remains somewhat elevated. And so that's what I was referring to. Thank you.

Speaker Change: But we were able to beat Q3 until the auction I think is what you're referring to was smaller than what we guided to.

Speaker Change: But the decrease I would say, it's more or less.

Speaker Change: In line with what we'd expect for seasonality than what we expected at this time last year as well and then to your point on the <unk>.

Speaker Change: The average sales cycle and modest elongation, we're seeing that.

Speaker Change: Moving around a bit quarter to quarter, a bunch of them, but what I was referring to we said when we look back to historical levels. It remains somewhat elevated and so that's what I was referring to.

Operator: One moment for our next question. Our next question comes from George Wang from Barclays. Oh, hey, guys. Congratulations on the quarter and the guidance. I have two quick ones.

Speaker Change: Thank you one moment our next question.

Speaker Change: Our next question comes from the line of George Wang from Barclays. Your line is open.

George Wang: Oh, Hey, guys congrats on the quarter and the guidance I have two quick ones firstly.

Rajiv Ramaswami: Firstly, you briefly touched on the potential discounts and promotions to promote VMware customers. And I just want to kind of see if you can elaborate on the approach for the Cisco partnership with HyperFlex customers. Maybe you can give some color just on the incentives you guys are providing to kind of further drive the adoption from the older HyperFlex. Yeah, we have, you know, I think I would say that's Cisco, right?

George Wang: You briefly touch on the potential.

George Wang: The discounts and promotions to promote.

Speaker Change: Customers.

George Wang: Just wanted to kind of.

Speaker Change: See if you can elaborate on that.

Speaker Change: Roche for.

Pinjalim Bora: For the fiscal partnership of Hyperflex customers.

Pinjalim Bora: Maybe you can give some color just on the incentives you guys are providing.

Pinjalim Bora: To kind of further drive the adoption.

Pinjalim Bora: Hydro flex customers yes.

Pinjalim Bora: We have I think I would say that Cisco right with Cisco clearly we have a.

Rajiv Ramaswami: With Cisco, clearly, we have a, they are, you know, they've end-of-life HyperFlex first of all, and there's a limited time where they're, you know, so they're no longer selling the product, and there's a limited support window for it. So that, by itself, by the way, creates an incentive for HyperFlex customers to migrate. And we, through Cisco, of course, have a whole set of programs for migration, and they're good at driving those types of migration initiatives, and we are supporting them as they do that. So this is being done largely through Cisco and through the Cisco router market. Also, Rajiv, quickly, you talked about repatriation in the preparation box.

Pinjalim Bora: The vendor flagged hyperflex western wall and there is a limited time.

Pinjalim Bora: So they don't have a selling the product and there is a limited support window for it so that by itself by the way it creates.

Pinjalim Bora: An incentive for hypertext customers to migrate and meet to Cisco of course has a whole Cisco has a set of programs sort of migration and theyre. Good at driving those types of migration initiatives and we are supporting them as they do that so this is being done largely to Cisco.

Pinjalim Bora: And through the Cisco router markets.

Pinjalim Bora: So Rajiv quickly you talk about the repatriation in the prepared remarks I'm. Just curious are you seeing a more visible inflection point in terms of the penetration.

Rajiv Ramaswami: I'm just curious, are you seeing a more visible inflection point in terms of repatriation to the private cloud, or is there a continuation of a prior trend? Just besides lower TCO versus expensive public clouds, can you talk about other factors that may contribute to continued repatriation to the private cloud? Yeah, I'll give you a two-part answer to that, George. So, I don't know if I can call it a point of inflection, but certainly, we are seeing more examples of people repatriating, but those are just examples.

Pinjalim Bora: To their private cloud or are they still a continuation of prior trend just besides.

Pinjalim Bora: Laura GTO kind of.

Pinjalim Bora: This has extensive public cloud can you can talk about the other factors may contribute to continued repatriation to the private cloud.

Rajiv: Give you a two part answer to that John So I don't know if I can call. It a point of inflection, but certainly we are seeing more examples of people repatriating, but those are examples it's hard for me to say that the whole trend here right yet.

Rajiv Ramaswami: It's hard for me to say, you know, that there's a whole trend here yet, but some are certainly repatriating, like the example I talked about. But also, I think the other thing that we should keep in mind is that the bulk of enterprise workloads are still not in the public cloud. They're still sitting in data centers. I'm talking about enterprise workloads because what has gone to the public cloud largely have been new applications. So for these workloads that are still sitting in the enterprise environment, I think CIOs are being a lot more careful about how much of that they take to the public cloud. So there's, you know, yes, there's some repatriation happening from the public cloud back on-prem, but there's also a lot more scrutiny and forethought being applied to what I should take going forward into the public cloud from where I'm at. Thank you.

Speaker Change: But some are certainly repatriating like the example, I talked about.

Speaker Change: But also I think the other thing that we should keep in mind is that the.

Speaker Change: The bulk of enterprise workloads is still not in the public cloud they are still sitting in data centers.

Speaker Change: I'm talking about enterprise workloads, because what had gone to the public cloud largely have been net new applications. So.

Speaker Change: So for these restaurants are still sitting in the enterprise environment, I think <unk> being a lot more careful about how much of that do they take to the public cloud. So there's yes, there's some reputation happening from the public cloud back on Prem, but there's also a lot more scrutiny and.

Speaker Change: <unk> being applied to what should I think going forward into the public cloud for Merrimack.

Operator: One moment for our next question. Our next question will come from the line. I'm Mike Cikos from Needham.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question will come from the line of Mike Cecos from Needham Your line is open.

Operator: Your line is open. Hey, thank you guys. And I wanted to echo my comments as well, in addition to the others as far as the great quarter and the results here. I think there's a bit of a double whammy here.

Michael Joseph Cikos: Hey, Thank you guys.

Michael Joseph Cikos: I wanted to Echo my comments as well in addition to the others as far as the great quarter and the results here.

Michael Joseph Cikos: Okay.

Rukmini Sivaraman: But the first thing I know, coming back to the financial specifically Rukmini, can you help us think about the benefit to the quarter from the co-terming that occurred? And, if I guess, to what degree anything was pulled forward that was expected to land later this year when we think about the magnitude of the beaten race for guidance? Sure. Hi Mike.

Michael Joseph Cikos: Bit of a two parter here, but the first I know coming back to the financials, specifically PV could you help us think about the benefit to the quarter.

Michael Joseph Cikos: From the co terming that occurred.

Michael Joseph Cikos: And I.

Michael Joseph Cikos: I guess to what degree anything was pulled forward that was expected to land later this year when we think about the magnitude of the beat and raise for guidance.

Michael Joseph Cikos: Yes.

Speaker Change: Sure Hi, Mike So yeah, I talked about the <unk> outperformance in Q2, and there were three factors that I highlighted a two is the reason for that outperformance one was better I don't know, what it's economics and by that I mean, just our team was able to get better sort of pricing at the time.

Rukmini Sivaraman: So yeah, I talked about renewals outperformance in Q2, and there were three factors that I highlighted as a reason for that outperformance. One was better renewals economics.

Rukmini Sivaraman: And by that, I mean, just our team is able to get better pricing at the time of renewal, which is good. Secondly, we talked about better on-time renewal performance, which was strong in the quarter as well. And then the third piece, I think, is what you're referring to, Mike, which is around, I said that we did do a little better on early and core term renewals. And those, as we've said before, we go out to our customers well in advance of a renewal being due and start that conversation early. And that's what they prefer as well.

Speaker Change: Renewal, which is which is good.

Speaker Change: Secondly, we talked about better on time performance, which was strong in the quarter as well and then the third piece I think is what the order flooding too Mike which is around I said that we did do a little better on early in quarter renewal and those as we've said before.

Speaker Change: We go out to our customers are well in advance of ethanol being due and start that conversation early and that's what they prefer as well.

Rukmini Sivaraman: And often, we will be able to transact those renewals earlier than when they are due. And core terms, similarly. Core terms are beneficial both for us and for the customer because it then aligns a lot of their licenses that may have been purchased at different times to all be aligned to the same end date.

Speaker Change: And often we will be able to transact those renewals earlier than when they are in an earlier quarter than when they are deal and courthouse. Similarly headquarters are beneficial both for us and for the customer because it then brings a lot of their licenses that may have been purchased at different times to all be aligned to the same end date and so doors we gen.

Rukmini Sivaraman: And so those we generally welcome as long as they are coming at good economics for us. It's good for the customer. They give us cash up front.

Speaker Change: Welcome as long as they are coming at a good economics for us it's good for the customer they give us cash upfront and so those are all generally thinks that we we welcome.

Rukmini Sivaraman: And so those are all generally things that we welcome. Now, in terms of the dynamic of the pull forward, which I think was another sort of aspect of your question, Mike, I'd say, you know, there is normal variation, right, between quarters, and we would expect that to continue going forward. And I would say, I think we also talked about this dynamic between fiscal year 24 and fiscal year 25, and I'm not sure if that's where you were going, Mike, but at this point, we still do see that renewal available to renew for next year. The growth in that is accelerating compared to what we saw for fiscal year 24, because that was partly early in quote terms, but it was also just a bigger renewal cohort that is coming up in 25, which So overall, again, I would say, you know, a pretty strong quarter from a renewables perspective.

Speaker Change: Now in terms of the dynamic of the pull forward, which I think was another sort of aspect of your question. Mike I'd say you know there is normal variation between quarters, and we would expect that to continue.

Speaker Change: Going forward and I would say I think we had also talked about the dynamic between fiscal year 'twenty, four and 225, but I'm not sure. If that's where you were going Mike but at this point, we still do see that the renewal available to renew for next year the growth in that it's accelerating compared to what we saw for fiscal year 'twenty four.

Speaker Change: That was partly early than curtailments, but it was also just a bigger renewal cohort that is coming up in 'twenty, five which is reading to that accelerated.

Speaker Change: When it was 80 odd in 25 compared to 24. So overall again I would say you know a pretty strong quarter from an orders perspective, and and generally these are all the outperformance is driven by things that we'd like to see so nothing that I would sort of characterize as.

Rukmini Sivaraman: And, and generally, these are all the outperformance driven by things that, you know, we like to see. So nothing that I would sort of characterize as better than expected, certainly, but allows us to sort of certainly manage the business on a more predictable basis. Got it. Got it.

Speaker Change: Better than expected suddenly, but allows us to set a suddenly manage the business on a more predictable basis going forward.

Rukmini Sivaraman: And my, it's funny, you're ending that response on unpredictability. I think one of the things that I've been going through on my side this earnings season is certain companies have seen larger deals in their pipeline and greater variability based on when those deals close. So I wanted to get a sense, if possible, but can you help us think about the magnitude when you're citing these larger deals, like are they coming with an X percent increase in size from a dollar perspective versus what you're historically seeing, just to help us get a better sense of that, and then the second piece tied to that is how do you get driving those deals again, just because they are obviously more strategic, there's less But I just want to make sure that you guys are thinking about this and wanted to see how you'd respond to that on our side. Yeah, it's a good question, Mike.

Speaker Change: Got it got it and Mike it's.

Speaker Change: It's funny, you're ending that.

Michael Joseph Cikos: Response on predictability I think one of the things that I've been going through on my side. This earning season is certain companies have cited.

Michael Joseph Cikos: In larger deals in their pipeline and greater variability based on when those deals close.

Speaker Change: So I wanted to get a sense if possible, but can you help us think about.

Speaker Change: The magnitude when you're citing these larger deals like are they coming with.

Speaker Change: Like an X percent.

Speaker Change: Increase in size from a dollar perspective versus what you historically seeing just to help us get a better sense of that and then the second piece tied to that is how do you get.

Speaker Change: Princeton.

Speaker Change: Those deals again, just because they are obviously more strategic there is less.

Speaker Change: There's less certainty around the timing of when those close just anything there as far as how you do gain confidence on that front.

Speaker Change: It's a high quality problem to have I'll start with that but I just want to make sure that you guys are thinking about this.

Speaker Change: Wanted to see how you respond to that number.

Speaker Change: Yeah, It's a good question, Mike and you're right.

Rukmini Sivaraman: And you're right. These larger deals are inherently more unpredictable, which is why I think my point on your previous question was renewables generally more predictable, although, of course, as with everything, there is some variability there, but definitely more predictable, right, than the new and expansion portion. And so I won't give you a specific number, Mike. I know you were looking for like some percentage or size or something like that.

Speaker Change: These larger deals are inherently more unpredictable, which is why I think my point on your previous question. I had was there was generally more predictable although of course as with everything there is some variability there, but definitely more predictable right. There and then the new and expansion portion.

Speaker Change: And so I won't give you a specific number Mike I know you were looking for an excerpt some percentage or size or something like that what I will say is when we look at our pipeline of opportunities and we look at the mix of that meaning how much is coming from deals or of a certain size versus the largest license. If you think you may have buckets of deal sizes, what we're seeing in the data.

Rukmini Sivaraman: What I will say is when we look at our pipeline of opportunities, and we look at the mix of that, meaning how much is coming from deals of a certain size versus larger ones. And if you think, you know, you may have buckets of deal sizes, what we're seeing in the data is that a larger proportion is coming from those higher, you know, larger buckets of larger deal size than we've seen previously, correct? So, and that's in addition to the pipeline growing, or you're saying that the mix of it is also changing to be weighted more towards larger deals. So that's sort of the first part of the part of the answer to your question. Now, in terms of just how do we get comfortable?

Speaker Change: Is that a larger proportion is coming from those higher larger bucket larger deal size buckets.

Speaker Change: Then we have seen previously right. So and that's in addition to the pipeline growing or do you think that the mix of it is also changing to be weighted more towards larger deals. So that's sort of the.

Speaker Change: First part.

Speaker Change: Part of that part.

Speaker Change: Part of the answer to your question now in terms of just how do we get comfortable.

Rukmini Sivaraman: You know, we look at what's in the pipeline, we're looking at, you know, a lot of other things that we in terms of conversion rates and things like that, and related to the pipeline. And we, we put a probability on how many of those we think we can convert right during a period of time. And so that's sort of a little more color into the methodology of how we're approaching this. And all of that is factored into the guide that we provided, right? But Rajiv, did you want to add anything?

Speaker Change: We look at what's in the pipeline. We're looking at you know a lot of other things that we are in terms of conversion rates and things like that and it is related to the pipeline.

Speaker Change: Yes.

Speaker Change: We put a probability on how many of those we think.

Speaker Change: We can we can convert right during a period of time and so that's sort of a little more color into the methodology of how were approaching this and all of that is factored into the guidance that we provided right, but Rajiv did you want to add anything John.

Rajiv Ramaswami: Yeah, just a couple of things. First of all, I think one of the reasons we're seeing these large deals is because, you know, we've been working on a portfolio, that product portfolio, which we think is ready for large-scale enterprise deployments. And so we have segmented our focus a bit further up the market in terms of our own salesforce segmentation. And then, on top of that, we've got this industry disruption with VMware, where many large customers, of course, who have not necessarily engaged with us before are now engaging with us. So that's the reason for why we're seeing more of these large deals in our pipeline. Now, I think with respect to prosecuting these deals, I would say we keep getting better at going after these deals.

Rajiv: A couple of things first of all I think one of the reasons. We're seeing these large deals is because we of course for a while we've been working on.

Rajiv: Folio of that product portfolio, which we think is ready for large scale enterprise deployments and so we have segmented our focus a bit further up the market in terms of our own sales force segmentation and then on top of that we've got this industry disruption with Vmware that many large customers of course.

Rajiv: Who are not necessarily engaged with us before are now engaging with us.

Rajiv: So that's the reason for why we're seeing more of these size deals in our pipeline now I think with respect to prosecuting. These deals I would say, we keep getting better at at going after these deals I mean, we have.

Rajiv Ramaswami: I mean, we have a, you know, a whole 360 approach towards going after this; we have executive sponsors on the big accounts where we have large deals, we have a full team assembled to go pursue these deals. And having said that, the timing is still going to be a bit unpredictable, and the size of these things also tend to vary over time. So it doesn't completely replace the unpredictability, but it does.

Rajiv: <unk> approach towards going after this we have executed sponsors on the big accounts, where we have large deals we have a full.

Rajiv: Team assembled to go pursue these deals.

Rajiv: Having said that so it's still going to be timing, it's going to be a bit unpredictable and size of these things also tend to vary over time. So it doesn't completely replaced the unpredictability, but it does.

Rajiv Ramaswami: You know, it's a serious engagement, right? When you have these types of deals between both companies, we are investing resources, customers are investing a lot of resources as well, because there's a lot of testing certifications going through contract negotiations, security audits, a whole bunch of things that go through this process. And so, I would say we as a company are getting better and better at going after these types of opportunities. Thank you.

Speaker Change: As the CEO of engagement right. When you have these types of deals between both companies. We are investing resources customer are investing a lot of resources.

Rajiv: Because there's a lot of testing certification is going through contract negotiations security audits, a whole bunch of things that get them get through this process.

Rajiv: So I would say, we as a company are getting better and better at.

Rajiv: We offer these types of opportunities.

Speaker Change: Thank you one moment for our next question.

Operator: One moment for our next question. Our next question will come from Meta Marshall from Morgan Stanley. Your line is open, right now, just kind of given the disruption, just any notable hires or, you know, how you're finding kind of the pool of talent to add in terms of some of your OPEX ads. Yeah, Rukmini, why don't you take number one; I'll take number two.

Speaker Change: Our next question comes from the line of meta Marshall from Morgan Stanley Your.

Meta A. Marshall: Your line is open.

Meta A. Marshall: Great. Thanks, a couple questions for me maybe just on you noted clearly some macro headwinds. So just wanted to get a sense of any of the shape of that.

Meta A. Marshall: Is it still things that are just elongated lead times are you seeing it on larger deals smaller deals certain verticals certain types of projects kind of just any change in color from the past couple of quarters. If there are any and then maybe on the second question.

Rajiv Ramaswami: Yeah, sure, Rajiv. So on macro, Amita, which I think was your first question, it's more or less remained stable relative to what we've seen in the last few quarters. So fairly consistent, okay, with what we've seen in the last few quarters.

Meta A. Marshall: You guys are getting a number of resumes in your inbox right now just kind of given the disruption just any notable hires or.

Meta A. Marshall: How you're finding kind of the pool of talent to add in terms of some of your opex ads. Thanks.

Meta A. Marshall: Yeah look when you wanted to.

Speaker Change: Number one is taken them to Kristen.

Rukmini Sivaraman: And we characterize that as somewhat uncertain but stable. And, you know, that's sort of what we continue to see. So, no significant change from that, which, again, as we talked about, did show up in the continued modest elongation of sales cycles compared to our historical level. Now, some of that could also be driven by this high, you know, larger mix of higher, larger deal sizes in our pipeline. So that's sort of showing up now. But again, that is also a factor of just the fact that we've gone up market, right, so not necessarily a macro-related point. So on macro, nothing else I would call out in terms of specific verticals, seeing strength or weakness that we're noticing at this point. Somewhat uncertain, but stable is how. And Meta, on the talent question, there's no doubt.

Kristen: Yes sure. Thank you so on macro.

Speaker Change: So I think with your first question.

Kristen: It's more or less remained stay.

Speaker Change: April relative to what we've seen in the last few quarters are fairly consistent with what we've seen in the last few quarters and I would characterize that as somewhat uncertain, but stable and that's sort of what we continue to he said no significant change from the from that which again as we talked about did show up in the.

Speaker Change: Continued modest elongation of sales cycles compared to what historical levels now with some of that could also be driven by this high in a larger mix of higher larger deal sizes in our pipeline.

Speaker Change: So that's sort of showing up now but again that is also a factor of just the fact that we've gone up market, but it's not necessarily a macro data points on macro nothing else I would call out in terms of specific verticals are seeing strength or weakness that we're noticing at this point.

Speaker Change: Somewhat uncertain, but stable is how would you characterize it.

Speaker Change: And then me down the Talon question, there's no doubt this is.

Rajiv Ramaswami: This is, you know, two years ago. It was a difficult market for talent, right? Everybody was hiring, and it was a tough market, as we tend to hire at the top of the pyramid in terms of software developers. Now, that has changed quite significantly for us, right? In this market today, we're able to attract the best talent from every place, not just, you know, VMware or other places you might think of, but also from hyperscalers, for example. And so we see a good talent environment. We have been using that, of course, you know; we have been hiring carefully but selectively in both R&D and sales. And we are seeing really good talent come in the door.

Speaker Change: Two years ago. It was a difficult market for data that everybody was hiring in a tough market and we tend to hire at the top of the pyramid.

Speaker Change: In terms of software developers.

Speaker Change: That has changed quite significantly for us.

Speaker Change: This market per day, they're able to attract the best talent from every place not just Vmware.

Speaker Change: There are other places you might take on but also from Hyperscale Us for example.

Speaker Change: So we see a good tonnage environment, we have been using that of course, we have been hiring carefully but selectively in both R&D and sales and we're seeing really good talent coming in the door and overall, it's helping up level. The talent that we have in the company and I'm very happy about that and Thats happening.

Rajiv Ramaswami: And overall, it's helping improve the level of talent that we have in the company. And I'm very happy about that. And that's happening at the individual contributor levels, but also at the management levels, as well. So overall, great, thanks.

Speaker Change: The individual contributor level, but also at the management levels.

Speaker Change: So across the board.

Speaker Change: Great. Thanks.

Operator: Thank you. One moment for our next question. Our next question will come from Erik Suppiger from J&P Unisil. Erik, your line is open. We'll go ahead. Sorry, there. Sorry.

Speaker Change: Thank you one moment our next question.

Speaker Change: Our next question comes from the line of Erik <unk> from JMP. Your line is open.

Speaker Change: Okay.

Erik: Eric Your line is open.

Erik: Well go ahead, sorry, there sorry.

Operator: Okay, Erik, your line is open again. All right, sorry about that. I want to just touch on the subject of larger deals and elongated sales cycles. As previously noted, there have been other vendors that have seen similar trends, and there were some discussions around consolidation, customers that are getting more focused on consolidating on a single or a few vendors as opposed to a lot of tools out there. Is that one of the things that could be contributing to the elongated sales cycle, or is it more of an economic and uncertainty issue?

Speaker Change: One moment, let me go ahead and bring them back up.

Speaker Change: Okay. Eric Your line is open again.

Eric: Alright, sorry about that.

Eric: I wanted to just touch on the subject of larger deals and elongated sales cycles.

Eric: Obviously noted there have been other vendors that have seen similar trends and there was some discussions around consolidation.

Eric: Customers that are getting more focused on consolidating onto a single.

Eric: Few vendors as opposed to a lot of a lot of tools out there he is.

Eric: Is that one of the things that could be contributing to two the elongated sales cycle or is it more of an economic uncertainty issue.

Rajiv Ramaswami: I'm not sure as much, Erik, whether it's because people are consolidating vendors there. In our case, for example, certainly, there's a lot of, "OK, I've got an incumbent vendor that I need to rethink my strategy and bring on an alternative vendor." And that's certainly playing very much for us, right, very much in play. So you know, they were happy with the vendor proprietor, and now they're no longer so happy. So they've got to look at an alternative, and we are a very solid infrastructure alternative. That's one factor that's clearly playing.

Eric: Im not sure Thats metallic whether it's because people are consolidating.

Eric: In our case for example, certainly theres a lot of legs, Okay, I've got an incumbent vendor that I need to rethink.

Eric: On an operating and a vendor and that certainly played very much.

Eric: For us very much in play.

Eric: So they were happy with the vendor.

Eric: So happy so they are going to look at an alternative and we had a very solid infrastructure.

Eric: One factor that clearly play the second factor as I mentioned, a little earlier, if that we offer as a company.

Rajiv Ramaswami: The second factor, as I mentioned a little earlier, is that we also have a company. I've gotten to a point where we have a portfolio that can address pretty much across the enterprise all the applications that customers are running. So all applications, you know, from small scale to very large scale, and that makes us a bigger player in our customers' minds, right? It's not that they're thinking about us as a vendor for just one use case anymore. They're thinking about it as a platform vendor for them that can run all their applications. And, and so that typically leads to a more, you know, larger strategic engagement with the customer, which also takes longer. Right. So, that I think is what's playing in our, for us playing our, Okay, very good. And then just on the chat GPT in a box, just curious if you have seen particular groups or segments of your customer base that are adopting that? Who is who is doing AI in a private cloud these days?

Eric: <unk> gotten.

Eric: Yes to a point, where we have a portfolio that can address.

Eric: It's pretty much across the enterprise all of the applications that customers are running so all applications from small scale to very large scale.

Eric: That makes us a bigger player in our customers might not.

Eric: Not that they're thinking about it as a vendor for just one use case anymore, but thinking about it as a platform vendor for them that can run all their applications.

Eric: And so that's typically a lead to a more larger strategic engagement with the customer which also takes longer right. So so that I think is what's playing in our.

Eric: For us playing out for us now.

Speaker Change: Okay very good and then just on the chat GPT in a box.

Speaker Change: Just curious if you have seen.

Eric: Particular groups or segments of your customer base that are adopting that who is who is doing.

Eric: And our private cloud these days.

Rajiv Ramaswami: Yeah, first of all, I'd say it's early days for us, Erik, on that, but we are seeing traction across all kinds of verticals, financial services, defense, and government. In fact, one of our first wins was with the federal agency, manufacturing, pharma, or medical devices. So there are just many different verticals, but the use cases tend to be somewhat similar. Document summarization, search analytics, co-piloting, customer service, enhanced fraud detection. These are some of the same sort of same use cases, but across a range of verticals, you.

Speaker Change: First of all I'd say, it's early days for us Eric on that for sure, but we are seeing traction across all kinds of verticals.

Speaker Change: Financial services defense.

Speaker Change: In fact, one of our first <unk> been sort of at the Federal agency.

Speaker Change: Manufacturing.

Speaker Change: Pharma are medical devices. So there is just.

Speaker Change: Many different verticals, but the use cases tend to be somewhat similar documents amortization search analytics co piloting.

Speaker Change: Customer service.

Speaker Change: Enhanced fraud detection. These are some of the same same use cases, but.

Speaker Change: Across a range of verticals.

Operator: One moment for the next question. Our next question will come from Ben Bollin from Cleveland Research Company. Your line is open. Thank you. Good afternoon, everyone.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from the line of Ben Bollin from Cleveland Research Company. Your line is open.

Benjamin James Bollin: Thank you and good afternoon, everyone. Thanks for taking the question.

Rajiv Ramaswami: Thanks for taking the question. Rukmini made a comment about investing carefully for the growth in front of you. And there were a few questions on hiring. I'm curious about how your hiring plans have evolved since the start of the year when you look at, you know, what you see out there, in particular, how you're managing the amount of inbound activity that you are seeing from partners and customers. And then I had a follow-up. So maybe I'll take that, Ben.

Benjamin James Bollin: Group meeting you made a comment about <unk>.

Benjamin James Bollin: Investing carefully for the <unk>.

Benjamin James Bollin: In front of you and Theres been a few questions on hiring I'm curious about.

Benjamin James Bollin: How your hiring plans have evolved since we started the year.

Speaker Change: When you look at what you see out there in particular.

Speaker Change: How youre managing the amount of inbound activity that you are seeing from partners and customers and then I had a follow up.

Speaker Change: So maybe I'll take that.

Rajiv Ramaswami: So I think there are a couple of points. One is related to hiring; the other is inborn activity from partners, customers, et cetera. So slightly different questions there.

Speaker Change: So I think there's a couple of points one is related to hiring the inbound activity from partners customers et cetera. So.

Speaker Change: Thats a different question there so I think on the hiring.

Rajiv Ramaswami: So I think on the hiring. If you look at our history here, we've been very, very tight on OpEx the past few years for the right reasons as we consolidated our portfolio, got some more focus into the company, and got our execution going. And now this is the year where we are investing; our OpEx is going up based on what we've talked about, but we are investing judiciously, continuing to drive both growth and leverage to our bottom line. But we're certainly investing.

Speaker Change: If you look at our history, we've been very very tight on Opex for past few years for the right reasons as we consolidated our portfolio got some more focus into the company and.

Speaker Change: <unk> execution going and now this is a year, where we are investing our opex is going up.

Speaker Change: Based on what we've talked about and but we are investing judiciously continuing to drive both growth and leverage to our bottom line, but we're certainly investing we are investing in terms of building out our portfolio and R&D perspective that investing in terms of our go to market. So that we can be more effective in terms of.

Rajiv Ramaswami: We're investing in terms of building out our portfolio from an R&D perspective, and we're investing in terms of our go-to-market so that we can be more effective in terms of handling the demand that we're starting to see. And to your point, over the last, I would say year or two years, we've seen more inbound from customers, partners, and managed service providers. And we now have focused efforts in terms of addressing all of those, right? Whether it be a larger set of customer engagements, or more focused in terms of the partners, which was one of the priorities that I said very early on when we started here three years ago. So more focus on the channel, enabling them, recruiting partners, giving them incentives, making them more autonomous, and extending that to our managed service provider partners, where we are continuing to add more of them to our partner network over time. Okay, that's great.

Speaker Change: Getting handling the demand that we're starting to see.

Speaker Change: And to your point over the last.

Speaker Change: I would say year or two years, we've seen more <unk> coming from customers partners.

Speaker Change: And managed service providers and we are.

Speaker Change: We now have.

Speaker Change: Our focused efforts in terms of addressing all of those right.

Speaker Change: Whether it be a largest set of customer engagements, whether it would be.

Speaker Change: More focus in terms of the partners, which was one of the priorities that I said earlier and when we started.

Speaker Change: Three years ago.

Speaker Change: So more focus on the channel, enabling them recruiting partners.

Speaker Change: Giving them incentives, making them more autonomous.

Speaker Change: And extending that to a managed service provider partners, where we continue to add more of them to our partner network over time.

Speaker Change: Okay, that's great.

Rajiv Ramaswami: Rajiv, one other question for you is, you commented earlier about some CIO scrutiny as it relates to data center investments and public cloud investments. I'm curious if you're seeing any change in how customers are thinking about their longer-term infrastructure planning from an investment perspective, notably because of what's happened with Broadcom and VMware. And that's it for me. Thank you.

Speaker Change: Rajeev one other question for you is.

Rajeev: You commented earlier about.

Rajeev: Some CIO scrutiny as it relates to.

Rajeev: The data center investments in public cloud investments I'm curious if youre seeing any change in how customers are thinking about their longer term infrastructure planning.

Rajeev: From an investment perspective.

Speaker Change: Notably because of what's happened with Broadcom and Vmware and that's it for me. Thank you.

Rajiv Ramaswami: So the bottom line, I think absolutely it is right. I mean, again, VMware was a great technology vendor with a lot of innovation and customers and with a large footprint of customers. And now they have to rethink whether that's the right long-term strategy for them.

Speaker Change: And thirdly, Ben so the bulk of unrelenting absolutely.

Ben: It is right I mean again Vmware was a great technology vendor with a lot of innovation.

Ben: Customers and with the large footprint at customers and now they have to rethink whether that's the right long term strategy for them.

Rajiv Ramaswami: And so, that says, okay, well, we have to either look at alternative providers, of which we are an easy alternative, or they could say, well, I could go more to the public cloud, okay, which is not as easy a thing for existing workloads, to just take everything and move it to the public cloud. That's not easy to do. And then they factor in the fact, you know, cost, regulatory aspects of it, and so forth. So I, so clearly, I think, you know, for us as a vendor, there is certainly, we see customers continue to invest in infrastructure modernization, in terms of digitization, in terms of running modern applications, not just in the public cloud, but also on premises.

Ben: And so so that says okay, well, we got to either look at alternative providers.

Ben: We are an easier alternative or they could save and I could go more to the public cloud, Okay, which is not as easy attained for existing workloads to just take everything and move to the public cloud that's not easy to do.

Ben: And then they factor into the fact costs regulatory aspects of it and so forth. So.

Ben: So clearly I think.

Ben: For us.

Ben: There is certainly we see customers continuing to invest in infrastructure modernization in terms of Digitization in terms of.

Ben: Modern applications not just in the public cloud, but also on France, and and like some of these new cycles that are happening now like AI for example.

Rajiv Ramaswami: And like some of these new cycles that are happening now, like AI, for example, we'll also find this path down the same route, right, which is, you know, it's starting out with a lot of training happening in the public cloud, but it's moving towards, "OK, I'm going to run my AI." I'm going to pre, you know, I'm going to fine-tune the training on my own data sets, which are proprietary that I want to keep carefully.

Ben: We'll also find this part down the same right. We're just starting out with a lot of training happening in the public cloud, but it is moving towards okay, I'm going to run my AI I'm going to.

Ben: I am going to fine tune the training on my own datasets, which are proprietary that I want to keep carefully and I'm going to have to potentially look at slightly different solutions were in financing, which is going to be running closer to my edge locations.

Rajiv Ramaswami: And I'm going to potentially have to look at slightly different solutions for inferencing, which are going to be running closer to my edge location. So these things are driving what we call hybrid multi-cloud. And I think that's the world that many of our customers will be in for the next several years. Thank you.

Ben: So these things are driving what we call hybrid multi cloud and I think that's very much I think the world that many of our customers are here for the next several years.

Operator: One moment for our next question. Our next question comes from Dan Bergstrom from RBC Capital Markets. Your line is open. Hey, it's Dan Bergstrom from Matt Hedberg.

Speaker Change: Thank you one moment our next question.

Ben: Our next question comes from the line of Dan Bergstrom from RBC capital markets. Your line is open.

Ben: Hey, it's Dan Bergstrom for Matt Hedberg I appreciate you taking our questions here.

Operator: Appreciate you taking our question. To build off a recent answer that mentioned a 360 approach around VMware deals, could you go into some of the mechanics and processes involved in migration over from VMware? I mean, specifically, what tools are in place to facilitate migrations? And then how long does a typical migration take?

Daniel Robert Bergstrom: To build off of recent answer that Ive mentioned, a 360 approach around VM more deals could.

Daniel Robert Bergstrom: Could you go into some of the mechanics and processes involved in migration over from Vmware I guess spin.

Daniel Robert Bergstrom: Specifically what tools are in place to facilitate migrations and then how long does a typical migration take.

Rajiv Ramaswami: Yeah, I mean, and the answer to that, but I'll go through the process, Dan. So there's clearly an assessment of what the workloads are that our applications are that are running on that infrastructure. That's one part of it, and making sure that we can run all those workloads with good performance, which is, by and large, the case these days. The second is what elements of the stack have they deployed.

Daniel Robert Bergstrom: And the answer to that.

Speaker Change: But I'll go through the process Dan. So so there's clearly an assessment of what the workloads are that our.

Daniel Robert Bergstrom: Applications that are running on that infrastructure.

Daniel Robert Bergstrom: That's one part of it and making sure that we can run all those workloads with good performance, which by and large the case these days.

Daniel Robert Bergstrom: The second is what elements of the stack had deployed and the more of the elements that they have deployed the stickier or the.

Rajiv Ramaswami: And the more of the elements that they have deployed, the stickier or the more complex the migration becomes. So, for example, for a customer that just deployed a hypervisor, it's a largely automated move away from the hypervisor to our hypervisor. We have automated tools. In fact, our tool is called Move.

Daniel Robert Bergstrom: The more complex a migration because so for example for a customer that definitely deploy the hypervisor itself.

Daniel Robert Bergstrom: It's largely automated move away from the Hypervisor to our Hypervisor, we have automated tools in fact, our coolers called move we've done a lot of these via migrations.

Rajiv Ramaswami: We've done a lot of these VM migrations all day long, and so that's a relatively simple migration that can be done automated. Now, at the other end of the spectrum, if they've invested a lot of custom automation work, and custom security work on top of the stack, then some of those will have to be converted over, and that requires a professional services engagement, which is also part of our offering to help convert over some of those onto our platform or onto more open types of platforms. For example, for automation, people are looking at Terraform as an example. So in those cases, it's a more complex migration. I'll give you some examples, though. In a lot of cases, actually, what happens is that the migration planning takes some time, but the actual execution of the migration is very quick. There was a case study that we published recently of a health care system that we've been engaged with for the past three years or so. The name of it was Pediatrics.

Daniel Robert Bergstrom: All day long and so thats, a relatively simple migration that can be done automated now at the other end of the spectrum. If they have invested a lot of custom automation work.

Daniel Robert Bergstrom: Cost security work on top of the stack than some of those will have to be converted over and that took wisely professional services engagement.

Daniel Robert Bergstrom: Which also is part of our offering.

Daniel Robert Bergstrom: To help convert over some of those onto our platform onto more open data platform. For example automation people are looking at Jennifer as an example.

Daniel Robert Bergstrom: So in those cases.

Daniel Robert Bergstrom: More complex migration.

Daniel Robert Bergstrom: Give you some examples though in a lot of cases actually what happens is that the migration plan. It takes some time the actual execution of the migration is very quick.

Daniel Robert Bergstrom: There was a case study that we published recently of a healthcare system that we've been engaged with for the past three years or so.

Daniel Robert Bergstrom: The name of Pediatrics, it's public disappoint.

Rajiv Ramaswami: It's public at this point, and they have planned this migration for a few years. But when they actually came around to doing the migration, they were done within 90 days. So that's a typical example, right? There's a cycle of selling and engagement and everything, and then getting everything ready. And then once it's ready, they were able to migrate in 90 days. And I would call them a medium-complexity environment. They're not at the high end of the complexity, but they're not necessarily the lower, you know, the simplest type.

Daniel Robert Bergstrom: And the plan this migration for a few years, but when they actually came down to doing the migration David done within 90 days.

Daniel Robert Bergstrom: So that's a typical example, there is a cycle of selling an engagement and everything and then getting everything ready and then once it's ready they were able to migrate and in 90 days and I would call them as a medium complex it environment theyre not at the high end of the complexity, but they are not necessarily the lower simpler site.

Rajiv Ramaswami: That's very helpful, thank you. Transcribed by https://otter.ai, Thank you. One moment for our next question. And our next question comes from Simon Leopold from Raymond James. Your line is open. Hi guys, this is Victor Chui on behalf of Simon Leopold.

Speaker Change: That's very helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: And our next question comes from the line of Simon Leopold from Raymond James Your line is open.

Speaker Change: Hi, guys. This is Victor Chu in for Simon Leopold.

Victor Chu: Just really quickly can you help us understand what's baked into your full year outlook specifically.

Operator: Just really quickly, can you help us understand what's baked into your outlook? Specifically, does the current guidance reflect gains from VMware at a similar rate, or are you expecting this to accelerate from here? Thank you, Victor, for the question. So the full-year guide assumes some benefit from VMware being acquired by Broadcom, as we said at the beginning of the year. And no, it does not expect any acceleration at this point, right?

Victor Chu: The current guidance reflect gains from Vmware at a similar rate or are you expecting this accelerates from here.

Victor Chu: Thank you Victor for the question. So the fully are our guide assumes some benefit from the Vmware being acquired by Broadcom as we said at the beginning of the year and no. It does not expect any acceleration at this point right. It just assumes it has some benefit in there.

Rukmini Sivaraman: It just assumes it has some benefit in there. It also assumes a small benefit, as we've talked about before, towards the end of the year, from the Cisco partnership, as well. But that again, as Rajiv said, we expect that to grow over time. And certainly into fiscal year 25.

Victor Chu: It also assumes a small benefit as we've talked about before towards the end of the year.

Victor Chu: From the Cisco partnership.

Victor Chu: But that again as Rajeev said, we expect that to grow overtime and suddenly into fiscal year 'twenty five, but there's a small benefit from that baked in as well. In addition to all the other dynamics you've talked about on this call right, including modest elongation of average sales cycles unpredictability with regard to large deals in the pipeline et cetera.

Rukmini Sivaraman: But there's a small benefit from that baked in, as well, in addition to sort of all the other dynamics we've talked about on this call, including modest elongation of average sales cycles, unpredictability with regard to large deals in the pipeline, etc. Okay, great. That's helpful.

Victor Chu: Okay, Great that's helpful and.

Rajiv Ramaswami: And just last, I wanted to follow up on the macro question. We've been hearing through the channel that the sentiment on, you know, the HCI market overall has turned slightly more cautious. Can you help us understand what you think for HCI growth overall this year and how Nutanix performs relative to that? Yeah, maybe I'll take that.

Speaker Change: Just lastly, I wanted to follow up on the macro question, which we've been hearing through the channel that the sentiment on.

Speaker Change: On the HCI market overall and slightly more cautious could you help us understand what you're thinking for hei growth overall, this year and have new tanks performance relative to that.

Rajiv Ramaswami: I don't think, you know, we haven't seen a slowdown or caution around HCI adoption. I think it's just the same kind of dynamic that we've seen in the past, right? There is a legacy infrastructure out there, but HCI capabilities have continuously gotten better over time, so that HCI today can run pretty much all enterprise workloads on the platform, and in many cases, can do so with better performance, even than legacy architectures. So better performance, better TCO, much simpler to operate, much simpler to manage, much simpler to operate. But I think what we've always had to overcome is inertia, right?

Speaker Change: Yes, maybe I'll.

Speaker Change: I don't think we haven't seen a slowdown our caution around ESG adoption I think it's been the same kind of dynamic that we've seen in the past right. There is a legacy infrastructure out there.

Speaker Change: <unk> capabilities are continuously gotten better over time, where HCA predicting brand pretty much all enterprise workloads on the platform and in many cases can do so with better performance even than legacy <unk>.

Speaker Change: I see.

Speaker Change: Our legacy architectures, so better performance better PTO, a much simpler to operate.

Speaker Change: But I think the what we've always had to overcome is inertia right. We've got a set way of doing things that customers have been doing for a long time in here to say chip for a more modern software defined architecture and that shift we have to do right and we have to overcome that.

Rajiv Ramaswami: We've got a set way of doing things that customers have been doing for a long time, and here is a shift to a more modern, software-defined architecture, and that shift we have to make, right? And we have to overcome that, but that's been what we've been doing for the entire existence of the company. So I wouldn't see that there's been a bunch of change in how our customers are thinking about it, certainly not in the last year or so that I've been. I don't have much to add beyond what we covered at Investor Day just last September where we provided both TAM and SAM opportunities, and our growth outlook in terms of 20% ARR growth in terms of what we could drive through FY27 is what we said there.

Speaker Change: But with all of that but that's been what we've been doing the entire existence of the company. So I wouldn't see that there's been a bunch of change in how our customers are thinking about it.

Speaker Change: Certainly not in the last year or so that I've seen.

Speaker Change: Okay, that's great and.

Speaker Change: How the growth.

Speaker Change: What youre thinking for growth and kind of how it's growing relative yes, I think we I don't have much to add beyond what we commented at Investor Day last September where we provided booked diamond some opportunities and our growth outlook in terms of 20% IRR growth instead of what we could drive through FY 'twenty seven is what we said that.

Rajiv Ramaswami: Thank you. And with that, this will conclude our question and answer session today. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day. Thanks for watching!

Speaker Change: Okay.

Speaker Change: Thank you and with that this will conclude our question and answer session. Today. Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].