Q3 2025 Nutanix Inc Earnings Call
Good day, and thank you for standby logging to electronics third quarter 2025 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation or below for questions to ask a question. During the session you will need to press star one on your telephone.
Speaker Change: Didn't hear an automated message.
Speaker Change: This race to withdraw your question. Please press star one again, please be advised that today's conference is being recorded I will now begin.
Rich Valera: Over to your Speaker Rich Valera, Vice President of Investor Relations. Please go ahead.
Rich Valera: Good afternoon, and welcome to today's conference call to discuss third quarter fiscal year 2025 financial results.
Rich Valera: Joining me today are a heap ramaswami mechanics, as president and CEO.
Rich Valera: Municipal Robyn mechanics as CFO.
Rich Valera: After the market closed today <unk> issued a press release announcing third quarter fiscal year 2025 financial results.
Rich Valera: If you'd like to read the release. Please visit the press releases section of our IR website.
Rich Valera: During today's call management will make forward looking statements, including financial guidance.
Rich Valera: Forward looking statements involve risks and uncertainties some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements.
Rich Valera: For a more detailed description of these and other risks and uncertainties. Please refer to our SEC filings, including our most recent annual report on Form 10-K, and quarterly reports on Form 10-Q, as well as our earnings press release issued today.
Rich Valera: These forward looking statements apply as of today and we undertake no obligation to revise these statements. After this call as a result, you should not rely on them as predictions of future events.
Rich Valera: Please note unless otherwise specifically referenced.
Rich Valera: All financial measures, we use on today's call except for revenue or.
Rich Valera: Expressed on a non-GAAP basis and have been adjusted to exclude certain charges.
Rich Valera: We have provided to the extent available reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release.
Rich Valera: <unk> will be participating in the Baird 2025, global consumer technology and services Conference in New York, and we hope to see some of you there.
Rich Valera: Finally, our fourth quarter fiscal 2025 quiet period will begin on July 18th.
Rajiv: And with that I'll turn the call over to Rajiv.
Rich Valera: Rajiv.
Rajiv: Thank you rich and good afternoon, everyone.
Speaker Change: We are happy to report third quarter results that came in ahead of our guidance.
Rajiv: I guess the dynamic backdrop.
Rajiv: Our results benefited from the strength of the <unk> platform.
Rajiv: Demand from businesses looking for a trusted long term partner.
Rajiv: And go to market leverage from our partnerships and programs.
Rajiv: Taking a closer look at the third quarter, we exceeded all our guided metrics.
Rajiv: We grew our <unk> 18.
Rajiv: 18% year over year to <unk>, one 4 billion.
Rajiv: And deliver strong free cash flow.
Rajiv: We also saw another quarter of strong new logo growth.
Rajiv: Thanks seen across all of our customer segments.
Rajiv: Our largest wins in the quarter demonstrated our ability to land and expand within some of the largest and most demanding organizations in the world as they look to modernize their it footprint.
Rajiv: Including adopting hybrid multi cloud operating models and modern applications as.
Rajiv: As well as dose looking across native in the wake of industry M&A.
Rajiv: A great example is a new logo and our largest land and expand went up the quarter with a fortune global 500 provider of technology and services based in the EMEA region.
Rajiv: Our two plus year engagement with this customer was catalyzed by the concerns regarding the proposed acquisition of their incumbent <unk>.
Rajiv: Such a supplier which were realized subsequent to the close of that transaction.
Rajiv: This new customer was initially looking at mechanics.
Rajiv: Second vendor alternative.
Rajiv: But saw the value of the new tanks at our platform as a way to modernize their existing infrastructure and ultimately chose <unk> to replace that entire incumbent supplier over time.
Rajiv: Another. Good example is a seven figure expansion, we did with an EMEA based it solutions provider in the quarter.
Rajiv: This customer was an early adopter of our GPT in a box a wonderful solution.
Rajiv: Along with Red Hat's open chip for managing Kubernetes.
Rajiv: With this expansion they are adopting our GPT in a box to Rocco our solution <unk>.
Rajiv: Including mechanics enterprise AI.
Rajiv: While also replacing <unk> shipped with mechanics Kubernetes platform.
Rajiv: They see that enhanced platform as providing a centralized infrastructure for accelerated and scalable model deployment and influencing across different sites with initial use cases focused on information summary, and such as well as chat agent and <unk>.
Rajiv: Digital assistant solutions.
Rajiv: Finally, a new logo win with one of the largest asset managers in the world based in North America demonstrated the value of the hybrid multi cloud capabilities of the <unk> platform and our partnership.
Rajiv: This customer was unhappy with the recent changes with their existing infrastructure provider.
Rajiv: Im just looking for an alternative that could work across their private and public cloud estate.
Rajiv: They purchased the mechanics truck platform.
Rajiv: Including <unk> on AWS.
Rajiv: Through the AWS marketplace.
Rajiv: Appreciated the consistent management self service and the automation that provides across private and public clouds.
Rajiv: Early this month.
Rajiv: Our annual Dot next conference in Washington D C.
Rajiv: This through over 5000 attendees.
Rajiv: During that next we made a number of announcements demonstrating our commitment to enhancing the <unk> talk platform and strengthening our partner ecosystem.
Rajiv: We do not see that progress on our decision to enable customers to utilize that existing external storage hardware with adopting the new tactics dart platform powered by HP compute hypervisor.
Rajiv: Our first offering.
Rajiv: Supporting Dell powered flex.
Rajiv: Generally available at the end of April.
Rajiv: Well within our stated target of the first half of this calendar year.
Speaker Change: And you are in that next we announced a new partnership with pure storage.
Rajiv: To support their flash array.
Rajiv: An offering that is expected to be generally available by the end of this calendar year.
Rajiv: We also continue to focus on helping customers build apps and random anywhere.
Rajiv: Does that end, we announced we are expanding our cloud platform to support Google cloud.
Rajiv: Which will be in early access Lasalle.
Rajiv: We also announced a new solution.
Rajiv: Cloud native AOS.
Rajiv: Which is about enabling modern applications to be able to use a set of highly resilient storage and data services.
Rajiv: Relevant area.
Rajiv: Whether it's in the public cloud and native Kubernetes substrates.
Rajiv: Our bare metal.
Rajiv: And finally, we announced general availability of a new wasn't of mechanics enterprise AI.
Rajiv: With as a deeper integration with Nvidia enterprise AI.
Rajiv: Using the latest framework.
Rajiv: Speed the deployment of Agentic AI applications in the enterprise.
Rajiv: In closing.
Rajiv: Im pleased with our solid Q3 results.
Rajiv: Our ongoing innovation on our cloud platform.
Rajiv: Particularly with respect to its support of modern applications and external storage.
Rajiv: And on the progress we continue to make our partnerships.
Rajiv: We remain focused on delivering on our vision of becoming the leading platform for running apps and managing data anywhere.
Rajiv: And capturing the multiyear growth opportunity in front of us.
Rajiv: And with that.
Speaker Change: I'll hand, it over to <unk>.
Speaker Change: There are many.
Speaker Change: Thank you Rajiv and thank you everyone for joining us today I will first discuss our Q3 fiscal 'twenty five results followed by our guidance for Q4 fiscal 'twenty five and what that implies for our updated outlook for the full fiscal year 2025.
Speaker Change: Results in Q3 25 came in above the high end of our ranges across all guided metrics in Q3, we reported quarterly revenue of $639 million.
Speaker Change: Higher than the guided range of 620 $630 million, representing a year over year growth rate of 22%.
Speaker Change: <unk> at the end of Q3 was $2.14 billion.
Speaker Change: Representing year over year growth of 18%.
Speaker Change: We continue to see strength in landing new customers onto our platform from the various programs. We have put in place to incentivize new logos from a general increase in engagement from customers looking at us as an alternative in the wake of industry M&A and helped by more leverage from our OEM and channel partners.
Speaker Change: And our our net dollar based retention rate at the end of Q3 was 110% flat quarter over quarter.
Speaker Change: In Q3 average contract duration was three one years slightly higher than our expectations and up slightly quarter over quarter.
Speaker Change: non-GAAP gross margin in Q3 was 88, 2%.
Speaker Change: non-GAAP operating margin in Q3 was 21, 5% higher than our guided range of 17% to 18% due to slightly lower operating expenses related to timing of hiring.
Speaker Change: And higher revenue.
Speaker Change: non-GAAP net income in Q3 was $125 million or fully diluted EPS of <unk> 42 cents per share.
Speaker Change: Based on fully diluted weighted average shares outstanding of approximately 297 million shares.
Speaker Change: A note on taxes.
Speaker Change: Historically, we calculated the non-GAAP effective tax rate by considering our sizeable U S. Net operating loss carry forwards and tax credit carryforwards.
Speaker Change: This resulted for example in a 6% non-GAAP tax rate for fiscal year 'twenty four.
Speaker Change: Going forward, we believe our long term projected tax rate of 20% better aligns with the non-GAAP measure of profitability better reflects our long term tax structure and provides better consistency across reporting periods.
Speaker Change: This 20% non-GAAP tax rate is reflected in our statement starting in Q3 25.
Speaker Change: It is important to note that we expect no meaningful change from a cash tax perspective.
Speaker Change: Our overall cash tax rate is expected to be approximately in the mid to high single digit percentage range of non-GAAP profit before tax for the next few years due to our net operating loss and tax credit carry forward balances.
Speaker Change: GAAP net income and fully diluted GAAP EPS in Q3 were $63 million.22 per share respectively.
Speaker Change: Free cash flow in Q3 was $203 million.
Speaker Change: Representing a free cash flow margin of 32%.
Speaker Change: Moving to the balance sheet, we ended Q3 with cash cash equivalents and short term investments of 1.882 billion up from one $743 billion at the end of Q2.
Speaker Change: Moving to capital allocation in Q3, we repurchased $38 million worth of common stock under our existing share repurchase authorization and used about $65 million of cash to retire shares related to our employee's tax liability for their quarterly RFU investing.
Speaker Change: Moving to Q4 'twenty five.
Speaker Change: Our guidance for Q4 is as follows.
Speaker Change: Revenue up $635 million to $645 million.
Speaker Change: non-GAAP operating margin of 15, five to 16, 5%.
Speaker Change: Fully diluted weighted average shares outstanding of approximately 297 million shares.
Speaker Change: Moving to our full year and based on that Q4 guidance the updated guidance for fiscal year 'twenty five is as follows.
Speaker Change: Revenue of 2.52 to 2.53 billion, representing a year over year growth of approximately 17, 5% at the midpoint and an increase from our previous guidance.
Speaker Change: non-GAAP operating margin of approximately 25% an increase from our previous guidance.
Speaker Change: Free cash flow of $700 million to $730 million, representing a free cash flow margin of approximately 28% at the midpoint and an increase from our prior guidance.
Speaker Change: I will now provide some commentary and assumptions regarding our updated guidance.
Speaker Change: First we assume that the macro and demand environment remains similar to what we saw in Q3.
Speaker Change: We expect to continue to add new customers onto our platform, while noting that last Q4 presents a tough year over year comparison for new logo additions.
Speaker Change: Second we assume aggregate average contract duration for Q4 to be more or less flat relative to Q3, resulting in a full year contract duration that is expected to be flat to slightly higher compared to last fiscal year.
Speaker Change: Third as discussed in prior earnings calls, we expect to continue to increase our investment in sales and marketing and research and development into the end of the fiscal year. These investments are directed towards addressing our large market opportunity are expected to continue to ramp in Q4 and are factored.
Speaker Change: Into our Q4 and implied full year guidance.
Speaker Change: In closing we are pleased that our Q3 results exceeded the high end of our guidance ranges and to raise our full fiscal year guidance across all metrics.
Speaker Change: We would like to thank our employees customers partners investors and stakeholders for their continued trust in us.
Speaker Change: We remain committed to continued progress aligned with our stated philosophy of sustainable profitable growth.
Speaker Change: Through durable top line growth and expanding margins.
Speaker Change: With that operator, please open the line for questions.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please limit yourself to one question and one follow up in the interest of time. 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.
Speaker Change: Hey, guys I appreciate the questions here.
Speaker Change: Of course, I'll kick it off with the simple macro question that we're all asking on all the calls, but I guess can you just walk us through the linearity that you saw throughout the quarter and through May at this point, just given some of the tariff things back and forth, especially in the month of April.
Speaker Change: And rajeev separately from that you seem to be talking up. The next act of the company across platform services like managed <unk> a.
Speaker Change: Are we seeing an improvement yet and that sort of contribution on the third wave or.
Speaker Change: Whatever you want to call. It that has traditionally been a smaller part of the business.
Speaker Change: Yes, I can take questions and then I'll talk about macro we can talk about your specific question on linearity I think you can cover that and then I'll comment on the kubernetes piece. So so on the overall macro Jim it continues to be dynamic.
Speaker Change: Things change every day.
Speaker Change: And we've seen all of these changes and recent actions from the New administration.
Speaker Change: The other related commentary on the macro is also on the federal business site.
Speaker Change: Lots of surplus and it changes people changing in the federal government more additional revenues so for us what that's meant is somewhat longer deal cycles, and some variability across our five business now.
Speaker Change: Now longer term when we look at the fed business, we're actually reasonably optimistic on the opportunity to put this business.
Speaker Change: To benefit from our platform focus.
Speaker Change: <unk> modernized and we have companies and organizations that use <unk> and so I think this is clearly a focus and we can have the bed business.
Speaker Change: For customers with this.
Speaker Change: So we have factored some of this picture when we look at our outlook.
Speaker Change: Let me also answer the kubernetes piece and I'll, then turn it over for the entity.
Speaker Change: So the kubernetes piece of course look I think.
Speaker Change: At our last user conference, we really focus on becoming the platform for.
Speaker Change: Applications and data both today's applications, which are all VM based and Tomorrow's applications, which are more kubernetes based and can be running anywhere and so our whole focus on covenant is about building the kubernetes platform to align and provide customer the type of Vms, our container anywhere it's still pretty early days for the kubernetes.
Speaker Change: These were actually quite enthusiastic about the initial progress we are seeing in terms of the product market fit that we've seen with what we've talked about.
Speaker Change: But it's still early days and the.
Speaker Change: The numbers and adoption is still pretty early.
Speaker Change: If you recall, we really got into this about a year ago with our acquisition of <unk> and we're building out and we'll continue to build out this platform over the next few years. So the contribution is still small, but growing nicely liquidity you want to come and comment on that.
Speaker Change: But linearity and sharp.
Speaker Change: Sure Hi, Jami so on a couple of things I'll add to what Rajiv said, so on linearity I look I would say more generally on the tariff point, Jim wheat, as a software provider and as you know we don't have a direct exposure to tariffs and we haven't seen an impact from tariffs to date.
Speaker Change: I'll also say that more generally why linear or they can move around from quarter to quarter, we haven't seen any meaningful sort of increase in Poland, our cash outs more systematically over the course of Q3.
Speaker Change: Other than what Rajeev alluded to you're right in terms of deal cycles are lengthening and some variability with regard to the U S. Federal business, specifically and as Rajeev said I'll reiterate that overall their componentry solid demand for our solutions and that but we have factored in some of this overall kind of macro uncertainty into the updated outlook.
Speaker Change: Got it thanks I'll pass it on appreciate the color.
Speaker Change: Thank you Jonathan.
Speaker Change: Thank you one moment our next question.
Speaker Change: Our next question comes from the line of parents <unk> Bora from Jpmorgan. Your line is open.
Speaker Change: Oh, great. Thank you so much for taking the questions and congrats on the solid quarter.
Speaker Change: Rajiv not at del Toro Flex solution is out there it seems like NCIC licensing any way to understand the delta between the NCIC and kind of the core standard Mci license.
And I know, it's early but what are you seeing around the pipeline for that product at this point and one follow up I'll just spit it out for many the operating margin guide is coming up substantially for the year, maybe talk about what's driving that is there an element of timing of expenses that might have been pushed into 2026 or are you seeing.
Speaker Change: Any productivity improvement from kind of internal use cases, so just trying to understand the sustainability of that margin levels as we as we go into <unk>.
Speaker Change: Yes hope into them, but let me take the first part on NCIC and Delta reflects so yes. We are happy that we were able to get it out at the end of April in line with what we talked about we said through the first half calendar year, we've been able to get it out before.
Speaker Change: Also at our conference.
Speaker Change: Washington, you heard some of the early customer feedback on that mortgage was on stage talking about how they were an early access customer for this offering.
Speaker Change: So now the way we've gone to market as <unk> said, we call it NCIC.
Speaker Change: And what it is is the operating now includes basically the rest of the platform minus the storage.
Speaker Change: It includes our Hypervisor networking.
Speaker Change: Networking pieces site.
Speaker Change: Our bio security micro segmentation offerings and of course includes a full management suite.
Speaker Change: And what it does not include of course, the storage because thats sort of piece of the external component.
Speaker Change: And so that's how we price that we still have a.
Speaker Change: <unk> Pro advanced type of.
Speaker Change: TTS of that licensing structure in depth now in terms of.
Speaker Change: The opportunity there of course, Paul Flexes.
Speaker Change: Yes.
Speaker Change: Limited installed base of perfect, but it's at very large accounts.
Speaker Change: Customers like Moody's.
Speaker Change: Among others, where there's a large footprint up opex in those accounts and our whole strategy with NCIC.
Speaker Change: Our cloud platform minus the started offering is to be able to go into those environments and get traction. So we've got we have some good early access.
Speaker Change: Feedback from our customers.
Speaker Change: A desk and.
Speaker Change: And so we expect to see some traction with that over the next several months and really I think some contribution a smaller contribution in FY 'twenty to fix in terms of the actual revenue.
Speaker Change: Yeah, Hi, pendulum I'll take the operating margin question. So you're right. We're happy with our operating margin performance in Q3 and to be able to take up the guide for the for the full year.
Speaker Change: And so I don't want to go to in my prepared remarks in Q3 for example, I did call out timing of hiring a smaller agency overachieve that op margin relative to our guidance and so yes. Some of those people have been hired and will start in Q4, and you'll see that that's quite a meaningful step up implied in the op margin guide from Q3 to Q4 because we.
Speaker Change: Our set of hiring folks.
Speaker Change: Correct them to start in Q4, we expect to also continue to ramp up the <unk>.
Speaker Change: <unk> in Q4 pendulum to your question.
Speaker Change: Of course, because we believe there is a big market opportunity here and as we've talked about before we're investing in both sales and marketing and on the R&D line as we look to drive more innovation.
Speaker Change: And last part of your question was around how do you think about fiscal year 'twenty six.
Speaker Change: Sustainability here. So of course, we guided 26 in the next next earnings call, what I will say it of course that all the folks we've hired here whether it be in the run rate for next fiscal year.
Speaker Change: And we've had some really nice margin improvements year over year and that pace is going to be hard to sustain of course pendulum going forward.
Speaker Change: So I'll leave it there, but I think we're happy with the ability to drive leverage overall of the model and as you know we've talked about those levers at a high level as being continuing improvement of not improvement increase really of renewables mix as a percent of total and that will continue we have been talking more productivity improvement with our sales reps and we.
Speaker Change: Think there's more we can do there and then overall kind of prudent investments in areas, where we think we can we can see a return and so there are some other areas and youre right. There is some timing here as well and we'd expect all of that to be in the run rate going into fiscal year 'twenty six.
Speaker Change: Got it. Thank you so much thank.
Speaker Change: Thank you Jim.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of Jason Ader from William Blair. Your line is open.
Speaker Change: Yes. Thank you.
Speaker Change: Two questions first a quick one for <unk> can you help us understand ALR versus revenue just given the delta in the growth rates there was that a timing thing.
Speaker Change: Usually IRR growth for you guys has been above revenue growth. So that's the first question.
Jason Ader: Yes, Hi, Jason.
Jason Ader: Start with a few things on the revenue versus Anr.
Jason Ader: First thing I'll say is revenue of course at a slow metric.
Jason Ader: More of a stock metric and I think a few other things to call out. So when you think about revenue recognition for us as you know, Jason it's not fully adaptable.
Jason Ader: That is the license portion that is recognized upfront and then the support and maintenance portion that second life more rapidly over time.
Jason Ader: And of course that provides to annualized view of our installed base, therefore being more of a stock metric.
Jason Ader: Now do you think you can affect that revenue right so contract duration.
Jason Ader: Can affect those elective growth rates because revenue.
Jason Ader: It is impacted by durations are longer duration would be in a higher amount recognized upfront for license versus a shorter duration, but I think our artist agnostic.
Jason Ader: That and I talked about how contract duration came a bit higher than our expectation. The other factor yard is around large deals that can have delayed our phase of deployment over time also.
Jason Ader: Resulting in variability I'll give you one example.
Jason Ader: <unk> talked about before is this eight figure ACB deal that we had booked in Q3 of fiscal year 'twenty four so the year ago quarter.
Jason Ader: And it was billed and collected cash for it in a quarter later than they said then that the revenue for that transaction is going to come over overtime and so for example.
Jason Ader: Significant chunk of that revenue from that transaction.
Jason Ader: That did show up in Q3, now that isn't bought revenue NAR, but revenue effect is of course more pronounced and more lumpy on revenue given that upfront component as overall look we think both revenue and add I'll provide useful information about our top line and that's why we continue to provide both on a quarterly basis, but yeah that revenue number because of the.
Jason Ader: The license upfront recognition can be a little more lumpy than any other art.
Jason Ader: So you could say none will be of revenue is a better measure than purely quarterly.
Speaker Change: Okay, great. Thank you and then Rajiv Vmware historically did really well with tier two cloud service providers and MSP.
Jason Ader: It's basically a cloud computing platform for those.
Jason Ader: For those companies we've heard some of those partners are not thrilled with the new licensing and so I was just hoping you could comment on any progress you guys are seeing.
Jason Ader: With these types of accounts is it a target type of account for you or are you more focused just on the kind of larger enterprise, yes, Jason that's a very good and appropriate question actually because for us the cloud service provider or managed service provider the CSP MSP market.
Jason Ader: Historically had not been a big focus area for us.
Jason Ader: Because we were just focused on working directly with our customers now we do think that market actually for us represents a significant opportunity given the big vacuum that's out there now with Vmware as you said, making some of the changes to the licensing model.
Jason Ader: And so our business with the CSP and MSP, while still early is growing so we've introduced specific programs for the CSP and MSP.
Jason Ader: In terms of debt and be back to the added some resources both in the field and centrally to focus on those we are adding also some product capabilities to enable the service providers to deliver multi tenant offerings.
Jason Ader: And also there's another interesting dynamic thats starting to I must note on sovereign cloud and some of the <unk> like albeit in Europe that we work with are also emerging as one building. This local sovereign cloud for countries. So all of these represent in my view a good opportunity for us to have another route to market.
Jason Ader: And get.
Jason Ader: Get more leverage and so we are now starting to focus like I said and making additional investments in this space early days, but that business is small.
Jason Ader: Small right now, but expecting to grow.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from the line of meta Marshall from Morgan Stanley. Your line is open.
Meta Marshall: Great. Thanks.
Speaker Change: Maybe a couple of questions for me just traction that you guys are having kind of with the Dallas Cisco customer channel partners that you've kind of added last year, just kind of any update on where you're seeing kind of the most traction there.
Speaker Change: And then next maybe if you could kind of give us some commentary of at your next conference what kind of where are the highest.
Jason Ader: Just where you were seeing the most activity or customer requests for kind of additional development. Thanks.
Jason Ader: Thank you Peter So first let me comment on Dell and Cisco.
Jason Ader: So firstly I think Cisco is a little further along than that because we've had a relationship with them a little longer.
Jason Ader: There have been a consistent contributor to our new logo growth.
Jason Ader: I mean, it's still a minority contribution, but a steady contribution to a new logo growth.
Jason Ader: Because again, they have a very broad footprint.
Jason Ader: We are the customers that we are winning with them cover the gamut they cover.
Jason Ader: Large customers they cover federal customers smaller customers Cisco are quite strong in state and local education as well so it's a pretty broad spectrum across the board domestic and international.
Jason Ader: From Cisco.
Jason Ader: The Dell relationship is a bit earlier in the lifecycle theres two parts to it that is the.
Jason Ader: Ci component Red Desert Resells, our ACI platform.
Jason Ader: And that's been in the market for a couple of quarters, but I would say that that's one of many solutions that they'll cells.
Jason Ader: That obviously would lead with their own external storage solutions first and offer up RF solution relief customer interest in ATI.
Jason Ader: But then the second part of the offering which is par flex our solution with Barclays. I mean, thats very much aligned with Dell selling completely and so we are now that the product is in the market we are engaging with.
Jason Ader: <unk> Opex accounts, you heard from one of them at Dot next.
Jason Ader: So that's so that's I think going along well but.
Jason Ader: Since the product is generally available it is going to take some time for that to build up.
Jason Ader: In terms of darkness, I thought it was very.
Speaker Change: Good show for US we have 5000 plus attendees we had.
Jason Ader: I would say one of the big things for me. We are also seeing the the partner sponsorships growth two years ago, we had about 25 partner sponsoring us.
Jason Ader: The show and then the floods. This year, we had 86 partners. So that's pretty good growth in <unk>.
Jason Ader: Testimony to the broader ecosystem that's building around US now on your question around the customer requests.
Jason Ader: I would say.
Jason Ader: Clearly our customers would like us to support every external storage array that's out there.
Jason Ader: They want to see how we can make migrations as easy as possible for them and there were many customers talked about their migration experience.
Jason Ader: Moving from we mentioned organics is at the conference. So I would say, enabling a broader use case, where our platform supporting external storage.
Jason Ader: We have good traction on modern applications in terms of future direction for many of these many of these customers that were there.
Jason Ader: So I think those were some of the big things for us are operating across a hybrid multi cloud environment I think.
Jason Ader: The simplicity and then specifically given Washington D. C that was a fair bit of interest also in.
Jason Ader: And us being able to walk and air Gapped, our secure environments.
Jason Ader: And we saw some examples of mission critical deployments like the U S. Navy talked about how they're using us on some of their ships.
Jason Ader: So some of the needs to be GAAP. Some of these need to be secure environments.
Jason Ader: Some of the capabilities that we're bringing on a product also for those environments that have put too.
Speaker Change: Great. Thank you so much.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of roof Blue.
Speaker Change: Carrier from Bank of America. Your line is open.
Speaker Change: Hi, Thanks, it's rupal filling in for <unk> today, I have two questions one for Rajeev and unprovoked. Many Rajiv can you talk about the pricing environment and then fiscal <unk> can you talk about any share gains in competitive wins versus Vmware.
Speaker Change: The last couple of quarters that <unk> was gaining some traction in terms of gaming Vmware customers. So how did that track in fiscal <unk> and then <unk> I'll ask your question at the same time.
Speaker Change: Can you give us some commentary on how the renewals business did versus the land and expand maybe talk about the pipeline of large deals and available to renewal pool.
Speaker Change: <unk> had some pull in of renewals.
Speaker Change: Any chance that that is happening this year as well I mean, how are things trending if you can give us any color on these points. Thank you alright to Blue Hey, good question.
Jason Ader: So first.
Jason Ader: Share gains and pricing environment.
Jason Ader: Look I think that the.
Jason Ader: Simpler indicators are up.
Jason Ader: Our traction in this in terms of share is the.
Jason Ader: The number of new customers joining us every quarter again this quarter with a strong quarter for new logos, we had about I think 620 or so.
Jason Ader: And.
Jason Ader: What's also changing as the <unk> adoption, the hypervisor adoption more and more of these customer starting that journey with us, but the Hypervisor. This is certainly not the case five years ago.
Jason Ader: In fact, there are more customers at that point consuming our storage along with BMS hypervisor, but these days are the new logo customer the vast majority of them are starting their journey with our own hypervisor.
Jason Ader: And we can give you some examples during our prepared remarks here, we've talked about winning some large customers as.
Jason Ader: As well as smaller customers so the logo actually across the spectrum.
Jason Ader: Pretty large global 2000 type account, but also smaller accounts around the world.
Jason Ader: The pricing environment has been fairly stable I think we've seen the competitive pricing fairly.
Jason Ader: Pushing customers to adopt <unk> Vms stack.
Jason Ader: And we have a more ala carte approach, providing what customers want.
Jason Ader: <unk>.
Jason Ader: They can buy what they wanted to consume what they want and very flexible dumped from us. So we haven't really seen any big changes from a pricing environment perspective.
Jason Ader: Okay. Thank the hydro Blue I'll take your second part of your question. So for Q3, specifically, we saw good strength and landing new logos as I think because even I mentioned in our prepared remarks that new logo growth was again really strong I did mentioned that in Q4 the comparison.
Jason Ader: Start to get.
Jason Ader: Harder because last Q4 was.
Jason Ader: When we sort of started to see this increased traction with new logos, so happy with that.
Jason Ader: Spansion was great in Q3, and renewals were solid as well and in Q3.
Jason Ader: Then I think the second part of your question was around pipeline, what Youre seeing with regard to large deals and perhaps available to renew Paul.
Jason Ader: So on the large deal pipeline, we continue to see a greater mix of larger deals in our pipeline, we've talked about that in the past, but that continues to be the case and we think that will continue to cause some variability from quarter to quarter as those deals land and those are also the ones, where we can see occasionally.
Jason Ader: More request for deployments over time for example, like that example, I gave earlier update figure ACB deal from last year. So we do see that from time to time, and we expect that those will continue and those really large transactions because customers in those instances are willing to make a large upfront commitments and its reasonable that they can only.
Jason Ader: Zoom is not all at once but over time, so we're willing to do structure transactions in that way. So that's on the large deal side and then I'll be available to the new Paul look I would say that's.
Jason Ader: That's a number that we have a fairly good visibility or the start of the year Theres. Some timing differences. Some comments earlier for example, yes that I think will continue to be the case and as we've said in the past we suddenly welcome a customer willing to renew early as long as the economics are favorable because it's a commitment that they're willing to make with us earlier.
Jason Ader: And of course, we will come back and then the ACR number like you said, we will continue to grow.
Jason Ader: As you can imagine, though that as that ADR base gets larger and larger the growth rate of that and actually really just law of large numbers will grow slower, but it is expected to continue to grow here as we add more land and expand each year and that ADR grows over time.
Jason Ader: Okay. Thanks for all the details appreciate it.
Jason Ader: Thank you thank.
Speaker Change: Thank you one moment our next question.
Speaker Change: Our next question will come from the line of Mike Cecos from Needham Your line is open.
Speaker Change: Hey, guys. Thanks for taking the questions here just the cycle back to the.
Speaker Change: The competitive displacements in the Vmware Broadcom series.
Speaker Change: Curious.
Speaker Change: As you guys continue to monitor these deals in your pipeline or.
Speaker Change: Is that cohort of deals exhibiting any different behavior versus.
Speaker Change: With broader new panics pipeline.
Speaker Change: As it pertains to tariffs or the economic uncertainty out there or is the.
Speaker Change: Our deals progressing at a quasi similar rate I'm just interested in if you could.
Speaker Change: On package that a little bit.
Speaker Change: I think the first Mike it's a good question, but first of all is very difficult for us to separate these deals.
Speaker Change: It's not one versus the other right I mean, we don't have clear delineation between just hey, this is a vmware displacement opportunity versus say business as usual type deal because in every deal we have against competition. So so it's hard for us too.
Speaker Change: Really discriminate across these two deals, but I would say, we haven't seen any substantial different behavioral patterns I think.
Speaker Change: I will say that our location, we've seen I mean, it depends depending on the customer and it's kind of more anecdotal than broad basis. There are some customers, who say absolutely I want to get out of BMS dot com and Luke.
Speaker Change: And so those customers tend to be more motivated and progressing these forward at a more rapid clip and with some sense of urgency.
Speaker Change: And so I would say that could potentially in some ways.
Speaker Change: Independent of the macro and the rest of the macro situation happening, but I think this is these are our two completed for that first really expect separate meaningful.
Speaker Change: A meaningful observations.
Speaker Change: Liquidity, you want to add anything to this.
Speaker Change: The one thing I'd add I think it might be your part of your question was is there any different behavior with respect to <unk> solid macro specifically, Mike and I wanted to wait.
Speaker Change: Great with that with respect.
Speaker Change: <unk> again is a software provider, we don't have any direct exposure to tariffs and haven't seen an impact to.
Speaker Change: To date, Mike and look the broader macro uncertainty.
Speaker Change: Then as Rajeev said thats sort of intertwined with some other specific situations that all prospects and customers are dealing with.
Speaker Change: We factor all of that as we talk about our updated guidance Mike.
Speaker Change: Thanks for that for both of you on that response and then just a quick follow up with <unk> I know that we decided the timing of the hiring if I come back to the.
Speaker Change: Question that pendulum it got it.
Speaker Change: Just wanted to make sure I'm clear here. So is there an expectation that doing this.
Speaker Change: Please go year, we will have caught up from a hiring standpoint.
Speaker Change: Well I would say look we are we are hiring to our plan for this fiscal year. They spent some time, making as I alluded to between Q3 and some of those folks being hired but starting in Q4 and so that is the intent Michael. So the team is things are all have been given out their plans and they are all hiring.
Speaker Change: As rapidly as they can to bringing people aboard so were certainly driving towards that.
Speaker Change: Terrific. Thank you very much guys. Good luck.
Mike Cecos: Thanks, Mike.
Speaker Change: Thank you one moment our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Howard <unk> from Northland Capital markets. Your line is open.
Speaker Change: Oh, yes, thank you and congrats on the strong results profitability and the guidance on the profitability as well well done.
Speaker Change:
Speaker Change: Our results specifically the incremental air are which was about flat year over year, how would you characterize that relative to your expectations.
Speaker Change: Q2 earnings call.
Speaker Change: Do you know that you don't guide to it but thats also in that maybe you can at least discuss how it performed relative chips for patients.
Speaker Change: Thank you for the question.
Speaker Change: Rightly said, we don't buy Toyota auto net new IR.
Speaker Change: So what I will say is we are happy to see.
Speaker Change: Our next new aortic neck and arb.
Speaker Change: Net dollar based retention rate stable at 110% that of course, it's hard to compare directly to net new and also I think the number you're referencing is a quarter over quarter incrementally at ARVO and <unk>, which is more.
Speaker Change: Which is more sort of a your number right. So yeah. So we don't really comment on net new way at all we don't guide to it but I would say overall happy with.
Speaker Change: Our outperformance exceeding our expectations and our guidance on both revenue and free cash flow for the quarter and to be able to raise all guided metrics for the full fiscal year.
Speaker Change: Okay, Great and then what are sort of struggling to go down to $1 <unk> was there okay.
Speaker Change: The reduction in a number of days in the quarter forecast.
Speaker Change: You mean professional services revenue in the hall with your question.
Speaker Change: No.
Speaker Change: The maintenance and entitlements.
Speaker Change: Service revenue.
Speaker Change: Yes, it's a product versus reporting entitlements as that question, yes, correct. Okay. Yeah, yeah. So it looks support actually I think grew year over year.
Speaker Change: So at a slower pace, maybe that you folks are used to see I wouldn't call. It anything unusual there that as you know that support line item really comes off the balance sheet of the deferred revenue balance on our schedule. So it's not really irrespective of anything there is some you know the old model. We have some license device licenses that are still under support and some of those can move.
Speaker Change: Around quarter to quarter, so that had a small impact therefore Q3 as well as the holiday you can see a plus product revenue grew really nicely actually in the quarter.
Speaker Change: Part of that reason for that is this large deals that I talked about which had a significant revenue recognition in Q3.
Speaker Change: Great. Okay. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Matt Hedberg from RBC. Your line is open.
Speaker Change: Hey, guys. This is Dylan on for Matt Hedberg. Thanks for the question and congrats on another great quarter.
Speaker Change: Just one from me I wanted to touch back on partnerships could you double click on the progress with Dell and Cisco and other conversations with Oems that you're having.
Speaker Change: Think about.
Speaker Change: Broadening these partnerships.
Speaker Change: How should we think about contribution ramping into the second half of calendar year 2025 and enter 2026.
Speaker Change: Yes, I think.
Speaker Change: You can help me on the numbers I cited but I think first of all I think we.
Speaker Change: We continue to focus on expanding our partner ecosystem.
Speaker Change: You have to look at them in terms of the <unk>.
Speaker Change: Multiple aspects when it comes to partner that the strategic.
Speaker Change: Partners like.
Speaker Change: Cisco Dell NPR that you made.
Speaker Change: You talked about and some of them actually are also go to market partners in defense of the reselling our products, So Cisco and Dell are reselling our product.
Speaker Change: Haven't talked specifics about pure.
Speaker Change: The solution is not out yet.
Speaker Change: Yeah that'll be out at the end of the year. So until then we'll have to wait.
Speaker Change: <unk> been in the market for a while.
Speaker Change: They continue to ramp they continue to deliver new logos to us and again, we are focused on incremental business with these folks.
Speaker Change: Dell has been.
Speaker Change: The first part of the Dell solution, that's been in the market for a couple of quarters, but again thats not a solution that they tend to favor right now.
Speaker Change: Their own solution with external storage.
Speaker Change: First before they fell.
Speaker Change: Alex at Ti solution now that we also have an external storage solutions part two of that offering but does it just the prospects.
Speaker Change: So that again the physicians just arrived in market.
Speaker Change: We are in trials and early engagements with many customers and so we are seeing.
Speaker Change: It's early days and we expect to see some revenue from that in FY 'twenty six.
Speaker Change: And of course over time, we do expect to broaden and support more of the storage array partners.
Speaker Change: And we'll talk about those in future calls at some point.
Speaker Change: Q1 moment foreign next question.
Speaker Change: Our next question comes from the line of Ben Bollin from Cleveland Research Company. Your line is open.
Ben Bollin: Thank you and good afternoon, everyone. We appreciate you taking the question.
Rajeev: Rajeev I wanted to start Big picture when you think about.
Rajeev: The discussions youre, having with customers around these investments.
Rajeev: How do you think there.
Rajeev: Thoughts are evolving around traditional three tier versus HCI have you seen any notable changes more willingness to migrate just any big picture thoughts and then I'll follow up would be.
Rajeev: Back in 2003.
Rajeev: Prior to the Vmware acquisition. It did seem like there was a large number of customers pulling forward renewals.
Rajeev: Curious if youre seeing.
Rajeev: Any top of funnel opportunities from those customers as they approach three year milestones.
Rajeev: That might look like for for visibility on a go forward basis. That's it for me. Thank you, yes, both good questions.
Ben Bollin: Ben I think.
Ben Bollin: On the first one we haven't really seen a big change in terms of the Cts storage external storage versus HCI.
Speaker Change: We fundamentally believe that ACI is the best way to build a private cloud foundation and the hybrid Cloud Foundation.
Ben Bollin: For our customers.
Ben Bollin: But there is still a huge installed base. So that if you look at the market overall, but thats, 40% of the addressable market is HCI today.
Ben Bollin: And the rest are still sitting at <unk>, and we will continue to grow into the <unk> market and convert some of those customers over time.
Ben Bollin: And we laid this out at our last Investor day, almost in the workload by workload basis now that said there is still a very large installed base of <unk> storage out there and it will.
Ben Bollin: It's going to be a long long, while before all of that stuff migrates minimum migrate.
Ben Bollin: And so thats really the reason why from our perspective, it makes sense to go broader and think of us as not just the HCI provider anymore, but now a platform company and as a platform you support a broad ecosystem around you.
Ben Bollin: So you can have a self storage already can have our own storage.
Ben Bollin: So we now let the customer decide and we still say look if you were to go to next year youre going to get significant tcl benefits.
Ben Bollin: <unk> solution, but wed like to use it's easier solution, yes, the rest of our cloud platform Santos tourist piece and we'll give.
Ben Bollin: Give you the best experience when that when it comes to a hybrid cloud offering and a hypervisor option alternative for Vmware. So that's the thinking when it comes to.
Ben Bollin: ACI in CTF storage for us.
Ben Bollin: Now in terms of the Vmware dynamic on renewals yes.
Speaker Change: Yes, Peter pointed out our customers did.
Ben Bollin: This place.
Ben Bollin: In fact summed it two years five years with Madison that they heard about the acquisition.
Ben Bollin: Around the time, the acquisition was announced or started getting to be close.
Ben Bollin: And I would say the.
Ben Bollin: That's again all of those customers as those renewals are coming up now, let's say this year or next year.
Ben Bollin: Can group them into <unk>.
Ben Bollin: So that's two buckets the first bucket on a set of customers that this way.
Ben Bollin: I am actively going to migrate out and put places put.
Ben Bollin: We will take steps to do that and be out of that and in fact, we've had several customers like that who did renew who had who bought them sell some.
Ben Bollin: Window of time, and then embarked on a migration with us and in fact, we've talked about some of those on prior calls we've talked about a large north American insurance company. That's been doing this and has a plan. They are almost out of their dependence on Vmware and they've been doing the migration for the actively.
Ben Bollin: And we've seen that with some of the other customers who've been public about their facilities. There to now at the same time. There was also a set of customers that did not move.
Ben Bollin: And but that's up to the customer now theyre looking at another renewal that they probably have to renew.
Ben Bollin: And what we see is essentially fees for those people who are not ready.
Ben Bollin: They are increasingly saying, okay, Brian I think I hope. This is my last renewal and I can do something about.
Ben Bollin: Not being dependent again say three years from now.
Ben Bollin: And you know.
Ben Bollin: So we are seeing quite a bit of rain variety and variations across customers depending on how they approach.
Ben Bollin: This is why we've always characterized this ben is a multiyear opportunity right. This is not going to be just one quarter. After the other cohort is going to be a gradual opportunity because they are a customer that at many different stages in their journeys.
Ben Bollin: Thanks Rajiv.
Ben Bollin: Thank you one moment for our next question.
Ben Bollin: Okay.
Speaker Change: Our next question comes from the line many husseini from Susquehanna Finance.
Speaker Change: Group Your line is open.
Mani Hussseini: Yes, thanks for taking my question.
Speaker Change: The team as you think about.
Mani Hussseini:
Mani Hussseini: Especially over the next year or two.
Mani Hussseini: Hum.
Mani Hussseini: Should we assume.
Mani Hussseini: There will be increased diversification of products, especially as you move from hei to multi cloud.
Mani Hussseini: And as part of the question would with AOR growth be driven by new logos or existing customers.
Mani Hussseini: The first adopters of additional.
Mani Hussseini: Projects, especially as we migrate to influencing and I have a follow up.
Speaker Change: Yeah, I think it's a very broad question, there, maybe and I'll try to pass some pieces of it and hopefully you can help us well.
Speaker Change: So first of all I mean, we do have a product portfolio today.
Mani Hussseini: It's a full cloud platform.
Mani Hussseini: But again it can be it can.
Mani Hussseini: Can be you can consume it for them from a cloud infrastructure perspective, we have plant management of add ons.
Mani Hussseini: Our customers can consume unified storage, which is also an add on.
Mani Hussseini: And then our database platform and then now we have a modern platform and our AI solution. So these are all so we already have a portfolio of products of course, the bulk of our business today is still coming from the core and but we are seeing for example, good attach with our cloud management solutions.
Mani Hussseini: And with some of the other elements of our portfolio. It is still early so for example in our hybrid cloud solutions are still early modern applications.
Mani Hussseini: Still.
Mani Hussseini: Fairly early and over time, I think we do expect those portions of the portfolio to build up and be additive.
Mani Hussseini: And b growth additive on top of all of the rest of our core as well.
Mani Hussseini: In terms of the nature of the Aon on itself of course, we have new logos and then we have expansion within our current customers and new logos, you've seen what's happening there we've been on a good clip when it comes to adding new customer then most the vast majority of the new logos, new customers start with us with our core offering.
Mani Hussseini: And also now our hypervisor as part of that.
Mani Hussseini: Now when it comes to expansion I think we certainly look at.
Mani Hussseini: Adding the rest of the portfolio is one of the expansion leave us for us.
Mani Hussseini: Along with.
Mani Hussseini: More of the same workloads that they were consuming or winning new workload for the customers. So I would say we have three expansion vectors.
Mani Hussseini: Planning with the rest of the portfolio.
Mani Hussseini: Adding more of the same workload expanding into new workloads and those three also drive together expansion era.
Mani Hussseini: Sure.
Speaker Change: I'm sorry, Matt if I can add one other aspect of your question was contribution I think of expansion versus new logos and want to order at all and one way to think about it is that the NR. They give you every quarter, which is hard to attend.
Speaker Change: Most recent quarter that is of course, then our charter ability to retain and expand so if you assume that our.
Mani Hussseini: Our retention is something less than 100% in our expansion is something greater than 10% and trying to kind of get to that 110% and then we said they are all growth of 18% to that remaining 8% over and above that are <unk> with the contribution of new logos. So in general when you look at the AGA and expand performance in any given quarter they expand.
Mani Hussseini: Typically is a significant majority of that land and expand with new logo being the smaller dollar contribution because of exactly what you said what people tend to start small and then.
Mani Hussseini: Can you expand with us that's typically what we see.
Mani Hussseini: Sure.
Mani Hussseini: There is not asked the question is.
Mani Hussseini: I was just wondering.
Mani Hussseini: Make sure I understood the dynamics.
Mani Hussseini: And.
Mani Hussseini: There wouldn't be a period, where AOR growth.
Mani Hussseini: Slow as we go through this transition.
Speaker Change: Correct me, if I'm wrong from what I understood from your three vectors are going to provide these waterfalls.
Mani Hussseini: Even if let's say market share gains come through and then you have these two other vectors that kicks in and should help to sustain.
Mani Hussseini: The double digit growth in IRR is that the way is that the right way of thinking about this simplistically.
Mani Hussseini: Well without commenting on specific IRR expectations.
Mani Hussseini: Because we don't talk about that as you know, we don't guide to it on a quarterly annual basis.
Mani Hussseini: I would say is that we do have we do view our business as having multiple levers of growth that <unk>, just outlined but it'll be portfolio, whether it be land and expand landing new logos expanding with them and so on so yes, we are striving to have multiple growth drivers for the business overall.
Speaker Change: Got you and one quick follow up you said the long term tax rate of 20% right now we're running less than 1% should I assume that this is a.
Speaker Change: A small trajectory.
Speaker Change: With the increase in the tax rate.
Speaker Change: Thank you for that question, let me clarify what I said, which is that if you look at our this is only at about our non-GAAP effective tax rate that is no change to cash taxes, which we still expect to be in the mid to high single digit percent of profit before tax.
Speaker Change: Im not sure where you're getting the 1% money.
Speaker Change: And what we are saying is if you look at fiscal year 'twenty. Four for example, the way they were previously calculating the non-GAAP effective tax rate was factoring in all of our U S. Net operating loss NOL carryforwards, and other tax carryforwards and so that has resulted in an effective non-GAAP tax rate for fiscal year 'twenty four 6% as an example.
Speaker Change: What we're saying is we're going to starting in Q3 switches two and 20% number which we think is more effective of our longer term non-GAAP effective tax rate. It also smoothed out any variation from period to period.
Speaker Change: Got it thank you and 1%.
Speaker Change: non-GAAP, but we take it offline. Thank you so much.
Speaker Change: Thank you.
Andrew: Thank you Andrew.
Andrew: This will conclude the question answer session. Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
Andrew: Okay.
Andrew: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].