Good day. Thank you for standing by. Welcome to the Nutanix Q4 Fiscal 2021 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be Q&A - question and answers session to ask a question during the session. Please be advised. Today's conference is being recorded. If you require any further assistance, please press star 0 and I'd like to hand the conference over to your speaker today. Richard Valera, VP Investor Relations. Please go ahead.

Good afternoon and welcome to today's conference call to discuss the results of our Fourth Quarter in the fiscal year 2021. Joining me today are Rajiv Ramaswami, Nutanix's President and CEO, and Duston Williams, Nutanix's CFO. After the market closed today, Nutanix issued a press release announcing financial results for its fourth quarter in the fiscal year 2021. 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 statements regarding our business plans, strategies, initiatives, vision, objectives, and outlook, as well as our ability to execute thereon successfully, and in a timely manner, and the benefits and impact thereof on our business, operations, and financial results. Our financial performance in targets and use of new or different performance metrics in future periods. Our competitive position and market opportunity to timing and impact of current and future business model transitions, to factors driving our growth, macroeconomic and industry trends. And the current and anticipated impact from the COVID-19 pandemic. These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements. For a detailed description of these risks and uncertainties, please refer to our SEC filings, including our most recent Annual Report on Form 10-Q (quarterly report) on Form 10-K, as well as our Earnings press release issued today. These forward-looking statements apply as of today, and we undertake no obligation to revise these statements after this call. As a result, you should not rely on them as representing our views in the future. Please note, unless otherwise specifically referenced, all financial measures we use on today's call are expressed on a non-GAAP basis, having been adjusted to exclude certain charges. We have provided to the extent available reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Lastly, Nutanix management will be participating in the Deutsche Bank Technology Conference on September 10th, the Piper Sandler Global Technology Conference on September 13th, and the Jeffrey Software Conference on September 14th. We hope to see many of you at these upcoming events. And with that, I'll turn the call over to Rajiv.

Thank you, Rich. And good afternoon, everyone. I hope you ended the last weeks safe and healthy as we continue to navigate through the COVID pandemic. Q4 was a strong end to an excellent fiscal year, which was marked by consistent execution and good progress across both financial and strategic objectives. Our performance delivered strong fiscal 2021 across several areas. We exceeded our guidance for the quarter of the year. Our team consistently overperformed. We felt good linearity within each quarter as we benefited from ongoing operational improvements in our go-to-market engine. We observed improved economics with the continued build-out of our renewals business, which will help drive the acceleration of our top-line as we approach the completion of our subscription journey. Importantly, we drove this top-line improvement while meticulously managing expenses, leading to substantially improved bottom-line performance compared to our prior fiscal year. On the strategic front, we received a $750 million investment from Bain Capital, which provided additional financial flexibility to fund our growth and we made good progress on our alliance partnerships, extending our relationships with HP, Lenovo, and more recently, signing a new agreement with Red Hat. Looking deeper at Q4, we outperformed on all our key metrics, attaining all-time highs and achieving a recent record in several areas. We reported record revenue, up 19% year-over-year, which is our best growth we've delivered in the last three years. We saw record ACV billing, which grew 26% year-over-year, our highest growth rate in over two years. Good linearity contributed to better-than-expected cash flow. The underlying momentum in the business gives us confidence in providing strong guidance for the first quarter of our fiscal 2022. Overall, we are pleased with our fourth quarter and fiscal 2021 financial results, identified against the continued challenging backdrop of COVID-19. We saw strong momentum across our entire hybrid multi-cloud portfolio during the quarter, including both core and emerging products. For example, new ACV bookings grew over 100% year-over-year and saw a record rolling four-quarter tax rate of 41%. One example of a complete portfolio solution was our largest deal of the quarter: a multi-million-dollar ACV deal with a Fortune 100 financial services company that expanded their use of our core software to run their mission-critical applications, along with a large expansion of their data footprint to automate and simplify database management. The cluster, a key component of our hybrid multi-cloud platform, continued to see solid momentum during the quarter. One example is with a Global 2000 real estate e-commerce company that implemented our cluster on AWS to expand their footprint and enable data center consolidation. In Europe, a large government ministry adopted our cloud platform, along with our unified storage solution. I would now like to take a moment to highlight some key takeaways from our Investor Day in June. We highlighted our leadership position in the large and growing hyper-converged infrastructure market and the substantial additional opportunity we see in our adjacent markets. Specifically, we noted a combined total available market opportunity in our core and adjacent markets is expected to exceed $60 billion by 2025. We laid out a roadmap for our solutions strategy and how we're streamlining our portfolio, focusing on fewer, bigger bets in the areas of database-as-a-service, unified storage, and desktop-as-a-service. We also explained how we anticipate seeing go-to-market leverage by executing on low-cost renewals and benefiting from solution selling and from enhancing our partnerships. Finally, we provided a model targeting free cash flow breakeven in the second half of calendar 2022 with 25% annualized growth through fiscal year 2025, and we are tracking well on both metrics. Next, I’d like to update you on some of our previously discussed priorities. First, deepening our partnerships to enhance our go-to-market strategy. Our recently announced partnership with Red Hat, the world's leading provider of commercial OpenShift solutions, combines Red Hat's Enterprise Linux and its OpenShift container platform with the simplicity, flexibility, and resilience of our platform. Nutanix is now the preferred choice for HCI on Red Hat's platform, and our hypervisor is certified to support Red Hat OpenShift on the Nutanix platform. Likewise, OpenShift is now the preferred choice for enterprise full-stack Kubernetes on the Nutanix platform. Finally, the two companies share a neutral support agreement and a research and development roadmap focused on ensuring customer success and enhanced integration, respectively. This partnership offers customers a full-stack platform to build, scale, and manage containerized and virtualized cloud-native applications in a hybrid multi-cloud environment. We see this as an important proof point in our strategy of advancing customer choice and enhancing our platform by collaborating with other best-in-class providers. During the quarter, we also announced an expanded partnership with HP, where they are offering new CapEx era multi-database operations and management solutions bundled with HP ProLine servers as-a-service in our agreement. In addition to our core platform, which is already part of the offering. Now, regarding another of our priorities: diversity and inclusion, we released our first Environmental, Social, and Governance (ESG) report during the quarter detailing our initiatives and establishing a baseline for measuring our progress. This is an important first step in our journey towards greater diversity and inclusion in our workforce and facilitating more sustainable business practices for both Nutanix and our customers. We also held our first global women's conference in July, where Nutanix leaders and outside experts addressed our entire employee base on how we can redefine leadership to incorporate diverse backgrounds and perspectives. In closing, I am pleased with the execution across the board throughout our fourth quarter and fiscal year, especially given the challenging backdrop created by the pandemic and the fact that it was a transformative year for our ACV model. We are entering fiscal 2022 with a strong position. Finally, I look forward to connecting with many of you at our upcoming .NEXT user conference being held September 20th through 23rd. We look forward to welcoming tens of thousands of our customers and partners. Please see our earnings press release on our website for registration details. And with that, I will hand it over to Duston Williams.

Thank you, Rajiv. Q4 was another quarter of consistent execution and a great way to finish out the fiscal year. Sales were strong throughout the entire quarter. There was no unusual deal slippage, and we built a backlog during the quarter. In Q4, we exceeded all guidance metrics, and our overall business model continues to be strengthened by the benefits of our subscription focus. A few key highlights for the quarter included record new ACV billings, record total ACV billings, record total billings, record total revenue, record emerging products, new ACV bookings, and a record number of greater than $1 million transactions in the quarter. Now I move onto some specific Q4 financial highlights. And before I get into the specific details for the Q4 and FY21 financial highlights, I would like to remind you all future financial disclosures will align with the disclosure and guidance metrics—the roadmap that we provided during our June 22nd Investor Day presentation. For further details and clarification about our go-forward disclosure plan, I would encourage investors to review the slide titled Guidance and Disclosure Plan for FY22 from my Investor Day presentation. ACV billings for Q4 were $176 million, reflecting 26% growth year-over-year, above our guidance range of $170 million to $175 million, and ahead of the Street consensus number of $173 million. New ACV bookings, which include new logo ACV as well as upsell ACV, experienced the strongest year-over-year growth rate since Q1 2019. ARR at the end of Q4 was $888 million, growing 83% year-over-year. Run-rate ACV as of the end of Q4 was $1.54 billion, growing 26% year-over-year, compared to our estimated growth in the mid-20% range. Our average contract term length increased slightly to 3.4 years versus 3.3 years in Q3 21. Our largest deal in the quarter from an existing customer was a five-year term. We also had a few other notable five-year deals from existing customers. At this point, we expect our average contract term lengths to trend back down next quarter, most likely in the low three-year range as one usually carries a significant amount of federal business, and our federal customers typically have much shorter average contract term lengths. Assuming contract term lengths do approach the low three-year range in Q1, we would approximate the TCV to ACV billings ratio to be somewhere around 2.25 versus 2.4 in Q4. Revenue was $391 million, growing 19% from Q4 2020, substantially above the Street consensus number of $365 million. We have not seen this level of year-over-year growth rate in revenue since Q4 2018. Emerging products, new ACV bookings grew in excess of 100% year-over-year, and the emerging products attach rate was 41%. The Q4 sales rep productivity significantly exceeded our assumptions set forth at Investor Day. Our non-GAAP gross margin in Q4 was 82.9% versus our guidance of 81.5 to 82%. Operating expenses were $373 million versus our guidance of $380 to $385 million. Our Q4 expenses included approximately $12 million in severance expenses related to our previously disclosed sales and marketing headcount reduction. Our non-GAAP net loss was $55 million for the quarter, or a loss of $0.26 per share. Q4 linearity remains very good. DSO in Q4 was 48 days, up from 37 days in Q3 21 and down significantly from 68 days in Q4 2020. Our free cash flow for Q4 was once again aided by good linearity, coming in at a negative $42 million, sixteen million better than the Street consensus. We closed the quarter with cash and short-term investments of $1.01 billion, down slightly from $1.25 billion in Q3 21. Before I provide the Q1 guidance overview, let me first do a quick recap of FY21. ACV billings were $594 million, growing 18% versus FY20 and versus the $590 to $595 million range we provided at our Investor Day. Again, as we mentioned last quarter, our total fiscal year ACV billing is not derived from the simple addition of the four fiscal quarters. Our reported quarterly ACV billings annualize any deal that is less than one year in term length. Our yearly ACV billings calculations eliminate any duplication that happens with the renewal of a deal that occurs within the period and is less than one year in duration. Based on this methodology, over the last three fiscal years, we've seen that some of the four fiscal quarters of ACV billings have exceeded the adjusted annual ACV billings by 6% to 7%. We would encourage investors to account for this distinction during the modeling process. FY21 new ACV billings, which includes new logo ACV and upsell ACV, were $433 million, growing 11% versus FY20 and versus the $430 to $435 million range we provided at our Investor Day. Our renewal business performed well within our expectations for FY21. Renewals ACV, including Logo support renewals, was $161 million, growing 38% versus FY20 and versus the approximate $160 million estimates we shared at Investor Day. FY21 renewals TCV, including Logo support renewals, were $179 million, growing 32% versus FY20. Revenue was $1.39 billion, growing 7% versus FY20. Yearly revenue growth was impacted by term compression during the year. Customer retention, including Logo and subscriptions, closed the year at 96%. The gross retention rate for our subscription business continued to operate within the range of over 90%. The net dollar retention rate, including the Logo business, was 124% versus the Investor Day estimate of approximately 125%. The net dollar retention rate for our subscription-based business only was 158% versus the Investor Day estimate of approximately 155%. Emerging products, new ACV bookings grew 97% in FY21. We also added 61 G2K customers in FY21. Now turning to our Q1 22 guidance, the guidance for Q1 is as follows. ACV billings of $172 million to $177 million, representing year-over-year growth of 25% to 28%. Gross margin of approximately 81.5%. Operating expenses between $365 million and $370 million. Weighted average shares outstanding of approximately 216 million. The Q1 ACV billings guidance, which calls for year-over-year growth of 25% to 28%, compares to the actual growth of 14% in Q1 20, 10% in Q1 21, and versus the Street consensus growth for Q1 22 of 23% based on continued good execution and an increasing renewal base and a robust backlog—all supported by a strong product portfolio. We are pleased to project a Q1 22 year-over-year ACV billings growth rate that matches our strong Q4 21 ACV billings growth rate of 26%. Based on the $172 ACV billings guidance, we expect to grow 65% or more year-over-year. I'd like to make one final comment regarding our ACV billings trends for FY20-22. Due to our growing mix of renewals, for the second half of FY22, you would expect a higher amount of ACV billings in Q4 versus Q3 than what is currently reflected in the consensus estimates. This mix shift from Q3 to Q4 is a direct result of our growing available to renew base of renewals, which show a proportionately larger increase in Q4 versus Q3. We strongly advise analysts and investors to carefully review their quarter-over-quarter ACV billings estimates to ensure that the strong growth in Q4 relative to Q3 is accurately reflected in their models. With that noticed, operator, could you please open the call up for questions? Thank you.

As a reminder, to ask a question, press star 1 and your first question comes from the line of Aaron Rakers with Wells Fargo.

Thanks. Congratulations on the quarter. I just wanted to kind of maybe level set the discussion around the base of renewal opportunity and the linearity throughout this next fiscal year. Duston, is there any way that you can help us frame just relative in size how large the base renewal opportunity looks like this year, relative to fiscal 21, and what exactly that linearity looks like as a progression through the quarterly numbers for fiscal '22?

Sure, Aaron. We provided a fair amount of detail during Investor Day. We obviously just reported on the '21 numbers. We gave a '23 estimate; we gave a '25 estimate during the Investor Day relative to FY '22. Again, there won't be a massive increase in FY '22 on the renewals just because you've got some offsetting load support renewals declining, and then the subscription renewals are increasing. I will tell you, as I mentioned in the script, the first three quarters of the fiscal year show a slight increase, but not much, but there is a large tranche in Q4 that starts to kick in on the subscription renewals. And that's why the comment was. Just to look at the quarterly splits there because there will be based on the ATR, the available to renew in Q4; the amount increases significantly relative to Q2 and Q3.

And then a quick follow-on: you talked about the average weighted terms coming down. Relative to 3.4 in fiscal Q1. Do you think that we continue to trend downward through the course of successive quarters throughout fiscal '22?

Well, probably not that much. There may be a slight decrease. But again, in Q1 the federal business ends up being a much larger percentage of the total business just because of the federal year-end in September, and federal terms are generally quite a bit lower. You saw the same thing last year as well. From Q4 to Q3, we saw about a three-tenths of a year decrease right from Q4 to Q1, and then it kind of flattened a little bit. Definitely, it will come down as we see it today, but I suspect it will flatten out after that; I don't think there will be any significant changes from the current low three-year range as we see it today, as we laid out at Investor Day.

You're going. Thank you, Duston.

You're welcome.

Your next question comes from the line of Jason Ader with William Blair.

Yeah. Thanks. I have two quick ones. First is, it seems like you're taking share in the HCI market in the first half of calendar '21, and I just was hoping you could talk about why you think that's happening?

Yes. Look, I mean, I think there's a noticeable improvement in our win rates quarter-over-quarter. We are very focused on this market, and our execution has continued to improve throughout the entire year. Fundamentally, we have a strong offering, and it consistently gets better. We are among the best in terms of managing data, offering all forms of storage, moving that to hybrid cloud. As you know, we provide the best freedom of choice across hypervisors and cloud platforms, which our customers appreciate. Plus, our NPS score of 90 continues to outperform almost everyone else. So we have a sustainable momentum this year, combined with our increasing focus and ongoing improvements in operational execution.

Alright, thanks. And then just a follow-up on that: in terms of this whole cloud versus on-prem debate, how are your conversations with customers changing over the last year? Are you seeing any pendulum swing towards the on-prem environment?

Yes. I mean, I think there's been a lot said recently about this. Customers are becoming more nuanced in their approach to cloud. There are both new applications coming into play here. Customers are looking at the need to operate in a multi-cloud world; they don't want to be locked into one product. They want the flexibility to run applications across all clouds. We're seeing very specific use cases where customers are exploring moving on-premise or expanding their existing footprints into the cloud, along with considerations for disaster recovery in a multi-cloud environment. Data governance, security, and avoiding cloud lock-in are also top-of-mind for customers. Overall, there have been more conversations happening with our customer base around these topics.

Thanks very much.

Your next question comes from the line of James Fish with Piper Sandler.

Hey guys, thanks for the questions. It's great to see that your biggest upside in four years has come from strong software performance. So kudos to you guys. At a high level, are you seeing a pickup or steady-state for the conversion of traditional three-tier storage architectures to hyper-converged? And going back to what you just said regarding use cases, any changes in the use cases for hyper-converged versus the last few quarters?

Yeah. As we mentioned during Investor Day, the fundamental benefits of hyper-converged infrastructure continue to apply, such as simplicity in operations management and delivering good TCO compared to traditional setups. We've seen broad adoption of HCI for many enterprise workloads. Additionally, our largest deal of the quarter was with a large financial services customer that runs all their databases on our platform. These benefits are driving broader adoption of HCI for various enterprise workloads, and the trend continues as customers realize the advantages.

Understood. And any further commentary you guys could provide regarding the sustainability of this productivity and how it compares to your Analyst Day expectations for increased productivity over the next few years, and any change to how you're thinking about mid to high growth for next year?

Okay. Let me start with the productivity aspect. We have many initiatives aimed at supporting productivity going forward. As I mentioned, we are running ahead of the expectations set during our Investor Day presentation. We believe productivity will remain strong with many factors contributing, such as channel enablement, autonomous selling, and increasing focus on renewals. The demand environment is good, the pipeline is strong, and the quality of the pipeline is improving. We're also encouraged by strong performance on our products, particularly emerging products that are increasing deal sizes and ASP. For FY22, we feel optimistic and are tracking well against our projections.

Helpful. Thanks, guys.

Your next question comes from the line of Pinjalim Bora with JPMorgan.

Great. Hey guys, thanks for taking my questions, and congrats on a great quarter. Just taking a step back, could you maybe talk about the demand environment? Are you seeing any hesitancy around big data center transformation projects at this point? Also, how did demand trend through August against your expectations? Are you seeing any kind of slowdown due to Delta or anything else impacting revenue?

Things have been healthy. First of all, we are observing robust demand, driven by widespread digital transformation initiatives. COVID has accelerated this to some extent, and there is an element of pent-up demand being realized now, as customers are becoming accustomed to operating in a more corporate environment. Demand is being fueled by four key areas: modernization of legacy infrastructure, helping customers migrate to the cloud, and continuing hybrid and remote work trends, which are here to stay. Regarding Delta, it has not negatively impacted demand; we are still seeing positive trends in our initiatives.

I understand. Thank you for that. Regarding clusters, I believe it's now available in the AWS GovCloud. What has been the early feedback from federal customers? Knowing that you're entering your biggest federal quarter, what are the conversations like in that sector?

As you know, clusters have recently become available in AWS GovCloud. We expect that a number of government agencies will be interested in operating in those clouds. We've been actively engaging with them on relevant use cases, and they are exploring similar scenarios as our other customers: extending their public cloud capabilities, disaster recovery strategies, and consolidation of data centers. It's still early days for us, but the initial interactions have been promising.

Understood. Thank you.

Your next question comes from the line of Jack Andrews with Needham.

Good afternoon. Thanks for taking my question. I was wondering if you could unpack a little bit more of the strong net dollar retention rates you're seeing, particularly the 158% excluding life and devices. Could you provide some more context on what's really driving that number?

Let me take that, and Rajiv may want to chime in here. There are a few key inputs to the output of 158%. Obviously, upselling is continuing to improve, and deal sizes are expanding. As we continue to elevate our product offering, this naturally increases total deal sizes and upselling in the business. We're maintaining our focus on gross retention rates as well. It's important to note, gross retention is still based on a relatively small base, but thus far we are satisfied with the rates we're seeing. While we anticipate gross retention rates may decline slightly, we believe they will remain robust from a competitive perspective. All of these factors contribute to a strong net retention rate.

Yeah, just to add on that, the sizable deals and expansions we had this quarter are significant drivers, and all that Duston mentioned holds true. We've seen customers grow their deployments continuously, purchasing more and more of our portfolio.

That's great to hear. And maybe just as a follow-up, Rajiv, given your increasing focus on solution-based selling, could you speak to how you navigate relationships with partners who typically bundle technology offerings into their solutions?

Looking at the solutions we are currently focused on, such as hybrid cloud, database management, and end-user computing, these all integrate well from a solution perspective. With our partners, for example, HP is bundling our software with their hardware into subscription offerings. This includes both our hybrid cloud and database solutions. Similarly, we are partnered with Lenovo as well to provide a comprehensive offering that enhances the overall value of the solution, making it easier for customers to achieve desired business outcomes.

I appreciate that context. Thanks, and congratulations on the results.

Your next question comes from the line of Katy Huberty with Morgan Stanley.

Good afternoon. With all the demand indicators in sales productivity metrics tracking well as we exit last year, what's driving the October quarter ACV billings decline of 1% sequentially? If you look over the past three years, that was up about 3% on average. Is it just a function of the business scaling, and so we'll see more seasonality in the business or is there anything else to read into that? I have a follow-up.

Sure, Katy. As you saw in the guidance, there's still a year-over-year increase of 26% compared to the 14% and 10% from the prior two years. So it's a significant year-over-year increase. Q1 is often a bit slower for us, especially in IMEA, considering the trends there, and the wildcard is federal dynamics. The federal side seems to be playing out well heading into Q1. We have many factors in our favor, not only in Q1 but through FY22 as well.

Got it. That's clear. And then, Duston, OPEX is tracking below your prior guidance of $380 to $385 million. Is that tied to temporary dynamics around the timing of reopening and labor market tightness, or is this a more sustainable reduction? What do you think the spending run rate will be?

As we mentioned during Investor Day, you’ll see that we were expecting single-digit growth year-over-year. A significant variable has been travel, as it remains relatively restricted. We will see some increases in travel costs as restrictions ease, but our focus on recognizing and managing expenses remains strong. We aim for single-digit growth year-over-year while continuing to fund sales and engineering projects.

Is the reduction in sales and marketing heads this quarter connected to the restructuring you referenced in your prepared remarks?

Yes, restructuring is definitely part of it, and there are additional layers involved, but restructuring is a significant contributor to the changes you’ve seen.

Thank you.

Your next question comes from the line of Wamsi Mohan with Bank of America.

Yes. Thank you, and congrats on the results. Dustin, you did mention seasonality in ACV billings weighted more in Q4 given renewals availability. Is that a dynamic that carries over into quarters beyond that? When should we expect stabilization, or can you provide any color on that?

You're not going to see ultimate stabilization; this will continue to increase. We've provided an FY23 number in the Investor Day presentation, so you'll see an acceleration of renewals. We’ve highlighted that we expect to see significant uptrends, with an increase in renewals affecting the trends next fiscal year. In FY23, we predict a more linear growth pattern, but bumps may still occur.

Okay, thanks.

Overall, we expect continuing acceleration in renewals with notable tranches. Expect a more linear progression but recognize fluctuations.

Alright, thanks.

To summarize: several factors combined to improve renewals, emerging products contribute to this, and there will be increases in Q4 versus Q3 compared to previous growth rates. Future growth is rooted in reliability and continual innovation.

Thank you, Rajiv.

Your next question comes from the line of Rod Hall with Goldman Sachs.

Yeah, thanks for the question, guys. I wanted to jump into the five-year deal commentary you made and noted that there were other five-year deals. Could you help quantify that a bit, give us an idea of what the percentage of your billings stack looks like associated with five-year deals, and any thoughts on why customers are engaging in those longer-term agreements?

Yes. The quarterly investor presentation should be available on the website, which will give you the ACV breakout by term. In regards to five-year deals, these customers have been purchasing on five-year terms before. They're renewing to the same five-year structures. We also have customers who are continuing to expand their purchases. These larger contracts certainly help support our overall momentum.

As I mentioned, these are reliable, repeat purchasers, indicative of continuous investment and broader engagement from large customers in various workloads as they grow their usage over time.

Right. Yes. I'm sorry, I missed that in the presentation, but thanks for that. Next question: what are your expectations regarding contract lengths? We were thinking it would trend down towards three years, but do you think we're stabilizing in the 3.3 to 3.2 range or continuing to decrease?

Yes, our view is that we'll maintain the low three-year range through this fiscal year and perhaps trend down towards January FY23. We expect increases in contract lengths but anticipate a gradual decline moving deeper into subsequent years. Visibility remains, however, on varied impacts based on new business mix.

Great, thanks guys.

Your next question comes from the line of Mehdi Hosseini with SIG.

Yes. Thanks for taking my questions. Two follow-ups. It was great to see the booking numbers, and I'm wondering if you can help me understand if there’s a way to talk qualitatively or quantitatively about bookings related to cloud-native applications versus hybrid models.

We’ve tried to quantify some of this by use case. In general, the bulk of our business is traditionally on-prem. However, we're increasingly seeing growth in hybrids as customers begin migrating to the public cloud. While the public cloud segment remains smaller, it is growing positively. Additionally, customer workloads like database management and virtualization will continue influencing this mix. For example, we're seeing a robust share of end-user computing in our overall business.

Sure. You referenced the $60 billion TAM, and I think the growth in native data is rapid albeit smaller—it's secular but slow to scale, correct?

When referring to our TAM, we’re discussing the various pieces involved. This encompasses our core HCI and hybrid cloud sectors, both of which are continuing to gain traction. The combined available market for unified storage and database is also substantial, offering us multiple opportunities for growth. We're confident in maintaining the upward trajectory within these market spaces.

I actually see share gains from impressions on my question. If you're looking at slide 16 and adoption is now at 53%, up from 40% eight quarters ago, could you discuss how far this could go over the next couple of years?

I expect adoption rates to continue to rise due to factors like stronger offerings, successful partnerships like Red Hat, and better confidence in our ability to drive various workloads efficiently. The percentage will likely continue to climb as we expand our customer base. While it's early to predict a ceiling, I remain optimistic regarding our continued share gains.

And then just finally, regarding the scaling of your new products, would this complement your growth or lead to become more challenging? How you scale new products could help in sustaining that growth, right?

Absolutely. We're excited about new product offerings. As mentioned, our emerging product bookings saw over 41% growth last quarter, tapping into substantial potential in database management and storage solutions. These markets offer expanding opportunities—a mix of both rapid growth and emerging trends—permit us to leverage our core platforms while innovating.

Your next question comes from the line of Simon Leopold with Raymond James.

Thank you for taking the question. I wanted to ask about how we should approach the percentage of billings coming from renewals. This quarter was about 12%, and you've provided a forecast for fiscal '25 of getting to 40%. However, I'm imagining that this shouldn't be a linear progression. This quarter seems very similar to last. How should we think about the rate of change for that metric?

As we pointed out earlier, without getting into too much detail, see the FY23 guidance in the Investor Day presentation. There you will see the expected acceleration from FY22 into '23, encompassing both increases in ACV and TCV percentages. However, expect FY22's change to be less pronounced, while FY23 will contain larger shifts with many renewals coming up.

And I guess the other question—this might be difficult to quantify—but in transitioning towards a focus on renewals, if you under-invest in sales and marketing, how long would it take for you to recognize any detrimental impact in your allocation? Is there some lag in productivity we should be anticipating?

It's important to clarify that we're not significantly cutting costs related to new and upselling segments. Most of the leverage focuses on the mix shift with renewal sales making up a bigger part of the overall revenue. Moreover, we've become more precise in demand generation and enhancing our pipeline through digital means. While I can't provide a specific timeline, we've built strategies to manage our costs efficiently while maintaining engagements.

And your last question comes from the line of Erik Suppiger with JMP Securities.

Yeah. Thanks for taking the question. Congrats on the big quarter. I know you guys don't sell hardware, but can you comment on the effects of the component constraints in the hardware space? Secondly, has there been any change on the competitive front, particularly with VMware?

Our software works across a variety of hardware platforms. It's not directly tied to new hardware sales. Nevertheless, we have seen some customers pulling orders forward to ensure they secure hardware, while others are postponing slightly. However, overall impact from supply chain constraints has been minimal on our side, and we remain confident in our Q1 forecasts. Regarding competitive dynamics, as mentioned earlier, in Q4, we saw an improvement in our win rates against our largest competitors as well as other players. Our focus remains fixated on execution, with the quality of our product and improving processes driving positive results.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.