Good day, and thank you for joining us. Welcome to the Nutanix Q1 Fiscal 2022 Earnings Conference Call. I would now like to turn the conference over to your first speaker today, Rich Valera, Vice President of Investor Relations. Please proceed.

Good afternoon, and welcome to today's conference call to discuss the results of our first quarter fiscal 2022. Joining me today are Rajiv Ramaswami, Nutanix' President and CEO; and Duston Williams, Nutanix' CFO. After the market closed today, Nutanix issued a release announcing financial results for its first quarter fiscal 2022. If you'd like to read the release, please visit the press release 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 successfully and in a timely manner and the benefits and impact thereof on our business, operations and financial results. Our financial performance and targets and use of new or different performance metrics in future periods, our competitive position and market opportunity, the timing and impact of our current and future business model transitions, the factors driving our growth, macroeconomic and industry trends, and the current and anticipated impact of 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-K filed with the SEC on September 21, 2021, as well as our earnings press release issued today. These forward-looking statements apply as of today, and we would 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, except for revenue, are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided, to the extent available, reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Lastly, Nutanix management will be participating in both the fifth annual Wells Fargo TMT Summit and the 45th NASDAQ Investor Conference on December 1, and the 24th Annual Needham & Company Growth Conference on January 10. We will also be holding our Annual Meeting of Stockholders on December 10. We hope to see many of you at these upcoming events. And with that, I'll turn the call over to Rajiv. Rajiv?

Thank you, Rich, and good afternoon, everyone. Our first quarter was a good start to fiscal 2022, building on the momentum we established in our prior fiscal year. Despite ongoing challenges from COVID-19, we delivered another solid quarter, exceeding all our guided metrics, seeing better-than-expected free cash flow, delivering significant new product innovations and making progress with our strategic partnerships. We saw healthy demand for Nutanix's cloud platform, driven by businesses looking to accelerate their digital transformation, modernize their data centers and adopt hybrid multi-cloud operating models, while ongoing supply chain challenges have made it more difficult for our customers and partners to procure their hardware. Thus far, we have seen minimal impact on our business, but we continue to watch the situation closely. Taking a closer look. Our fiscal first quarter reflected continued execution on our ACV-based model and was marked by strong top and bottom-line performance. We saw record ACV billings, which grew 33% year-over-year, our highest growth rate in over 2.5 years. We also grew revenue 21% year-over-year, our highest growth rate in over 3 years despite seeing expected term compression. Once again, we saw excellent linearity, which combined with diligent expense management, enabled us to nearly achieve free cash flow breakeven in the quarter, putting us well on track to achieving our target of sustainable positive free cash flow by the second half of calendar year 2022. We achieved these results while continuing to add to our backlog. Overall, we are pleased with our fiscal first quarter financial results and believe we remain on track to achieving our target of 25% plus annualized ACV billings growth through fiscal year 2025. We continue to see strong adoption of our hybrid multi-cloud portfolio and solutions during the quarter. Our first quarter is typically a strong one for our federal business, and this one was no exception. Our largest customer in the quarter was a federal civilian agency that substantially expanded their usage of Nutanix' cloud platform, including our unified storage and database automation solutions. This customer is using clusters on AWS to access additional resource capacity in the public cloud to quickly augment their on-prem environment. Having a unified environment between on-prem and public cloud allows them to leverage the same team to manage both environments and more readily meet their business service level agreements. In another example, a national retailer purchased our Nutanix cloud platform, including clusters on AWS to enable virtual desktop resources in the public cloud during the peak holiday selling season. They are also utilizing our platform to run CPU-intensive CRM applications more efficiently and support their security and compliance needs. We see this as a great example of the natural fit of our clusters offering for businesses with seasonal workloads. Finally, during the quarter, a European-based multinational pharmaceutical company substantially expanded their usage of our hybrid multi-cloud platform including our unified storage and database automation solutions to run a number of virtualized applications and enable virtual desktops in their branch offices. In September, Nutanix customers, prospects and partners from all over the world joined us for our .NEXT digital experience. We were pleased with the attendance and engagement at our signature event, where we saw a record number of new Nutanix provision certifications and viewership for our keynotes and breakout sessions. We made several announcements at .NEXT, starting with the launch of a major release of our cloud platform, AOS 6.0 with new integrated Zero Trust Security, disaster recovery and virtual networking innovations. We also introduced new capabilities that make it easier for our customers to simplify data management and optimize database and big data workload performance on a Nutanix cloud platform. Finally, we announced a new partnership with Citrix, through which the two companies will deliver remote work solutions that can be deployed across private and public clouds, combining the simplicity of the Nutanix cloud platform with Citrix virtual apps and desktop services to provide secure on-demand and elastic access to apps, desktops and data from any device in any location at any scale. Nutanix is now a preferred choice for hyperconverged infrastructure and hybrid multi-cloud solutions for Citrix virtual apps and desktop services. And Citrix is a preferred choice for enterprise end-user computing on the Nutanix cloud platform. The two companies will also partner on customer support and product road maps to ensure a seamless customer experience and timely validation and interoperability, respectively. Finally, our go-to-market teams will partner to sell to new and existing customers and enable channel partners. We see this partnership as further evidence of our strategy of enhancing customer choice and enhancing our platform by partnering with other best-in-class providers. We are pleased with the industry recognition we continue to receive for our solutions. Earlier today, Nutanix was named a leader in Gartner's Magic Quadrant for Hyperconverged Infrastructure for the fifth time in a row. And in a testament to the growing breadth of our platform, the company was also recently named for the first time as a visionary in Gartner's Magic Quadrant for distributed file and object storage. I am excited about our recent announcement that Dominick Delfino will be joining Nutanix as our Chief Revenue Officer on December 6. Dom brings deep and relevant domain knowledge, as well as go-to-market experience at scale. He will be a great spokesperson for us with customers, partners and the industry at large. And we expect him to hit the ground running when he joins us in a couple of weeks. As I approach my one-year anniversary as CEO and reflect on an eventful year, the journey so far has been undeniably gratifying. And I'm proud of what we've been able to achieve against a challenging backdrop. We unveiled our new vision, shared our multiyear strategy and financial plan and delivered significant enhancements to our Nutanix cloud platform while reshaping it with a focus on solutions. We also made significant progress on our strategic partnerships, signing new or expanded agreements with Red Hat, Lenovo, HPE and Citrix. Finally, we began to see the benefits of our subscription transition in the form of consistent delivery of results ahead of expectations, accelerating top-line growth and a meaningfully improving bottom line. As I look forward, I'm excited by what's ahead. We address large and growing markets, which are benefiting from the secular tailwind of an increasingly digital world. We have a strong hybrid multi-cloud platform to seize this opportunity. Our subscription business model positions us to continue delivering strong growth with the opportunity for substantial sales and marketing expense leverage as renewals become a larger portion of our business. We are focused on disciplined and purposeful spending to help us reach our profitability goals. Through it all, we continue to delight our customers, and they continue to love us. In closing, I am pleased with our performance in the first quarter and optimistic about our ability to continue to deliver against the vast opportunity ahead of us. And with that, I will hand it over to Duston Williams.

Thank you, Rajiv. Rajiv provided a good overview for the quarter, so I'll get right into some of the specific Q1 highlights. ACV billings for Q1 were $183 million, reflecting 33% growth year-over-year, above our guidance range of $172 million to $177 million and ahead of the Street consensus number of $175 million. Our renewals business performed as expected. ARR as of the end of Q1 was $0.95 billion, growing 67% year-over-year, slightly ahead of our expectation of 65% growth. Run rate ACV as of the end of Q1 was $1.59 billion, growing 23% year-over-year. As expected, our average contract term lengths decreased to 3.1 years versus 3.4 years in Q4 '21, driven by our usual Q1 surge in federal business. On average, our federal customers typically have much shorter contract term lengths. Revenue was $379 million, growing 21% from Q1 '21, above the Street consensus number of $369 million. We added approximately 560 new logos in Q1 '22 versus the Q4 '21 new logo count of 700 and versus the Q1 '21 new logo count of 680. In the prior 3 fiscal years, our Q1 new logo count on average dropped by 115 new logos versus Q4. This year, we experienced a drop of 140 new logos from Q4 to Q1, slightly higher than the prior 3-year average of 115. We would note that our new logo average selling prices continued to rise, which is in line with our strategy over the last year or so to focus on the quality and efficiency of new logo ads as measured by ASP per new logo. In fact, in FY '21, a year that was influenced by the pandemic, we saw our average selling prices per new logo increase by almost 25%. Our new logo average selling prices were also up in Q1 '22 versus Q1 '21 and versus Q4 '21. In short, we are generating more new logo ACV bookings with fewer new logos. Coming off a difficult prior year comparison of 86% year-over-year growth and following a very strong Q4 '21, emerging product new ACV bookings grew 11% year-over-year in Q1 '22. We expect significant growth in emerging products, new ACV bookings in Q2 '22 although the year-over-year comparisons will remain difficult. In Q1, on a limited basis, we started to roll out our new solution offerings. As we have previously stated, many emerging products will morph into these new solutions as we move through the current fiscal year, and therefore, any year-over-year comparisons will become less relevant. We have also adjusted our compensation plans accordingly no longer providing bonuses for selling most stand-alone emerging products. The emerging products attach rate was 42%. We are mindful of the importance of quality new logo additions and emerging products, and we will continue to keep the appropriate focus on them, including adjusting our incentive plans as required. The Q1 sales rep productivity exceeded our forecast, and we increased our total net sales reps in Q1. Our non-GAAP gross margin in Q1 was 82.1% versus our guidance of 81.5%. Operating expenses were $353 million, lower than our guidance of $365 million to $370 million. Our non-GAAP net loss was $47 million for the quarter or a loss of $0.22 per share. Our Q1 linearity remained very good and receivable collections were excellent. DSOs in Q1 were 28 days, down from 43 days in Q4 '21. Our Q1 free cash flow was once again aided by the good linearity and collections coming in at a negative $2 million over $40 million better than the Street consensus. We closed the quarter with cash and short-term investments of $1.28 billion, up from $1.21 billion in Q4 '21. Now turning to our guidance. With the continued progress we've made on our subscription model, we believe it's now appropriate to provide annual guidance. Additionally, having gained a better understanding of potential fluctuations in our average contract term lengths. We are guiding to revenue on both a quarterly and annual basis. The guidance for Q2 is as follows. ACV billings to be between $195 million and $200 million, representing year-over-year growth of 23% to 26%; revenue of $400 million to $410 million; gross margin of approximately 82% to 82.5%; operating expenses between $360 million and $365 million; and weighted average shares outstanding of approximately $218 million. The Q2 ACV billings guidance, which calls for year-over-year growth of 23% to 26% compared to the actual growth of 14% in Q2 '21 and Street consensus growth of 21% for Q2 '22. We expect a considerable quarter-over-quarter increase in emerging products new ACV bookings in Q2. Our average contract term length will most likely increase slightly in Q2 as our federal business will return to a lower percentage of the overall business mix. Also, just a quick modeling reminder regarding our Q3 top line performance. In Q3, over the last 3 years, we have averaged a small sequential decline in ACV billings of approximately 3% to 4%. We would expect a similar trend for Q3 '22 for both ACV billings and revenue. We will use a bit of cash in Q2, mostly related to a slight buildup in receivables associated with higher projected Q2 billings. From a free cash flow perspective, we would expect something close to the current consensus estimate of a usage of approximately $25 million. The guide for FY '22 is as follows. ACV billings to be between $740 million and $750 million, representing year-over-year growth of 25% to 26%; revenue of $1.615 billion to $1.630 billion; gross margin of approximately 82%; and operating expenses between $1.48 billion to $1.49 billion. And one last reminder about the annual ACV billings guide. As we have often mentioned, our total fiscal year ACV billings are not derived from the simple addition of the four fiscal quarters. For our reported quarterly ACV billings, we annualize any deal that is less than 1 year in term length, and 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 1 year in duration. Based on this methodology, over the last 3 fiscal years, the sum of the four fiscal quarters of ACV billings have exceeded the adjusted annual ACV billings by 6% to 7%. Some analysts have applied the required adjustment to their annual FY '22 billings estimates and others have not, resulting in an inflated FY '22 ACV billings consensus. That said, if you apply this methodology to the sum of the pre-earnings call quarterly ACV billings consensus numbers, it suggests a current FY '22 ACV billings consensus of approximately $720 million to $725 million. We would once again encourage investors to account for this distinction during the modeling process. With that, operator, could you please open the call up for questions? Thank you.

Your first question is from James Fish with Piper Sandler.

Great quarter. I appreciate all the details on the guidance moving forward, Duston. Rajiv, I want to revisit your comments about the supply chain. There seems to be a lot of push and pull from others regarding the indirect supply chain impacts. How much push or pull are you experiencing? It sounds like you were fairly insulated from it. What do you think contributed to hyperconverged, and specifically Nutanix, moving up the priority list?

Yes, Jim. So thank you for the question. First of all, I think in our case, we run our software on a variety of hardware platforms. So our customers have a lot of choices, including, by the way, hardware platforms on AWS and soon to be Azure. So while there's certainly supply chain issues out there that we are all aware of, our customers so far have been able to get what they need by the choices that we provide. So as a result, we've seen some pull-ins and some pull-outs, but the net impact is nil so far. So we are comfortable with our forecast. We'll continue to monitor the situation in terms of supply chain. But so far, so good, Jim.

That's great. Could you explain why the decision was made to stop incentivizing the sales team to sell those stand-alone emerging products? Also, do you have any updates on the early leads from the Red Hat partnership?

Sure. So let me do that first, and then I'll go to the emerging products. So Red Hat was a partnership that's going, I would say, really well. We got good momentum in the first quarter, which is really our first full quarter of the strategic partnership. It's resulted in wins for both Red Hat Linux running on top of the Nutanix cloud platform as well as OpenShift on the Nutanix cloud platform. And we are expanding our go-to-market collaboration, including bringing in channel global systems integrators and our OEM partners. I'll give you two specific examples. So one example this last quarter was a fintech customer who adopted OpenShift running on the Nutanix cloud platform to deliver banking software as a service. This is a SaaS company. So that's one example of OpenShift on our Nutanix Cloud platform. Another example here was a large bank running their mission-critical applications. One of the important things they wanted to make sure was that application runs on Red Hat Linux on Nutanix. The fact that we had a combined certified solution made them very comfortable to run that mission-critical application on our platform. So that is a win that we got purely because of this relationship. So we're seeing good traction there. Now, to your question on the emerging products and the space there and so forth. First of all, as we said earlier in the call, we had some difficult year-over-year comparisons in fiscal '21. We had an 86% comp in Q1 '20. And as you know, Jim, we're transitioning to social selling, and we're also changing some of the incentives. As such, we were expecting a deceleration to approximately 20% this quarter. Now in fiscal '21, we had a sales accelerator that was tied exclusively to sales of emerging products. Now we removed that because we wanted to focus on not just selling them separately, but selling them first as part of our solutions portfolio, and we wanted to drive both sales and consumption of these solutions. Now perhaps we should have run a more gradual transition. Our emerging product incentives. In Q2, we're implementing a revised incentive program, which will be more targeted. It will include a deployment component. And that said, we continue to be excited by the market opportunity overall for our solution portfolio.

And your next question is from the line of Jack Andrews with Needham.

Congratulations on the results. So Rajiv, when we think about your software alliances now, you've got Red Hat, Citrix, AWS, Microsoft, what other areas do you think could be of interest? Do you think that there's anything missing from, we'll call it, a Nutanix platform story perspective?

So Jack, good question here. Obviously, we have a lot of work ahead in terms of continuing to grow those partnerships that you just mentioned. In addition, I think there's more opportunities for us to do more work with our global systems integrators. We continue to use them, especially in larger accounts, where I think we can get a lot more leverage through the GSIs. And again, I think the rest of it really is on expanding these partnerships in multiple directions. We've done that this year with many of our partnerships. We expanded our HPE partnership. We expanded our Lenovo partnership. And now with Citrix and Azure again, I think we've got great potential here, with lots of customer interest. So a lot of execution ahead of us on these partnerships. And in terms of new ones, I look forward to doing more with global systems integrators.

And just as a follow-up question, is there any update you can provide in terms of just traction with ERA in particular and around the database opportunity?

Indeed, I think this is one of our big bets as we’ve talked about and I'm very excited. We had a significant quarter for ERA in Q4. We are actually doubling down on our investment in both R&D and go-to-market for ERA. We have a full 360 plan that we’re executing on. I’m still very excited about the potential for this because our vision is to create a multi-cloud database as a service offering that can work with a range of database engines. So we’ve got good product-market fit. We’ve got large customers who have bet on this platform in a substantial way. So we are excited about the market opportunity, continuing to invest in it and driving very hard.

Your next question is from the line of Pinjalim Bora with JP Morgan.

Great job on the quarter. Regarding ERA, our channel work revealed that ERA is starting to secure 8-figure deals independently. While this may be an exception, it seems that many do not associate ERA with such significant deals. Is this becoming a standard occurrence, or do you believe these instances are primarily large outliers?

Yes. We see significant potential for large deals with ERA. Last quarter, we mentioned a large financial services company making a substantial investment in ERA. These wins usually start small, focusing on a specific use case for one database, typically not the most critical one. Once the use case is established, customers often expand their purchases significantly. Generally, it's the second or third deal with a customer that tends to be larger. The initial deals are about testing one use case and evaluating its effectiveness, and if satisfied, customers tend to scale up. We are optimistic about ERA's potential. Additionally, as we move further up the stack, the annual contract value per core increases, providing more value from the solution. The strong use cases are compelling because customers manage numerous databases, and simplifying those operations offers significant value, particularly in a multi-cloud environment. I remain enthusiastic about ERA and will continue to invest in its future prospects.

Got it. And just taking a step back, I guess, when I look at the ACV growth, obviously really good. You are trying – I think when you guided to it, you kind of guided a sequential dip in Q1. When I look at the actuals now, it seems like the sequential is even better than 2 years ago. What surprised you in the quarter? Is there anything that went much more positive than you thought in any particular areas to highlight?

I would say go ahead, Duston.

Yes. No. I think basically, things came in as planned. A couple of things ran a little bit ahead, federal as we expect in Q1 had a good quarter, which helped things out. The renewals remain very much on track, which is good. We continue to grow and mature that team internally. We had some significant upsell business, as you might expect in the quarter too. So I think it was a little bit of everything clearly as we expected, though, like every Q1 led by Federal.

The only other thing I would add there is I think we came close to breakeven on free cash flow. Again, that was a little better than we expected.

Your next question is from the line of Matt Hedberg with RBC Capital Markets.

It's Dan Bergstrom for Matt Hedberg. Really like the guidance around revenue and for the full year. Could you expand upon that decision? What gave you the confidence in guidance and why now?

Sure. Yes. No, I'll be happy to. From a guidance perspective, we actually talked last quarter about doing it a little bit earlier internally, and I just felt comfortable getting one more quarter under our belt before we kind of went back to annual guidance. But again, as we're coming through the subscription transition, so much more is known. We've done a pretty good job of estimating where terms fluctuate as they do a little bit quarter-over-quarter. So we're clearly more comfortable. With that, the renewals have started to play out as planned, which add predictability. I think with the backdrop of all the improvements that have happened to the business, it becomes a bit awkward not to give annual guidance, quite honestly. And so that's what we've done. We also heard it loud and clear from investors that they were tired of doing a bit of math, which I completely understand. I say with the term stabilizing a little bit, a big ask from the investment community was revenue guidance and not having to do the math, just give us the revenue guidance. So we also did that not only on a quarterly basis but also an annual basis. So we hope that helps out and shows our confidence in the business, and we'll continue at that level of guidance throughout the fiscal year.

Yes, that’s great, Duston. And then could you drill down into a little bit what you saw from the federal vertical in the quarter with fiscal year-end? It sounded positive from the prepared remarks. It’s been mentioned a few times, but just more details there would be helpful.

Yes. Again, federal always comes in strong. We saw nice new customer wins, a lot of upsell business there also. Again, pretty much as we expected, brought terms down. Federal usually has shorter terms that played out basically exactly as we had expected there. But overall, a good federal performance. And I should also mention in the quarter that EMEA, although typically not Q1 always, but EMEA showed really well in the quarter. So really our top-performing region in the quarter. So that was nice to see, especially I don’t know if you’d add anything, Rajiv, about the federal business or not.

Yes. Yes. I mean, Q1 is always a strong quarter for federal. Now one thing I would say is we are seeing the federal business also starting to use our cloud offerings. So one of the largest deals this quarter was with that federal agency that we talked about on the call earlier. And again, they are using clusters on AWS for temporary capacity expansions, right, when they need it. So we’re starting to see the multi-cloud adoption of our hybrid multi-cloud platform being adopted in federal agencies as well.

Your next question is from the line of Aaron Rakers with Wells Fargo.

This is Michael on behalf of Aaron. Could you provide any color or maybe quantification of possible and what your backlog currently looks like?

We usually don’t do that. We give a qualitative version. Rajiv mentioned that it went up quarter-over-quarter, which we were pleased about in Q1 because that’s not always the case. Q1 is usually a little soft and Q3 is usually a little bit soft from a seasonality perspective. But we were pleased to add some backlog in the quarter, and it’s been several quarters now that we’ve been able to add some backlog. So we’re happy with that.

Okay. And just looking into 2022, I’m curious how you’re thinking about the overall demand backdrop in terms of just enterprise spending environment. There’s ongoing server CPU refresh cycle. I’m just curious if that impacts Nutanix to what degree?

Yes. I’ll take that. In general, I think we have a good backdrop here. As customers continue to come out of COVID and invest in their strategic initiatives. They’re investing in digital transformation. They’re investing in modernizing their infrastructure and looking at cloud use cases. So all of these, in general, bode well for what we do. And the last bit, of course, is everybody is now in a hybrid work environment as well, and that will continue into next year as well. So all of these point in a positive direction for us from a solutions perspective. I expect the demand environment to continue to be healthy.

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

This is RK on behalf of Rod. And congrats on the nice results. My question, could you give us an idea of how much Red Hat-related revenues you saw in the quarter? And Rajiv, can you talk about your strategy on how you approach the broader hybrid cloud software market between your own products versus partnerships?

Yes, I'll let Rajiv answer the Red Hat piece there.

Yes. So look, the Red Hat partnership is pretty early, right? What we're really doing is core selling together in specific accounts, and the go-to-market has just really started. What I would say is, it's still early days. This was our first full quarter. The wins are starting to come in now. We talked about two wins this quarter. But again, these two categories are quite solid, right? One is just comfort with running mainstream applications on Red Hat Linux on our cloud platform with our hypervisor. The second is where we do a lot of co-work, which is around OpenShift and Nutanix cloud platform providing a best-of-breed total stack solution. We are seeing good starting engagement in the field at this point. It's only the first quarter here, right? So of the partnership really in motion. To your second question around hybrid cloud and how we think of hybrid cloud software. Again, our focus is on providing a runtime foundation, infrastructure as a Service foundation with our hybrid cloud infrastructure, hybrid cloud management and then on top of that, storage and database solution, soda-based automation solutions. That's our stack when it comes to hybrid multi-cloud. Not all of it is available on every cloud today. Our base platform is available on AWS, and soon to be Azure, while some of the database solutions are largely today on our platform and not quite yet in native public clouds. But that's our vision. Now how do we complement that? For example, Red Hat delivers a fast platform, platform subscribers with OpenShift in a hybrid multi-cloud world. So Red Hat and Nutanix deliver a complete stack, PaaS and IaaS in a multi-cloud world. We also have ecosystem partners that are doing added value functions, things like backup for example, that we partner with to decide along with our platform. Those also play in a hybrid multi-cloud world. We're looking at disaster recovery and working with potential service partners to bring some of those capabilities to market as well. So there is a broad ecosystem, and we will continue to leverage that in addition to providing our own stack.

Could you also talk about which emerging products you are most excited about for Q2?

Well, I think fundamentally, we piloted our new solutions offering this quarter in select regions. I'm looking forward to continuing to drive that into the marketplace, right? Hybrid cloud infrastructure, hybrid cloud management, unified storage, database automation solutions. I'm excited about actually getting the solution sales rolling on a broader basis and really driving that into the marketplace. Because when we do that, we sell more of our products, and it’s easier for our customers to consume them. ERA is a big bet for us. I’m excited about that opportunity and driving growth there as perhaps one of the big bets that we are taking.

Your next question is from the line of Nehal Chokshi with Northland Capital.

Congrats on the very strong results, impressive deal acceleration well above your long-term model beyond that. In that context, why are you guiding to 24% midpoint year-over-year growth on the ACV billings given that you just accelerated way above your target model here?

Yes, Nehal, Duston. I have a slightly different number, around 25% to 26%, which we can discuss later. This aligns with what we've previously stated, mentioning it would compound through '25. We didn't provide a specific expectation for '22, which was a bit lower at Investor Day. We are pleased to share that level of guidance and that year-over-year growth rate.

Okay. Great. And then you mentioned renewals did really well. Can you break that up between life of device maintenance and term-based licenses?

Yes. We have two pieces there, both going in opposite directions. Life of device starts to get phased out over time, and that's getting phased out not quite as fast as we thought in our plan, but it's getting phased out. As we've talked about, certainly as we get into the second half of this fiscal year, the subscription renewals start to come in. We saw good traction in Q2. That will continue into Q3. Then we've got a bump up in Q4. So basically, both on track and performing as expected. We still have some back-office systems work that we're doing, and we'll continue to do that. But overall, the renewals are basically playing out as planned, and the LOD support is not quite going away as fast but definitely coming down.

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

Yes. Quick one for Duston. Did I miss this? I've been jumping around, but did you quantify renewal ACVs in the first quarter?

We didn't, Jason. We said we would during Investor Day on that disclosure sheet there that we would do that on an annual basis, but ran well within our expectations.

Perfect. Okay. And can you remind us roughly where that is as a percentage of total ACV right now?

We would have to get the exact percentage. Yes, we can just reference the Investor Day there.

Yes. Okay. And then Rajiv, have you noticed any changes in the competitive environment with VMware/Dell now that Dell has spun off VMware? Is that changing any of the dynamics around competing with VxRail?

Not really at this point, I would say, Jason. I would say things are about the same as they were. We continue to focus on our value proposition with our customers and continuing to work with all the partners that we talk about, right? So HP, Lenovo, et cetera, Fujitsu and many others that we continue to work. So I haven’t seen much so far in terms of change. And again, you saw the Magic Quadrant come up, and we continue to be a leader there for the time. You saw the new Magic Quadrant on distributed file and object storage, and we were thrilled to be a visionary there. I would say, at this point, really no change in our competitive landscape. We continue to see a higher win ratio for us, partly perhaps because our pipeline discipline has improved, and we are much more disciplined in terms of our execution. But really largely no change yet.

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

It’s actually Ruplu filling in for Wamsi today. Congrats on the quarter and on giving annual guidance. I have one for Rajiv and a couple for Duston. Rajiv, it sounded – in the prepared remarks, it sounded like new logo adds this quarter were a little bit weaker than expected. Is there any dynamic to that? What – and what caused that? And how do you expect that to trend over the next couple of quarters?

Yes. Sure. Duston, do you want to take that? You’ve got details?

Yes. As we mentioned in the call, typically, over the last 3 years, you just average them, it bounces around a little bit, but on average, Q1 new logos, as I said, came down roughly 115 on average. We came down 140. So it’s not that much different from the prior Q1 – Q4 to Q1 transition. We've been, over the last year or more, really focusing again on the efficiency of adding new logos and the quality of new logos, and this shows pretty clearly when you look at the – just the ASPs on new logos going up 25% year-over-year in ‘21 versus ‘20. So you can see there that we’re focused. We’re again, driving more new logo ACV dollars per logo. We’ll continue to have that focus. Again, we’ll continue to look at new logos and adjust comp plans, and we always do that outside of the company more – pits and bonuses. We’re always moving those around a little bit to reflect what we need to do in the business, and we’ll continue to do that. I think the other question I had was Q2 and what that looks like potentially from a new logo perspective. So both tell you I believe every Q1 to Q2 new logos have increased. We’ll see how this Q2 plays out. But every other Q1 to Q2, we’ve seen an increase sequentially in new logos.

Okay. That’s very helpful. Can I ask you about free cash flow? I mean, you were almost breakeven even this quarter in fiscal 1Q. So why is the guidance still that you’ll get to breakeven by the end of the fiscal year or by the calendar second half of ‘22? What are the dynamics happening in free cash flow over the next couple of quarters?

Sure. Clearly, this performance and the performance over the last couple of quarters gives us more confidence in our projection for the second half of the calendar to reach free cash flow positive. But again, we’ve done an outstanding job on two fronts there – linearity and collections. The combination of those two is really great from a free cash flow perspective. In this quarter, we hit both of them really well, and collections were great. If you go back a year ago, we brought AR down, I believe, somewhere around 35% year-over-year, while billings have gone up 20%. So we can’t continue to keep that type of performance. We’ll continue to do very well on both those metrics. But in Q2, just because we expect an increase in overall billings, naturally ARR is going to go up a little bit, so we’re going to pump a little bit back into the working capital, which is going to use a little cash, and then that kind of bounces around. But again, this combined with the overall performance of the business just gives us more confidence in that, again, the second half of ‘22 calendar projection of reaching free cash flow positive.

Got it. If I can just sneak one more in. I wanted to ask you about seasonality of ACV billings in the sense that, I guess, you talked about Q3 being down 3% to 4% sequentially. I think in the last earnings call, you talked about Q4 being sequentially up primarily because of the renewals business. I wanted to ask you, as that renewals business grows, should we expect that seasonality to become more pronounced? Would Q3 be lower more sequentially in the coming years, and then Q4 see a more expanded recovery or not? I just wanted to get your thoughts on how the ACV billing seasonality trends as your renewals business increases.

Yes. It’s a good question. And it doesn’t really change that much. The only reason why we’re seeing a pop-up in Q4 is just the initial wave of renewals coming in. There’s nothing magical about Q4. There’s – at this point, we’re not co-terming a bunch of stuff to make sure it goes into Q4. It's just where the ACV resides; they're available to renew on kind of the initial flow of renewals. This isn’t a change in seasonality. It’s just how the renewals are flowing. Eventually, once we get into a rhythm here with renewals, that kind of starts to even out. You would see a natural progression upwards in a more linear manner, probably.

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

Congrats on a good quarter. Curious about hardware constraints. You had said they didn’t have much impact in the quarter, but I’m curious if your partners have some of them been constrained and customers are shifting from one platform to another? Or have you been pretty free of any constraints across your – across all of your partners?

No. I would say, Eric, that’s again a good question. We’ve certainly seen customers having to pay more attention to managing their hardware supply chain for sure, right? If they can’t get what they need from one vendor, they go to another vendor and try to get what they need, right? So definitely, the fact that we’ve got some flexibility in terms of hardware choices helps us bridge the gap. Our customers also get to leverage a variety of commodity servers. At the end of the day, the hardware that our software runs on is standard servers. They have a lot of choice. They will increasingly pick one that’s available versus one that may be from a preferred vendor for us. Our customers definitely are paying more attention to managing their supply chain for the hardware, and we see that like we said earlier in the call. It hasn’t really impacted us from a software perspective in any way yet.

Do you anticipate – or did it get worse during the course of the quarter in terms of the constraints? And what do you anticipate in terms of constraints through the end of the year or through early next year?

I mean it’s – so not for us, Erik. I think for us, it’s been essentially – we’ve seen some pull, some push. For the most part, the business impact has been minimal. Now, it’s hard for me to predict here. Clearly, there are significant supply chain constraints out there in the hardware space, but we are comfortable with our second quarter, I can tell you that for sure. We’ll continue to monitor the situation here as we go by. Of course, you saw that we provided annual guidance, and we maintain confidence in the to grow ahead as well.

If there are no more questions, we will now end the call. Thank you, everyone, for joining. This concludes today's conference call. You may now disconnect.