Good afternoon, and welcome to today's conference call to discuss first quarter fiscal year 2025 financial results. Joining me today are Rajiv Ramaswami, Nutanix's President and CEO; and Rukmini Sivaraman, Nutanix's CFO. After the market closed today, Nutanix issued a press release announcing first quarter fiscal year 2025 results. If you'd like to read the release, please visit the press releases section of our IR website. During today's call, management will make forward-looking statements, including financial guidance. These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements. For a more detailed description of these and other risks and uncertainties, please refer to our SEC filings, including our most recent annual 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 predictions of future events. 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. Nutanix will be participating in the Raymond James TMT and Consumer Conference in New York on December 10 and the Barclays Global Technology Conference in San Francisco on December 12. We hope to see some of you at these events. Finally, our second quarter fiscal 2025 quiet period will begin on January 18. And with that, I'll turn the call over to Rajiv.

Thank you, Rich, and good afternoon, everyone. We're happy to report first quarter results that came in ahead of our guidance. We continue to see steady demand for our solutions driven by businesses prioritizing their digital transformation and infrastructure modernization initiatives and looking to optimize their total cost of ownership or TCO. Taking a closer look at the first quarter. We exceeded all our guided metrics. We delivered quarterly revenue of $591 million and grew our ARR 18% year-over-year to $1.966 billion. We also saw another quarter of strong year-over-year growth in new logos and solid free cash flow generation. Our largest wins in the quarter demonstrated the appeal of the Nutanix Cloud Platform to organizations that are looking to modernize their IT footprints, including adopting hybrid multi-cloud operating models and modern applications, while also managing through disruption from industry M&A. One of our largest wins of the quarter was a full stack expansion with a global provider of IT consulting services based in the APAC region. This existing Nutanix customer expanded with us by shifting more workloads to our cloud platform and adding additional components of our portfolio, enabling them to increase their automation and self-service capabilities, while also reducing their exposure to their other incumbent infrastructure provider. This expansion was also aimed at strengthening their go-to-market practice with Nutanix in the areas of generative AI, modern applications and competitive migrations. Another notable win in Q1 was a significant expansion with a North American-based Fortune 100 provider of food services and products. This customer was looking to implement a hybrid multicloud environment with the intent of running more of their workloads in the public cloud and lowering their total cost of ownership, while also reducing their exposure to our largest competitor. They chose the Nutanix Cloud platform, including our Nutanix Cloud Clusters or NC2 running on AWS, along with Nutanix Cloud Management. This enables them to reduce their projected TCO by nearly 50%, while also consolidating their existing data center footprint. On the product front, we recently announced the general availability of GPT-in-a-Box 2.0, our solution for simplifying the deployment of generative AI applications. A key component of this offering is Nutanix Enterprise AI or NAI, which helps streamline deployment, scaling and running of inferencing endpoints for large language models. NAI can be deployed within GPT-in-a-Box on-prem or at the edge or independently on native public-cloud services such as AWS EKS and Azure AKS. These new capabilities help further our vision of becoming the leading platform for running all apps and managing data anywhere. A first quarter new logo with the government ministry in the EMEA region demonstrated early progress with the new generative AI and modern application capabilities of our platform. This customer was looking to modernize their infrastructure and chose a full stack Nutanix solution to support development and deployment of their cloud-native and generative AI applications. They chose our GPT-in-a-Box 2.0 solution, including our Nutanix Kubernetes platform and Nutanix Cloud infrastructure, as well as our Nutanix Unified storage and Nutanix database service offerings. Moving on, we also continue to make progress on the partnership front, signing an expanded strategic partnership with AWS that will simplify cloud migrations and offer access to AWS services for customers looking to migrate to NC2 on AWS. As part of this collaboration, customers will gain access to promotional credits from AWS to support customer migrations and proof of concept trials as well as Nutanix licensing promotions. Customers can also gain access to promotional credits for migrating VMware Cloud on AWS workloads to NC2 on AWS through the AWS VMware Migration Accelerator program. Finally, we continue to receive industry recognition in Q1, being named a leader in the 2024 Gartner Magic Quadrant for distributed hybrid infrastructure, alongside some of the world's leading public cloud providers improving from our challenger position in the 2023 Magic Quadrant. In closing, I am pleased with our solid first quarter results, our ongoing innovation on our cloud platform, particularly with respect to its support for generative AI and modern applications, and on the progress we continue to make on partnerships. We remain focused on delighting our customers while driving sustainable, profitable growth. And with that, I'll hand it over to Rukmini Sivaraman.

Thank you, Rajiv, and thank you, everyone, for joining us today. I will first discuss our Q1 fiscal '25 results, followed by our guidance for Q2 fiscal '25 and an updated outlook for the full fiscal year 2025. Results in Q1 '25 came in above the high end of our range across our guided metrics. Revenue in Q1 was $591 million, higher than the guided range of $565 million to $575 million, representing a year-over-year growth rate of 16%. The outperformance in revenue was driven by good renewals execution. ARR at the end of Q1 was $1.966 billion, representing year-over-year growth of 18%. We saw strength in landing new customers onto our platform, helped by more leverage from our OEM and channel partners from the various programs we have put in place to incentivize new logos and from a general increase in engagement from customers looking at us as an alternative in the wake of industry M&A. NRR or net dollar-based retention rate at the end of Q1 was 110%. Expansion with existing customers was impacted largely by our U.S. federal business for which Q1 is a seasonally strong quarter given their September 30 fiscal year-end. Our U.S. Fed business performance was lower year-over-year relative to the strong comparison from Q1 a year ago, which we believe is due to impacts from the elongated continuing resolutions resulting in lighter spending from our Fed customers. Based on our current view, we expect our U.S. federal business performance to return to more normal levels in the second quarter. In Q1, we continue to see modestly elongated average sales cycles compared to historical levels, which we believe is influenced by the macroeconomic environment and continued increased scrutiny on spend. In addition, as discussed during prior earnings calls, we believe the larger opportunities in our land and expand pipeline continue to involve strategic decisions and C-suite approvals, causing them to take longer to close and to have greater variability in timing, outcome, and deal structure. These factors also impact our ARR growth. Average contract duration in Q1 was 3.1 years, flat sequentially quarter-over-quarter. Non-GAAP gross margin in Q1 was 87.5%. Non-GAAP operating margin in Q1 was 20%, higher than our guided range of 14.5% to 15.5%, largely due to higher revenue and to a smaller extent due to lower expenses, including as a result of certain non-recurring payments and credits. Non-GAAP net income in Q1 was $122 million with a fully diluted EPS of $0.42 per share based on fully diluted weighted-average shares outstanding of approximately 289 million shares. GAAP net income and fully diluted GAAP EPS in Q1 were $30 million and $0.10 per share, respectively. Free cash flow in Q1 was $152 million, representing a free cash flow margin of 26%. Moving to the balance sheet. We ended Q1 with cash, cash equivalents, and short-term investments of $1.075 billion, up from $994 million at the end of Q4. Moving to capital allocation, we repurchased about $20 million worth of shares in Q1 and used about $79 million of cash in Q1 to retire shares related to our employees' tax liability for their quarterly RSU vesting. Moving to Q2 '25, our guidance for Q2 is as follows. Revenue of $635 million to $645 million, non-GAAP operating margin of 20% to 21%; fully diluted weighted-average shares outstanding of approximately 289 million shares. Moving to the full year, the updated guidance for fiscal year '25 is as follows. Revenue of $2.435 billion to $2.465 billion, representing a year-over-year growth of 14% at the midpoint and no change from our initial guidance. Non-GAAP operating margin of approximately 16% to 17%, an increase from our previous guidance. Free cash flow of $560 million to $610 million, representing a free cash flow margin of approximately 24% at the midpoint and an increase of $15 million relative to our prior initial guidance at the midpoint. I will now provide some commentary and assumptions regarding our updated fiscal year '25 guidance. First, we are seeing continued land and expand opportunities and a growing pipeline for our solutions. However, as we have discussed previously, we expect continued uncertainty in the timing, outcome, and deal structure from the growing mix of larger deals in the pipeline. And as I mentioned earlier, we have continued to see a modest elongation of average sales cycles relative to historical levels, which we believe is related to the uncertain spending environment and which we expect to continue. Second, the guidance assumes that renewals will continue to perform well in fiscal year '25. Third, the full year guidance assumes that average contract duration will be flat to slightly lower compared to fiscal year '24 as renewals continue to grow as a percentage of our billings. Fourth, the non-GAAP operating margin guidance assumes incremental prudent investments in sales and marketing and research and development targeted towards addressing our large market opportunity. Those investments are expected to continue to ramp through the course of the fiscal year. Finally, a note on seasonality. Based on our current view of renewals cohorts and visibility into land and expand, we expect revenue seasonality in fiscal Q3 relative to Q2 to be similar to what we saw in fiscal year '23. In closing, we are pleased that our Q1 performance exceeded the high end of our guidance and would like to thank our employees, customers, partners, investors, and stakeholders for their continued trust in us. We remain committed to continued progress aligned with our stated philosophy of sustainable profitable growth both through durable top line growth and expanding margin.

And our first question comes from Pinjalim Bora with JPMorgan.

Great. Thanks for taking the question. Congrats on the quarter, guys. Rajiv, one for you. Maybe can you talk about what are you hearing from customers around the VMS offering? Trying to understand this new partnership with AWS might act as a catalyst to kind of convince people to move to NC2 or are you seeing any signs of that?

Okay, Pinjalim. Rajiv here. I think you meant VMC on AWS, correct? You said VMS.

VMC correct.

VMC on AWS, correct. Okay. All right. So clearly, I think that seems to be an offering that Broadcom is not focused on as much. And it's created an opportunity for us for sure and customers are concerned as to what might happen with their offering. For example, the GovCloud version of their offering, the government cloud version was apparently deprecated by Broadcom. So this is one of the impetuses for the expanded partnership that we have with AWS, where we are working together with them to provide EVM migration for customers from VMC onto NC2 on AWS. We talked about one of the wins last quarter actually, a leading university that actually went and did exactly that. And anyway, so this is really one of the impetuses why AWS is partnering with us. They're offering migration credit. There's a Migration Accelerator program, and we are working together to help customers who might be interested in migrating off that offering onto something else in the public cloud.

Yes, understood. One for Rukmini, Rukmini I'm trying to understand the guidance. It seems like a very solid Q1 beat. You took the Q2 numbers up, but the second half seems like is an implied guide down because you didn't take the full-year number up. So I'm trying to understand is that just prudence caution around what you're seeing on the sales cycles? Were there any deals that kind of moved from the second half into the first half that changed the seasonality a bit? And lastly, do you think we are close to a trough on NRR?

Thank you, Pinjalim. Both are good questions. I'll start with your revenue guidance. We were pleased with our Q1 revenue performance, but we are only one quarter into the fiscal year. Given the uncertain environment, particularly with a new administration in the U.S., we believe it's wise to maintain our full-year revenue guidance until we have a clearer view of how the remainder of the year will unfold. Additionally, we are observing slightly longer average sales cycles compared to historical norms. We think that larger opportunities in our land and expand pipeline still require more strategic decisions and approvals, resulting in extended closure times and increased variability in deal structure, outcomes, and timing. From a seasonality standpoint, we have typically seen a fairly balanced revenue split between the first and second halves of the fiscal year, so our current expectations aren't significantly different from historical patterns. Regarding your second question about NRR, I can share that while we do not disclose our GRR, we have mentioned before that it hasn't changed much relative to recent levels. The primary driver of net new ARR is the land and expand ACV. Your question specifically pertains to NRR, which does not benefit from the strong performance we observed in our land. There is a divergence between our land success and the performance in expand accounts, which have been primarily affected by our U.S. Fed business, showing a decrease year-over-year compared to last year's strong Q1. We attribute this to the continuing resolutions in the U.S., alongside the sales cycle dynamics we've previously discussed. All these factors influence the NRR. Concerning your question about whether we've reached a low point for NRR, we don't provide guidance on NRR, but we do anticipate it will continue to be influenced by factors like sales cycles and the nature of large deals, which we expect to persist.

Thank you. And our next question comes from the line of Meta Marshall with Morgan Stanley.

Great. Thanks. And maybe following up on the federal piece, you noted in the script that you expected kind of fiscal Q2 to be better. I would expect you would need the administration change, so maybe you wouldn't expect kind of federal to improve until fiscal Q3 but just wanted to kind of listen about what went into that commentary if you could explain that more? And then maybe just a second question, just any update on kind of timing of Dell PowerFlex kind of integration and just anything there would be helpful. Thanks.

So Meta, on the federal question, I mean, we don't have visibility in terms of what the new administration is going to do or not do. So we can't really talk about what's going to happen after the new administration comes in. So we have a near-term view on Q2, of course, which we factored in. And that's why we feel comfortable about our federal business coming back to more normal levels in Q2 based on what we know today. And of course, we'll have to see what the new administration does after they come on board. Now on the Dell question specifically. So as you know, Meta, there's two parts to the Dell relationship. One is the existing hyperconverged solution that we have, which would be an appliance sale by combining our software on their servers. That's been in the market now this quarter, and it's still early days for that. Your question on PowerFlex, we expect to have that in the market in the first half of calendar '25. And we expect to see some revenue contribution from it in FY '26.

Thank you. And our next question comes from the line of Jim Fish with Piper Sandler.

Hi, guys. I did want to build off of Meta's questions and Pinjalim's there a little bit. Can you just remind us how big this federal vertical can be for you guys here in fiscal Q1 versus kind of what you saw here? And what the actual impacted net retention rate was? Like are we talking about a point or two difference that we would have seen versus the 110 or how to kind of quantify that?

Yes. I'll take that, Jim. So first on quantification of Fed, we don't disclose that, Jim. But as you can imagine, and we've said this before, that for our Q1 is typically the seasonally strongest quarter given it's also the federal year-end, which covers September 30. So we don't disclose that number, Jim, but that is Q1 is our strongest Fed quarter. And similarly, right, we're not going to break out NRR impact by Fed or by any other sort of segmentation at this point. But we did see the fact that overall Fed and expand specifically was lower than last year was a challenge for us in Q1 relative to what we saw last Q1, which was a strong compare.

Got it. And Rajiv, maybe for you. I think we're all kind of anxious here about when we could see more standalone AHV into other storage arrays. Obviously, you just talked about the calendar first-half of '25 seeing Dell PowerFlex, but how should we start thinking about Nutanix's relationships of getting standalone AHV integration into some of the other providers out there and why we wouldn't start to see that AHV attach go from 74% today to faster to 100%? Thanks, guys.

Yes, I believe those are two separate questions, Jim. Regarding the first question, the only relationship we've announced so far is with Dell PowerFlex. We do intend to selectively expand that to other storage arrays over time. While I won’t make any pre-announcements right now, it's safe to say we are working on this in a thoughtful manner. We want to ensure that our efforts genuinely enhance our market opportunities without negatively impacting our existing HCI opportunities. Our focus is on working with storage array vendors that handle workloads which aren't easily captured with HCI. For the workloads we can address with our HCI platform, we plan to do so using the complete solution. Over time, our aim is to sell the full stack even for those partnerships we pursue. So, stay tuned. We will certainly be looking into other storage arrays in the market, but for now, we're starting with Dell and will gradually expand to additional partners. As for your question on AHV penetration, our philosophy has always been to support multiple hypervisors. There's been a steady growth in AHV adoption, and we're currently at that level. I don’t necessarily need it to reach 100%, but we aim to increase the AHV footprint because we also want to integrate into VMware accounts where our platform runs on ESX, the VMware hypervisor. We will continue to support that in the future as well. Nonetheless, we would like to see more customers migrate to our AHV footprint, and having support for third-party storage will definitely help facilitate that.

Thank you. And our next question comes from the line of Jason Ader with William Blair.

Yes, thank you. Hi, guys. So when I look at the second half and you gave basically guidance revenue per quarter for the second half. But then looking at the operating margin for the year, you raised that only slightly after having pretty significant outperformance in Q1 and also guiding to a pretty robust operating margin in Q2. So that implies the second half is going to be kind of way down on the operating margin. And I know you said you're going to be ramping expenses, but just want to make sure that there's nothing kind of idiosyncratic to the second half that we're not thinking about. And then can you talk about where that ramp-up in spending is going to come? You said sales and marketing and R&D, but could you be more specific within those buckets?

Hi, Jason. First on operating margin, so you're correct. So first, I'll start with revenue. What we said was, I think in response to an earlier question, that our implied revenue split first half to second half is roughly even based on the guide and that's similar to our historical patterns. While we expect operating expenses on the other hand, to grow over the course of the year, much like it did last fiscal year. So to your point, you're correct that we will expect to see lower operating margins in the second half of the year in fiscal year '25. However, overall, we still expect to see year-over-year improvement in operating margin for the full fiscal year relative to fiscal year '24. And then to the second part of your question on where are we spending those dollars. So first, in R&D, we have talked about investing, for example, in these AHV standalone to support the standalone storage arrays. So that's one area of R&D investment. Some other examples include we have ramped up our offerings around cloud-native or containerized applications. That's another area, generative AI, plus our core enterprise platform, right, so the platform and making sure that it continues to evolve. So even within our core platform, there are innovations that we continue to drive. So that's on the R&D side, some examples of where we're investing. On the sales and marketing side, we have talked about some investments we've made, some we made last year and some will continue into this year, for example, around product-specialist sellers. Folks who are focused on selling our entire portfolio and helping our main field sellers go do that. We have increased some investments around the channel, as another example, some inside sales folks who can be focused on driving both expansion and land around the more mid-market tier. So those are some examples of areas that we're investing in both sales and marketing and in R&D.

Okay, great. Thank you.

Thank you.

Thank you. And our next question comes from the line of Wamsi Mohan with Bank of America.

Hi, thanks for taking my questions. It's Ruplu filling in for Wamsi today. Rukmini, the renewals business has been strong. How should we think about the growth in available to renew pool in fiscal '25 versus fiscal '24? And is there any danger that renewals kind of fall off a cliff in fiscal '26 or is there a large enough cohort of customers who are going to renew in fiscal '26 that strong growth in renewals continues and it grows as a mix of the business? So just your thoughts on available to renew pool and how you see that business continuing to grow.

Thank you, Ruplu. So you're correct that we did talk about renewals doing well for Q1. In terms of ATR for full year fiscal year '25, I think we referred to this in our last earnings call when we gave you all the initial guide for fiscal year '25. The available to renew pool or ATR is expected to grow nicely in '25 year-over-year relative to '24 and will continue to grow quite nicely over the next few years. Ruplu, I'm not going to give you a quantification for fiscal year '26 at this point, we're still only one quarter into '25. But yes, we expect that growth in available to renew for our renewals cohorts to continue for the next couple of years.

Okay, thanks for that and maybe for my follow up I'll ask you another question. Free cash flow in fiscal 1Q was very strong. It was $152 million, which I don't think over the last three, four years you've had such a strong 1Q. Were there any onetime items, I know last quarter you had said that you might get from a partner, I think you had said $30 million benefit for the full year in terms of free cash flow. So any guidance on how we should think about the progression of free cash flow first half versus second half in this year?

Thank you, Ruplu. We were happy with our free cash flow performance in Q1 as you alluded to. So nothing significant I would call out as one time. So you're right. Those partner payments we did call out for fiscal year '25 and those will continue to come in, they might be a little inconsistent in terms of quarter to quarters, but we're not breaking that out quarterly, Ruplu. There wasn't any one thing I would call out. For example, in Q4 in our July quarter, we did call out. There was one significant deal that we collected in that quarter, for example, there was nothing like that that I would call out for Q1. And more generally, I think when you think about just I think rest of the year part of your question is 152 was a strong Q1, and our full year guide is 560 to 610. And so I'll just remind you that one expenses are going up, expected to go up through the rest of the year. So keep that in mind, right? Those expenses will ramp over the course of the year much like they did last fiscal year. So factor that in. And you know, we do collect multiple years of cash from our customers, typically upfront. And so that does mean that depending on duration or depending on some larger deals, there can be some variation quarter to quarter in that number, which is why we continue to guide for free cash flow really on an annual basis only.

Thank you. And our next question comes from the line of Mike Cikos with Needham.

Hi guys, thanks for taking the question here. I'm going to ask a boring one on guidance and build on some of the line of questioning that Mr. Ader was going after on the operating margin and operating profit. But I just wanted to get a better understanding. Congratulations on the 20% operating margin we're seeing here in Q1. Is the view for full year in any way informed? Like are we potentially behind on hiring versus where we expected to be exiting Q1, or are you potentially increasing your view of additional investments in sales and marketing and R&D? Because I know that's something that we had plagued on the previous quarter. Just wanted to wrestle those two items.

Thank you, Mike. I always appreciate the straightforward questions regarding our guidance. It’s actually quite practical. As we look at our spending and planning cycles, we are coming out of that planning phase. As we implement our plans this year, similar to last fiscal year, some of this will gradually ramp up throughout the year. That has been our strategy, and you can expect to see this trend compared to last year. There’s nothing particularly unusual or different to highlight, except that when we hire new employees in Q1 or Q2, they might only be present for part of the quarter, but by the next quarter, they will be there for a full quarter. There is a normalization process that unfolds over the year, and this is reflected in our outlook for operating margins for the entire year relative to what you observed in Q1.

Thank you for the information. I have one more question. I understand the commentary regarding the seasonal revenue differences between Q2 and Q3. However, I want to ensure that I have the right perspective. Looking back to two years ago, we've consistently observed a decline of around 7% to 8% in revenue from Q2 to Q3, with 7% seeming accurate. I appreciate your qualitative insights, but could you please explain further what influences this seasonal trend? Is it related to year-end activities in Q2 and the sales incentive compensation for your sales team in Q4? How should we view the sequential change from Q2 to Q3?

You're exactly right, Mike. So historically, if you look at our performance, Q2 and Q4 tend to be seasonally stronger quarters from a top line perspective, exactly for the reasons you outlined, because Q2 has the December year-end and Q4 has our end of fiscal year and therefore some sales incentives tied to a strong finish there. What has happened also is, as we now have the renewal cohorts layering in, they tend to follow similarly the land and expand performance in the past because they're just reflective of deals that were signed and when those renewals come due. So now we have the impact of historical land and expand, but the renewals cohorts are also following that pattern. So we just wanted to remind folks of that going into Q3 and give you a sense of qualitatively what to expect relative to the Q2 guide.

Thank you. And our next question comes from the line of Ben Bollin with Cleveland Research Company.

Good afternoon, everyone. Thanks for taking the question. Rajiv, I wanted to get your perspective, a bigger picture on enterprise refresh behavior, in particular around how you see customers evolving around three tier versus HCI? And any thoughts on the pace and rate of enterprise on-prem AI deployments?

Yes. I'll take those two questions separately. I don't think, Ben, that much has changed with respect to three tier versus HCI. Yes, we still continue to validate the proposition of 40% to 50% lower TCO if you replace your three tier with HCI and it also provides you the platform to really expand into becoming a hybrid cloud, which is what companies want. And so over time, I do expect to continue to see HCI gain into this legacy three tier offering. So that part hasn't really changed, the dynamics really haven't changed. Of course, it's usually tied to a hardware refresh cycle because that's when you refresh the storage arrays and instead of refreshing storage arrays, what we tell customers, why don't they just buy simple servers and put HCI on it? So no change really on that front. On enterprise AI, what we see again is that the bulk of the spend so far have been not really in the enterprise, but in these large hyperscalers as they build out these massive clusters to train these large language models with huge investments from a small handful of very large providers. So we see that for sure. Now within the enterprise, most enterprises are, I would say, in the early stages of deploying generative AI, largely for RAG retrieval augmented generation and fine tuning and inferencing. They're not going to train these models. They're going to use models that are pre-existing and then use them to drive inferencing, but with more cost-effective smaller clusters. We think that that segment of the market is in its early stages. We have seen the first set of applications come about even this quarter, as you know, we talked about this government customer in EMEA that's starting to use our GPT 2.0 offering. I would say most enterprises are in the early stages of adoption, including ourselves, where we're targeting to see things like a 25% productivity gain for our developers or improvements in how we manage legal contracts. So companies looking at fraud detection, these are the kind of use cases that we're starting to see emerge. But I would say it's in the early days, most enterprises are only now getting into the act of trying to build these applications. And I do think that this space is going to continue to grow over the next few years, but it's still largely incubation at this point in the enterprise.

That's great. And Rukmini, if I could, in the past, you had provided some perspective on the growth of 1 million plus deals in your pipeline relative to the remainder of the business. Curious if you have any updates on that metric exiting the quarter. Thanks.

Thank you, Ben. I will say we are continuing to see nice growth in our pipeline, including for the larger deals that we've talked about before, Ben, we're not updating those metrics specifically on a quarterly basis. But yes, we are seeing continued interest and engagement and growth in pipeline from those 1 million plus sort of cohorts and more generally.

Thank you. Our next question comes from the line of Simon Leopold with Raymond James.

Hi, guys. This is Victor Chiu in for Simon Leopold. I wanted to drill into your commentary around the increased customer engagement from VMware base? And maybe help us understand if this was an incremental acceleration relative to what you were previously observing and if so, maybe help us understand what's driving that and if you expect that to continue.

So Victor, the market remains dynamic, but from our perspective, it has not changed significantly in terms of our multiyear opportunity to gain market share. We haven't observed any notable changes this quarter compared to the previous several quarters, and our win-loss rates on these opportunities have also remained stable. As we've mentioned before, many of these deals are related to VMware customers, particularly their ELA renewal cycles and when the installed base is due for hardware refresh. At the same time, we are enhancing our capability to have our solutions operate on existing hardware, such as the three-tier work we're doing with Dell and our continued deployment of software on existing VMware HCI customers. Additionally, the market is dynamic in that we occasionally see aggressive actions from Broadcom to retain large customers. Overall, I would say that not much has changed.

Okay. And if an organization decides say that they wanted to move away from VMware kind of on average, how long is that transition typically? And kind of what are the steps involved that are required for a customer to do something like that?

Correct. It depends on the scale and complexity of their deployment. So if they are, for example, I'll give you the two bookends. So on the easy side, if they're just largely just say vSphere customer and they're willing to replace their hardware, it's a very easy migration. We can migrate that within a month or two off a relatively small scale. A lot of that is automated as well. Same goes for public cloud to public cloud. And there was a question earlier about VMware Cloud on AWS. Those offerings are actually very easy to migrate. Again, within a month we can have those customers off and onto a Nutanix offering. But at the other end of the spectrum are these large customers that use multiple VMware products with massive estates. And there it can be many years, it can be three years to do a migration just because they can't migrate all of it at once, there is a requirement for professional services engagement to convert over some of their more complex custom scripts that they have written and custom investments they've made on top of the VMware portfolio. So those migrations tend to be more complex, require professional services, and take a few years. So there's an entire spectrum across those.

Do you have maybe kind of a general ballpark kind of estimation of what percentage is the easy kind of quote unquote, low hanging fruit and what percentage are hard?

Yes, I would say if you look at, with the exception of, I think if you go to a large tier one big global account, those are the ones that are difficult. Right. The vast majority of the smaller customers are going to be more on the easy side.

Thank you. And our next question comes from the line of Matt Hedberg with RBC Capital Markets.

Thanks for taking my question. I wanted to ask about the federal business, which seems to have faced some challenges. Rajiv, do you think the enterprise business has deteriorated in terms of demand compared to last quarter? The results seem good, but I’m looking for your insights on enterprise spending now compared to 90 days ago.

Yes, Matt. I, clearly we saw the softness in Fed for sure. We saw it. That was a very clear cut. The broader enterprise, we've actually again been doing quite well at landing new logos and people migrating. But of course, some of that is perhaps due to just what's happening with the Broadcom situation. So we haven't seen a decline in enterprise spend or less willingness to spend. What we have seen, and we've been talking about this for multiple quarters, Matt, is a lot more inspection going on the spend and a lot more approvals being required higher in the food chain, looking at TCO more carefully, which of course plays to our benefit somewhat because what we talk about in this environment is how we can reduce TCO. So that dynamic has been going on now for several quarters. We haven't seen much of a change. So net net, I would have to say with respect to broader enterprise demand, we haven't seen a change this quarter compared to the prior quarters.

Got it. That's very clear. Thanks. And then maybe another sort of, I guess, macro question for Rukmini. Obviously, it's not your year end, but do you typically see a December budget flush from an enterprise perspective? I can't imagine you're baking that into guidance, but just kind of curious on historically, do you see customers kind of spend it or lose it mentality when it comes to December, your calendar year end?

Certainly. Sometimes companies may have a budget available for this year, and we've observed this in the past. We are likely to see some of that this year as well. If your company follows that calendar cycle, you will probably have some budget to spend. However, we incorporate whatever we can see into our guidance for Q2, so there isn't much different this year compared to previous years. Typically, we observe a seasonal increase in Q2 relative to Q1, partly driven by the fact that, as you mentioned, people tend to spend at the end of the year.

Thank you. And our next question comes from the line of George Wang with Barclays.

Hi guys, thanks for taking my question. I just have two quick ones. Firstly, can you kind of double click in terms of the channel incentives in place, kind of what has changed versus three months ago in terms of providing the promo and the incentives to the channel, especially against the backdrop of maybe overlapping Nutanix and the VMware contract.

A few months ago, we made a change regarding the channel, and there haven't been any recent updates on that front. What we did was take a section of our customer base, specifically our target prospects, and completely transitioned those accounts to the channel. As a result, our sales representatives no longer handle those accounts, and we have enhanced incentives for our channel partners to generate business for us. These incentives reward channel partners for bringing in new clients by providing additional rewards for new business. We are committed to working with the channel, ensuring that all our deals go through them without attempting to bypass them. Consequently, we have witnessed a notable rise in engagement from our channel partners over the past couple of years. This increase can be attributed partially to the interest in Broadcom and also to the incentives we are providing. Additionally, we have implemented incentives for end customers, such as offering free licenses for a limited time to assist them during their migrations, allowing them to continue using VMware while transitioning to our products.

Okay, just a follow up if I can. Just in terms of repatriation, just kind of being a theme which would benefit Nutanix. Just curious if anything has changed on the repatriation. Any additional data points versus last quarter?

Yes. In terms of cloud repatriation, I would say, we haven't seen a massive repatriation of workloads coming back from the public cloud. We see some of that here and there is where I would characterize that nothing has changed compared to the past quarter. But I think what we see is again, nothing has changed that people are much more careful about what they go put in the cloud. So keep in mind that the vast majority of enterprise workloads are still on prem, not in the public cloud. And now CIOs are being more circumspect about what to use the public cloud for. For example, there's a realization that if you have steady state workloads, those workloads can be done more efficiently on-prem than in the public cloud. And so this CIO is therefore saying, well I'm going to keep that workload on-prem, I'm not going to move that to the public cloud. So that's what we're seeing.

Thank you. And our next question comes from the line of Nehal Chokshi with Northland Capital Markets.

Yes, thank you. And congrats on this really strong new logo up 50% year-over-year. That's really impressive. I'm trying to put though why is ARR decelerating given this strong land that you're seeing? And then if I look at the incremental ARR i.e. to change quarter-over-quarter for the October quarter relative to the year ago quarter that was down a lot as well. So thoughts on why are there such weak incremental ARR characteristics, especially given the backdrop that you're having such strong land metrics.

Hi Nehal, thank you. To address your point about net new ARR, one of the main factors driving net new ARR is the difference between this quarter’s ARR and the previous quarter’s, which is influenced by our land and expand ACV. Our gross retention rate has remained relatively stable compared to historical levels. When considering land and expand, we observed some differences in performance between the land and expand segments of our business. We experienced strong performance with new customers, which we've discussed previously, and we're pleased with that outcome. However, expansion with existing customers, which makes up the majority of land and expand, has been primarily affected by our U.S. federal business, as we've explained. Additionally, we've mentioned larger opportunities in our land and expand pipeline that are taking longer to finalize and have unpredictable timing, outcomes, and deal structures. All these factors influence our ARR growth, which provides clarity on ARR and net new ARR. Thank you, Nehal.

Thank you. And our next question comes from the line of Michael Tsvetanov with Wells Fargo.

Hi everyone, I appreciate the opportunity to ask a question. I'm inquiring on behalf of Aaron about the GPT 2.0 or GPT-in-a-Box 2.0 solution. I'm interested in understanding how you see its positioning in the marketplace compared to a full stack or three-tier architecture with Nvidia's AI enterprise software suite. How do these offerings differ in their market placement, and do you perceive any potential to move upmarket as these solutions evolve?

Yes, I mean some of that is also a difference between training and inferencing. We are largely with GPT-in-a-Box focused on influencing, focusing on smaller clusters, not massive compute farms to train models, smaller clusters that enterprises can use to deploy more cost-effective AI inferencing applications. I'll give you one example. We for example, one of our first use cases in Nutanix internally was a customer service use case where incoming service requests from a customer support ticket, the support engineer actually has a natural language interface, search interface through which they enter the query and then we look through all our knowledge bases to try and accelerate our ability to answer that issue. And that AI application is running on just a small cluster using an open-source large language model. And that's the kind of upstarting on GPT-in-a-Box internally. And that's the kind of use case that we're enabling for the enterprise where you have your secure data, you want to do your inferencing on it using existing models that are already pre-trained but fine-tuned with your use cases. So that's a cost-optimized solution. And by the way, we are partnered with Nvidia on that because we work together with Nvidia's inferencing solution as well as of course using their GPUs to do all the hard work needed here. So again, I just think we want to distinguish between inferencing on small clusters, which is mostly what we do, versus training of very large clusters.

Okay, that's helpful. And if I can sneak one more in, just as we think about an improving sort of traditional server, end demand environment and as we think about refresh cycles, obviously that presents an insertion opportunity for you guys within three-tier architecture. So I'm curious, with the new partnerships with Dell and Cisco, have you seen your win rates at all changing or do you anticipate those improving given your kind of broader ability to enter those deals?

Yes, first of all, I think having Cisco and Dell selling our products is of course positive for us and Cisco has been a good contributor to our new logos this quarter as well as last quarter. Dell is still, I think, very early days for us and that's independent of the server-side refresh cycle or not, right? Second, I would say with respect to refresh cycles, yes, server refreshers will help, but also storage refreshers are important, right, because that's when we get the opportunity to displace those three tier architectures with HCI footprint. So both matter. I think having Dell and Cisco as friends in the market of course significantly helps. And at the same time, the refresh cycles more so I would say, storage refresh than server refresh will help us insert HCI into three tier existing deployments.

Thank you. And thank you for participating. This does conclude today's program, and you may now disconnect.