Good day and thank you for standing by. Welcome to the Nutanix Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we'll open up for questions. Please be advised that today's conference is being recorded. I will now hand it over to your speaker, Rich Valera, Vice President of Investor Relations. Please go ahead.

Good afternoon and welcome to today's conference call to discuss third 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 third quarter fiscal year 2025 financial results. If you'd like to read the release, please visit the press releases section of our IR website. During today's call, management will make forward-looking statements, including financial guidance. These forward-looking statements involve risks and 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 and quarterly reports on Form 10-Q, 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 used on today's call, except for revenue, are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided, to the extent available, reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Nutanix will be participating in the Baird 2025 Global Consumer Technology and Services Conference in New York, and we hope to see some of you there. Finally, our fourth quarter fiscal 2025 quiet period will begin on July 18th. And with that, I'll turn the call over to Rajiv.

Thank you, Rich, and good afternoon, everyone. We are happy to report third quarter results that came in ahead of our guidance. Against a dynamic backdrop, our results benefited from the strength of the Nutanix cloud platform, demand from businesses looking for a trusted long-term partner, and go-to-market leverage from our partnerships and programs. Taking a closer look at the third quarter, we exceeded all our guided metrics. We grew our ARR 18% year-over-year to $2.14 billion and delivered strong free cash flow. We also saw another quarter of strong new logo growth, with strength seen across all our customer segments. Our largest wins in the quarter demonstrated our ability to land and expand within some of the largest and most demanding organizations in the world as they look to modernize their IT footprints, including adopting hybrid multi-cloud operating models and modern applications, as well as those seeking alternatives in the wake of industry M&A. A great example is a new logo and our largest land and expand win of the quarter, with a Fortune Global 500 provider of technology and services based in the EMEA region. Our two-plus-year engagement with this customer was catalyzed by their concerns regarding the proposed acquisition of their incumbent infrastructure supplier, which were realized subsequent to the close of that transaction. This new customer was initially looking at Nutanix as a second vendor alternative but saw the value of the Nutanix cloud platform as a way to modernize their existing infrastructure and ultimately chose Nutanix to replace their entire incumbent supplier over time. Another good example is a seven-figure expansion we did with an EMEA-based IT solutions provider in the quarter. This customer was an early adopter of our GPT-in-a-box 1.0 solution, along with Red Hat's OpenShift for managing Kubernetes. With this expansion, they are adopting our GPT-in-a-box 2.0 solution, including Nutanix Enterprise AI, while also replacing OpenShift with Nutanix Kubernetes platform. They see their enhanced platform as providing a centralized infrastructure for accelerated and scalable model deployment and inferencing across different sites, with initial use cases focused on information summary and search, as well as chat agents and digital assistance solutions. Finally, a new logo win with one of the largest asset managers in the world, based in North America, demonstrated the value of the hybrid multi-cloud capabilities of the Nutanix cloud platform and our partnerships. This customer was dissatisfied with the recent changes with their existing infrastructure provider and was looking for an alternative that could work across their private and public cloud estate. They purchased the Nutanix cloud platform, including NC2 on AWS, through the AWS marketplace, appreciating the consistent management, self-service, and the automation it provides across private and public clouds. Early this month, we held our annual .NEXT conference in Washington, D.C., which drew over 5,000 attendees. During .NEXT, we made a number of announcements demonstrating our commitment to enhancing the Nutanix cloud platform and strengthening our partner ecosystem. We demonstrated progress on our decision to enable customers to utilize their existing external storage hardware while adopting the Nutanix cloud platform powered by our AHV compute hypervisor. Our first offering, supporting Dell PowerFlex, became generally available at the end of April, well within our stated target of the first half of this calendar year. During .NEXT, we announced a new partnership with Pure Storage to support their FlashArray, an offering that is expected to be generally available by the end of this calendar year. We also continue to focus on helping customers build apps and run them anywhere. To that end, we announced we are expanding our cloud platform to support Google Cloud, which will be in early access this summer. We also announced a new solution, Cloud Native AOS, which is about enabling modern applications to be able to use a set of highly resilient storage and data services wherever they're running, whether it's in the public cloud, in native Kubernetes substrates, or bare metal. Finally, we announced general availability of a new version of Nutanix Enterprise AI, which adds a deeper integration with NVIDIA Enterprise AI, using their latest frameworks to speed the deployment of Agentic AI applications in the enterprise. In closing, I'm pleased with our solid Q3 results, our ongoing innovation on our cloud platform, particularly concerning its support of modern applications and external storage, and on the progress we continue to make on partnerships. We remain focused on delivering on our vision of becoming the leading platform for running apps and managing data anywhere, and capturing the multi-year growth opportunity in front of us. 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 Q3 fiscal 25 results, followed by our guidance for Q4 fiscal 25, and what that implies for our updated outlook for the full fiscal year 2025. Results in Q3 '25 came in above the high end of our ranges across our guided metrics. In Q3, we reported quarterly revenue of $639 million, higher than the guided range of $620 million to $630 million, representing a year-over-year growth rate of 22%. ARR at the end of Q3 was $2.14 billion, representing year-over-year growth of 18%. We continue to see strength in landing new customers onto our platform from the various programs we have put in place to incentivize new logos from a general increase in engagement from customers, looking at us as an alternative in the wake of industry M&A, and helped by more leverage from our OEM and channel partners. NRR, or net dollar-based retention rate, at the end of Q3 was 110%, flat quarter-over-quarter. In Q3, average contract duration was 3.1 years, slightly higher than our expectations, and up slightly quarter-over-quarter. Non-GAAP gross margin in Q3 was 88.2%. Non-GAAP operating margin in Q3 was 21.5%, higher than our guided range of 17% to 18%, due to slightly lower operating expenses related to timing of hiring and higher revenue. Non-GAAP net income in Q3 was $125 million, or fully diluted EPS of $0.42 per share, based on fully diluted weighted average shares outstanding of approximately 297 million shares. A note on taxes. Historically, we calculated the non-GAAP effective tax rate by considering our sizable U.S. net operating loss carry-forwards and tax credit carry-forwards. This resulted, for example, in a 6% non-GAAP tax rate for fiscal year '24. Going forward, we believe a long-term projected tax rate of 20% better aligns with the non-GAAP measure of profitability, better reflects our long-term tax structure, and provides better consistency across reporting periods. This 20% non-GAAP tax rate is reflected in our statement starting in Q3 '25. It is important to note that we expect no meaningful change from a cash tax perspective. Our overall cash tax rate is expected to be approximately in the mid-to-high single-digit percentage range of non-GAAP profit before tax for the next few years due to our net operating loss and tax credit carry-forward balances. GAAP net income and fully diluted GAAP EPS in Q3 were $63 million and $0.22 per share, respectively. Free cash flow in Q3 was $203 million, representing a free cash flow margin of 32%. Moving to the balance sheet, we ended Q3 with cash, cash equivalents, and short-term investments of $1.882 billion, up from $1.743 billion at the end of Q2. Moving to capital allocation, in Q3, we repurchased $38 million worth of common stock under our existing share repurchase authorization and used about $65 million of cash to retire shares related to our employees' tax liability for their quarterly RSU vesting. Moving to Q4 '25, our guidance for Q4 is as follows: revenue of $635 million to $645 million, non-GAAP operating margin of 15.5% to 16.5%, fully diluted weighted average shares outstanding of approximately 297 million shares. Moving to the full year, and based on that Q4 guidance, the updated guidance for fiscal year '25 is as follows: revenue of $2.52 billion to $2.53 billion, representing a year-over-year growth of approximately 17.5% at the midpoint and an increase from our previous guidance. Non-GAAP operating margin of approximately 20.5%, an increase from our previous guidance. Free cash flow of $700 million to $730 million, representing a free cash flow margin of approximately 28% at the midpoint and an increase from our prior guidance. I will now provide some commentary and assumptions regarding our updated guidance. First, we assume that the macro and demand environment remains similar to what we saw in Q3. We expect to continue to add new customers onto our platform while noting that Q4 presents a tough year-over-year comparison for new logo additions. Second, we assume aggregate average contract duration for Q4 to be more or less flat relative to Q3, resulting in a full-year contract duration that is expected to be flat to slightly higher compared to last fiscal year. Third, as discussed in prior earnings calls, we expect to continue to increase our investment in sales and marketing and research and development into the end of the fiscal year. These investments are directed towards addressing our large market opportunity, are expected to continue to ramp in Q4, and are factored into our Q4 and implied full-year guidance. In closing, we are pleased that our Q3 results exceeded the high end of our guidance ranges and to raise our full fiscal year guidance across all metrics. We 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 margins. With that, operator, please open the line for questions.

Thank you. Our first question will come from the line of Jim Fish from Piper Sandler.

Hey, guys. I appreciate the questions here. Of course, I'll kick it off with the typical macro question that we're all asking on all these calls. But I guess can you just walk us through the linearity that you saw throughout the quarter and through May at this point, just given some of the tariff things back and forth, especially in the month of April? And, Rajiv, separately from that, you seem to be talking up the next act of the company across platform services like managed Kubernetes. Are we seeing an improvement yet in that sort of contribution on the third wave or act, whatever you want to call it, that's traditionally been a smaller part of the business?

Yes. Three questions in there. I'll talk about macro. We can then talk about your specific question on linearity. I think Rukmini can cover that, and then I'll comment on the Kubernetes piece. So the overall macro, Jim, it continues to be dynamic, continuing to change every day, and we've seen all these changes and recent actions from the new administration. The other related commentary on the macro is also on the federal business. There are lots of personnel changes, people changing in the federal government, and more additional reviews. So for us, what that meant is somewhat longer deal cycles and some variability across our Fed business. Now, longer-term, when we look at the Fed business, we are actually reasonably optimistic about the opportunity for this business to benefit from our platform's focus. We help people modernize and help companies and organizations reduce their total cost of ownership. So I think this is clearly a focus, and we can help the Fed business, Fed customers with this. We have factored some of this picture into our outlook. Let me also answer the Kubernetes piece, and I'll then turn it over to Rukmini for linearity. So the Kubernetes piece, of course, look, I think at our last user conference, we really focused on becoming this platform for applications and data, both today's applications, which are all VM-based, and tomorrow's applications, which are more Kubernetes-based, and can be running anywhere. Our whole focus in Kubernetes is about building a Kubernetes platform to align and provide customers the choice of virtual machines or containers anywhere. It's still pretty early days for the Kubernetes piece. We're actually quite enthusiastic about the initial progress we are seeing in terms of the product-market fit that we've seen with what we've talked about, but it's still early days, and the numbers and adoption are still pretty early. If you recall, we really got into this about a year ago with our acquisition of D2IQ, and we're building out, and will continue to build out this platform over the next few years. So the contribution is still small but growing nicely. Rukmini, do you want to comment on the rest, linearity?

Sure. Hi, Jim. So on a couple of things, I'll add to what Rajiv said. So on linearity, I would say more generally on the tariff point, Jim, we, as a software provider, as you know, we don't have a direct exposure to tariffs, and we haven't seen an impact from tariffs to date. I would also say that more generally, while linearity can move around from quarter-to-quarter, we haven't seen any meaningful sort of increase in pull-ins or push-outs more systematically over the course of Q3, other than what Rajiv alluded to, in terms of deal cycles lengthening and some variability with regard to the U.S. federal business specifically. As Rajiv said, I'll reiterate that, overall, we are continuing to see solid demand for our solutions, but we have factored in some of this overall kind of micro-uncertainty into the updated outlook.

Our next question comes from Pinjalim Bora from JPMorgan.

Oh, great. Thank you so much for taking the questions, and congrats on a solid quarter. Rajiv, now that the Dell PowerFlex solution is out, with themes like NCIC licensing, any way to understand the delta between the NCIC and kind of the core standard NCI license? And I know it's early, but what are you seeing around the pipeline for that product at this point? And one follow-up, I'll just spit it out for Rukmini. The operating margin guide is coming up substantially for the year. Maybe talk about what's driving that. Is there an element of timing of expenses that might have been pushed into 2026? Or are you seeing any productive improvement from kind of internal AI use cases? So I'm just trying to understand the sustainability of that margin levels as we go into 2026.

Yes. So let me take the first part on NCIC and Dell PowerFlex. We are happy that we were able to get it out at the end of April in line with what we talked about. We said for the first half of calendar year, we were able to get it out before. Also at our conference in Washington, you heard some of the early customer feedback on that. Moody's was on stage talking about how they were an early access customer for this offering. The way we've gone to market is now, as you said, we call it NCIC. And what it is, is the offering now includes basically the rest of the platform minus the storage. It includes our hypervisor, our networking pieces, our security micro-segmentation offerings, and of course the full management suite. And what it does not include, of course, is storage because that storage piece is the external component. And that's how we've priced it. We still have a standard pro-advanced type of three tiers of that licensing structure in there. In terms of the opportunity there, of course, PowerFlex, there's a limited install base of PowerFlex, but it's at very large accounts, like customers like Moody’s, among others, where there's a large footprint of PowerFlex in those accounts. Our whole strategy with NCIC, this cloud platform minus the storage offering, is to be able to go into those environments and get traction. We have some good early access feedback from our customers. The product is just GA. We expect to see some traction with it over the next several months and really, I think, some contribution, a smaller contribution in FY'26 in terms of actual revenue.

Yes. Hi, Pinjalim. I'll take the operating margin question. You're right. We're happy with our operating margin performance in Q3 and to be able to take up the guide for the full year. As I mentioned in my prepared remarks in Q3, I did call out a timing of hiring as one of the reasons we overachieved on our operating margin relative to our guidance. Yes, some of those people have been hired and will start in Q4. You'll see that there's quite a meaningful step up implied in the operating margin guide from Q3 to Q4 because we are sort of hiring folks and expect them to start in Q4. We expect to also continue to ramp up the investments in Q4, Pinjalim, to your question, and that's, of course, because we believe there's a big market opportunity here. As we talked about before, we're investing in both sales and marketing and on the R&D line as we look to drive more innovation. The last part of your question was around how do you think about fiscal year ‘26 and sustainability here? We will guide to ‘26 in the next earnings call, but I will say that all the folks we've hired will be in the run rate for next fiscal year. We've had some really nice margin improvements year-over-year. That pace will be hard to sustain going forward, but we're happy with the ability to drive leverage overall as a model. There are, of course, some timing here as well, and we'd expect all of that to be in the run rate going into fiscal year ‘26.

Our next question will come from Jason Ader from William Blair.

So two questions. First, a quick one for Rukmini. Can you help us understand ARR versus revenue, just given the delta and the growth rates there? Was that a timing thing? Usually, ARR growth for you guys has been above revenue growth. So that's the first question.

Yes. Hi, Jason. So I'll start with a few things on the revenue versus ARR. The first thing I'll say is revenue, of course, is a flow metric, whereas ARR is more of a stock metric. A few other things to call out. When you think about revenue recognition for us, it's not fully ratable. There is a license portion that's recognized up front, and then the support and maintenance portion that's recognized more rapidly over time, whereas ARR represents the analyzed view of our install base, therefore being more of a stock metric. A few things can affect revenue. For example, contract duration can affect those relative growth rates because revenue is impacted by duration. A longer duration would be in a higher amount recognized up front for license versus a shorter duration, whereas ARR is agnostic of that. I talked about how contract duration came a bit higher than our expectation. The other factor here is around large deals that can have delayed or phased deployment over time, which also result in variability. I'll give you one example deal we've talked about before, which is this eight-figure ACV deal that we had booked in Q3 of fiscal year 24, so the year-ago quarter, and it was billed in, we collected cash for it a quarter later. The revenue for that transaction is going to come over time. That isn't both revenue and ARR, but the revenue effect is, of course, more pronounced and more lumpy on revenue, given that upfront component. Overall, we think both revenue and ARR provide useful information about our top line, and that's why we continue to provide both on a quarterly basis. That revenue number because of the license upfront recognition can be a little more lumpy than ARR. So you could say a manual view of revenue is a better measure than purely quarterly.

Okay, great. Thank you. And then, Rajiv, VMware historically did really well with tier-two cloud service providers and managed service providers, basically a cloud computing platform for those companies. We've heard some of those partners are not thrilled with the new licensing, and so I was just hoping you could comment on any progress you guys are seeing with these types of accounts. Is it a target type of account for you, or are you more focused just on larger enterprises?

Yeah, Jason, that's a very good and appropriate question. For us, the cloud service provider or managed service provider market historically had not been a big focus area for us because we were just focused on working directly with our customers. We do think that this market represents a significant opportunity for us, given the vacuum that is out there now with VMware, as you said, making some of the changes to their licensing model. Our business with the CSPs and MSPs, while still early, is growing. We've introduced specific programs for the CSPs and MSPs in terms of their... We've actually added some resources, both in the field and centrally, to focus on those. We're adding also some product capabilities to enable service providers to deliver multi-tenant offerings. An interesting dynamic that's starting to emerge now is around sovereign clouds and some of these CSPs, like OVH in Europe that we work with are also emerging as building local sovereign clouds for countries. All of these represent, in my view, a good opportunity for us to have another route to market and get more leverage. We're now starting to focus on making additional investments in this space. It's early days, but that business is small right now, but we expect it to grow.

Our next question will come from Meta Marshall from Morgan Stanley.

Maybe a couple questions for me. Just traction that you guys are having with the Dells and Cisco channel partners that you kind of added last year. Just any update on where you're seeing the most traction there. And then next, maybe if you could give some commentary of what kind of were the highest activity or customer requests for additional development.

Okay. Thank you, Meta. First, let me comment on Dell and Cisco. Cisco is a little further along than Dell because we've had the relationship with them a little longer. They have been a consistent contributor to our new logo growth. It's still a minority contribution, but a steady contribution to our new logo growth. Cisco has a very broad footprint. The customers that we are winning with them cover the gamut. They cover large customers, federal customers, and smaller customers. Cisco is quite strong in state and local education as well. It's a pretty broad spectrum across the board, domestic and international, from Cisco. The Dell relationship is earlier in the lifecycle. There are two parts to it. There is the HCI component, where Dell resells our HCI platform. That's been in the market for a couple of quarters, but I will say that that's one of many solutions that Dell sells. Dell would lead with their own external storage solutions first and offer up our HCI solution only if customers are interested in HCI. The second part of the offering, PowerFlex, is very much aligned with Dell selling completely. Now that the product is in the market, we are engaging with large PowerFlex accounts. You heard from one of them at .NEXT. The product is generally available, and it’s going to take some time for revenue to build up. In terms of .NEXT, I thought it was a very good show for us. We had 5,000-plus attendees. We had a good... One big takeaway was seeing the partner sponsorship growth. Two years ago, we had about 25 partners sponsoring us at this show. This year, we had 86 partners. That's pretty good growth, and it’s a testimony to the broader ecosystem that's building around us. Customer requests highlighted a desire for us to support every external storage array that's out there. Customers want to see how we can make migration as easy as possible for them. Many customers discussed their migration experience moving from VMware to Nutanix at the conference. Enabling broader use cases for our platform and supporting external storage received significant traction. There’s also increasing interest in operating across a hybrid multi-cloud environment, emphasizing simplicity, as well as interest in secure environments like those in the U.S. Navy.

Our next question will come from Ruplu Bhattacharya from Bank of America.

Hi. Thanks. It's Ruplu filling in for Vamsi today. I have two questions, one for Rajiv and one for Rukmini. Rajiv, can you talk about the pricing environment? In fiscal Q3, can you talk about any share gains and competitive wins versus VMware? It sounded like in the last couple of quarters, Nutanix was gaining some traction in terms of gaining VMware customers. How did that track in fiscal Q3? Then, Rukmini, can you give us some commentary on how the renewals business did versus land and expand? Maybe talk about the pipeline of large deals and the available-to-renew pool. In years past, you've had some pull-ins of renewals; any chance that is happening this year as well? How are things trending if you can give us any color on these points? Thank you.

All right, Ruplu. Good questions. The simplest indicator of our traction in terms of share is perhaps the number of new customers joining us every quarter. This quarter was a strong quarter for new logos. We had about 620 or so. What's changing is the AHV adoption, the hypervisor adoption. More and more of these customers are starting their journey with us, with the hypervisor. This was certainly not the case five years ago, where more of our new customers were consuming our storage along with VMware’s hypervisor. The vast majority of new logo customers now start their journey with our own hypervisor. Pricing environment has been fairly stable. We've seen competitive pricing pushing customers to adopt VCF, the full VMware stack. We have a more a la carte approach, providing what customers want. They can buy what they want and consume it in flexible terms from us. We haven't seen any big changes in the pricing environment.

Hi, Ruplu. I'll take your second part of your question. For Q3 specifically, we saw good strength in landing new logos, as both Rajiv and I mentioned in our prepared remarks, with new logo growth really strong. I did mention that in Q4, the comparison started to get harder because last Q4 is when we started to see this increased traction with new logos. Expansion was good in Q3, and renewals were solid as well in Q3. The large deal pipeline continues to see more significant deals, and we've talked about that in the past. We think this variability will continue from quarter to quarter as those deals land. Those larger deals also mean there might be requests for more phased deployments over time. For example, like the eight-figure ACV deal from last year. We do see that from time to time, and we expect those larger transactions will continue because customers are willing to make large upfront commitments and consume over time. The available to renew pool is something we have good visibility on at the start of the year. There are timing differences where some come in early. As we've said before, we certainly welcome a customer willing to renew early as long as the economics are favorable. The ATR number will continue to grow as we add more land and expand each year, and it is expected to continue to grow over time.

Our next question will come from Mike Cikos from Needham.

Just to cycle back to the competitive displacements in the VMware Broadcom. As you continue to monitor these deals in your pipelines, is this cohort of deals exhibiting any different behavior versus the broader Nutanix pipeline as it pertains to tariffs or economic uncertainty out there? Or are deals progressing at a quasi-similar rate? I'm just interested in if you could unpack that a little bit.

Yes, Mike, it's a good question. It’s very difficult for us to separate these deals. It's not one versus the other. We don't have clear delineation between just a VMware displacement opportunity versus a business-as-usual type deal because in every deal, we are against competition. I would say we haven't seen any substantial different behavioral patterns. I will say that occasionally we've seen, depending on the customer, it's more anecdotal than broad basis. Some customers say, absolutely, I want to get out of VMware Broadcom and move. Those customers tend to be more motivated and progressing the deals forward at a more rapid clip and with some sense of urgency. I would say that could potentially, in some ways, be independent of the macro and the rest of the macro situation happening. But these are all too conflated for us to really expect separate meaningful observations. Rukmini, do you want to add anything to this?

I would add, Mike, that part of your question was regarding any different behavior with respect to tariffs or macros specifically. I want to reiterate that with respect to tariffs, as a software provider, we don't have direct exposure to tariffs, and we haven't seen an impact to date. The broader macro uncertainty is out there, and as Rajiv said, it's intertwined with some other specific situations that our prospects and customers are dealing with. We factored all of that as we thought about our updated guidance.

Thanks for that, for both of you on that response. Just a quick follow-up with Rukmini. I know that we cited the timing of the hiring. If I come back to the question Pinjalim had got at, I just want to make sure I'm clear here. So is there an expectation that during this fiscal year, we will have caught up from a hiring standpoint?

We are hiring to our plan for this fiscal year. There's been some timing changes I referred to between Q3 and some of those folks being hired and starting in Q4. That is the intent. The teams have been given out their plans and are all hiring as rapidly as they can to bring in the right people aboard. So we're certainly driving towards that.

Our next question will come from Nehal Chokshi from Northland Capital Markets.

Yes, thank you. And congrats on the strong results, profitability, and the guidance on the profitability as well. Well done. On the ARR results, specifically the incremental ARR, which was about flat year-over-year, how would you characterize that relative to your expectations at your Q2 earnings call? I do know that you don't guide to it, but now that it's all said and done, maybe you can at least discuss how it performed relative to your expectations.

Nehal, thank you for the question. As you rightly said, we don't guide to ARR or to net new ARR. What I would say is we're happy to see our net NRR, our net dollar-based retention rate stable at 110%. That is hard to compare directly to net new ARR because the number you referenced is a quarter-over-quarter incremental ARR, whereas NRR is more of a year number. Overall, we think both revenue and ARR provide useful information about our top line, and that's why we continue to provide both quarterly. The revenue number can be lumpy due to the license upfront recognition.

Okay, great. And then why did service revenue go down to $1 million? Was there like a reduction in the number of days in the quarter or something like that?

You mean professional services revenue, Nehal? Was that your question? Yes, so product versus support and entitlements. Look, support actually grew year over year. It grew at a slower pace maybe than you are used to seeing. I wouldn't call it anything unusual there. That support line item really comes off the balance sheet of the deferred revenue balance on a schedule, so it's not really reflective of anything significant. In Q3, product revenue grew nicely. Part of that reason for that is this large deal that I discussed, which had significant revenue recognition in Q3.

Our next question will come from Matt Hedberg from RBC.

Hey, guys. This is Simran for Matt Hedberg. Thanks for the question, and congrats on another great quarter. Just one for me. I wanted to touch back on partnerships. Could you double-click on the progress with Dell and Cisco and other conversations with OEMs that you're having as you think about broadening these partnerships? How should we think about contribution ramping into the second half of calendar year 2025 and into 2026?

Yes. I think, Rukmini, you can help me on the numbers as well. We continue to focus on expanding our partner ecosystem. There are multiple aspects regarding partners. There are strategic partners like Cisco, Dell, and Pure. Some of them are also go-to-market partners in the sense that they're reselling our products. Cisco and Dell are reselling our product. Cisco has been a consistent contributor to our new logo growth and they continue to ramp. The Dell relationship is earlier in its lifecycle. There are two parts to it. The HCI component, where Dell resells our HCI platform, has been in the market for a couple of quarters. The second part of the offering, which is PowerFlex, is just now making progress. We expect to see revenue from that in FY26 as the product engages with larger PowerFlex accounts. We believe that the ecosystem is growing around us. Customers requested us to support external storage arrays, and many talked about their migration experience moving from VMware to Nutanix. Factors like air-gapped environments saw interest from mission-critical deployments, including those for the U.S. Navy.

Our next question will come from Ben Bollin from Cleveland Research Company.

Rajiv, I wanted to start big picture. When you think about the discussions you're having with customers around these investments, how do you think their thoughts are evolving around traditional three-tier versus HCI? Have you seen any notable changes, more willingness to migrate? Just any big-picture thoughts. My follow-up would be, back in '23 prior to the VMware acquisition, it did seem like there were customers pulling forward renewals. Any top-of-funnel opportunities from those customers as they approach three-year milestones and what that might look like for visibility on a go-forward basis. That's it for me. Thank you.

Yes, both are good questions, Ben. On the first, we haven't seen a big change in terms of the three-tier storage versus HCI. We fundamentally believe that HCI is the best way to build a private cloud foundation and a hybrid cloud foundation for our customers. However, there is still a huge install base of traditional three-tier storage. Perhaps 20% of the addressable market is HCI today, and the rest still sits at three-tier. So we will continue to grow into the three-tier market and convert some of those customers over time. Our perspective is that it makes sense to think of ourselves as a platform company now, supporting a broad ecosystem. You can have external storage or our own storage. We let the customer choose. We still position HCI as providing significant total cost of ownership benefits compared to a three-tier solution, but we cater for flexibility too. In terms of the VMware dynamic on renewals, yes, many customers placed three to five-year renewals when they heard about the acquisition. Some of these customers actively migrated out and are moving with us while some others are not ready right now. For those less prepared, there is a growing sentiment for action when faced with renewal, aiming to avoid another commitment to VMware. We view this as a multi-year opportunity, not a single push. It's essential we recognize different customer journeys.

Our next question will come from Mehdi Hosseini from Susquehanna Financial Group.

As you think about ARR over the next year or two, at what point should we assume there will be increased diversification of products, especially as we move from HCI to a multi-cloud? And as part of that question, would ARR growth be driven by new logos or would existing customers be the first adopters of additional products, especially as we migrate to AI inference? Do you have a follow-up?

Yes, Mehdi, that's a broad question. I'll try to parse some pieces of it. We do have a product portfolio today, a full cloud platform, and you can consume it from a cloud infrastructure perspective. We have cloud management and add-ons customers can consume, unified storage, which is also an add-on, and then our database platform. Now we have our modern apps platform and our AI solutions. These make a full portfolio of products. As mentioned, the bulk of our business still comes from the core, but we see good attachment to our cloud management solutions. Many of the elements are still early. Our hybrid cloud solutions are still in early stages. We expect these portions of the portfolio to build up and be additive on top of the rest of our core. New logos and expansion within our current customers are both important for ARR. The majority of new customers usually start with our core offerings, now often including the hypervisor. Expansion levers include adding the rest of the portfolio, adding more of the same workloads, and expanding into new workloads. So we see three expansion vectors: expanding with the rest of the portfolio, adding more of the same workloads, and pushing into new workloads.

I'd like to add, Mehdi, that part of your question was about expansion versus new logos to ARR. Our NRR was 110 in the recent quarter. Assume that retention is less than 100%, and then expansion is greater than 10% to achieve the 110%. With ARR growth of 18%, that 8% above the NRR can be attributed to new logos. When considering land and expand performance in a quarter, typically, expansion is the significant majority of the land and expand, with new logos being the smaller dollar contribution.

The reason I ask the question is that I want to ensure I understand the dynamics. There wouldn't be a period where ARR growth would slow as we transition. Correct me if I'm wrong, but it seems like even if market share gains cease, you have these two other vectors ready to sustain double-digit growth in ARR. Is this the right way to think about this?

Without commenting on specific ARR expectations, we don't talk about that. What I will say is that we view our business as having multiple levers of growth, and we strive for multiple growth drivers overall.

Got you. One quick follow-up. You said the long-term tax rate of 20%. Right now, we're running less than 1%. Should I assume this is a small trajectory with the increase in the tax rate?

Thank you for that question. Let me clarify what I said, which is that this is only about our non-GAAP effective tax rate. There is no change to cash taxes, which we expect to be in the mid-to-high single-digit percent of profit before tax. The previously calculated non-GAAP effective tax rate factored in our U.S. net operating loss and NOL carry-forwards. Moving forward, we will employ a long-term projected tax rate of 20% for better alignment with our non-GAAP measure of profitability.

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