Nutanix, Inc. (NTNX) Earnings Call Transcript & Summary

Hello, everyone. I appreciate you joining us today to join us for the session with Nutanix. I am Patrick Colville, a senior analyst at DB covering the cybersecurity and the infrastructure software space. The format of this session will be a fireside chat with a listener Q&A. There's a chat box where you, the audience can ask questions. Questions are anonymous, so we will not mention your company name or your company affiliation. Let's kick it off with introductions. So we have Duston Williams, the CFO of Nutanix; and Rajiv Mirani, the CTO of Nutanix with us. As the audience will know, Nutanix is a pioneer in the hyper-converged infrastructure space. So Duston and Rajiv, thank you for joining us.

You're welcome.

Yes, thanks for having us.

Okay. That's great. So I mean, let's jump straight to questions. The elephant in the room is really COVID-19. So I just -- I would love to discuss or to start there, just discuss how the coronavirus pandemic has affected business trends and Nutanix over the last 6 months.

Sure. Let me take a shot at this, and Rajiv, feel free to jump in here, too. This -- from a pandemic perspective, really happened kind of in the middle of our Q3, which is ending April quarter. And like many companies, it was pretty shocking at first from a just the sheer magnitude of the changes that were going on in general. And I think we, as a company, I think, took -- we actually saw this pretty much, I think, earlier than most companies started in APAC, and we had adjusted guidance accordingly early on from that perspective and have executed, I think, quite nicely. Q3 turned out to be, based on our guidance, a well-executed quarter; second half of the quarter was impacted clearly by what was going on. And then Q4 was the first full quarter, and we were concerned, obviously, of the true impact, and we really weren't sure. So we actually didn't guide for Q4. And Q4 turned out to be a -- in the scheme of things and the environment that we're playing in, a pretty solid quarter for us. So we were really pleased from that perspective. We took clearly prudent expense actions early on. So we've done, I think, a pretty good job managing the expenses, managing headcount in an uncertain time. So overall, clearly, we'd be doing much better in a healthy macro environment, probably mostly impacted by new customers because it's hard virtually a little bit to get new customers. Existing customers know the product, they love the product, they have relationships established. So that makes it quite a bit easier from the existing product perspective. New customers have lagged a little bit, but we've still done 700-plus new customers over the last couple of quarters, which we've been relatively pleased with in this environment. Clearly, our end-user computing solution has shown well in this environment where we've helped a lot of customers get up and running with VDI efforts and the like in the challenging times. So that's been a pleasant surprise. And I think the other thing there is just big deals. The product continues to do really well. Big deals haven't really seemed to wane that much. The only issue, I think, around big deals is the timing. The timing has gotten a little bit less predictable in this environment. But we haven't seen many big deals at all just simply evaporate and go away. We've seen some delays, it's hard to see exactly when that business might close. But in general, we've been quite pleased with the amount of big deals that are available out there to go get. So clearly, a challenging time. I think we've done a pretty good job operating in the last 2 quarters. We took early action with expenses, as I say. And we'll continue to be pretty prudent on expenses until we see some decent top line growth going forward.

That's very clear. I guess, Rajiv, do you want to jump in or shall we move on to my next question.

Just briefly, I'd say, look, while people are very cautious right now from a macro point of view and so on, the situation does play into our product strengths. I think a lot of people who, for example, initially needed to scale out their VDI infrastructure. That's the kind of thing we do well, right? I mean, essentially, you can start from any size, scale up, quickly scale down quickly, give you the most choice in terms of which vendors you work with and so on. And also a lot of emphasis right now on automation as people try to do more -- more and more of that, just getting along with fewer people. So a lot of the value of the products come out and I think bodes well for us in the future.

Yes, that's very clear. I mean, so I guess, one of the other big changes recently in Nutanix is the company's founder and CEO Dheeraj stepping down. So any color you can provide investors around that change would be great. And I guess, when can the investment community expect a replacement CEO? I'd love to talk about that.

Sure. Obviously, Dheeraj has been here since the inception of the company and built the company up to what it is today. So it's been a very successful 10-plus years that Dheeraj has built the company. But this is something that he thought about for quite a while, way before the Bain Investment actually became a reality or even we started talking to the Bain folks. So this has been something when is it right for him to step away and let somebody else take it from $1.5 billion to whatever it might be in the future years. So I think from a timing perspective, these searches are certainly a process. And the good news is that everybody realizes that we are looking for a CEO. So that will be helpful. It's not that we have to go talk to individual by individual. So we clearly, by definition, casted a wide net from that perspective. But it is a process. So from an expectation perspective, I would say upwards of 6 months wouldn't be out of the realm from a timing perspective for a new CEO. In the meantime, obviously, Dheeraj continues to be engaged and act as the CEO until a new one is found.

Got it. Got it. I just want to make the session for our audience as interactive as possible. So if you want to post a question, post a resume, post it to the chat box, and also if the chat box isn't working for any reason, post -- you can e-mail me any questions at patrick.colville, which is C-O-L-V-I-L-L-E at db.com -- patrick.colville@db.com for any questions over the chat box because -- please feel free to ask any questions. In the meantime, I'm going to hog the microphone and ask Rajiv about the company's journey from, I guess, from hyper-converged to hybrid cloud. This is something that you guys have been talking about quite a lot. So I guess, how would you size the new opportunity in HCI? And how is hybrid cloud changing dynamics for Nutanix?

Yes. So hybrid cloud, the way we look at it is that it's a natural evolution of what we've been doing for a while. Essentially, the idea is like, look, we provide a cloud-like experience that was built on the same principles as the public cloud, right? And the first thing we had to address with that was, let's first build out a private cloud. So they didn't exist at the time when we started, right? And for us, the thesis was that it needed a new architecture, a new way of building things inside the private data center before you could reap the benefits of a cloud-like management experience and so on. So that, for us, was, in some sense, as act one. That's what we started with that, look, there is no such thing as a private cloud. Before you get to hybrid cloud, you need that. And as we went along this journey, we've always been about increasing the number of -- the amount of choice a customer has, right? We started with, okay, look, there's a specific hardware vendor we work with. Then we did some OEM partnerships, went to a software-only model. And so for us, it's a fairly natural transition in that journey to say, hey, look, if you want to run some workloads in public cloud, we can enable that as well. And that's kind of the new hybrid cloud model, but it's been an evolution in the making. It's essentially enabled by the fact that essentially, we have a softer stack that can run anywhere. And in many ways, we are agnostic to where you run your applications. You can run them on private data centers, you can run them on public data centers, you can change your mind and move them around, your data is portable, your licenses are portable. And we believe that's a new way of thinking about hybrid cloud, that's fairly new. So from a sizing perspective, it's too early to say what the eventual outcome here will be, but it's something that everybody should be interested in because it's a completely new way of thinking that your applications can move around between public and private cloud based on all kinds of things. So it could be based on economics, it could be based on regulations, data sovereignty laws, your security considerations. And as these things change, these things tend to be dynamic as they change, you still have that flexibility to change your mind. That's super important.

Yes. I mean, that's interesting. I guess, I mean, it leads me on to my next question, which is about the kind of public clouds. And in our checks, we did lots of work speaking to CIOs of Global 2,000 companies. And our take is that the coronavirus pandemic has, if anything, proven that the cloud delivery model works really well in the enterprise. And so I'd love to talk about, I guess, this is going to be a multi-multi question. So first question, probably what is Nutanix' position in public cloud environments? And then second part is going to be about in the collaboration you announced last week with Azure. So just that partnership with Azure and what that brings for Nutanix and its customers?

Yes. I think you're right. I think with COVID, people are accelerating towards public cloud, at least for the moment, though we have seen a little bit of this before, right? I mean a few years ago, everybody was cloud first, and it was like, okay, cloud for what makes sense as opposed to everything going to cloud. So the pendulum swung back and forth a few times. And again, it seems to be moving towards public cloud. And that's fine now in very many ways, it benefits us because moving to public cloud today is not easy, right? I mean, essentially, if -- your existing applications, your traditional databases and all the enterprise applications you run, moving them to public cloud is extremely hard to do while maintaining performance levels and getting the right economics out of it and so on. So we make that really, really simple. It's effectively the same infrastructure that you have in your private data center and in the public cloud. So again, from a SLAs and performance perspective and so on, you can expect similar behavior on both sides. So if anything, it's an opportunity for us that hey, look, if you want to move to public cloud, instead of taking on a risky rearchitecture project that will take years and may or may not pan out at the end, you can move today and rearchitect over time. I think that's a huge, huge selling point for us. And Azure is giving one more choice point to the customer on that. We already had announced AWS about a month ago. And Azure gives them one more choice. I think a lot of people to certain verticals, certain segment of the market that don't want to go to Amazon. And it gives them one more choice. And in some ways, Microsoft has given a few more options to us than AWS, especially on the business and consumption side. You can use your Azure credits to buy Nutanix' licenses. In AWS, it's 2 separate transactions, one for -- one with AWS for the service themselves and then one with Nutanix for our licenses. You can still do that with Azure, but you also have the ability to consume it directly with your Azure credits. So a bit of a closer partnership, but at the end of the day, it's mostly about customer choice.

I mean, that's very clear. I guess, so let's double-click on some of that in a minute, but I've got a question come in. I want to keep the audience happy. So it's about the competitive dynamic versus VMware. So how is that evolving in win rates? And how do you expect that to trend?