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

Ladies and gentlemen, thank you for standing by, and welcome to the Nutanix Tech Talk: A Deep Dive on Nutanix Clusters. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Tonya Chin. Thank you. Please go ahead.

Thank you very much. Welcome to the Nutanix Clusters Tech Talk. This call is also being broadcast live over the web and can be accessed in the Investor Relations section of the Nutanix website. I'm joined today by Monica Kumar, Nutanix's Senior Vice President of Marketing; and Madhukar Kumar, Nutanix's Vice President of Product Marketing, who will be joining us for Q&A after the session. We'd like to remind you that during today's call, management will be making forward-looking statements within the meaning of the safe harbor provision of federal securities laws regarding the company's business plans and objectives; expectations regarding products, services, product features and technology that are under development; competitive and industry dynamics; potential market opportunities and other business-related information. These forward-looking statements involve a number of 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. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update or revise these statements after this call. For a more detailed description of these risks and uncertainties, please refer to our annual report on Form 10-K for the fiscal year ended July 31, 2020, filed with the SEC on September 23, 2020. Copies of our SEC filings can be obtained from the SEC or by visiting our IR website at ir.nutanix.com. Finally, a supplemental slide deck can be found in the Events section of our IR website, and these will be the slides that we're referring to during our presentation. As a reminder, no financials or projections will be discussed on today's call, and we thank you for your cooperation in advance. And with that, I'll turn the call over to Monica. Monica?

Thank you, Tonya, and hello, everyone. I'm really glad to be here, and thank you for joining us in your time. So I'm going to start with Slide 3. Obviously, the global pandemic has accelerated the digital transformation time line for many organizations. Plans that were laid out over months and years are now shrinking to weeks and months in order for these organizations to survive and also thrive. If you remember, Satya Nadella of Microsoft famously said I think 2 quarters ago that they have seen 3 years' worth of digital transformation now taking place in just 2 months. So while companies are obviously focusing on cost reduction, they also have to innovate at the same time, right? They have to do things differently. We all have to do things differently to reach our customers and our partners and employees. So from things like remote teamwork and learning to customer service to critical cloud infrastructure services, we are now working alongside customers every day to help them stay open for business in this world of remote everything. Now 5 years ago, if you talk to a CIO, they most likely believe that the most important skills that they have to possess is technology know-how. Today, if you talk to a CIO, and there would be many of them, they believe it is contributing to corporate strategy. In fact, 80% of CIOs believe their role has increased in importance over the last 5 years. So when you think about the digital transformation, there are 3 key pillars that matter the most, and those have been driven by IT today. The first one is revenue growth. The second one is customer experience. And the third one is employee experience. Now let's look at Slide #4, right? Every single industry has been impacted this year. Clearly, the future of certain industries have changed forever. How many of you have kids that are going through hybrid learning? And who has had appointments to the doctors over Zoom, right? And what about the work? How many of you have had to quickly look for that stop video button, military comes running in or a dog decides to show up unannounced in the middle of a meeting? I even participated in actually a Zoom wedding 2 weeks ago. So clearly, whether future of work, a personalized education, health care, one thing that most experts agree on is that the future is not all at the end of a spectrum. Rather it's hybrid of everything. So to do that, obviously, it's clear the technology is enabling that. So if you go to Slide #5, technology that enables this hybrid everything work, it's clear that only cloud solutions can enable that constant innovation as every industry is navigating these changes and evolution. In fact, cloud is no longer nice to have. It's a must-have. It's an imperative required for business success. And we believe what customers made is a pack and a platform for hybrid and multi-cloud computing, and I'm going to spend the rest of the time talking about that and specifically Clusters. But if you look at this slide, and I've listed 4 steps here, you look from infrastructure modernization to building private cloud, with automation and delivering IT as a service to working in the public cloud with proven agility and building hybrid cloud. And then ultimately, having this nirvana of moving the right cloud to the right workload, which can all be operated as a seamless cloud from a single management plane. So this is the most common fact we have seen our customers embark on kind of like in these 4 phases of that: modernizing the infrastructure, automating everything and building private cloud to deliver IT as a service, bringing in public cloud to take advantage of agility for certain workloads and, ultimately, unifying private cloud with multiple public clouds in a way that the companies don't have to refill or rewrite applications or refactor them, and they can truly function across multiple clouds for business applications needs. So that's kind of a path, a common path we see our customers taking. So let's now talk about the platform on Slide 6, right? What is the platform for hybrid and multi-cloud computing? What does it look like? Obviously, I'm going to talk about this from a Nutanix perspective. But for a second, if you were to not think on Nutanix, what do -- what does an organization need to build this cloud platform? In our opinion, the foundation of this cloud platform should be hyperconverged infrastructure software. This is the Files within, of course, of the Nutanix portfolio, which we pioneered over a decade ago, and we continue to innovate and lead in this space. In fact, in the latest market share report published by Gartner, Nutanix is a clear leader -- is the #1 global market share leader for many, many consecutive quarters, recently with a 52.8% market share. But for over a decade, we've made infrastructure easy to deploy and manage, delivering efficiency and speed. We've enabled our customers to add scale with our downtime, so that they can grow and innovate quickly. And we've enabled the application of data easily and recovery from failures without disruption to business and enabling business continuity. So that's where we started. But if you look at what we've done over the last 3 or 4 years, our cloud portfolio has grown significantly. Not only do we offer and innovate on the digital HCI services, we now offer multiple data center services from storage like Files and Objects storage to DR services and backup services. We also now offer DevOps services. You can build cloud-native applications using Nutanix, using containers. You can deploy them on Nutanix. You can automate your application deployment using our DevOps services. You can even automate database deployment. So we offer database-as-a-service. And you can obviously automate, to a large extent, your infrastructure operations. So that's what we're calling a DevOps services sort of bucket. And then you see on the right-hand side on this chart, we continue to offer and advance our desktop services portfolio with VDI and Desktop-as-a-Service, enabling customers to run and do their computing on Nutanix platform. So these are the 4 major buckets or categories where we offer the product. And if you look at how we offer it now, not only can all of this run on-premises inside a data center but also in the public cloud. Our customers can build and run virtually any application on this stack at this point. And the way I'd like to describe this is that the whole is bigger than the sum of the parts. So today, Nutanix offers one platform application in any cloud, and the core of this cloud platform is the HCI software, which we have evolved to become the industry's first hybrid cloud infrastructure solution. So if you think about it, the HCI that we pioneered hyperconverged infrastructure is now evolving into becoming the hybrid cloud infrastructure solutions that many of our customers are now building their hybrid cloud strategy on. If you go to Slide 7. Obviously, the market opportunity is huge. And I won't belabor this point because I'm sure you've seen all kinds of numbers from different analysts' point. There's a huge TAM when it comes to both private and public cloud even separately, but just for hybrid cloud, IDC estimates a market of $96 billion in the foreseeable future. So this is a big phase that -- and we are excited to play a part in this with our latest and greatest solutions. Now let's go to Slide 8. I wanted to share with you some more data points about hybrid cloud and why that's really an important operating model for organizations and how it's becoming that. According to our 2019 Enterprise Cloud Index survey that we did, which is based on almost 2,600 IT decision-makers, 85% of enterprises continue to ramp hybrid cloud as the ideal IT operating model. We are going to be publishing the 2020 Enterprise Cloud Index shortly, and you will have access to the latest information from that as well. But let's look at what Gartner is seeing. According to Gartner, by 2021, over 75% of midsized and large organizations will have adopted a multi-cloud or hybrid IT strategy. Last but not least, on this slide, what I'm showing you is a chart. This is the result of survey we did with our own customer base in July of this year, [ and with that ], as large enterprise customers, and we found the following results. Only about 1/4 of the responders indicated a focus on a single public cloud, which means a lot of customers are already using multiple public clouds for different workloads. There was little to no adoption of hybrid services deck like Outposts, Google Anthos and Azure Arc. So that was, again, one interesting data point we gathered. And I'm going to why this has become important -- as you hear me talking about Clusters, why this data point is significant. And then the last one was multiple presets for management and orchestration are currently in use by our customers. So if you go to the next, Slide 9, I just want to talk about some of the challenges that customers are facing today and then pave it into our solutions. So there's a general consensus that both private and public clouds have the advantages. But for IT -- but for something, IT is usually at odds with each of these choices, right? So for something, a public cloud is good; and something, private, and usually, there's different reasons to choose. So for example, public cloud was built with an assumption that servers are disposable and will sale at some point. Private clouds are typically built around cost, control and compliance and resilience against failure. However, the new reality is that organizations are dealing with not just private cloud but both private and public clouds at the same time. And clearly, they are gravitating towards hybrid cloud operating model to get the best of both worlds. So let's go to Slide 10. So great. We've established the point that cloud is really the enabler of innovation. Hybrid cloud is the operating model. So then why is hybrid cloud so hard? Why is it not that customers are already ecstatic with the current solutions in the market? Well, let me tell you why it's hard and what we are hearing from our customers. So our customers tell us that there are several reasons for it's been hard today. So one, there are multiple tools for multiple clouds, which causes a lack of consistency in deploying, running and managing applications across clouds. So lots of complexity because of all these different tools for different clouds. Oftentimes, this causes cost inefficiencies. And finally, organizations have to face new-skilling their workforce when it comes to managing multiple public clouds. Work that you create something that worked in one cloud, you cannot move that as is to another cloud. So basically, you are now custom-creating and building and managing a one-to-one based on which public cloud you're using. You cannot reuse what you built for one cloud on another cloud. According to Gartner, what they have found is that integration work will account for more than 50% of the time and cost of building the digital platform. That's where IT is spending a lot of time today and resources in building and managing these platforms that are custom-built, handmade as opposed to actually using them, right? If you just build and manage, like when will you have the time to do what you built the platform for. And we believe that looking under the hood is a vital step for organizations in delivering the digital transformation. They have to find a way to build this hybrid integration platform that can power their digital transformation journey. So let's go to Slide 11. So what exactly is needed then? So today's hybrid cloud solutions are hard because they are handmade. They don't work across multiple clouds. They're inefficient. They still require a lot of DIY from IT. So there are a number of existing solutions out there, but again, our customers tell us that they really want to connect from their private cloud, not just to one public cloud, but now a strong need for connecting to multiple public clouds. And what we call this is a true hybrid and multi-cloud ecosystem, which requires a few things to work: number one, the ability to connect to multiple cloud; number two, a single management plane that can manage all the workloads across these multiple clouds, including the data center; number three, it's the ability to create and manage workloads and apps that are portable and movable around the cloud, that is really important; and finally, which is, again, last but not least, built-in cost intelligence to make sure there are no cost-overrun to inefficiencies while our customers work with different clouds. So if you go to Slide 12, what I said in 11, I'm just going to sum it up. Our customers want to have the optionality, the choice and mobility, so they can choose the right cloud for the right workload and move workloads anytime they want to without rewriting applications or going too costly in managed services engagements. So let's go to Slide 13. This is where Nutanix Clusters is our answer to the market for this true hybrid and multi-cloud solution. So let me just spend a few minutes talking about what Cluster is and what it enables. So Nutanix Clusters enables enterprises to run the same exact Nutanix HCI AOS Cluster, right, that they have on sensors now. They can run the same of their Clusters now in Amazon Web Services bare metal and Azure coming soon. Our Amazon Web Services solution is already generally available since mid of August, and Azure has unlimited preview at this point. These Nutanix Clusters will run on bare metal instances, and we manage via Prism, which is, again, our management console across private and public cloud, providing really identical functionality to on-premises aaS environment. Customers will be able to leverage their existing AWS accounts, the credit, which is VPCs, VPNs and direct connect configuration, all of it without making any changes to it. As a result, customers get a full enterprise cloud experience without having to deploy or manage data center infrastructure, and they get the elasticity for on-demand bursting, mobility of apps so that they can write one and run anywhere and then the optionality of license and operating model. The beauty of Nutanix Clusters is it allows customers to move data, I mean, applications data and license across cloud. It's really important to understand that. Customers can bring their own license, but they have been using on-premises and use them on AWS bare metal and at some point soon in the future, on Azure. So Cluster is not just another hybrid solution that connects one private cloud to one public cloud. That's the big difference. Cluster gives our customers the optionality and mobility so they can move any workload anytime they want to do multiple public clouds. So let's go to Slide 14. This hopefully is evident by now that Cluster is based on the foundation, our core HCI process. We've been doing this work like over a decade now. So this is not something new we just cooked up. This has been in the works for a long time. Because of our superior architecture on-premises, it was really easy for us to make the same exact hybrid cloud infrastructure available now in the public cloud based on the same core HCI software, but now we evolved it to be, as I said earlier, industry's first hybrid cloud infrastructure. The beauty of this is that our customers can now run the entire Nutanix portfolio of solutions that I talked about, which we call the 4 D. So the first is your digital HCI, which is a hybrid cloud infrastructure, and our customers can now do data center services, DevOps services, desktop services, all of these can be now run in public cloud. And they can run database as cloud-native apps, consolidated storage, clear DR zone and do a lot more by adopting this hybrid cloud infrastructure from Nutanix. Going to Slide 15. Again, just to show you in a graphical format, if you could see inside the Azure and AWS cloud, you see the entire 4 D that's running. So the process, we've brought all the features, attributes and goodness that IT teams are used to in a private cloud to at least these 2 public clouds, and we are working on more in the future as well. So for now, it's GA in AWS. It's in limited preview with Azure. And we have a solution that we've been working with Google on through something we call a Test Drive, which is today running on nested virtualization. More Google, this came out to be a bare metal service, so we are now looking at supporting Nutanix Clusters also on Google bare metal and what that could mean. So if you go to Slide 16, I briefly want to walk through the 2 use cases and target workloads here. So if you think about the use cases for hybrid cloud, lift and shift is a big one, where customers have been sort of holding back and not moving some of the business-critical applications to cloud because it just seems onerous in terms of the complexity of the move. In many cases, they would have to rewrite the application, or if it would be too complex to manage, it would be in a silo. But with Nutanix Clusters, as I said, if they are moving it exactly on the same, but there's now Clusters in the cloud, they don't have to rewrite anything. So we make lift and shift of even business-critical applications really easy for customers because there's no code change, and it's exact same environment and skill set. On-demand elasticity is another use case to burst capacity. As an example, when we first started working from home, right, during this COVID outbreak earlier this year, many organizations were left grappling with how do they spin up now thousands of employees to work remotely. A lot of organizations wanted to burst capacity with their VDI solution, for example, or Desktop-as-a-Service. And that's where public cloud came in very handy for many organizations. So that's another big use case that we enable is burst capacity elasticity on-demand for DR, for any other workloads. And then business continuity, of course, is a very important one. Lots of organizations are looking at creating their DR site right back into public cloud. So they will continue to operate on-premises, but in case of a disaster, they want to spill over to an instance in the public cloud. And then the fourth option is use cloud-native services, which means there could be many ways to do it. It could mean building net new applications on the cloud within all cloud-native services. It could mean extending your current application that you may have lifted and shifted to a public cloud now by using cloud-native services and extending the capabilities of those current applications. So these are some of the previous cases we enable with Cluster. On the right-hand side of the chart, we see 2 workloads mentioned. Obviously, we're enabling many more workloads. So you can run now data basis or high IO-intensive applications. You can also run VDI, virtual desktop infrastructure, in the cloud as an analytics application. As I say, we can build cloud-native apps and deploy them. And there's a long list of other apps, enterprise applications that we can now run with Nutanix Clusters in a public cloud, in a hybrid cloud model. So I'm going to give you, on Slide 17 and 18, 2 very specific examples of customers and what they're doing with Nutanix Clusters today. So on Slide 17, the first one is Penn National Insurance. It's a big auto, home and a business insurance provider, operates in 10 -- most of the states in the U.S. on the East Coast. They currently we have 11 Nutanix nodes with some of them who use the DR, and their biggest challenge was expanding their DR capacity because they were increasing their video workload on-premises. Obviously, with remote work kicking in, a lot of customers had to expand their video environment, but they wanted to make sure they have the DR and spillover environments for their virtual desktop infrastructure. So they are already using AWS and wanted to expand into AWS with new DR capacity instead of adding it in the data center. But they were concerned that if this is beyond AWS, is it going to be expensive than we are on-prem? So our team showed them how easily, first of all, they could connect the existing Nutanix on-prem node with AWS account. So that was a breeze. We also, since have brought up the AWS cost optimization concerns, we were able to immediately show them the integration within Clusters and a Nutanix tool called Beam, Beam can easily identify, manage and optimize the cloud spend for customers and with visibility into cloud spend. So literally, in our worth of -- proof-of-concept call, we were able to get them to set up both with Clusters and Beam for cost visibility. The next day, they had already started to act on Beam's cost-saving recommendations. So that was the beauty of this conversation, combining it with not just setting up a hybrid cloud but also looking at the cost optimization of the hybrid cloud. So at this point, they are using both Clusters and Beam and were able to solidify the hybrid cloud solution, ensuring the peace of mind to expand easily to AWS when they needed it. In addition, they're also using Flow for microsegmentation, Prism Pro for automating infrastructure operations, database-as-a-service. And they're more recently looking at expanding the Era 2.0, which we recently announced, to manage their databases, both on-prem and on AWS. The point of this case study that I want to really make sure a promise that the hybrid cloud conversations that we're having are opening growth for our public cloud cost-optimization capability and for also other products in our portfolio. And the cloud-optimization tools that we have as part of Cluster is really helping customers solidify the cost-intelligence benefits for the hybrid cloud. Let's go to the next case study, which is Australian Bureau of Statistics, which they do a census survey every 5 years, which comes close to 10 million households and approximately 24 million people. Now the next census is coming up in 2021. As you can imagine, this is very seasonal in nature. The census is seasonal in nature, and every few years, it demands large IT capacity, which was not ideal to keep on-prem, [ the IT that's ] been used for many years. So they really wanted to use public cloud to burst stability and keep critical workers on-prem. They chose Nutanix Clusters to build their hybrid cloud. As a result, they have now established hybrid connectivity between on-prem and AWS, and they're also looking at Azure, by the way. And they're able to burst their VDI workload into AWS without adding any data center footprint. They chose Nutanix for simplicity, for on-demand burst capacity without data center expansion. So the ability to manage all of this private and public cloud computing infrastructure from a single plane. And last but not least, a very important point was to maximize their investment by migrating existing licenses to hybrid cloud. They were able to repurpose the existing on-prem licenses and use it in the cloud. So let's go to sum this up now on Slide 19. So you would ask me, "That's all great, but how is Nutanix different? What are you all doing that's different than the current solutions out there?" So in addition to the fact that we can connect multiple private cloud with multiple public cloud, here are few things that I want to highlight. So number one, with Clusters, our customers can reuse their existing AWS accounts. So there is no need to get a new account or work go through reconsidering a new account to match your policies and identify management. Basically, we don't have to spin up a customized AWS account in order to use Nutanix Clusters. So we seamlessly integrate with customers' existing AWS accounts. Number two, currently, Clusters is offered as a self-service environment. So it's entirely up to our customers to control on how and when they want to go into the cloud. They can deploy a Cluster on public cloud literally in 2 steps in less than 1 hour, and they can move the apps and data and license. And tomorrow, if they decide they don't want it, then they can bring it back. They have the freedom of choice with Nutanix Clusters. With some of the other offerings out there, it's a very constricted, restricted offering where it's fully managed services, and there's a one-way street, you can't really bring things back. And also, you have to -- you cannot use the existing AWS account. Number three, unlike some of our competitors, Clusters does not require any overlay network to connect to AWS. This is very important because not only does it introduce complexity, but it can introduce latency in how the applications performance works. In our case, customers can set up a new or to continue their existing VPCs with the private cloud with simple clicks. So basically, Nutanix Clusters can run inside customer's AWS VPC. No reason to add any other overlay network to connect to AWS. And the number four reason here is with Clusters, our customers can reuse existing on-prem licenses on cloud. That's a really big deal. That's true portability, in my opinion. I think most often, we focus on apps and data portability and mobility. We don't -- we forget about the license portability. But especially in today's environment, so many of our customers are thinking about converting CapEx to OpEx, and Nutanix actually gives them a really great way to do that, is to have them reuse their licenses in the cloud. And finally, we have a feature called hibernate, which is built into our solution that enables our customers to pause their workload and only pay for storage when they're using it. So this physical side of it is very important. It's a new feature that we've built into our Nutanix Clusters pack. It really gives customers a great way to pay for only what they use and also control their costs. In addition, this solution is also integrated, as I mentioned, with Beam, right, which is a cost-governance tool that allows customers to manage costs across all clouds. So these are the 5 key ways we are different in how we have enabled customers to really use hybrid and multi-cloud solutions. Now what I want to do, I wish we could have shown you a real demo, but we have some screenshots. So let's go to Slide 21. I think it's 21 to 24. I want to walk you through -- if you were today doing a Test Drive or we were giving you a quick demo, this is what you would go through. First, we would show you how easy is it to create a Cluster in a cloud. Customer goes into the UI of Nutanix Clusters. They add their existing cloud account. Most of the customers we are talking to already have AWS accounts, right? So all they have to do is through the UI, they log into AWS to add their existing cloud account, so Prism can access it. They can actually use Prism. They choose the kind of demo method they want to run Clusters on and the existing VPC they want to connect to. And within 45 minutes or less, the Cluster is up and running. So basically, our customers have created a hybrid cloud in less than 1 hour. That's how easy it is literally to do that. It's as simple as that. Next, on Slide 22. As soon as Clusters is set up, customers can use Prism. The Nutanix admin uses the UI to manage virtual machines, containers, storage, network, security and all of the infrastructure operations and all of the Nutanix public and private cloud Clusters. It's really that simple. You get a single management plane, and they can start moving apps and data using VMs and containers across the hybrid cloud. So this is what it would look like. This is, again, what we would show in a demo with interface of Prism and how they can see the Clusters, they can decide that they're going to move a Cluster now into AWS. They can do this from Prism. Slide 23. You can see, again, we show you here how the UI looks like in terms of cost governance just as the built-in integration with Beam, which is a cost-governance tool, that immediately gives our customers visibility to all cost metrics across all clouds and offers recommendations on what to do in order to reduce costs right away. And then the fourth built-in structure is the hibernate that I was talking about. That's what this looks like. It allows the customers to put Clusters to sleep without losing any data. So they're not paying for expensive compute and networking costs when their workload is not running. When they want to restart, they come and restart, and it starts right from where they left off. So if you were to do a demo, this would probably take 5 minutes, and we would show you exactly these 4 slides I just went through, from 21 to 24, to show you how easy to set up in an hour, how easy it is to move the apps and data to your virtual machine and containers and how easy it is to actually get cost visibility and then hibernate to pause Clusters and only use when you need it. So let me summarize on Slide 25 now. I know I went through a lot. And I always talk quite fast, but I'm hoping I made all my points come across. So in summary, private cloud solutions, we believe, need to evolve to support market cloud. Having a hybrid cloud that's a one-to-one mapping from one private cloud to one public cloud is really almost like a vendor. If it's still -- it's locked in. It's locked in for customers. It's hand-constructed. It doesn't allow for the freedom of choice and optionality to customers, right? So existing solutions then do not address customer challenges around cost inefficiency, lack of choice, mobility and portability of apps, data and license. We believe that Nutanix Cluster is the first of its kind that bridges private and public clouds in a simple, seamless way that has cost intelligence built in and enables true portability of workloads across multiple private and public clouds. And then the last point I really want to hit even harder on is we were the pioneer in HCI category a decade ago, and now we are creating this new category called hybrid cloud infrastructure, which is really a seamless transition from hyperconverged infrastructure on-premises to building this backbone for hybrid cloud for customers. On 26, if you want to get your hands on this, it's really easy. If you want to Test Drive Nutanix Cluster, you can go to nutanix.com/testdrive/clusters and basically get a self-guided walk-through experience of the entire way of building a hybrid cloud, connecting to AWS, being able to manage it with a single plane, see how easy it is to move apps and data and see the cost visibility that you can get -- and governance and intelligence that you can get built in. This is a completely free experience. It's 0 cash. All you need is a browser, no hardware, no software, no cost to any of our prospects and users who want to try this out. In addition, we also offer a 30-day free trial of Nutanix Clusters. That's available on AWS bare metal. And today, we've seen almost 1,500 Test Drives taken for Clusters and 200 trials sign up. So we've already seen great momentum, people wanting to try the technology and getting their hands on it. As I mentioned earlier, the Test Drive that we've built in the last year all run in GCP, today using nested virtualization. And we are now -- now that they are -- we have a bare metal offering, we're looking at the bare metal offering to see how we can also support that as well. So that's it for my prepared remarks. I'm happy to take any questions. Madhukar is going to join me as well, so we can answer the questions together. And of course, Tonya is here, too. Thank you for your time.

Thank you, Monica. I was just going to turn it over to the operator, so we could get to Q&A.

[Operator Instructions] Your first question comes from Aaron Rakers with Wells Fargo.

Yes. I guess the first question I just want to ask is can you just walk us back through how this is priced, the subscription model? What's the typical terms that you're seeing customers kind of think about for Clusters' deployments? And then as it relates to AWS, I believe in August when you introduced or announced it, I think there was 20 regions available. Just give us an update of where that stands as far as expansion with AWS? And when do we expect Microsoft to go GA?

Sure. Let me start with the pricing model, and Madhukar can chime in. There are 3 ways for our customers to subscribe to Nutanix Clusters. One, as I said, which is the really product is just completely bringing your own license. So customers continue to bring their subscription term licenses from on-prem into the cloud, and that's one way. They can also select the pay-as-you-go pricing model, right? So only pay for what you got -- what you use, which mirrors the public cloud consumption model. And then the third model is a cloud commit model that is they know what their consumption would be. They can come in for a certain term, a year -- for example, a year's worth of term, and there would be volume discounting based on that. So those are the 3 sort of models: term-based license; pay as you go, which is an [indiscernible] physical; and cloud commit, which is a 1-year term with some volume discounting built into it. The second question for you was about availability.

Yes, AWS and GA at Azure.

Exactly. So AWS's GA, I don't know whether we know about the -- we already is available in 20 regions around the world. I don't know if -- what the expansion plan is. Madhukar, you want to add to that?

Sure. So in terms of region's availability, we support anywhere that AWS supports their bare metal. So if you think about it, really, when our customers go in and create a Cluster, they're choosing a bare metal. And wherever bare metal supported by AWS, we support that as well. And then the third question, I think, was related to GA with Azure. So we have been actively working very closely with the Microsoft team, the Azure team, and we are currently in a selected technical preview. And we are very close to public availability of preview as well. And then right after that, we'll be going to GA. So I cannot give you an exact date, but it's -- we're looking to get to it very shortly.

Yes. I'd just add to that, that because we know how important Azure is to our customers, so this is something we are working on actively.

Our next question comes from Alex Kurtz with KeyBanc Capital Markets.

I just wanted to follow up on what Aaron -- a lot of question Aaron just had. When the sales organization is going in to talk to customers about a new subscription for on-prem, whether it's a 1-, 2- or 3-year deal, how is Clusters being included in that discussion? Is it kind of coming in afterwards after they decided to deploy on-prem and want to have this ability to flex to the cloud? Or is there some bonus or accelerator to include this in the mix as the reps go to market this year? Just trying to understand that kind of like the sales force motion with this product and how it relates to your existing on-prem selling motion.

Sure. I mean as we all know, the cloud has now become part of every conversation, and when I say cloud, I mean public cloud, hybrid cloud. So there's no longer permutations only spanning on-prem data centers. I mean there are very few of those, if any. The fact that we now have a real offering in the market which is publicly available, it gives our sales reps a great conversation starter and also help customers think a long-term plan in where their workload may reside. The beauty of Nutanix is they don't need to know today what workload is going to run there, right? They can decide as they deploy those workloads and decide on the fly, "Hey, I want to run this in AWS yesterday." They don't even have to come back to us. So the way our sales team is really using Clusters for any new conversation, it's a deployment mechanism, right? Cloud is an operating model. So now from the get-go, our sellers are able to position like, hey, just like you could run Nutanix on HPE, Dell, Lenovo, other servers, you can run -- now run Nutanix on AWS and soon on Azure and on and on. So it's becoming part of the conversation. It actually opens up many more doors for us than it ever did before because many customers are looking, as we said, to support hybrid and multi-cloud models.

Monica, just as a quick follow-up, is there a scenario where a subscription renewal is coming up and the customer has made an investment in Nutanix before, and there's some way to transfer the value of their existing on-premise, let the device into this product somehow where they can kind of be able to capture some of the value they've made already in the platform and kind of move the license over to the cloud? I guess the cloud mobility between on-prem and off-prem, like can you help describe that a little bit more?

Yes. So what I'm saying is, look, so life of device to term-based license consumption, that's already happening, right? We are actively working with our customers to explain and make them understand why the term-based is better for them. That's happened naturally. So let's say -- let's talk about a customer who already has a term-based license on-prem with us. What I'm saying is they don't need to do anything to come to us to move it over to cloud. They can use it without even letting us know. And so that's one of the duties of Clusters is it's all the customer's choice. They can take their value of Nutanix on-prem today and turn it into value in the cloud. It's all on the customer. We give them 100% choice to do that. I'm hoping that's clear. Like there's no additional -- yes, I think they need to do with us for that.

Your next question comes from RK with Goldman Sachs.

So you have the ability to connect to multiple clouds with a single management frame and also have portable apps. So my question is around what comes next. I know you talked about the trials with Azure and doing that Google as well. But from a technology point of view, what's the next big milestone that we should be looking forward to in hybrid cloud position?

Obviously, expanding the support for different public cloud is very important. So as we talked about AWS and Azure, Google, we are also in discussions with Oracle. You're going to see a lot more of public clouds running the ability to run Nutanix stack. Obviously, that's one. I think secondly, it's really also focusing on the cloud-native technology, right? Many of our customers are obviously now sort of choosing between virtual machines and containers and not containers, not just for deploying infrastructure but also for developing applications built in the cloud and then deploying them in the containers. So you're going to see a lot more of discussions coming out of Nutanix around platform services sort of going up the stack now, up the stack from infrastructure in the cloud. So I talked about Era very briefly, database-as-a-service. That's a big, huge challenge for customers who are using heterogeneous databases. Today on-prem and in the cloud, they have so many different complex environments to deal with. So what you're going to see with Era, we actually have a beautiful tool that can provision multiple databases with single click, single management, again, back them up, provision clone, patch, everything. You're going to see us move more and more up the stack, as I'm saying, to more of the platform services. And that's going to be the next step on Nutanix is to start creating a fuller portfolio of services that we offer for customers.

That's very helpful. And if I could follow up to that. I like the slide that you showed the differentiators you had with your competition, about figure on Slide 3, existing AWS accounts or subscription environment or not having your own network. I was wondering if you could double-click on those things to help us better understand why those things are important for customers, how much would the impact be.

Yes. Since I already went to that, let me hand it over to Madhukar to take a crack at it. Madhukar, you want to take that one?

Yes. Absolutely. I think it comes down to a lot of reasonability, right? So if you have an existing AWS account, typically, over a period of time, you put a lot of configuration, and you set up things based on the policies of the organization. You set up identity access management and all of that. So if now you are posed with the choice of either using what you already have or starting from scratch just because you want to do hybrid, it's a huge effect. It has a huge effect, both in terms of personnel overhead, skill set as well as also cost because now you have to go and redo all of that. So that's just one example. The second, just to double-click on what I really want to make sure everybody understands is the hibernate feature. If you think about public cloud today, it's really, the program and paradigm is very different than what it is for on-premise. Just for example, in on-premise, you don't build out an application thinking what will be my cost if it's running at night. But if you're running something in public cloud, whether it's been utilized or not, you are paying for that application, both for network as well as for compute. So it's really important for IT organizations to have visibility into what is your cost and to have more control over how you can put that to sleep. So literally, the hibernate is like that laptop sleep. But when you go in, and you realize that you are not using your application at night or certain times of the day, you can hit the button, and it hibernates, and it saves all the state of the information. And so you're not paying for it. You're only paying for storage, which is cheap. And when you want to reconvert, you just hit the unpause button and you're up. That, I think, is the second huge differentiator. The third thing is today, we want to create something between -- or a bridge between your -- your on-prem as well as public. If you add an overlay network, which is what a lot of our competitors are doing, it adds overhead again to personnel cost but also overhead to network because now there is something in between your network as well as Amazon's or AWS's VPC. What our engineering team was able to do is to create a direct integration. So you don't really need professional services. All you do by yourself, go in, add your AWS account, and it shows you all your virtual private clouds in AWS. Pick one that you wanted to be part of and you're up and running. And that's also huge, again, not just because it's convenient. It is huge in terms of cost benefits as well. And then finally, I think the thing -- the one other thing I would call out is portability that Monica touched upon earlier. That portability is not just across that you write once and you run it everywhere, but it's also across your licenses. So if you have a Nutanix license on-prem, you move it around and move it to cloud today, and later on when you have additional clouds, you can move that same license across different clouds, and you are not having to go in and have talk to sales or pay more money for that. So I think these are 4 or 5 things that truly differentiates what we have done.

Your next question comes from Nehal Chokshi with Northland Capital.

You mentioned some Test Drive metrics. Can you just repeat what those were again?

Yes. So what I said was we have seen great momentum already of our Clusters offering, we've had approximately 1,500 people take the Test Drive for Nutanix Clusters specifically and approximately 200 free-trial sign-ups already that we are seeing. And this is only the beginning, like I said. It's still early as Clusters and AWS in GA, but we are pleased with the momentum we are seeing thus far.

Okay. All right. And these people who are taking the Test Drives, are these typically new customers? Or are they existing customers?

They're mixed. Obviously, a lot of our existing customers are very interested because of the bring-your-own-license capability that we offer to customers without them having to pay an extra sort of penalty to moving their Nutanix license to the cloud. So we've seen a lot of current customers very interested. The survey I showed you all, I think -- I don't know if you remember, it was one of the earlier slides, was our customer base survey. We had I think close to top 100 customers respond. These are like big enterprises. And as you can see, we're already using a lot of different public clouds, and they would like to use Nutanix on the hyperscalers as well.

Okay. Great. But why can't other guys like VMware would have another Sheppard Mullin APIs to enable the portability that Nutanix has with Clusters?

Well, I can't answer for them why they can't. I can just tell you the way -- for example, VMware has a structure, by the way. And that's -- it's a fully managed service. So what your offering is kind of like a black box to customers, right? They have handcrafted everything, and the customer has to subscribe to a different AWS sort of zone. It's outside of customer's VPC. It's really not connected to anything the customer is doing. It's a handcrafted one-to-one mapping, like one private cloud to one public cloud mapping. So as an example, if, let's say, a customer is going to subscribe to the VMware service on AWS, they can't really move. If they all they decided to move to Azure now, even say with VMware, that's going to be a complex migration. There is no -- because of the way it's been customized and how they develop it. Now why did they do it this way? I don't know. I guess we should ask them. I think services are included. It's a fully managed environment. It's a different cost structure. But it's not conducive to, as I was talking about earlier, the portability of the apps and licenses and the freedom of choice and optionality to customers where they can move any workload to any cloud when they choose to, and they -- where they can get visibility in the process of, I need to shut this down. And if you bring us back on here, you can move this workload there. You just can't do it with the way that solution has been put together.

Right. Maybe another way to ask the question is that why is Nutanix able to leverage bare metal APIs? Do you have anything to do with, a, using the HCI OS as a substrate for enabling the hybrid cloud? And/or does it have anything to do with Nutanix's HCI OS being more of a borne out of a scale-out architecture versus most of the other vendors HCI offerings being one as a a scale-up architecture?

Well, so let me have Madhukar address it in a moment, but I'll tell you this. I think this also goes back to our design principles from day 1. It's always been about freedom of choice. If you look at how Nutanix is supported, even from the very beginning, multiple hypervisors, servers or multiple clouds now, we are all about the same thing, the availability of solutions to customers and really making it as easy as possible to meet the customers where they're at and have them protect their investment. So that's always been the design principle of our technology solutions. Madhukar, if you want to add anything specific to the architectural point of view.

Yes. So I think exactly what you said with a little bit more context in the sense, if you think about how you create an application, how you manage an application, it consists of 3 or 4 basic ingredients, so to speak: you need a virtual machine, you need a container, you need network, and you need storage. And over a period of years, we have really honed in into how to make that very simplistic and make the underlying layers completely invisible for our customers. So if you want to create an application or manage your application, whether it's virtual machines or your containers, the HCI platform does it beautifully. Where if you want to now run it on a Dell server or an HPE server, it's agnostic to the application or to the environment that we have created. For us, the public cloud is now exactly the same thing. So if you think about it, you were running your entire Nutanix platform with virtual machines, container and stuff on 2 different kinds of hardware, now you have a third and a fourth kind, which happens to be bare metal AWS and Azure. So this is why it's the unique way of how we do things in the architecture that makes anything that you do completely portable because the underlying layers becomes invisible and agnostic.

Okay. Great. And then I just have one more question. What are your customers that have implemented Clusters that are testing it telling you as far as what is the TCO relative to other hybrid cloud solutions that they've looked at?

I think -- so I'll start, and Madhukar can add to it. I mean look, it's a little too early for customers to talk -- tell us about what TCO they are seeing. And each situation is unique. I think it depends. We have several customers using it for burstability, like burst capacity. And VDI was one example I gave you. DR is another use case. So sometimes, those incidents have to take place for them to actually realize the TCO offering, right, I mean DR event when it happens. But in general, the fact that they can actually take existing licenses and move over as opposed to having to buy new every single time right off the bat is a great thing for them, the simplicity of management. I mean some of these things, when you start looking at TCO, it's more than just the acquisition cost, right? It's about management costs. It's about reuse of existing investments. So in general, I mean, our customers are happy with what they have today, but I think it's too early to talk about specific TCO examples coming back, like the GA was mid-August. But I'm hoping in the near future, we'll have some more specific examples of TCO as well.

Okay. Just one other quick question. Where does the data go when a customer puts Clusters into hibernate mode?

Sorry, what's the question?

Could you repeat the question?

Where does the data go when a customer puts Clusters into hibernate mode?

Well, the thing -- the storage is still there, right? So when you put the Clusters into hibernate mode, right, you've stopped using the compute and the network resources, correct, and -- but you're still paying for storage. That's where your data is.

Your next question comes from Nick Heisler with SIG.

I'm Mehdi Hosseini. One -- probably got one you can maybe touch upon. When we talk about hybrid cloud, one of the applications that we've heard a lot about is kind of edge compute and use cases of bringing the cloud to the edge. And I wanted to go back to Slide 11 and talking about the management plan and kind of the role of having this overview on -- over the hybrid cloud. And I was just wondering, when you're thinking about like HCI as a -- and bare metal, should we be thinking about those other hybrid cloud applications to also be looking to incorporate HCI? Or will the version of hybrid cloud at the edge look different than, let's say, between on-prem and in the cloud?

So I mean, look, ultimately, this is about connecting multiple places where computing is done, right, on-prem, data centers, remote offices, branch office, public cloud extensions that customers have done it. So definitely, I know we didn't use the word edge here, but it's absolutely a use case that Nutanix has enabled for many years. If you look on Slide, I think, 6, we talk about remote office ROBO, which is remote office branch office. And that's kind of like what we called it before edge became a very popular word. So remote office, branch office is kind of like an edge computing use case, right? I mean with edge, you can expand it to -- on transportation shifts and banking offices, et cetera. So we believe the whole notion of the edge to core to cloud, it's all part of what you see in the Slide 11. You could absolutely have your remote offices and edge environments be connected to your on-prem data centers and/or your public cloud environment using the same Nutanix technology, same for HCI, hybrid cloud infrastructure. I mean there's just different application requirements there.

Yes. Maybe kind of rephrase the question, and that will be all. When I think about the various workloads that hybrid cloud enables, does HCI specifically work for certain types of workloads? Or is it the simplicity that really makes it about that?

Well, so HCI initially started out as an optimized infrastructure for any of the computing workload, which was all about adding scale in bite-size chunks to quickly -- is the ability to quickly scale up and have really simple management quickly. Very soon after, HCI became more popular for database and business-critical applications over time because of its resiliency, again, the scale-out architecture, the fact that we can have one-click provisioning of software without downtime, the fact that we can easily spill over, the fact that security is built into the platform. So today, what we see HCI very popular for is, of course, VDI, databases, enterprise applications. But also, almost about -- and I think I'm going to say the wrong numbers, I won't say a number, but a large percentage of our users are also running what we call remote office, branch office workloads on HCI. It's a very popular use case because, again, what happens in the remote office, branch office is you need a scaled-down version of your data center into that branch office, which connects back to your data center. So the form factor for Nutanix solutions is very uniquely applicable to those as well. So what I was trying to say is that now if you think of the new edge environment, your older construct of remote office, branch offices are also edge. So those are absolutely very valid use cases that can work on Nutanix. So I don't know, Madhukar, if you want to add to it. Sorry, I'm kind of saying the same thing again.

Yes. I'll add a different dimension to it. So for us, if you would think about that edge, it depends on a number of different devices, where you could also -- Monica is 100% right for ROBO, but also, there are devices that are miniaturized and sitting completely outside of the data center. And for us, HCI is the infrastructure that allows you to create workloads, and then these IoT devices become an endpoint where you can run it, or you can even call it a run time where you run it. So earlier, a couple of months ago when we announced Cluster, we also announced a solution that enables you, which is, for us, it's Karbon Platform Services, to take your application, a micro-services-based application, and you can choose to run it to a different endpoint each time. And this endpoint could be a public cloud. It could be, of course, a Nutanix endpoint as well. But you could also choose to run it on an IoT device as well. So to bring it back to the question you asked, I think for us, the IoT edge is one of the endpoints where you run it. The HCI is the substrate that allows you to go create this application agnostic to the underlying layers from that perspective.

And operator, I just have one final question that was e-mailed into us. So Monica and Madhukar, from our friends at Cowen, they were wondering, does clusters enable wider use of network microsegmentation for customers looking to improve security?

Yes. Madhukar, you want to take that one?

Yes. So microsegmentation is -- so this is how I would put this. Clusters enable us to run the entire Nutanix stack on different public clouds, and it becomes agnostic to what bare metal that you're running in. So any product that is currently part of Nutanix that includes microsegmentation will also work identically on any of the other platform that we choose to run. Now having said that, there is obviously a lot going on with our product development piece as well. And we -- if you've heard our announcement, we're adding additional features like ability to create virtual networks and so on. And as we do it, I think the key takeaway there is it's added back to our platform, and that platform is now available to be running on multiple different public clouds.

Great. Thank you so much, Madhukar. And with that, I'm going to turn it back to the operator. But thank you, everyone, for joining, and we look forward to each quarter. So if you have any ideas for content on what we spend our time for Tech Talk, we're always open to hearing from you. And with that, I'll turn it back to the operator.

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