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

And I'm going to put you your names that close, the new incoming CFO. So welcome to both of you.

Thank you for having us.

Yes. Rajiv, obviously, a long-time industry participant, a very well-respected manager at VMware, and so you're no stranger to this, not your first rodeo in this kind of business.

No. Not at all.

And Rukmini You've been around Nutanix a long time. So I thought I would kick off, Rajiv, with just a question to you related to that. You've been in the seat now almost 2 years, what have you learned? What's different about the company than you thought coming in? And maybe just kind of catch us up on your reflections on the business now, if you would.

Yes. Can you guys hear me? Okay. So when we came -- when I came in, I think we established quickly a set of priorities for the company. I'll talk about 4 of those, right? The first was, we were in the middle of that subscription transformation going from a perpetual software or license device software to a subscription business. It is important that we get that right. We knew that renewals were going to start coming in, and we needed to be able to really show that the model worked there. So that was the first priority. Second priority was around simplifying the product portfolio. The third priority was around expanding and getting leverage through our partners. And the fourth was putting out a financial model where we could get to profitable growth. And the fifth is, of course, building our team and the team of people to carry this forward. So on the first one, if you look at what's happened over the last couple of years here, I think we are -- we've come past that need of the transformation to subscription, and we -- last year or this fiscal year that just ended for us was the first 2 testimony of renewals business coming in. And we were able to -- we had to put in place a renewals team to go make that happen and make sure that we could conduct those renewals at low cost, which was going to drive leverage to our P&L. So we were able to do that when we had a good year of renewals, and we've got more renewals coming ahead of us. So that is the first piece of it, and I think we're getting -- largely getting through that piece at this point. The second piece was the product itself. We used to go to market with 15 different products with different metering and pricing schemes. Complex for us to sell, complex work for our customers to buy and consume. So we've simplified that. Last February, we introduced a revised product portfolio which is much simpler to conceptualize and also for us to sell and buy around everything there is cloud infrastructure, which is everything to build a cloud. Cloud management, which is everything to manage a cloud. Unified storage, this is everything you need to store your data and then our one set-up services around database management, right, database-as-a-service. So much simpler. So we also -- it increases the velocity and upsize of the deals for us as well. Our leverage through partners important for us. We've announced partnerships with Red Hat, Citrix. Of course, we've got ongoing and deepening partnerships with Microsoft and HP. We are making good progress with those. And in the financial model, I'll leave that up to Rukmini. We announced it at the Investor Day and do you want to talk about that?

Yes. So I think, for us, the subscription journey has been an important part of what we've gone through in the last 3-plus years. And as Rajiv said, we are coming now at the tail end of that. And what that's done for us is now all -- everything we sell largely is all subscription term-based licenses, and so we've completed that part of the journey. We continue to build this base of renewals. And what that does for us is actually twofold. One is obviously, visibility, predictability because we had a term license. We know exactly when it's coming due, when it expires and we're able to go and renew those at very high growth retention rates of 90-plus percent, right? So that's on sort of the visibility piece of it, but there's also a leverage and efficiency piece because we're able to go and transact $1 of renewals annual contract value or $1 renewals at 80% lower cost compared to our new and expansion business. So we're now at this place where we have a renewal engine that's performing really well. And we are now going to go into the next phase of profitable growth, which has been sort of Rajiv's month since he joined to say, we're going to continue to drive growth while becoming sort of the sustainably free cash flow positive and operating profit generating company.

Right. That's a good segue into my next question, which is the earnings report because we had a big cash burn in the quarter. And obviously, that -- it was completely the other way around. You guys had a very positive cash flow number there, which by the way, congratulations on that. But I wanted to maybe dig into that a little bit. We provided ACV billings ahead of consensus. Like I say, the cash flow was $75 million to $100 million. I think we had forecast over $60 million of burn. So it was a huge flex on that number. Could you just walk us through what's going well? What's enabling this kind of performance? It's a tricky environment to be performing like that in. So just maybe talk us through that a little bit.

Yes. So I'd characterize sort of -- let's talk about first the growth piece of the topline piece of it and then come to sort of the cash flow point that you made, Rod. So on the top line, when we talk about our sort of '23 outlook and the guide that you're referring to, we thought about -- for 4 components or 4 factors driving it. One is renewals, right? And we've talked already a lot about that here, but the reality is, it's highly visible, it's highly predictable. And customers are running a lot of critical workloads on it. So it's unlikely that they're going to just sort of stop doing that, right? So we believe renewables will continue to perform well going into '23, and we also had a significant majority of the growth in fiscal '23 is going to come from renewals as that base grows. Second factor is new and expansion business. And while we expect those to also grow, we said that it's in that component that we factored in some conservatism as it relates to the uncertain environment, macro, you name it. So those are 2 sort of components. And then 2 other factors that can play into this, one is our backlog. We are a software company, but one of the things we saw coming out of Q4 was that a pretty healthy backlog. And again, we don't typically manage it, but given that level of backlog going into '23, that gives us some flexibility as we go through the rest of the fiscal year. And the fourth factor is supply chain, which, again, as a software company, was not something that had impacted us in any way, but what our server partners are seeing did have an impact on us in Q4 as we talked about in our earnings call. So that is an extraneous factor, one that we don't directly control. But what we've baked into our assumptions there is that, that stays mostly the same in the first half and then starts to improve in the second half of the fiscal year. So that was our sort of how we thought about top line and growth in top line for the fiscal year. Now to your point on free cash flow and just how the bottom line comes out to the $75 million to $100 million of free cash flow that we said we'd generate for the year, I think a few components. One, again, renewals leverage is one factor, but also we've been really prudent about spending, right, and how we think about where we invest and being very selective about that. And so that's played out, fiscal '22 was the first year we had positive free cash flow after we started our subscription journey in fiscal '18. So that was a great milestone, and we want to build on that in '23 and deliver the $75 million to $100 million.

Great. Okay. You guys are doing a great job managing segues for me, by the way. So I want to talk about the headcount reduction in sales to the cost discipline that you referred to there, Rukmini. Rajiv, I guess I'm going to address this to you. It's a lot of people to reduce. We talked about that during the earnings. I think absolutely the right thing to do. Clearly, the sales and marketing expense in this business has been too high, but just talk us through the execution risk there? How how do you manage that? How are you thinking about that?

Yes. First of all, we've been doing a lot of work to continue to drive up productivity, and productivity for new business while protecting the renewals business very efficiently. So we built a renewals team that's done quite well, low cost, mostly entry-level folks who will come in. We built that over the last year, and they've executed over the last year, and it shows in our renewals numbers. And on the new business, we've been working constantly to improve our productivity through things like the portfolio through better training and enablement and of course, through leverage with partners, all of that plays. Now as we look at the structural aspect of this, we have to have the right balance of quota-carrying sellers, sales engineers, channel folks, standard business development people, analyst fees and sales operations people. And what we found is we did benchmarking was that -- so we were fine on the rep -- sales reps, and that's not where we took any action really, right? So -- but we were overstaffed on some of the other aspects, right? And so we did the right thing in terms of rightsizing those to reasonable ratio for every account rep that we have. What do you need in terms of sales engineering capacity and channel capacity, and so we rationalize some of that to what we thought would be reasonable numbers. And so the continued focus here is driving up productivity, right? And I think we are -- and getting the cost structure to the right level. We also did some work on marketing. We've been doing that over the last couple of years to say, what should our marketing spend be as a function of revenue, and we are actually well within bounds there at this point. And we've done a lot of that by going digital by being more prudent about looking at investments and what the ROI is on those investments.

Great. One thing, just following up on that. I think a lot of people, just from a top level looking down, I just have a real job before I was an analyst at AT&T. And I realized coming into this job that many times we the investment community, we're just looking through a little keyhole. We don't really understand all the complexity involved with what you do every day, executing a business like this. And one of the things that a high-level person could say is, boy, we're headed into economic uncertainty here. They're reducing 270 people not sales reps, but supporting people doesn't that create a difficult execution situation, but I don't know if that perception is correct. And I wonder if you be willing to comment on whether it is or not.

Yes. I mean if you put it again, 270, by the way, is 4% of our total headcount, which is not -- it's significant for us, no doubt about it, but it's not at a point where we think there's going to be a risk to execution because we did this, right? The rightsizing -- and we're making sure, by the way, on the other side of this equation. We're doing better in terms of how we segment and where we apply our resources and where we map to where the market opportunities are, making our folks more productive, simplifying the product portfolio that they take to market. So we've been doing a lot of other work along the way, right, to make things better and more efficient so that we can do this with fewer people than we had before.

Yes. So probably, too simplistic of you to think about it that way. You've been -- this isn't -- you didn't just decide yesterday to do.

No, not at all.

Next question I wanted to ask, I guess, is on demand. We've -- so we have some proprietary indicators that suggest that demand in enterprise IT. Now this is capital spending, not necessarily software, but it seems to have some crossover into infrastructure spending is likely to continue to deteriorate. And in this earnings season, we saw a mixed bag of reports from companies. I'm sure you're aware. Cisco was fine. Others are not so fine. So curious what you think is happening with your end customers? What are they thinking in terms of spending? How does the demand environment look?

Yes. I mean, touch wood I would say. We have not seen a softening of demand for what we do with our customer base yet. Now of course, that could change if there's a true recession that happens. But fundamentally, I mean if you talk about what customers are doing? First, they're going digital. They're modernizing infrastructure, looking at clouds and continuing to work with the distributed workforce. And those things are continuing. We haven't seen a slowdown yet, and partly perhaps because we are still reasonably small. We are at $1.6 billion continuing and the market is huge, right? And we are also growing at the expense of simplifying and making legacy solutions more efficient. So in some ways, we're delivering good TCO. So we help customers reduce their costs quite a bit. And so that works in our favor. Even to some extent, we're not immune from a recession, but we're not fully impacted by it either. And we also have taken into account in our own guidance conservation. And we feel very solid about our renewals business, but when you look at the new business that we also have to land, we've been a little conservative in terms of our assumptions and what we think we can get, right? And assuming some level of conservatism in that demand.

Right. Right. But just haven't seen it yet on the ground.

We haven't seen it yet on the ground, yes.

Got it. You talked about the -- by the way, that's fantastic that you're simplifying the product categories because even as an outsider looking in, it's always been such a complex array of different products. And I realize it's a cloud business like AWS or something like that in a way, so it made sense, but it's nice to have it simplified. So I appreciate that. But I wonder if you could talk a little bit about Nutanix as a business for investors. What do you think is a good comp for Nutanix? Do you think VMware is the most similar comp? Is that the way people should think about it? How should investors be thinking about the products and the business?

Yes, I think VMware is probably the closest comp for us. Now I think we have a slightly different tilt though in our business. For us, compute largely, we look at compute and hypervisors whether it be VMs or containers, compute being a commodity, okay? And data, right -- managing data being what we deliver value on. So our portfolio is sort of similar, right? We've got cloud infrastructure, cloud management, unified storage, which is unique to us, but then not to VMware. And that is our storage routes, right, and data routes. And then database as a service, which is also unique to us. So -- but in terms of the broad market, we are addressing hybrid cloud -- hybrid multi-cloud, enabling customers to operate across and run their applications and their data wherever they want to run them in their data centers and public clouds in edges. And so that's the business we're in, but we do that at 2 levels, right? Largely at the infrastructure level, compute storage networking delivered as a service, but also selectively with some set of what we call platform services that applications need. In our case, specifically, right now, it's database services as we allow customers to manage a range of database engines. And again, our intent is to do that, not just on-prem, but also anywhere.

Great. Okay. And then customers, let's talk about customers a little bit. Can you help us -- if VMware is the most similar comp, which I would agree with that, what -- can you describe customers the type of customer you're serving? What size? What's a typical example of a customer? Just help investors understand that a little bit.

Yes. There is the gamut. We've got about 22,000, 23,000 customers at this point, and we've got about -- if you look at the Global 2000, the largest 2,000 companies in the world, about half of them are our customers today, but we also have a number of smaller customers. There is a range of school districts to federal to every vertical. So we're pretty broad-based in terms of the customers we cover. So for quality, a medium enterprise, they tend to use this for essentially everything as the platform for them to run all their applications and workloads certainly as we go for a smaller, right? School districts, for example, yes, it will be -- we will be the platform for everything. Now when you go up into the Global 2000, there are very large customers out there. We today are significantly underpenetrated there. While we have 1,000 of them as our customers today, roughly, we are being used for one use case typically at these customers. And so for us, the opportunity there is to expand, and for us, expansion comes into 3 forms, right? So one is selling more of the same use case, maybe it's Virtual Desktop. Second is selling more of the portfolio, which, especially for example, if we sold them our core cloud infrastructure attached to our management, attached unified storage, attached database. That's the second motion. And the third just is expanding workloads and going after more of those use cases. And so this is, I think, the general sense of customers. So they're all over the -- they're, of course, global across all verticals. And it's a very broad-based platform because, again, the problems that we solve, fundamentally apps and data. Every customer has apps and data. And they need a platform to run it on and we deliver the platform.

If I can add one thing to that. I'd say, one of the nice things about the platform is the universal sort of applicability, to Rajiv's point, geographically, industry-wise and so on. But our go-to-market is aimed kind of the commercial mid-market and above, and so SMB is not sort of a focus for us. It's not we don't have to go to market directed at it. If it comes, that's great. That would, of course, sell to some of the smaller mid- and smaller-sized businesses, but the focus of the go-to-market is really sort of commercial mid-market and above.

Yes. I think of your sweet spot is more of the commercial account, the 500,000-person business. I don't know if that's...

No, I don't think that's the case, Rod. I mean, I think, yes, certainly, we play in commercial, but that's actually a small portion of our business. I would say, it's the tier of enterprise below the very top, right? So in the top enterprise, the top of the pyramid, we have certainly a customer that spent $100 million plus with us over life, and that's a very large customers. And we've got deployments of like 150,000 virtual desktops being deployed in some of these large customers. So we do have deployments at that end of the spectrum, but our sweet spot is just below that, right? Enterprise customers who are not at the very top, right? That's our sweet spot. It doesn't mean we extend down into commercial.

Yes. I think my definition of commercial in line with Cisco's because that's my long term and that matches your definition. Cisco's commercial account would be a little bit larger account, and it's more like a Fortune 50 sort of customer they would call enterprise.

Yes.

So it sounds like that's about right. I wonder about supply. Maybe Rukmini, maybe I'll address this one to you. So you've talked about a little bit of supply improvement in your server partners. Could you just give us a little bit of a download on exposure to this long term. I know it wasn't really anticipated. It's kind of a weird thing for a software company to be exposed to, but how are you thinking about it? And how should an investor think about this as a risk factor for the business maybe a little further out?

Yes. So I'll start and Rajiv, you should add here as well. So I was -- to your point, this is not a factor in our business is something that we necessarily saw as something that would impact us. We sell software. However, it runs on -- our customers run it on actual servers, right?Exodus sort of generic servers that they buy from our partners. And so that's been our model for a while. And what we saw recently late in our Q3 and into Q4, is that the -- for our customers, they were seeing significant lead times with these servers that they were buying concurrent with buying our software to run it on. And you can think of it as you have a Netflix subscription, but you don't have the TV to watch it on, right? So you're going to have to -- you need the device to run it on. And so as a result of that, the impact that it has on us financially is the following. So if a customer gives us a purchase order, if you were to give us a purchase order, Rod, those are noncancelable. So those are bookings, and we would then send you an invoice. So we collect billings and cash on those as well soon after. The rev rec though happens once the license starts, the start date of the license, right? And so it was -- billings to some degree was impacted, but really the impact was on revenue where you would say, I'm ready to purchase. I want Nutanix. Here you go, here's a purchase order, but I'm not going to get my actual server until depending on the lead time, 3 months, 6 months, whatever it was, right? So that start date for the license without in the future, which means that we can't recognize revenue until that start date. So that's sort of in a nutshell. So it's really extraneous to us and that we don't control it, but it started to sort of have an impact on us in Q4. In terms of what we're seeing now, we would characterize it again being one step removed, but still what we're seeing and hearing from our customers and partners is that it's not getting any worse as of now. A lot of them are trying to qualify second source components where there were challenges, but it doesn't seem to be getting better overnight either, right? So that's sort of what we're hearing. And some folks are managing it better than others as folks kind of see from what they're putting out there. But the way we are managing it is sort of just in staying close to them. We have -- we provide choice to our customers. So if you found that as a customer, you were having a challenge with one provider, you could actually choose to run on another server provider and our software would be seamless across those, right? So we're deploying all of our methods. I do think to your question on longer term. Our sense is that I think this is all much better understood now than it was 6 months ago, a year ago. And so the thought is that there's less disruption going forward. And certainly, for us, it's going to be something we watch closely, right, to make sure that we're factoring it into our outlook. Rajiv, do you want to add?

Just a basic point is that this, of course, only impacts the new and expansion business. It does not impact the renewal business at all, right? They renew on the existing hardware, typically. So I do think to your point, it's not getting worse. It's actually getting -- hopefully, getting better, right? But not immediately, it's going to take some time because everybody is looking at second sourcing components. And there are a lot of components that are going to these several other sources. And so they're looking at second sourcing, bringing more on board. There's also been some softening. The chip guys have already reported some softening in building up of inventories. So hopefully, the situation will get better and will normalize perhaps sometime next year, not this year, in terms of what we expect and what we are seeing.

Yes, I've got to say, we were frustrated on your behalf with this problem because here you are a software company, last thing you want to be thought of as linked to commodity hardware like servers and boom, it happens. So -- but I think it's a one-off, it's not.

It's unusual time. I mean, this is not something you normally think, right? You don't have this crazy extended lead times on servers that you do now.

Yes. And if anything, I think you're probably too cautious on your views because components are becoming available very rapidly. So let's talk a little bit longer term, Rajiv, about the cloud. One of the big long-term questions that we get from investors is, yes, Nutanix can expand into this grouping of customers that we've talked about, and there's a lot of overhead there. There's a lot of TAM to go for. However, new workloads, workload growth is occurring in the cloud. And over the course of time, more and more businesses will start there, more and more expansional workloads in the cloud. Maybe talk us through your strategic vision for the company in that world of the future where more is in the cloud. How does Nutanix fit into that world?

Yes. And I'll give you a sort of a medium term and a very long-term view of this as well, right? So in the medium term, I think companies are going to be looking at running their applications and workloads everywhere. It's not just in one place, they'll run it. Some of these apps will run in their data centers, some of them will run in edge locations and others run in public cloud. And it's going to be a mixed world and more than one public cloud typically. So it's going to be a mixed well, and this is -- the determination for this is going to be based on a number of factors, right? One is, of course, whether it's the most easy place to run these things whether it's the most cost efficient. Do I have local sovereignty and data localization requirements? Do I worry about security? There's going to be a number of these considerations that determine where you're going to place an application and where you're going to place your data. And we think for the foreseeable future, at least the majority of the customers that we talk to, are in a hybrid world. And for those, I think a platform like ours offers them that freedom of flexibility and choice and simplifies what they do. This is a complex thing. Every cloud is independent. Every cloud -- think of it as a new silo. And what we did in our path incarnation was break down silos across compute storage and networking, simplified that. Allowed one team to operate it, got significant TCOs. We're looking at doing the same thing here, running across these cloud environments. So that, I think, is going to be the picture for the next several years. And it's going to be some portion other companies -- companies on workload surveys and say what portion of workloads and in the public cloud versus this hybrid or private, and that's always a mix. Now if you look at even beyond that, today, we are an infrastructure company largely right Nutanix at the infrastructure layer, but we are selectively moving up into the platform, whatever call platform or data services layer. We're starting out with a managed database service or database-as-a-service where what we realize is that applications required databases and databases should be an easy button in terms of how you operate databases, how you run databases, how you patch life cycle, manage all of those. And also, as people develop modern applications, there's going to be a set of modern open source databases that people use. And so for example, one of our teams around our database services is, we make things like Postgres, enterprise-grade, enterprise scale and make them available everywhere. So we would like to also start offering these set of services, starting with databases available everywhere, right, not just on-prem, but also in the public clouds. Now you could say that the public cloud, of course, already have these services, and they have a rich set of data services, right? Because when somebody wants to build an application, they want to have a place to run it, and they want to have a set of services that enables them to build that app. Now most of those services are data services. That includes things like database, caching, messaging, search analytics. Those are probably the 5 big things that app developers need. Now if you look at our long term, very long-term vision, I'm not talking short term. We have a 10-year journey. You want to be able to build your app once and run it everywhere. You can go to the public cloud and get these data services, but they are customized for each of these clouds. Now with our database service, we are starting by saying, the same database service is going to be available everywhere. And we could do the same for all these other kinds of services that are needed for an application over time, and so that is a powerful set of tools that we can bring to customers where they can build their app, run it anywhere, right, and make use of a public cloud, make use of the private cloud, not just in the infrastructure layer, but also at the platform, data services layer.

Since you're talking about that, how do you feel about consumption models versus licensing models? I have a feeling I know what the answer to this is going to be, but I'm just curious.

No, I think it's -- well, I think it's more -- today, we -- I would also -- today, we deliver a term license to our customers and they choose the term that they like. Now I think over time, also their people need the easy button. And the easy button for them is, I don't want to have a deal with this myself, I want this to be offered as a service, and I want to be able to pay for it based on what happened. And we are selectively moving down that path. For us, for example, our management offerings, some of those are already available today as a service. Our disaster recovery offering was available as a service. And so over time, I expect -- and through partners like HPE Green Lake, the entire stack is available as a service, right, as well as through some managed service providers. So we do expect that there's going to be this model of consumption where people buy term licenses, but some of them will also want to have this all delivered as a service to them, which I think, over time, more and more people may get there, right, even on-prem.

So kind of the vision would be some of these services you're talking about consumption initially to make the entry easy and then eventually a plan to move them to a license of some sort. Is that kind of the way you think about it or it is more of a hybrid.

Yes, I mean I look at more, I think, doing what customers want, right? I mean I think if they want to buy a term license, we'll give them a term license and that's fine. And if they want to start consuming things as a service and have easy button, of course, that means we do more of the work. And of course, that means there's also a premium for that, right? Typically, competitors are getting a license because we are doing -- taking on more of the work. A little bit choice. I think our tenants have always been about simplicity, freedom of choice and delighting customers, and those will continue, right? And whether it's a consumption model or whether it's a subscription model that they like, we'll give the choice to the customer.

I think if Snowflake had to do it over again, they might have charged an even higher margin given the volatility of revenue when the consumption models come up and down, but okay. Well, management team, let's talk about that, shift gears a little bit. Things have been changing. Rukmini is pretty new here. Other managers.

She's new and not new, by the way. She's been with us for 5-plus years.

Yes, new as a CFO. But you've made some changes to the management team, how do you feel about it now? Do you feel like you're where you need to be? Do you still feel like there's more to be done?

No, I think we've -- the management team, the way I look at it is, we had a management team that took us from a 0 to a $1 billion company, and we got $1 billion very quickly. In fact, I would say, in record time, right? I think that took 8 years or so, but now it's about scaling the company. It's about profitable growth, operating at scale, managing a portfolio, managing a more complex go-to-market, managing partnerships and doing so with financial discipline. So there's a natural evolution of the management team and something like this happens, right, at this stage of growth for the company. And so we have now a combination of people who have been with the company for a while, like Rukmini, like David Sangster, who have been part of our management team. David runs all of our operations, and he's a guy was responsible for our 90-plus NPS score. And we've complemented that with bringing some people from the outside. We brought in a new Head of Engineering, who came from VMware. And so today, we have a good management team. We have a new CMO from the outside as well, a new Head of HR. So it's a combination of people who've been with the company for a while. Our sales leader in particular, Andrew, right now has been with the company 5-plus years, led a number of -- he ran EMEA for a bit. He ran global operations sales operations for us for a while. So he knows the company is relative to what we need to do. So we've got a good management team today that I feel very good about in terms of driving the next several years for us.

Great. Okay. We've got -- we're just coming up on 9 minutes, so I want to make sure people in the audience have a chance to ask questions. Anybody got a question out there? Move back there.

Yes. So there's 2 questions there. Let me take both. So on the first one.

Do you want to repeat the question? Or was that.

I think they came on a mic, right? So people could hear it. But I think the 2 questions, sir, what's the impact of the broad VMware acquisition by Broadcom? And second, what's our networking portfolio compared to VMware? So on the first one, so clearly, any change of control for a company like VMware creates risk for customers because a lot of customers run their mission-critical workloads on VMware. And so we've certainly seen more customers engaging with us over the last several months around this topic. It's a topic of conversation. Always, the concerns are around potential price increases around the level of support that they could expect over time and the innovation roadmap and what the portfolio will look like, typically. So that's what we hear from customers. They're thinking about whether they should make contingency plans, look at what this is going to look like, and there's an entire spectrum of those conversations. What we said for us, by the way, when we guided this year is that we don't expect that to have an immediate impact on us one way or the other. But I think over time, depending on what -- Broadcom is the acquisition closes, does with VMware, we probably will see some expanded business. That's the way we think about it. And we are focused on continuing this path of simplicity, freedom of choice, delighting customers, right? Our story as a company continues unchanged as a result of this, and we're just focused on doing that. On the second, on the networking portfolio itself, we do have a networking stack. It's actually built-in. We don't sell networking today stand-alone, okay? But we have layer 2 overlays. We have micro segmentation. And those are bundled and sold only as part of the cloud infrastructure platform that we have. So when we sell cloud infrastructure, it includes a hypervisor. It includes related to overlays and micro segmentation and of course, includes our distributed storage stack. And that's how we go to market. So for us, the same mantra of simplicity. We don't have all the feature sets needed or completely load balancing all the big set of features, but we have the fundamentals, and they are well architected inside the platform so that it's simple to use, and we just sell it as part of the overall platform rather than trying to create a separate big business out of it. And this is, by the way, part of the portfolio simplification that we did. We used to go to market separately with flow as a stand-alone thing and compete specifically for networking dollars, but now it's really part of our overall stack.

If I could just follow up on the competition question Obviously, it takes time to work through the numbers, but in terms of new deals, competitive situation, win rates, is it causing any change? Or is it too early even for that?

I think it's -- sorry, but we have continued to see our win rates go up consistently over the last year, even before any sort of Broadcom we have a news. Just I think largely because we are very focused on what we do, right? Whereas some of the others are much broader, right, in terms of their focus. So we've seen that -- like I said, I think we're certainly seeing a lot more conversations now on this topic, and we'll see what that deal is in terms of pipeline and new business.

Any other questions out there? Okay. I wanted to follow the VMware stuff up a little bit, back to the team. How do you -- do you feel it's an opportunity? It seems like a lot of times companies bought by Broadcom, they're not companies that people necessarily feel super confident in their positions in. Do you think you have an opportunity there?

Definitely, yes. I mean, again, to the extent that the playbook remains what it is from Broadcom in terms of what they've done with these other acquisitions and so forth, there is going to be increasing concern among customers. And they're going to look for potential alternatives, and we are a good alternative. Customers are generally very happy with us, the level of support that we provide, the products work reliably. They're simple to use, and we save them a lot of money. So I think over time, this means that potentially, we will get more business. And I can certainly say that we're having a lot more conversations before with customers that we've not had opportunities to talk to before. So certainly, doors are more open now than before.

Great. Okay. I wanted to talk a little bit about HPE GreenLake. You brought it up earlier. Just the -- you were named the Greenlink Partner of the Year in 2022, so congratulations on that. Just curious what you think or how you think about HPE as a partner? Do you think about them differently than some of these other partnerships you've talked about? Is it a particular area of focus?

Yes. I mean I think there's different levels of partnerships here, right? First of all, I mean, I think at a very basic level, they are a leading server vendor, and of course, our software runs on their servers, right? I mean that's -- and we are qualified, but that's very basic, but what's more interesting was the partnership is how we go to market together. So there's a lot of co-selling and account teams working together in large accounts and many accounts around the world to go sell the solution together. And so we're seeing that starting to happen even outside of GreenLake, right, specifically just a regular HP several business with us, account teams going together and winning deals together. We're seeing that happen, but at the next level with GreenLake, which is, of course, an important strategic initiative for HPE, GreenLake actually resells us. So they sell the Nutanix platform as part of GreenLake, and as GreenLake continues to grow, our portion of the business that's coming to GreenLake will also continue to grow along with it. It's still small for us because GreenLake is relatively new for HP compared to the other businesses. And we are a component of GreenLake, not all of GreenLake. A lot of GreenLake is still hardware. But again, to the extent that GreenLake growth, we have large customers using us through GreenLake, right? And using -- it's a consumption mechanism for them, right? So they get a one-stop shop from HPE GreenLake includes hardware and the software that they want everything delivered as service.

Have you seen any trends for yourselves within the GreenLake sales? At least what you can observe, -- have you seen more preference for Nutanix within GreenLake than versus VMware as opposed to maybe what you see externally or anything different about that?

No, I think it's too early to tell. GreenLake is still relatively small for us, and it's early to -- what we're seeing is more selective customer engagements, where, again, we have customers adopting GreenLake, and they're operating to Nutanix solution, consuming it through GreenLake.

Right. So the last thing, we've got a couple of minutes left. I just wanted to dig into -- when you start -- you lay out 5 things you wanted to achieve and have kind of done those things, which is daunting to an analyst who only has to do maybe one thing at a time. You seem to be doing lots of things at a time and executing on them. How do you think about the future for Nutanix? What are you most excited about? What's next on your list in terms of things to get done to the company?

Yes. Look, I think the long-term vision that we just talked about in terms of not just being an infrastructure provider across all environments, but also potentially data services provided across, that's an exciting vision. It's compelling. It's going to take many years to execute, to be clear, right? And we have to earn our stripes in right at every step. But the foundation for all of this, of course, is profitable growth, which I think we are well on our track to, right? Last year was free cash flow positive. This year, we'll continue to expand on that. We'll continue to get to operating income positive and focus on that. That gives us the foundation for us to be enabling to take that in turn and invest in the business and continue to scale the business. I'm excited about the fact, I mean, about 3 things fundamentally, right? First really is that our market opportunity is huge. This is a large market, by tens and tens of billions of dollars of both infrastructure in terms of compute, storage, networking software, extending into the public cloud and then on top of that, data services. So we have a lot of headroom, and we are not limited by market capacity. Second, the product portfolio that we have today is quite strong. It works well. Customers like it. We have a happy customer base. The portfolio can now address all workloads, including the most mission-critical workloads, including SAP workloads, for example, or other business-critical workloads. So anything that an enterprise has that can run on Exodus server we can now run. And so a very solid product portfolio. We have an emerging business around database-as-a-service. So I'm excited about the portfolio with strong competitively in terms of the presence in the market with some potential competitive tailwinds as well in the future. That's the second. The third, I think, is we are executing well from a financial discipline perspective. Last year was the first year of free cash flow for us after we got into the subscription transformation. And we are now continuing to execute on both top line growth and continuing to generate cash and the operating income.

Great. Well, we're out of time. Rajiv and Rukmini, thank you very much. Great to have you here. Thanks for all the great answers.

Thank you, Rod. Thank you for having us.