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

[Presentation] Welcome to Nutanix's 2023 Investor Day. Please welcome Vice President of Investor Relations, Rich Valera.

Good afternoon. I'd like to welcome you to Nutanix Investor Day 2023. I'm Rich Valera, VP of Investor Relations. Before we get going, I'd like to note that we will be making some forward-looking statements today, and I would refer you to our safe harbor on the following slides for related risk factors. And with that, I'd like to go over our agenda briefly of what we're going to be going through today. We're going to start out with our CEO, Rajiv Ramaswami, doing a strategy and technology update. Then we'll have a Q&A just for Rajiv's session. And I'd ask you to reserve that to strictly nonfinancial questions. We'll be taking all questions, including financial questions in the final Q&A after everyone has presented. We're going to follow that with a brief break. After the break, we'll have a go-to-market presentation. That will be done by our Chief Marketing Officer, Mandy Dhaliwal; and our Chief Revenue Officer, Andrew Brinded. And last item on the formal program will be a financial update by Rukmini Sivaraman, our CFO. Then we'll have a full Q&A with all of the presenters and that will conclude the presentation for the folks on the webcast. For those of you here in person, we will have a cocktail hour, and all of the execs who presented today will be available to chat with at that point. And with that, I'll hand it over to Rajiv.

Good morning to all of you on the West Coast and welcome to everybody joining remotely. I have to say first, it's great to see everybody in person. I've been -- I see a lot of familiar faces in the room, both from the sell-side analysts who cover us as well as buy siders. And again, many long-term investors here. Thank you for your trust in us, and it's great to see you all in person. I'm really excited to get together today with you all and talk about where we are headed as a company. But before we do that, I think we should take a look back in terms of what happened at the last Investor Day. So this was in June 2021, middle of COVID. I had been on board for about 6 months. And at that time, we said a few things that we were going to do to you all. We said we would drive strong top line growth, and we talked about 25% ACV buildings CAGR during this period. We said that we would drive towards profitability and generate free cash flow somewhere between $50 million and $150 million in fiscal '23. And the last thing we said was we were focused truly on hybrid multi-cloud, and we thought that, that was going to be both an industry trend and also from a road map perspective, we're going to execute on that. So if we take some time to reflect on what we did, we delivered on what we said. 27% ACV billings growth over the last 2 years, CAGR. Now I'll admit that the mix was slightly different from what we anticipated. It was stronger in favor of renewals and new ACV did not come in as strong as we had initially thought about it. But there were also a bunch of things that happened along the way. Macro became uncertain. We had to deal with some supply chain challenges. But all in all, we're very happy with delivering 27% ACV billings growth over the last 2 years. On the free cash flow front, we did $207 million of free cash flow this past year, well above the targets that we had set for ourselves. And then when it comes to hybrid multi-cloud I think the industry has spoken. Customers are increasingly concerned about we're not putting everything all their eggs in just the public cloud, applications are going to be everywhere. Data is going to be everywhere. Industry trends indicate that most customers are going to live in this hybrid world of apps and data. And on our front, we have delivered our platform on both AWS and Azure as well as a number of service providers, and we're going to talk about that in more detail here. So now let's look forward. That is all I want to do on the look back. You as investors, why should you care about Nutanix? First, as a company, I believe Nutanix is well positioned to benefit from some important trends, hybrid multi-cloud, AI, name a few. Let me talk more about those. But as I said, the world is moving to hybrid multi-cloud. Companies have apps and data everywhere. And we have the best platform to help our companies -- help our customers operate in that world with simplicity. AI, I'll cover some of our recent work and where we're going on AI. But again, we're seeing an increasing number of applications with generative AI and -- we are a good platform to run those applications wherever the data resides, which is, again, not -- it's going to be everywhere. And we can do -- run those applications in a responsible way while protecting our customers IP. And what's not even on the slide here is that we have some other trends that are happening. There's disruption at one of our major competitors. Our partnerships continue to grow, and I'm excited about our most recent partnership announcement with Cisco, who now is focusing entirely on our portfolio and has stopped selling their own portfolio. And we will continue to execute with the same discipline and focus going forward as we've demonstrated in the last couple of years. Now as I look at what our customers are doing. They're all going digital. And here are some of the priorities that we hear from our customers. As they go digital, it's all about applications and they need modern infrastructure to run these applications. They're very focused on new applications, building a whole range of modern applications. running them effectively, new applications such as driven by AI. They want to seamlessly extend wherever these apps and data are. Extend into the public clouds, extend across clouds, live and operate in this multi-cloud world with simplicity. And the last piece here is as they build apps, wouldn't they love for those apps to be portable as opposed to being locked in to any particular set of services or cloud provider. This is what we hear from our customers, and this is [indiscernible] what we are focused on as a company. And I'm going to walk you through every one of these core categories here and talk about what we're doing in this space. So just to give you a quick overview of what we do as a company. So companies have all of these applications, a whole range of applications, legacy, modern, cloud-native applications, AIML applications, mission-critical databases, end users with virtual desktops. And they got to run them in different places and management. And at the bottom, at the end, all of this stuff has to run on hardware someplace, they can run in their data centers or edges. They can pick their choice of server, vendors here. I've listed most of the major ones they are here, and we are partners with every one of them. They can run them in public clouds. I've listed AWS and Azure because today, we run on those clouds. They can also run them in colos and service provider locations, and we've listed just a couple of our partners in that area. But where we come in is in between those 2, it's in between the apps and the underlying hardware with the Nutanix cloud platform. We started this journey with an infrastructure software layer that brought virtual compute and storage together and enabled customers to manage all that in a simple way, in a very automated way, simplifying how they manage their infrastructure with a lot fewer people, providing applications whatever they needed in terms of compute and storage capacity. We call that hyperconverged and we are a market leader in that space. But from then on, we didn't stop there. We've expanded that to be a complete cloud platform, the Nutanix cloud platform, where we have everything needed for customers to build a cloud, to operate and manage a cloud, to store all their data and run their databases. That's a Nutanix cloud platform today, and it's available across all of those substrates that we talked about, below. Your choice of hardware, your choice of public cloud today, it's AWS and Azure, but we will support other clouds going forward as well and an increasing number of service providers in colo locations. So this is really what we do, truly a single platform for companies to run their apps and data anywhere. And why do we win in the market. These are the reasons. First, we really are the only ones who have this single platform delivered in a consistent way in the same manner with one single license wherever companies want to run their apps and data. We provide freedom of choice at every layer in the software stack and infrastructure, choice of hardware, of course, choice of location, public clouds or on-prem or edge. Choice of hypervisor, choice of cloud native stack. Customers can pick and choose what works for them and minimize their lock-in. The other thing we hear from all our customers is the complexity of what they deal with. And from the beginning, we focused on what we call one click simplicity, which is really about taking all of this complex enterprise software and managing all of that and making it all really simple for customers so that they can manage with a very small team, automate it and truly deliver consumer-like experience into complex enterprise software. That's been a differentiator for us since the very beginning. And of course, we are obsessed with our customers, and that's the first culture principle that we have as a company. Every employee lives by that. And that's shown in the fact that even as we scale to the levels that we have today, our customer NPS score, Net Promoter Score still remains at 90 plus. And it's been there for the last 8 years. And we do all of this while delivering great lower total cost of ownership for our customers who go here. So, that's why we win. I truly believe our time is now. We've done a lot of the hard work of shifting to a subscription company. We went from hardware to appliances -- to hardware appliances to software to subscription. We've done a lot of the hard work now and truly it's our time now for growth. Customers prefer hybrid multi-cloud. They are operating in this complex world, and they want a platform that can help them reduce that complexity, simplify it. Our partner ecosystem continues to grow across both our hardware and OEM partners, HPE, Lenovo, Fujitsu, as well as our new partnership with Cisco. And Dell also supports us, although not an active partner. As we go up and of course, public clouds, we acquired AWS, Azure and more along the way, down the road. And with respect to the independent software vendors that we partner with, Red Hat and Citrix. And this -- we operate in this world where we work together with our partners to deliver the complete solution that our customers care about. Our competitive landscape is certainly changing with our largest single competitor being bought out, creating a lot of concern among our customers. We've talked about that in the past. That's still very much the case. And some of our former competitors are now becoming partners like Cisco, who used to compete with us with their platform, but now are completely partnered with us. So I truly believe this is our time, and it's all about execution over the next few years. If you look at the markets that we play in, they're massive. In 2026, we are looking at a $76 billion total addressable market across the areas that we cover from our portfolio, starting with hyperconverged infrastructure or the foundation for the cloud platform infrastructure-wise, extending that to hybrid cloud, cloud management to manage everything on top of that. File synoptic storage, which we call unified storage and then database automation, database as a service. This is a large and growing market. We've updated the numbers from what you saw 2 years ago. It's a large and growing market and we intend to grow faster than market growth by taking share. So let's start with modernizing infrastructure. There's still a lot of infrastructure out there to be modernized. Here's a breakdown of the infrastructure market, addressable market based on the application for workloads, virtual desktops, business-critical applications, data management, IT infrastructure, general purpose and a whole bunch of other applications. Now if you look at the overall market for HCI across all the vendors that play in it. At the end of last calendar year, roughly HCI had penetrated about half the market, 49% for virtual desktop use cases. The other half is still very much running on legacy infrastructure. When I say legacy, it's compute storage network, all managed separately, traditional arrays, traditional solaris servers, traditional networks, all managed entirely separately by separate teams. We call it 3-tier. If you look at business-critical apps, it's only 17% out of the total market that we have penetrated so far with HCI. IT infrastructure 16% and the whole category of other applications around 9%. There's ample room here to grow by continuing to gain share at the expense of legacy in this market. And here are some projections that I will put up here in terms of what we think is doable over the next 3 years. We think we can continue to grow in virtual desktops. HCI will take another 7% or so share. Business critical apps, look at that. That's a massive jump. We think we can get another 12% out of business-critical labs. And we've already seen this. 80% to 90% of our customers that we survey say they are already running databases on their platform. And over time, we can get them to run more and more of their databases on our platform and capture more customers. Business-critical apps, same thing. And then IT infrastructure, another 8% growth. And again, the other category, another 5%. And while all of this is going on, many of these applications are also being modernized. And when I say modernized, containerized, running on Kubernetes and that's happening underneath the [ cover sale ] with all of these applications. We haven't put a separate category for it. There's going to be about 3 billion container instances deployed by 2025. Out of that, $1 billion of that is going to be on-prem, $2 billion probably in the public cloud. So underneath the covers, all of the stuff is being modernized, and we'll talk about how we can run those modern applications as well. And this doesn't even include whatever TAM's is going to be for generative AI beyond what we know about, right? It's still early stages for us, but we truly believe it's going to be a large opportunity on a long-term basis. So this is a market opportunity and the increased penetration that we can get simply for our platform, continue to modernize legacy infrastructure. Let's talk next about modern applications. Most modern applications run and are orchestrated on top of Kubernetes. It has become the platform of choice. But there are many people out there with Kubernetes platforms, and we support all of them. We have a partnership with Red Hat. We have our own open source-based Kubernetes platform that's built into our cloud platform. We work with public cloud platforms like AWS's EKS offering. [ So is their Rancher ]. Pick anybody, we have it. So freedom of choice. We help make developers more productive. We provide autonomy to them by which they can consume infrastructure to meet the needs of the application. So they can build applications and deploy them very quickly on our platform with self-service tools, making developers productive is hugely important for customers because, guess what, developers are the most scarce resource here. Every company is becoming a software company and they need to make sure that their software developments are as productive as they can be and this helps them be very productive. Of course, with everything else we do here as well, lower total cost of ownership. And it's a simple scale out architecture, companies can buy as they need, pay as they grow, and deploy quickly, reducing time to market. We have pre-validated designs through which customers can easily scale up, easily deploy infrastructure, get to market very, very quickly. So we are a great platform for these modern applications. And here is a great example of a customer who is using us for that purpose. So we recently put out a press release on our Micron win. Micron is one of the largest global semiconductor manufacturers, and they operate in a highly competitive world. highly competitive. Memory is a commodity. And they need to be as efficient as possible. They need to be as agile as possible because we all know that the market is very cyclical for semiconductors, and you have to be able to respond quickly to demand patterns and optimize the use of their manufacturing facilities. It's a mission-critical thing for them. And what they've done is they have modernized their manufacturing applications. And as part of that, they're modernizing their infrastructure and they chose us to do this across their entire footprint, across all their manufacturing facilities. And this was our largest deal in our fiscal Q3 last year. And it was one where it was an enterprise-wide solution. There was a CEO to CEO relationship here. It was a strategic decision point for them. And it's also a testimony to how we are becoming highly strategic and critical to the largest companies in the world. We're thrilled about this Micron win and we are committed to making them super successful like we do with every other customer who buys our product. So let me next talk about AI because to me, that's a big chunk of what modern apps are going to be about going forward. As we've talked to our customers over the last 6 months to 9 months, it's increasingly becoming clear that generative AI is likely going to change the world. And we see this across every vertical that we talk to. We see this across financial services. We see this across healthcare, retail, [federal]. And there's a set of common use cases that we see emerging right now. Customer service, chatbots clearly is an obvious one across all of these verticals. We're seeing that happen. Search and analysis of documents. Another common use case across any of these. For example, financial services, being able to automatically look through mortgage applications and approve those or not, credit card applications, for example, even in the case of customer service, by the way, searching through knowledge-based articles and providing automated responses to incoming queries, all these are search and analysis type use cases, many of them out there across various industries. Co-piloting, is another interesting use case. Like we said earlier, developers are a scarce commodity, and we have a lot of new developers entering the market who are fresh out of school. In co-piloting, helping automatically generate core snippets with some assistance is becoming mainstream for every company that's having software developers. And we are trying that out inside our company, which is, again, our biggest chunk here in terms of R&D is all software developers. And we hear about that from all of our customers. And the last set of use cases we're seeing is fraud detection. Again, it depends on you, if you're in retail, of course, you're trying to prevent theft. If you're in a credit card business, you want to prevent financial fraud. So there's a lot of fraud use cases that vary by vertical. But again, this is a tool where Gen AI can be very, very useful. So the question is, how are companies going to deploy this. So if you look at the news, there's a lot of press around large language models being deployed in the public cloud, running on NVIDIA. Everybody's talked about that. And we think that, that's a great place to train these large language models on publicly available data sets, not proprietary data sets, but publicly available data sets. So that's -- you can do a lot of that. That's very expensive. And there's going to be a few companies that provide these LLM models. There are some open source one's that are also coming, for example, LLaMA from Facebook or Meta, I should say. But then what's going to happen is a lot of the enterprise customers are going to take those models and fine-tune them with their own proprietary datasets that they do not wanted to share with anybody else. They're also likely going to make those models more compact because it's very expensive to run very large models. And people are finding out as they go through the experimenting phase that they have to really optimize how they run AI. So 2 things there, right? They have to make it more compact and they have to run it where they have their datasets. And in many cases, the datasets are not all in the public cloud. Yes, there will be some in the public cloud, but there's also a lot of use cases we see from our customers where their data set is either on-prem or it's at their edge. Retail is a great example. Surveillance is a great example. Manufacturing is another example. A lot of these are happening in the edge, where data is being generated, and you need to have inferencing happening locally. So what we see here is that companies will likely deploy and update these large language models from the cloud, fine tune them to their data sets and then deploy them locally wherever they need to, for inferencing. That can happen at the core, and they can also deploy that at the edge. And we've been at the edge for a long time with our platforms already, and we have been running regular AI workloads for quite a while, and Gen AI is just the next step in that journey. And so we believe there's a significant opportunity for Nutanix to provide a platform to do this. And that's why we announced GPT-in-a-Box recently. GPT-in-a-Box is a turnkey offering where we package together a number of things along with our core portfolio. So we include a curated set of large language models. We include what we call MLOps, machine learning operations, common open source platforms, platforms like [PITAS], Kubeflow, et cetera. Put that together with our core platform, our Nutanix cloud infrastructure, along with our Nutanix unified storage, most modern applications are built on files and Optic store. We have all of that and it runs on the same standard hardware that we already have with our partners, GPU-enabled servers, all those servers are enabled with GPUs. We've been supporting NVIDIA GPUs for a long time. We are part of the NVIDIA AI for enterprises certification. So we are a certified partner there and all our hardware partners support these GPUs. And we're also seeing some edge use cases where GPUs may not be necessary or smaller GPUs might be used. We support those as well. So this is a value proposition, right? We help companies deploy these AI applications where they need to deploy them in a turnkey manner because companies struggle with getting all of this stuff to work together. There's a lot of things that they have to pull together and getting all this to work is a big undertaking. And we are like we've done with everything else, simplifying infrastructure, we're doing the same here. We're simplifying how companies can run AI in a responsible way, wherever they'd like to run it. That's our value proposition. Early days for us, but I'm optimistic that this is going to be an important market for us long term. Next step, let's talk about public cloud. We have been in the public cloud with starting with AWS. And late last year, we completed our Azure offering as well. And there's a number of customers today who are already using us had scale in the public cloud. The common use cases that we see, migration and it's not a onetime event there. We are the easy way to take applications from wherever they're running on-prem or in the edge, move them into the public cloud and continue running them on our platform. So that's a very common use case. We see that, and I'll give you some examples of that. Disaster recovery, another common use case that we're seeing companies have a primary data center and just having another data center sitting there idle with capacity sitting there that you paid for that most of them doesn't get used. They can use the public cloud and pay for the capacity whenever they need to and recover very quickly in the event of a disaster. And we make that easy. So we're seeing that as a lot of use cases come through. Expansion, whether it be seasonal expansion that you see with retail or government agencies, for example, based on time of year or geographic expansion where you have no physical presence, but you need to get up and running in a different geo, perhaps in a different country, different -- completely different geography where you need local data. You cannot export data for sovereignty reasons. This is an easy button for all of those. So to talk about one of these use cases, here is a case study. And this was a win for us this last Q4. A large Fortune 500 financial services company. They've been a customer of ours for a long time, but they were looking to consolidate their data center footprint, have much fewer data centers and migrate some of their workloads to the public cloud. They had also signed up with both AWS and Azure and made significant purchase commitments in order to get good discounting, but they were finding that pretty hard to actually live up to their commitments and actually migrate those workloads to the cloud. They looked at a number of options and finally picked our platform because it was the easiest way for them to migrate their workloads to the public cloud and run them on our platform there. And they were able to purchase our platform through Azure marketplace, which help them retire their Azure consumption credits. So this was a significant win for us, win for the customer, win for Microsoft as a partner for us because they get the consumption credits and they get the consumption on their infrastructure and a win for us and a sign of what we can be doing again at large companies out there. So the last piece in terms of where we're headed, from a product perspective and a vision. Almost everything I've covered so far has been infrastructure software at the infrastructure layer. We've talked about the cloud platform using it on-prem, running modern applications wherever and extending it to the public cloud. But there's a whole world beyond infrastructure, what are companies trying to do. Companies are trying to build applications and ideally, they'd like those applications to be portable. But what happens today? When companies build applications, they typically use whatever services that are available and the cloud providers that they're using and build those applications and run them very quickly. And what that leads to is lock in. It's very hard to build an application once and have it really run wherever you like it to be run. And let's dig into what that really means. So most new applications like we said run on Kubernetes container platforms. And Kubernetes is largely now available everywhere, you'd like it to be. And largely about the same wherever, but actually it is just more than Kubernetes. Most apps today use databases. They'll use messaging, Kafka, for example. They'll use cache. Radius as an example. Search, Elastic, I'm just naming a few examples. But these are all what we call platform services that apps need. And the public clouds deliver all of these platform services, but once you're hooked onto those services, it's very hard. So if you use an Amazon RDS service, for example, it's not easy for you to go take your database, port it from, say, Amazon to AWS or Amazon to on-prem or on-prem to Amazon or any of those, right? So what that means is that every time if you ever want to move an application, you're going to have to do work on the app. So our future vision, and this is what we announced as Project Beacon, sorry. At our last user conference, it's all about enabling companies to build portable apps and run them, build them once, run them anywhere by delivering a set of these platform services in a consistent way, wherever they like to run, whether it be, again, in the data centers, across any cloud that you like on any underlying substrate. We have our foot in the door today already with database services. Today, we have a database management offering called Nutanix Database Service, or Nutanix database offering. And what that does is it allows companies to manage large sets of databases, including open source as well as proprietary databases in a consistent easy-to-use way. And we're working on extending that capability into the public cloud. And that's the foundation for what we're going to be doing beyond that. Now when we think about this as a market opportunity, it opens some whole new market opportunity outside of infrastructure that we can go out and capture systematically over a prolonged period of time. I want to be clear, though, that this is a long-term vision for us. The next 3 years in terms of what Rukmini will cover, of course, is going to be driven mostly by what we have today with respect to infrastructure. But here's where we are headed long term as a company. And that just opens up a whole new set of opportunities for us to go play in and be relevant to our customers. Now, I've talked a lot about where we are as a company and where we're going and the value proposition that we can bring to our customers. This is a great place at this point to really hear from some of our customers and see what they have to say. So let's please a video, please. [Presentation]

So these customers, LabCorp, JetBlue, Home Depot, there's just a sample set of our 24,000-plus customer base continue to grow. Most of these customers are customers for life. When they buy our products, they stick with it, it's seen in the very high renewal rates that we're getting as seen in the expansion that we get our NRR is at 123%. And we are actually fairly successful in very large customers as well. So our portfolio is quite capable of scaling from the smallest customer, call it a school district or a law office to meeting the needs of Fortune 10 type accounts. So we've gotten about 1,000 roughly of the Global 2000 as our customers. I want to say there's plenty of expansion room there, and Andrew is going to cover that soon. But again, even with these very large customers, we have significant lifetime expansion opportunities. For example, historically, these large Global 2000 customers, once they buy us over life, they spent 26x the initial purchase with us. So we are very happy about how we're doing from the customer's perspective, and that's shown in how our ARR is today. We are a $1.6 billion ARR company. We are a subscription business, at scale, operating at scale. And we have 200-plus customers today spending $1 million plus of ARR with us. And about 15 customers who are at 5 million plus ARR with us. We're very happy about this and we look forward to continuing to grow this. Now you're going to hear from Andrew and Mandy about our go-to-market priorities. We are relentlessly focused on execution and across 3 pillars. Strengthening the go-to-market engine, capturing new workloads and driving hybrid cloud adoption. Now in terms of when Andrew and Mandy talked out this, they're going to talk about talent, coverage and quality of sales. Talent is all about enabling our service, having the best team in place, both at the leadership level at the rep levels, adding specialists to complement our general sellers that are needed, enabling them, training them, training our channel partners, making sure that they are fully ready to go. Coverage is about how we look at the overall pyramid of accounts that we're going after. And you'll hear how we're targeting bigger accounts on the one front and getting the channel to do more on the other side. And the quality of sale, it's about the entire life cycle of the customer relationship land, adopt, expand, renew. It's about making sure that first customers consume what we sell. They renew that with high GRR, good quality, and we get some uplift at the time of renewal as well and then expansion and selling the full portfolio. And you'll see that in our ASPs increasing about 7% over the past couple of years. Capturing new workloads. We've talked about all the workloads that are available to us, and we're increasingly seeing, for example, 80%, 90% of our customers wanting to run their databases, are already running databases on our platform. And an interesting data point from a recent survey that we did with respect to AI. Again, about 75% of the customers who are using our platform say that they want to use it for AI workloads that they are looking to build. And then finally, very focused on really driving the value proposition that we have in hybrid multi-cloud, getting our customers to consume what we sell and use that across the entire set of environments that they have. With the product vision, the alignment of the priorities, our focus on GTM execution, I'm pleased to talk about where we're going from a financial perspective. We are driving to be a $3 billion ARR company by fiscal 2027. As you recall, today, we are at about $1.6 billion. Rukmini is going to cover all of this in more detail, but I'll give you the summary. We expect to drive approximately 20% CAGR in terms of ARR growth from now to FY '27, approximately 20% CAGR ARR growth. But it's not all about just top line growth. Free cash flow. We've always said we are focused on sustainable, profitable growth. Free cash flow, we are driving towards generating approximately $800 million of free cash flow by FY '27. The range is about $700 million to $900 million and $800 million is the midpoint of the range. We've talked about rule of 40 for a long time. Now that we have passed our subscription phase and we are really in a scaling phase of our journey forward, we're happy to give you a time line for this. We are driving towards being a rule of 40-plus company by FY 2027. The last thing that we've heard loud and clear from many of you is around stock-based compensation and GAAP profitability. We have been relentlessly focused on managing stock-based compensation as a true expense and driving that down. We are expecting our SBC stock-based comp to be less than 10% of revenue by FY 2027. So these are the key takeaways I want you to go away with in terms of the financial future of what we are driving to as a management team. And I want to leave you with closing thoughts, which is really what I said at the very beginning. I truly believe this is our time for Nutanix. We've done a lot of the hard work in terms of going through that subscription transformation and being ready in terms of where the world is headed, which is really multiple clouds and managing across multiple cloud environments and on-prem everywhere. We're well positioned to benefit from that trend. Our customers are saying this is what they want to do, and we have the best platform to do that. We are addressing our customer's needs as they look at new workloads, Generative AI workloads as well. We have a major competitor being disrupted. Our partnerships continue to scale. As I mentioned, Cisco being the latest example of that. And that's what's allowing us to target the financial numbers that I just showed you, both in terms of top line growth and bottom line profitability. And again, I want to assure you that we will continue again operating with the same discipline and focus, as we've shown over the last couple of years, aligned as a single company operating towards delivering these goals. Thank you, and let's take Q&A.

A couple of quick reminders for Rajiv's Q&A session. First is, as I said, please limit this to nonfinancial questions only. We'll take your financial questions a bit later. [Operator Instructions].

Sorry. We need to get you a mic. Sorry, maybe you should introduce yourself. Sorry, Hold on Wamsi.

Wamsi Mohan from Bank of America. I wanted to ask you a little bit about the competitive opportunity that you alluded to. Where within the landscape, do you think that there is the most opportunity? What is the time frame of that reflected in your financials? And if we think about the historical playbook, all that Avago is used. There is definitely an opportunity at the tail, but would you say that there is an opportunity sort of in more of the core of the customer base as well?

Yes. In fact, that's what we've been presently surprised by Wamsi. So when we -- when we first saw the deals or loans, we thought, of course, they said very clearly, they're going to focus on the big accounts, big customers, and that's been the historical playbook and we thought that the smaller customers would be the ones that would be the first to come looking for alternative. But we've actually seen the opposite, which is the big customers have come and we have a lot of engagements with these big accounts, because they are the most concerned about risk reduction. They're also the most savvy about what has happened in the past and what's likely to happen. As we get to the broad tail, the long tail, there's mixed awareness of this. There's a set of customers who are saying, "Well, I have had no prior experience with this, okay, sure, We met an innovative company. They're a great company. They've satisfied my needs for the longest time, and I'll wait and see. I'm not particularly concerned. And there's even a set of customers who still to this day are probably not even aware that there's a deal happening. And so we're seeing that there's a vast range of engagements here, and we certainly are seeing engagements with our top customers that we didn't have before for critical deployments, mission critical, right, because they're using the platform for mission-critical applications. So we've seen that. Now that the question is about, of course, what does this lead to? And that's a part that's very hard to predict. We've seen some deals close already in Q4. We gave you some examples of that. Now, but we've also seen people using us as just a Trojan horse to sort of get a better deal, for example, and lock in ELAs and try to get better pricing on the other side. And so they've used us, but that doesn't necessarily lead to a lot of business for us. And then there are others who will say at the other extreme, say, well, I've been burnt I'm going to go really go aggressively. So there's the full spectrum of this. And certainly, some portion of this is going to lead to wins for us and incremental business, and we've factored some of that into the guidance we gave you for FY '24, and there's some of it in our long-term projections that we are talking about today as well. So that's the landscape.

If I could just follow up with one more. I guess, really quickly, when you think about the tech stack that you have today versus what the competition has. Where do you think the R&D dollars most need to be invested to be able to ensure that you can maximize the potential of share gains.

Yes. We are truly -- I mean, from an R&D perspective, the one thing to think about is certain things that we take as a commodity. The hypervisor is open source based, and we think that should be a commodity. So yes, we invest R&D there, but largely in terms of taking the open source hypervisor and really making sure we have a broad ecosystem and all the support and certifications needed for it. But the bulk of our R&D is on the data side of the portfolio. And going forward, also we're increasing our R&D level on the innovation of the new projects, right? We have a team now on AI that we've had now for the last year plus. We have a team on modern applications. We have a team on the Project Beacon type of [setting]. So that's where we're investing in R&D. We will continue to invest in R&D at a prudent pace. But certainly, no stoppage, we are not stopping our innovation program.

Aaron Rakers from Wells Fargo. I just want to kind of think about the strategy with GPT-in-a-Box. I'm curious that you mentioned -- I think it was at the end of your conversation, 75% of your customers are now engaged running their AI workloads on possibly Nutanix as a platform. So I guess the first question on that is, when do you start to believe that, that will be showing up as far as revenue contributor? And I guess, more strategically, I'm curious if where does your software and NVIDIA's software strategy take over? I'm trying to understand that the integration of NVIDIA as they kind of push deeper in software as well.

Aaron, good question. Just one correction I want to make sure. What I said was 75% of our customers say they want to build and run AI applications on our platform. They haven't done that yet. Some of them have run legacy AI applications, not Gen AI. Gen AI is a relatively new thing. So they have an intent. It's not like they have -- they're running, get to be clear. So with respect to -- those are all good questions. There are 2 questions there, really broadly. One is when do we expect to see traction. So right now, we have tiger team in the company that are engaged with a number of customers in terms of early opportunities. And our customers are experimenting. They are learning right now. It's the vast majority of our customers are not at a point where they have production, Gen AI applications ready to go. A lot of it has been consumer interest, but now enterprise interest again, my prediction here is that AI is also going through that phase where there's a lot of experimentation and learning. And it's also going to come down to reality of people wanting to get good ROI and total cost of ownership benefits by building these enterprise-scale AI applications. It's hard for me to sit here and say, when is that going to happen because that's going to be the time where we start really seeing workloads on our platform and making money on this. So that timing, TBD, but I think a lot of people today, I see are experimenting. And that from experimentation they have to get to product market fit for the AI set of applications and then take it to production. So which is why I look at this as a long-term trend for us. On NVIDIA, we are extremely, very complementary with NVIDIA, okay? So if you look at NVIDIA today, they, of course, have the GPU itself, and they have a software stack that they've provided on their GPU, it's called NVAIE, okay, including CUDA APIs, for example. And we use those. So we virtualize the GPUs. We use and make and available the NVIDIA software to [whoever] third-party customers who want to use it, that's part of what we offer, right, as part of an NVIDIA certified partner. But companies need more than just that NVIDIA stack, and sometimes they also look for alternatives. The stack doesn't include an LLM for example. So the LLM has to be on top of that. There are some MLOps things that are also required. So we are complementary. We are not trying to replicate what NVIDIA does already, right? We want to use what they have and build on top of that.

Simon Leopold with Raymond James. I'm struggling with, I guess, an aspect of how the company has evolved where -- at the time of the IPO. It was very simple, hyperconverged structure, HCI. Company went through a period where, to me, it felt overly complex and it feels like you're homing in on a new identity around multi-cloud. But I'd like to sort of get your explanation of how you want to identify Nutanix today.

We're a hybrid multi-cloud company, one platform for companies to run their applications and data wherever they like to run it. That's a simple way of looking at what we do. The underlying foundation for what we do is hyperconverged, right? We started there, but we've expanded to really provide this platform companies can use for running their apps and data everywhere.

[ Mehdi Hussaini ] from [indiscernible] International. Two follow-ups. Can you help me understand how the economics would change when you're training the models in the cloud and then you bring them into the edge. And that's the foundation of a next generation of a hybrid, but how does the economics work between enterprises that are on the edge and the cloud. And the second follow-up that has to do with the Simon's question. Help me understand how you're going to drive incremental revenue or ARR from database services and management. Maybe you could just peel off the layer and help us understand what exactly [ you can share ].

Yes. So 2 different questions there. On the AI question first. So these large language model sets are very expensive to train, very expensive. And so only a few companies are going to build these models first of all and they're going to be trained, pretrained on large publicly available data sets. And that's going to be offered -- some will be open source, but others will be paid for. Open AI is paid for, for example, LLaMA is free. And what companies are going to do is take those models, okay? And they're pretty large, right? They have huge model sets, but not all their applications need those massive model sets, right? And the smaller the models, the cheaper it's going to be for you to run from an infrastructure perspective, those applications. So if companies are going to fine-tune first of all, using their own data and they're going to make the models as compact as they need to be, and that's going to help them reduce the cost of running it, okay? Now as you get towards the edge, the cost needs to become even, even lower. And again, you're not going to do a lot of training on the edge. You're going to do inferencing and sometimes, by the way, the inference can be done on low-end platforms that don't even require GPUs necessarily. There's people who can do it on CPUs. So there's going to be a whole range of cost structures, right, ranging from high-end NVIDIA GPUs on massive farms to train these large language models to more smaller farms where you can fine tune and on your own data sets; two, really small edge boxes that could actually just do inference. So there's going to be a range. It's going to be small, medium, large, like with almost everything else we do in infrastructure. I'm sorry, let me answer the second question on database, sorry. So on database management, here's the value we bring. So we're not a database engine provider. So we work with third-party databases, whether it's proprietary ones like Oracle or Microsoft SQL or open source ones like Postgres, for example. What we do is we provide a layer of operational and management capabilities around the database that simplify life for a database admin. They have to deploy those databases. They have to patch and update those databases. They have to back up those databases. They have to optimize the use for licenses. All of those things we help do with our database management. And that's the value for NDB,Nutanix database service. And that's what we do. And we've got large customers who are using that, especially when you have a large number of databases because the number of database instances is also growing. More open sources databases are being deployed. More variety of databases are being deployed. And customers are struggling with how to manage those, and this is where we come and we help simplify how those databases get managed.

Nehal Chokshi from Northland Capital Markets. Nice job of framing up the significant opportunity that remains just even within hyperconverged infrastructure. You noted that there's -- now there's 1,000 Global 2000 customers that are Nutanix customers. They've had a 26x lifetime expansion. But what type of penetration does that represent within those customers at this point in time then?

Yes. You'll see Andrew answering the question in this deck, by the way, but the answer is we're still very underpenetrated in the large companies. There's a lot of expansion though.

Is it greater or less than the about, I would say, the 15% penetration that you showed at HCI of the various workloads.

That's a good question. I don't think it's about the penetration of workloads. I think our penetration into -- if you pick any particular customer, especially the large ones, we tend to be deployed -- Micron was one of the new ones where they're using as across the board, okay? That's I would say we have the bulk of their deployment and, okay, at this point with the win that we have. But that's a rare exception. If you look at the Global 2000s. In most cases, we have one use case, maybe one application or workload maybe 2, that they're running on our platform. So there are significant opportunities for workload expansion. Again, Rukmini is going to cover this as well as Andrew. Workload expansion, of course, expanding the number of instances of what we sell as well as selling more of our portfolio into these large companies. So I would say we have lots of room for growth. And you'll hear from Andrew as to why we're tilting upwards in terms of our focus on these large customers. Who's next. I think we've got to go to this side, by the way, we've not taken any from this side. Anybody from the side -- questions. All right. If not, we've got lots this side.

Jeff Bernstein from [indiscernible] Capital Management. Just a follow up on that question. 3-tier architecture, retirement of 3-tier architectures. How do you foresee that happening? Is there a point in time where they just become too cumbersome and you really do get a lot more penetration of the Micron variety.

Yes. I mean that's a really good question, Jeff. And we've been doing this for a long time and have really -- in the infrastructure world, things move slowly. So when somebody buys 3-tier, okay, they have a 5-year life cycle for those typically and they're slow to move, right? Companies don't adopt modern architectures that quickly. At some point, they're say, forcing function. In many cases, the forcing function could just be a new CIO, comes saying, I really have to transform. And there's a lot of inertia. And I think that's going to continue. Now one of the things I think that's going to force more of this is modern applications by operating in a multi-cloud world, these are the trends that are going to force people to say I've got to be more efficient. I can't have the large teams that I have to run these 3-tier architectures. I've got to simplify it. I got to run with much smaller teams. So those trends are there, and they've been there for a while, and we are -- we continue to eat away at this, which is why again, these are only projections that we gave you, of course, in terms of how much we can ease into and how quickly. That's it. Sorry, We'll have to defer the other questions to final Q&A. [indiscernible] we'll get back to that. Thank you all. I think it's time for a break now. We'll take 15 minutes, is it correct? So 15-minute break, please get some drinks, food, we will mingle and we'll see you back here in 15. Thank you. [Break]

Please welcome to the stage Chief Marketing Officer, Mandy Dhaliwal and Chief Revenue Officer, Andrew Brinded.

Good afternoon, everybody, and welcome back. My name is Andrew Brinded. I've been in Nutanix 6.5 years, and I serve as Chief Revenue Officer.

Hi, everyone. I'm Mandy Dhaliwal. I'm Chief Marketing Officer at Nutanix. I joined the company 18 months ago. Really excited to be here and chat with you about our go-to-market approach and our strategy. Take it away, Andrew.

Thank you, Mandy. So Rajiv talked about our market conditions and why they're favorable. And we talked about the 3 pillars. The first is around customers' preference for hybrid cloud, the second is around our growing partner ecosystem. And our third is around the changing competitive landscape. So let me unpack that in a little bit more detail, starting with the hybrid cloud point. So I was in a prospect recently running a workshop, and this is a bank, top 10 bank in the world. And when I was with that bank, they have 40% of their workloads currently sitting in public clouds. They're using AWS. They're using Azure. They're using GCP. They're using Ali Cloud, and then they have their own environments in their own private data centers. And they were talking about how complex things are getting for them. They have 5 different management tools. They have 5 different operations teams. They have 5 different financial teams that are looking at how they do cost governance around the different cloud environments. They had 5 different risk and compliance teams as well. And right at the start when we showed you the video of what Nutanix is trying to achieve, it was all about addressing that complexity. And what this prospect said to me was they said, we've gone rapidly into public clouds and we're now thinking about how we manage data and how we think about between clouds and what's on-premise and what's in the public cloud. And recently, there was an enterprise cloud index survey and that stated that 86% of customers are finding it complex to get into the public cloud. And that's why we're talking about the 3 user cases where we can help with the hybrid multi-cloud journey. The first is migrating workloads from on-premise into the public cloud without the need of refactoring. The second is around elasticity for those customers who have variable workloads at different periods and they want to be able to perhaps burst into the public cloud from on-premise. And the third is around disaster recovery, as Rajiv explained. So an exam question for us is how are customers going to manage this complexity and do they need software to assist them -- a software platform to assist them with managing this complexity. And that's where Nutanix comes into the market. Now the second area is around our growing partner ecosystem, and there's different types of partners. And I'm going to elaborate in a minute around what we do with each partner. But think of some of the big ones. We've got HPE, Dell, Fujitsu, where we've had long relationships with them with Lenovo and then more recently, the exciting announcement about our partnership with Cisco. From a public cloud perspective, we now have strong relationships with Azure and AWS and how we go to market with them. And then there's room for loads of applications to go on Nutanix, but particularly we're doubling down in our partnerships with Red Hat and Citrix. Now this third dimension is around the competitive landscape and how that's changed. It was only 10 years ago, we had 200 customers, 10 years ago. Today, we have over 24,000, but we've done a lot of analytics at how we see the opportunity for us as Nutanix, and we think there's 100,000 companies globally that will have interest in Nutanix's product set of which we have 24,000 today. Rajiv alluded to Broadcom buying VMware and how we're seeing that play out in the market. And what we hear from prospects and customers is 3 areas of concern. The first is around how pricing will pan out with that acquisition. The second is around what support will look like. And the third is around how much will be spent on research and development and what the product road map will look like. Now we've always been able to migrate workloads from VMware on to Nutanix in a very efficient way using our software. We're constantly thinking about how we address that market opportunity with services to help customers migrate. And we do think that at the top of the pyramid with the largest customers, the G2K and beyond that, that initially customers will go for Azure vendor strategy. So VMware is a product they've used for a long time, and it's quite complex to unpick that from their environment if they choose to do so. So we think that we'll see the dynamic initially at the top of the pyramid being dual vendor. We've seen that already in some of the wins that we announced under the earnings -- last earnings announcements, which we've mainly talked about and we've seen that in our pipeline and how that's grown over the last 6 to 12 months. So that's how we think that will play out. So we do think it's a favorable market environment for those 3 reasons, the hybrid multi-cloud journey customers are going on, our growing partner ecosystem and also the competitive dynamics. But let me talk a little bit about how we go and address that. So what is our strategies for addressing the opportunity that sits before us. And we're delivering that under 3 different pillars. The first is how we strengthen the go-to-market engine. The second is how we're going to capture more workloads. And the third is how we will drive the opportunity that's in front of us around hybrid multi-cloud. So let's unpack them in a little bit more detail. So firstly, when we talk about the go-to-market framework, and I'm mainly talking here about new ACV, what I mean about that is the landing and expanding rather than talking about renewals. And we see it under 3 different pillars. And the first one is what I'd describe as talent. And this is how we think about our people, how we train our people, how we attract people. And we have improved our productivity in this area. For the last 2 years, and everything I'm talking about today is CAGR since FY '21, which is when we had the last Investor Day, we've had an 8% improvement of our productivity. We're able now to hire the best in the market. And why is that, well, the market dynamics are favorable to us. It's a moment in time for us as a company where there's a lot of interest not just for customers and prospects, but for people who want to join Nutanix' sales team. We do have a very broad solution now. We need our sales teams to understand everything from traditional applications to modern applications. They need to be able to stand all sorts of storage. They need to understand critical applications, databases, they need to be comfortable that we're talking about the edge, comfortable with talking about the core data center and comfortable with understanding the public cloud. So we're spending a lot of time training and upskilling our team. We've just focused on role-play training for everybody to get better and better at the skill at the acumen of a sales professional. And we're also hiring sales specialists, this was something that we weren't doing a few years ago, and that's because we've now got a breadth of portfolio solutions, and we need our team to understand it, but sometimes we need to really double down in front of the customer. Let me talk a little bit now about that second area, what we describe as coverage. And we're doing more and more big deals. So we class big as over $1 million. And again, I'm talking about new ACV here, and we've had a CAGR over the last 2 years annually of 25% to 25% growth in bigger deals. We've already mentioned that we are now in over half of the G2K, and we are seeing pipeline build on the background of Broadcom acquiring VMware. The third pillar to talk about is our average deal sizes. So our average deal size has grown 7% CAGR again. Again, I'm talking about new ACV. And why is that? Well, we've migrated from having lots of different products, a few years ago to now having portfolio solutions. So it's easier for our sales teams to position it in front of our customers. It's easier for our customers to buy. And because we work near on 100% through the channel, it's easier for the channel to sell them. Think about them as bundled solutions. And we do market those bundled solutions, portfolio product solutions in 3 areas. We have something called starter, something called Pro and something called Ultimate. And we are seeing good growth rates in the higher tiers of our portfolio product solutions. All of that leads to increased deal sizes. And under quality of sale, I should also mention about our renewals team. So when we do renewals, we have a customer retention rate, GRR of over 90%, and that's on a consistent basis. We're able to transact at good economics. We're good at getting appropriate appreciation when the customer comes out for renewal. And that's all managed from an inside sales team rather than a field sales team, so it means that we're transacting in a very cost-efficient way. That team now does not just renewals but also expand, which gives us more efficiency in expansion. So let me stay with the go-to-market area and talk a little bit more about how we see the market opportunity. And this is a typical segmentation period that you would have seen before. We've acquired a lot of data and we're very data-centric in how we [indiscernible] decisions. And we know that roughly 10,000 customers around the world are 65% of what we call SAM, serviceable addressable market. So this is where we think is our market opportunity. And then as you move down, there's, as you would expect, a lot more customers out there, but they represent a lot lower SAM. So the way that we go to market is we think right at the top of the pyramid, we align account teams with system engineering teams. We sell the full portfolio of Nutanix, and we make sure they're supported by appropriate specialists. Meanwhile, lower down the pyramid, we're very much focused on channel autonomy, so enabling our channel partners to sell in an autonomous fashion. This means we have the right cost models and the right scale models despite where it is on the pyramid. Now on this table in front of you, you do have a little guider on the left, and that's about customer penetration. So that orange bar represents roughly how many customers we think we have in each of those tiers. Now to the earlier question that was given to Rajiv, we think between 25% and 35% market share we have of our existing customer base, so between 25 and 35. So what does that all mean? It means there's lots of opportunity to expand within our existing customers as well as a lot of white space out there for us to be able to go and sell to. So I've covered the sales side. And Mandy, why don't I pass it over to you to talk about how we go to market from the marketing perspective.

Thank you, Andrew. So we go and work in tight alignment with the sales organization. When we source new ACV pipeline, we really have a differentiated strategy based on level of the pyramid. So the thing to remember here is our level of investment is commensurate with the size of the opportunity. So you see on the right side of this chart, high-touch marketing, higher up in the pyramid, digital marketing strategy being employed to drive a velocity land and expand motion in the mid- and lower tiers. So I also would like to share with you some of the data around how we've been generating demand. If you look at this chart over the last 2 fiscals, we're actually generating demand efficiently while we're growing pipeline. And pipe generation efficiency is simply defined as pipe generated in ACV divided by demand generation spend. So we're growing pipeline and optimizing our demand Gen set. And we're driving to this 2x efficiency through 3 main levers. We're leading with a digital-first approach and leveraging physical when necessary, particularly at the top of the pyramid. We're leading with solutions instead of products and including a balanced approach around driving awareness within these accounts. And we're also maximizing the highest ROI marketing tactics with the large account focus. So we're getting very, very prescriptive on how we're driving that demand. Into this fiscal year with the segmentation pyramid, we have tighter alignment with the sales organization and also our leveraging account-based marketing in a more meaningful way. Looking ahead, we have our sight set on using AI to help us get even better and modernizing our marketing technology stack to use the latest tools that are available to leverage propensity and intent to do modeling to be able to drive revenue much faster within our base and also drive much more thought leadership and awareness for our hybrid multi-cloud strategy in the market. I'd like to shift now to talk about a customer's story, I'm going to share 3 stories with you all today. And the real focus here is the continual demonstration of us to expand our footprint and monetize our base. This is an example of a Fortune 100 manufacturing company. Rajiv spoke about Micron earlier. This is an anonymized case study, and this story is all about infrastructure modernization. We've known this customer and have worked with them for over 3 years. We initially landed an edge use case with them to Rajiv's earlier point about starting small. We expanded into more of their data center workloads and most recently, because of the conversation around the acquisition of VMware by Broadcom, this customer was really looking to implement a dual vendor strategy and looking to derisk their footprint. So most recently, we talked about this in our last earnings call as well. This is a competitive win. This is one of the early wins that we have on that front. This customer has moved more of their business critical workloads to us, on-prem and also expanded across 17 sites in their factories at the edge. So again, another journey that shows the partnership with this customer to be able to grow their footprint and build better trust with the customer and help them solve their business needs. Andrew, back to you to talk about ecosystem.

Thank you very much, Mandy. So I introduced about the ecosystem. And these are companies where we've had strong engineering integration with them to make sure that it's a strong go to market together. And let me talk about each of these 4 towers, one by one. Now the first tower is about platform partnerships. Now we still believe in choice for the customer, the choice of hypervisor and choice of hardware. And within that choice, we've had a partnership for some time now with HPE. And with HPE, we tend to win big when we go to market together. We've got a partnership with Lenovo and that's great for us for new logos. And then we got a partnership with Dell, which is a complex partnership because of the history with VMware, but when we do go to market with Dell and we've got some great customers, we're very much in lockstep with them for those customers and making sure we deliver that well together. But the exciting announcement over the last few weeks has been about the partnership with Cisco and this is a true OEM. What do we mean by that? Cisco is selling Nutanix products. We know they've got a lot of HyperFlex customers who will migrate over time on to the Nutanix platform. It is a deeply engineered solution together. And when I go and see customers around the world and ask them about different companies, they talk well about Cisco. It's one of those companies that people are positive about. And it's also the case that they've got great penetration in the G2K. So again, that bodes well for how we move up the pyramid. In that second pillar, which is around cloud providers. We have got the deep partnerships with AWS and Azure. Now what does that actually mean in terms of going to market together? Well, if you were to go into their marketplace, you will find Nutanix on their marketplace. Customers can use their credits, their public cloud credits to be able to buy Nutanix products. Customers are able to go to -- customers are able to talk to those public cloud providers in terms of how could they work with Nutanix. And it's also -- our announcement with Microsoft was only made in October. And that was because of deep engineering integration, but it was the first kind of offering that Microsoft have had of this type. And with it, they get something called a portable license and this is pretty unique, so let me explain it. So if a customer is using Nutanix on-premise, they can take that Nutanix license and they can use it in the public cloud. And likewise, if they choose to migrate workloads back from the public cloud to on-premise again, they can use that same license to be able to do that. So let me talk about this third tower, which is around channel partners. Now we have made a decision that near on a 100% of our transactions are through our channel partners. Why is that? Well, we get great value and great scale from our channel partners, but also we did some analysis, which showed 9 out of 10 of our new logos for Nutanix. We're not new logos for those channel partners. So what that means is there's such opportunity for those partners, particularly if they're feeling unsettled at the moment because of the Broadcom acquisition of VMware, not knowing how that will exactly pan out for them and their customers for them to start thinking about building their business on Nutanix. So we're looking at more and more training for them. We're looking at how we do rebates for new logos and improve that because we want to get that continuous scale. Rajiv talked about our AI view and GPT-in-a-Box. Why have we put it together in that way. We've put it together in a way that's very easy for our channel partners to be able to communicate and sell. We know that a lot of their customers are going to come to them and ask about AI and ask about which direction they can go in. And we've made it very easy for them to transact so we do expect to get leverage and scale through our partners for GPT-in-a-Box. The final area is around ISV partnerships and Red Hat is great for modern applications and how we partner with them. I'll just double-click a little bit on Citrix. So Citrix has been in a long partnership with us. And if customers want to use on-premise with Nutanix with Citrix, that's the traditional solution we've had for a long time that's proven. But one of the new solutions that we're seeing a lot of market penetration on is an ability to have a public cloud stack with Nutanix, with Citrix delivered off-premise. So if customers are saying, do you know what, I want to migrate. I like Citrix, but I want to migrate into Azure or AWS, then Nutanix can be a great conduit for that. And the financial services example that Rajiv gave earlier on is an example of a customer at scale, a very big bank at scale that has chosen to go down that path. And likewise, we'll be talking in a minute about the Department of Work and Pensions, one of the biggest public sector departments in the world who have made a similar decision. So I've talked about how we feel pretty strong on the go-to-market engine side. We talked about how we're doing, I think, a reasonable job in terms of partnerships. But let's talk about expanding workloads and what that actually looks like. So we have got the opportunity around VDI, like I've just described, we have a partnership around Cisco. But let's think a little bit about the different environments we're going to have. We're going to have core data center. You know we're good at that. I've talked about public cloud and what that looks like. But ROBO and edge, what does that actually mean for a lot of customers? Well, we've got customer deployments in ROBO, which means remote office branch office to smaller office environments, that's been part of our history. We've always done that. Edge environments, we're good at customers uses for surveillance cameras for remote military deployments, on ships, on submarines, with retailers, on oil rigs. These are the sort of environments where Nutanix has historically been good, and we think that bodes well for the future. And business critical apps, [ take ] databases, as an example, is something of strength for us. Traditional applications or modern applications. So for the customer, when we're talking to them, it's the greatest story to have whether they're doing traditional or modern applications, whether they're thinking about AI, whether they're doing that at the edge, whether they're doing it in the core data center or whether they're doing that in the public cloud, having that one platform across everything to help them have the same environment wherever they're trying to deal with their applications and data. Now I talked about Red Hat as an example of a great partnership. And Mandy, I think you've got another story for us.

I do. Thank you, Andrew. This is a case study around a large banking customer in Asia. This is an example of application modernization. We landed this account based on our strength in HCI and demonstrated the breadth of our capabilities to expand our footprint successfully in this account. Three years ago, they started running a small Tier 2 application on Nutanix. We since have expanded our footprint to the customer to help bring their business critical Tier 1 applications, including their in-house CRM, their fraud detection and a revenue-generating super app back on premises. And we maintain their OpenShift layer as a common Kubernetes platform across both their private and public clouds. This is one of the main reasons why we got this win in addition to our data services capabilities. So this shows the strength of our ecosystem in play here with OpenShift being the common denominator and showing a way where we can run an application modernization play. So Andrew, back to you to talk about [indiscernible].

We've talked about go to market. We've talked about the workload expansion. Let's just finally talk about hybrid multi-cloud and capturing the opportunity there. So as a reminder, 3 user cases, cloud migration without having to refactor elasticity and disaster recovery. And going back to the exam question we set right at the start around software. It's -- does a customer need that same platform, that same environment, whether at their edge, whether the core data center, whether in the public cloud. Do they need the same platform but also the same data and storage services? Do they need the same management and data services throughout it all. And if they do, then hopefully, Nutanix can be who they utilized for that. One thing we haven't talked enough about today though is total cost of ownership. So Nutanix has always been about saving customers money. Rajiv explained what we mean by 3- tier, which is where they have servers, they have storage, they have networking. It's all purchased separately. What Nutanix does is in their own data centers enables them to buy what they need when they need it. It takes up a smaller footprint in the data center. That's good for environmental costs, but it also saves them money. And we also save them money on operations typically where you'd have 5 people utilizing 5 people managing a traditional infrastructure, it's typically 2 for Nutanix, but those same principles of what we then take into utilizing Nutanix in the public cloud. So the wins that we've talked about, about using Nutanix cloud clusters in a public cloud environment are all based on having a TCO conversation with the customer. We're able to run Nutanix in a much more efficient way because of everything we've learned about how we manage stuff on-premise, but applying that in the public cloud. So on that note, Mandy, why don't you tell about this recent win?

Absolutely. This is the Department of Work and Pensions that Andrew spoke about, this is truly our value prop around hybrid multi-cloud in action. For those of you that don't know, DWP is the biggest public sector department with over 90,000 employees in the U.K. And to give you an example of a common benchmark here in the U.S. The IRS has 90,000 employees. So just to give you a sense of scale, and they process over 20 million claims for their citizens on an annual basis. We originally started with DWP in 2017 with a small private cloud workload set. Since then, during the COVID era, they migrated their Citrix VDI to Nutanix, so they were able to meet the demand that they were under pressure for during that time frame. Most recently, they've moved to a hybrid multi-cloud play. So we are helping them become a simple, cost-effective journey into the cloud. So as you can see by the quote, we are able to get them seamlessly into the cloud to run in a true hybrid multi-cloud model. It's a perfect example of us starting with a small position within a customer, expanding into a bigger workload set and now ultimately helping them realize their mission around being a hybrid multi-cloud user. So another great example of something that we're very proud of and look forward to doing more of this for other customers as we share the story out broadly. As we ramp I'd like to summarize the case studies I have reviewed with you in the context of this slide. This slide boils down the essence of what we do and the value prop that we offer. We provide a consistent, simple and cost-effective operating model that inspire -- that the entire customer environment, whether that's on-prem, in the cloud or at the edge. This is our hybrid multi-cloud operating model, and we make it possible through the power of our platform. We eliminate the vendor lock-in. As you've heard. Our customers enjoy choice at every layer in their -- of the stack across clouds, apps and technology and even the hypervisor. We support their ability to run their applications and workloads where it makes the most sense for them based on their governance, their performance and cost parameters. And our customers benefit from this dedicated support organization that we've built over the years with the leading NPS of 90. In summary, ease of use, choice, flexibility and customer delight are the guiding principles that continue to drive us forward in our mission to simplify hybrid multi-cloud complexity today, tomorrow and in the future. Andrew?

Thank you, Mandy. So let me conclude in terms of what we've taken you through today. And we talked about that subscription transformation we've been on. We've talked about the market opportunity, and we talked about our priorities. So on the subscription journey, we've gone from not having a customer success organization a few years ago to now having a customer successful organization that's based inside that is very efficient in charging of appreciation, efficient in getting a GRR of greater than 90% and is also now doing expand. The market opportunity for us is to address that cloud complexity and how customers are going to deal with that, utilizing Nutanix as a platform to assist them. We've also talked about the market opportunity because of the tailwinds we're getting because of our main competitor going through a changing period. We're clear on our priorities, strengthen that go-to-market engine, capture new workloads and capitalize on hybrid multi-cloud. So in closing, how do I see it from a customer's perspective? Well, I think we're future-proofing the future investments. If they want to modernize on-premise, then Nutanix can help them do that. If they are utilizing traditional modern workloads, then Nutanix can help them do that. If they're operating at the edge, then we're well placed to assist in there. And if they're thinking about migrating workloads into the public cloud and managing the public cloud with more efficiencies, then Nutanix can help them there. So it's one platform to run apps and data anywhere. Thank you for listening, and it's a pleasure to pass over to Rukmini.

Please welcome to the stage Chief Financial Officer, Rukmini Sivaraman.

Hello, everyone. It's great to be here. Thank you all for joining us, both here in person, in the room, and to everyone joining remotely. I will start with some financial highlights, and we will spend a short amount of time taking a brief look back just like Rajiv did in his portion. And we will spend the vast majority of this time, my time here together with you looking forward. We will also save some time at the end to talk about our philosophy around cash allocation before we wrap and go to Q&A. If there's one set of things, I'm hoping that you all will take away from this section, it's this set of financial highlights. We are driving to be a $3 billion ARR company by fiscal year 2027. And that means a 20% -- approximately 20% ARR CAGR over this period from fiscal year '23 to '27. We are also expecting to generate about $800 million of free cash flow by fiscal year 2027, that's the midpoint of our range of $700 million to $900 million. We have talked before about being a sustainable, profitable growth company. And we have also talked about the Rule of 40 score. And so today, we're happy to combine what we believe about our revenue growth trajectory and our free cash flow trajectory to give you a target date for when we expect to be a Rule of 40 plus company, which is by fiscal year 2027. Stock-based compensation, another area of focus for many of you, and we are now happy to give you a target for when we will get to less SPC being less than 10% of revenue, which is by fiscal year 2027. We'll continue to sort of work on that and have that become a smaller and smaller percentage over time. We talked about our share repurchase authorization, which we announced on our last earnings call. Our Board has authorized us to repurchase up to $350 million of shares. And we'll talk more about that along with a general framework for how we think about cash allocation. One theme you'll see throughout this financial section is around durable growth and increasing profitability. Durable growth, you heard from all of us today about how growth is a priority, how we have a large market ahead of us. So durable growth remains a priority. And we want to go and capture that opportunity and drive that growth in an efficient way by increasing profitability as we drive that growth. So durable growth and increasing profitability you see as a theme throughout this. Let's take a brief look back. As a reminder, the last time we were in a forum like this at our last Investor Day was towards the end of our fiscal year '21. And so let's look at what we said then and how we did against those targets that we set for ourselves. To orient you here, the light purple bars are what we said back then. And the dark purple bars denote reported figures, what we actually did. And so if you look at fiscal year '23, we delivered 27% CAGR on ACV billings, which was higher than 25% that we had expected to do back then. Now the macro environment, of course, was quite different back then than it is now. And so we're happy to have been able to deliver this growth. Despite that, and as Rajiv talked about, the mix was a little bit different from what we expected back then. We did stronger on renewals and the new and expansion portion of our ACV billings came in a little lower than what we expected back then and what we believe it's longer-term potential to be. Let's talk about bottom line targets. So at that time, again, same, the light purple bars represent what we told you back then and the dark purple are what we delivered. On operating margin, we weren't really -- if you look at the midpoint of that operating margin range, it was still effectively breakeven, but we managed to deliver 9% non-GAAP operating margin in the year that just ended in July. And from a free cash flow perspective, we came in above what we had expected to do at $207 million of free cash flow. How did we drive this? A good portion of it was the mix. So with renewals expanding as a mix of our business that certainly drives leverage to the model. We've also been very prudent about how we run the overall business and capture a lot of efficiencies in our operations overall. All right. Let's look forward. This is an interesting time to be giving you all multiyear outlook, just given how uncertain the macro environment continues to be, things change from week to week, month to month. So consider this our best estimate given what we know today about what we think our multiyear outlook is going to look like. So what we'll do as we go through this, you'll see is that we will give you ranges for fiscal year '25 and for fiscal year fiscal '27. And those will, of course, be grounded in the actual performance that we delivered to fiscal year '23. And at our earnings call, we also gave you guidance for fiscal year '24. So that's where this will -- the foundation, and then you'll see, we'll give you ranges for fiscal year '25 and for '27. ARR, we believe is going to be a good indication of the overall growth of our business. ARR, as a reminder, it represents the annualized value of our entire installed base customers that we have actively with us. I want to make one note here on -- and a reminder that not all of our revenue is ratable today. About half approximately is ratable, our support and maintenance portion is ratable, the license portion is recognized upfront. ARR also captures our ability to both retain and grow the base. This is another reason why we like this metric as a growth metric for the company. We expect ARR to get to that $3 billion plus number by fiscal year '27 at a CAGR of approximately 20% over this period. How will we do that? What are the vectors that will drive that growth? First and fairly straightforward is new customers. We are bringing on new customers on our platform every quarter. And so that is going to continue to be a driver of growth. And you heard a lot from Andrew on how our go-to-market organization is focused on going off to the right set of customers and deploying the right set of strategies across that entire pyramid that you saw. So new customers, winning new logos. And then there are 3 ways in which we expand with our existing customers. We have about 24,000 customers already on our platform today. And there's 3 main ways in which we expand with them. One is usage-based expansion. So a good example of that would be virtual desktops or VDI. So if a customer had bought some end seats from us for VDI, over time, that end become grows over time. So they might buy 2-end or 3-end and continue to expand over time with us. So that's usage expansion. The second vector is around workload expansion. You heard a lot of that on Andrew's presentation as well. So that's an example where, again, if you take that same customer who's using us for VDI today, they might start to users for an AI workload or for a database workload. That's another way in which we expand with our existing customers. And the last pillar that you see there is around portfolio expansion. So we might have customers who initially purchased our Nutanix Cloud Infrastructure platform, our core NCI platform. But over time, they add cloud management or they may add NDB or other portions of our portfolio. So when you think about growing ARR, it's new customers and then expansion across those 3 vectors. Now when you think about new and expansion portion of our business, so the renewals is a foundation for this growth and will help really lay the foundation for us taking that ARR pool, making sure we're retaining all of those customers and then building on top of that. When you think about that new and expansion piece, one way to think about it somewhat mathematically is rep productivity. You think about all of our sellers who are out in the field and what is their productivity, which we define as new and expansion ACV per sales rep. And then there is the number of reps, sales reps that we have. So sales productivity and the number of sales reps. Simplistically, those 2 multiply together give you sort of the new and expansion opportunity and our achievement of those growth levels. So on rep productivity, over the last couple of years, and you heard the same number from Andrew, we have seen an 8% cumulative annual growth rate from '21 to '23, so we've been able to drive some nice improvements in sales rep productivity over the last couple of years. However, we don't think we're done. We still believe that we have room to improve on productivity. So you will see that underlying the numbers that you'll see here in financials, we're assuming that productivity continues to improve over this period at an 8% CAGR over the next couple of years, and then at a 3% CAGR following that as we get closer and closer to what we would characterize as benchmark levels of sales rep productivity. What will drive that? I'll summarize this year. It's really a summary of what you heard, I think, from Andrew and Mandy and Rajiv earlier. Solution selling. We now have a broad portfolio. We're bringing on board specialists who can go deeper with customers with regard to that portfolio. So selling more of that portfolio is going to help drive productivity. Better channel leverage. You've heard Andrew talk a lot about our channel partners and how important they are to us and how we're enabling them and incentivizing them to do more for us, thereby driving our productivity. Partnerships, talked a lot about partnerships today already. Larger deals. You saw some nice numbers from Andrew on how our 1 million-plus new ACV deals have grown to contribute more and more to our overall business. You also heard about enablement and talent as a theme from the go-to-market team. And that's going to help us drive a growing number of more tenured reps who are able to drive better productivity through the system. So I said in our sort of simplistic mathematical equation, the second input was total number of reps that we have. And so what you'll see here is we plan to make disciplined investments into sales rep head count over this period. We're anticipating adding reps at about a 5% CAGR over the projection period. These will be targeted. They will be thoughtful, and they will be aligned with where Andrew and his leadership team see the opportunity. So we want to be targeted and precise and invest thoughtfully where we can -- we believe we can get the highest return. So productivity, growing at an 8% CAGR over the next couple of years and then 3% CAGR following that and rep head count growing at about 5% over the next few years. Number of large customers. So this is -- this chart, you saw this in Rajiv section earlier, but this talks about our momentum with million-plus ARR customers. And you'll see that we've had nice momentum on this front and that we also have 15-plus customers who are spending over $5 million of ARR with us. And that number is up quite significant year-over-year. You put all that together, and let's talk about ACV billings and ARR. Now both of these metrics are annualized figures, which means there's no contract duration factored in here. These are annualized numbers. ACV billings, of course, represents billings within a given quarter, and ARR is more of an installed base number, right? It's a stock metric versus ACV billings being more of a flow metric. Now I do want to say that the ACV billings we had given it -- we had started disclosing and guiding to it as an important marker as we went through the subscription transformation as contract durations continue to decline for a portion -- when we were going through that transformation. Over time, we believe ARR captures that benefit, and so we'll be over time phasing over to ARR and we'll stop guiding to ACV billings and reporting it. But we'll give you some time. We're going to continue to do that over the course of this fiscal year. So it's really starting fiscal year '25 that we will phase out ACV billings and move to ARR. And of course, we'll continue to report all revenue and all the other P&L metrics that we do today. So these are our projections for ACV billings. So we will be at over $2 billion. You can see the range of $2.1 billion to $2.2 billion at about a 22% CAGR over the next 4 years. And this will benefit from the growing base of renewals that we will see coming through over the next few years, which is really passage of time. All of the transactions and customers who have purchased which is over time, will come up for renewal, which leads to a growing and increasing base of renewals that's going to help this growth, along with improvements in the new and expansion ACV that we've talked about. ARR, which is the same chart that you saw earlier. It's going to be driven by a foundation of strong renewals 90-plus percent GRR. And on top of that, as we drive more new and expansion business allows the ARR to grow at this 20% -- about 20% CAGR over the next 4 years. Now let's talk about contract durations. When you think about the annualized metrics that I just showed you, and think about translating that into total billings and total revenue, the bridge between those 2 is contract duration. Contract duration over the last few years has been coming down. So you will see we ended fiscal year '23 with 3 years on average contract duration, and this represents average contract duration across both new and expansion and renewals. And what we're expecting to happen is that this will continue to decline over the next few years at a slower pace. And the reason for that is largely that renewals becomes a larger portion of total billings. And what we've observed is that our new and expansion business contract duration tends to be higher than our renewals contract duration. And we believe the reason for that is when customers purchase from us initially, they are often combining this with their broader infrastructure deployment. So as an infrastructure software company, they may often, for example, be using a budget in conjunction with the server that they're purchasing from one of the partners you saw, Dell, HP or Cisco. And so when we -- when they think about that, that's a longer-term duration typically where those appliances are sold for longer terms. And so it's natural for them to purchase a longer duration when they come on board to our platform. At renewal time, there is usually not that associated other purchase that they may be making, which is why we believe our renewals average contract duration is lower than our new and expansion. So as that mix grows, we expect this overall an average contract duration to come down slightly over time. So when you think about contract duration as a bridge between the annualized values and the total billings and total revenue, here's what that looks like from a total billings and a total revenue perspective. So one thing you'll notice here is that the CAGR is approximately a 15% CAGR, which is lower than a 22% CAGR, for example, that you saw in the ACV billings. And that is largely driven by the contract durations continuing to come down over time as a result of the mix. The total billings, we will be at $3.5 billion to $3.7 billion of total billings by the end of this period, and you can see the fiscal '25 estimates here at the midpoint. And from a revenue perspective, we expect to also be above $3 billion in revenue by the end of this period. One other thing to note on revenue is that as we continue to evolve into the subscription model, deferred revenue plays a role in revenues coming into the year, a good amount of our revenue is coming from the deferred revenue waterfall and a good amount of is also renewals, which gives us more visibility into the revenue as a whole and making it more predictable. Let's summarize the growth metrics that we talked about today. ARR, approximately 20% CAGR over this period ending at $3 billion plus ARR. Total billings and total revenue, a CAGR of approximately 15%, again, driven largely by the contract duration dynamics that we're seeing and both also well above $3 billion is what we expect it to be by fiscal year '27. Now let's talk about bottom line drivers and what we think will drive leverage in the model as we grow the business at the pace we just talked about. I'm going to give you the summary here, so you can see it. On the operating margin front, there's a 9% that we delivered in fiscal year '23. We expect to drive continued leverage to the model, getting into the low 20s percentage of operating margin by fiscal year '27. Free cash flow, I know is a number and is a metric that a lot of you focus on, and it's an important one for us. And you can see here, we are happy to update our fiscal year '25 number, which most recently was at $300 million plus. We have guided to [ $280 million ] to $300 million for fiscal year '24, and we're happy to update our fiscal year '25 number to be $400 million to $550 million with the midpoint of $475 million. And we expect beyond that, the fiscal '27 number, which we have not given you all before '27, we haven't gone out that far before. We're happy to give you that outlook as being the $700 million to $900 million of free cash flow by fiscal year '27. How will we drive this? How will we get to these levels of operating margin and free cash flow during this period? We believe there are 3 main factors that will help us drive this bottom line improvement. The first one is one you've heard us talk about several times before, which is the mix of our business. When you think about total billings, total billings is quite correlated to free cash flow. As renewals become a larger and larger mix of total billings that naturally drives leverage in the model. We'll talk more about that in a minute. Sales rep productivity. I already talked about what we expect around sales rep productivity going forward. And that's another important source of leverage because our people are producing more with the folks that we have. And finally, we expect to continue the approach we've taken and we're being very thoughtful about where we're investing and continuing to drive operational efficiencies wherever we can across the organization. Let's look deeper at the first one, which is renewals leverage. This is an important one, and there was a version of this slide that you -- some of you might remember from the last Investor Day. So what this is showing is the bars represent sales and marketing spend as a percent of revenue. And the purple numbers at the bottom represents renewals as a percent of total billings -- not ACV billings, total billings. And you'll see that there's an inverse correlation between the two. The higher the renewal mix, the better the efficiency on the sales and marketing as a percent of revenue. And this is primarily driven by our cost of transacting renewals is significantly lower compared to cost of transacting new and expansion business, as you can imagine. So one of the data points we've included here from our analysis and talking to other companies in this at-scale subscription companies is that once they get to at-scale, when they get to a certain scale, and you have enough time has passed since they have a big base of renewals already built up, we believe that 70% to 75% of their total billings are coming from renewals and the rest is coming from new and expansion. So you'll see that in the most recent year that we reported in fiscal year '23, only about 1/3 of our total billings came from renewals, so we still have a lot of room to get to what a lot of these at-scale companies have and what they benefit from, from a financial perspective around efficiencies. We talked about sales productivity already, so I'm going to move on to the disciplined expense management. And this gives you a little bit of a sense of the investments we plan to make. Before we go into the forward-looking view, I want to orient you actually on something that's not on this slide, but you'll see when you look back at our financial history and our reporting that for fiscal year '23, our operating expenses on an absolute dollar basis was about $1.4 billion. If you look back to fiscal year '20, that number was $1.5 billion. So over that 3- or 4-year period, we grew the top line quite nicely, but we did that while keeping operating expenses flat to slightly down. And we use that opportunity to drive a lot of efficiencies into the system. But you've heard from all of us now that we believe our time is now. And in order to go and capture this large market opportunity, we are going to make some very targeted investments, both in sales and marketing. You've heard some of the areas that Andrew is thinking about and Mandy are thinking about as they think about their strategy going forward, and also drive continued investment in R&D to drive innovation. It's a dynamic market. We have a big vision that Rajiv talked about, and we want to make sure we are investing in alignment with where the opportunity is. You'll also see that expenses will continue to grow slower than revenue because our intention, again, is to drive durable growth and increasing profitability. So those are some of the ways and the drivers that we believe will allow us to deliver this leverage in the model to get us to low 20s operating margin and deliver $700 million to $900 million of free cash flow in fiscal year '27. Stock-based compensation. We've talked so far about mostly non-GAAP metrics. And the biggest adjustment for us between non-GAAP and GAAP typically is stock-based compensation. And so you'll see here the dark purple bars represent actuals. So we have clearly been focused on this. We continue to drive that SBC as a percent of revenue down over the last 3 years. And we intend to continue to do that. Rajiv alluded to this. We have treated and we'll continue to treat SBC as any other expense line item, making sure that it is deployed very thoughtfully across our employee base. And so we are happy to give you a time frame and a target level of less than 10% of revenue by fiscal year 2027. Let me orient you on this slide. Across the top, you see our journey from being a presubscription company, back in 2018, to the last few years of our subscription phase and then looking forward into more of a scaling phase. And across -- each of the rows represents revenue growth, operating margin, free cash flow as a percent of revenue, and Rule of 40 at the bottom, which is the sum of the first and third rows, the sum of revenue growth and free cash flow margin. If you look at fiscal year '18, this was before we were -- we had embarked on the subscription journey. We were a Rule of 40 company then. And you see that most of that 40 score came from growth. We were just about breaking even on free cash flow. As we embarked on the subscription journey, which we believe is the right thing for our customers and for the right business model for us. We saw the financials do what happens to most subscription companies when they make this journey, not natively subscription companies, but for a lot of the companies that have made this transition. We are now happy to be able to say at the end of fiscal year '23 that our subscription phase is complete. We have now transacted renewals at scale, and that pie is growing each year as the renewals waterfall grows. We have demonstrated leverage in the model through obtaining both positive free cash flow and positive non-GAAP operating margin. And now our work is not done, of course, we have a large opportunity ahead of us. We're going to continue to scale in our scaling phase to get to that $3 billion plus ARR number that we're targeting for fiscal year '27. You can also see here that in fiscal year '27, you sort of sum up that row, the first row and the third one, revenue growth and free cash flow margin, to get to a 40-plus number by fiscal year '27. Let's talk about cash allocation. We're happy to be in a position now coming off of a year like fiscal year '23, where we generated over $200 million of free cash flow and are now in a position to be able to talk to you all about how we think we're going to -- what are you going to do with that cash? So when you think about cash allocation over and above investments that we're going to make for organic growth that you just saw in terms of where we're going to invest for organic growth, there are really only a few things that we all know this cash can be used for. The first one is what we announced at earnings, which is a $350 million share repurchase authorization. And we believe this is a reflection of our continued confidence in our long-term outlook for the business. We can also look at our capital structure. So we have 2 convertible notes in our capital structure, one that's due in 2026 and the other one that matures in 2027. The interest rates on our publicly traded notes, which are -- which mature in 2027, is 25 basis points. And our cash on our balance sheet is earning a lot more than that today. And so it would have been an NPV negative trade to really try and retire those notes. So this is -- so we didn't choose not to do that, of course. But this is something we will continue to evaluate at the right time to see how we think about actively managing our capital structure. The other option for this cash is to consider tuck-in acquisitions. We haven't acquired any companies over the last several years, and this goes back to the -- to where we were just a few minutes ago, where we were going through our subscription transformation. And we wanted to stay focused on the execution. However, we do keep an eye out opportunistically for opportunities in the market for tuck-in acquisitions, mainly focused on talent or where it might complement our portfolio. And we will continue to retain optionality to do some of those things. On the share repurchase authorization, I'll remind you that we had no expiration date on this authorization. So we're retaining some flexibility in terms of how we transact this, and it will depend on a variety of factors, including market conditions. We do expect to start transacting on these repurchases relatively soon. I finished where I began, which is around these financial highlights. Again, if there's one thing that I'd like for you all to take away, one set of things that I hope you'll take away from today, it's these set of financial highlights. We're driving to be a $3 billion ARR company by fiscal year '27, implying approximately 20% CAGR from now until then. We will do so efficiently, and we will drive -- we expect to drive $800 million of free cash flow by 2027. We are targeting being a Rule of 40 company by fiscal year '27. We're happy to give you a perspective around stock-based compensation that less than 10% of revenue is what we expect by the end of this period. And you heard us talk about capital allocation around our cash. Durable growth, increasing profitability. That's what underlies our thinking and our approach to the business and to, ultimately, the financials. I'm really excited about this time at Nutanix where we are. We've done a lot of work. We have a lot of work ahead of us, but we believe that our time is now. Thank you all for joining us and for your attention. I'll now welcome back on stage all of my co-presenters for the Q&A panel.

Please welcome back all of our presenters for our Q&A panel.

Maybe starting with you, Rukmini. Given the guidance that you've given for fiscal '24, the ACV billings implied kind of in your fiscal '25 guidance would imply meaningful reacceleration into the 30s, which we haven't seen for the past couple of years. And so I guess I'm just wondering either in terms of how much we can quantify in terms of what the early renewals impact was that can kind of give us confidence in that reacceleration that can help kind of give confidence and what those drivers are? Or if there's an embedded kind of Cisco, VMware contribution in there that kind of can help maybe derisk that reacceleration that's implied kind of in the guidance maybe as a starting point.

Sure. Thank you for that question, Meta. So when we talked about our fiscal year '24 ACV billings guide, which as you pointed out, rightly, Meta, we talked about how there is a slowdown in the growth of the renewals pool or are available to renew in '24, which is causing some of the dynamics around ACV billings growth as it relates to '24. We also said that going from '24 to '25 based on the ATR view that we have today, we expect that renewals growth to reaccelerate in '25. so you're absolutely right. That is driving some of that reacceleration into '25. We are also embedding some improvements in the new and expansion performance. We talked about, for example, in the '24 guide, we have a small benefit baked in from Cisco really towards the end of the fiscal year. But fiscal year '25 will be a full year after we've announced the partnership. So it's driven both by reacceleration in the available-to-renew pool that we see today for '25 compared to '24 and by continued improvements in the new and expansion ACV billings.

Got it. And then maybe just a follow-up question. You mentioned 24,000 customers, but what you considered a target pool of 100,000 customers. Just how many of those 100,000 customers do you feel like have a solution today so that you would be displacing versus kind of otherwise?

Yes. So I would think all of those customers are opportunities for us today. So vast majority will be on still legacy 3-tier architectures. So they'll still be buying servers and storage and SAM separately. So it goes back to Rajiv's chart, we do think there's a lot of room for the modernization of the data center. So customers will be thinking about how they do that. And then they'll also be thinking about where they're spending money, perhaps on the hypervisor as example. And VMware, that's a key play for them in terms of hypervisor. But for us, we don't charge for that. It's embedded in our platform solutions. So that helps us to be able to address that conversation with them. And then also, if they're thinking about -- I'm going to migrate some of those workloads to the public cloud as well as modernize my on-premise, then we can have that conversation with those prospects as well.

Meta, just to add some color to that also. I think it also is going to vary by the size of the customer. The big customers will tend to consume a big chunk of that portfolio, the full portfolio that we talked about. If you're a small customer, you likely want a simpler solution, you may not get all of it, right, in terms of what we have. So the portfolio that they will consume is probably going to be simpler as well at the bottom end of the team. So I mean if you're a coolest, you're going to have a few servers with bundled in storage like what we provide and manage that as HCI, right? And if you're a large enterprise, you're going to have a massive cloud environment with all the best in business of everything we had.

Jim Fish with Piper Sandler. First question is actually for you, Andrew. You broke down Tier 1, Tier 2, Tier 3 in terms of what's going on between reps and direct partners. I guess my question really is where is the line for where you lead with the rep versus a channel partner, particularly with the new Cisco partnership? Is there any quantitative way to think about the economics you get by leveraging partners like Cisco versus your own reps and where that renewal opportunity sits? Who does the renewal relationship actually belong to? And lastly for you, are there any accelerators for or extra incentives specifically for the VMware replacement opportunity in place today or coming down the road?

Sure. Thank you, Jim. So if I take each one of those in turn, probably just to explain to everybody the difference between an OEM partner and a reseller for us. So we have OEM partners like Cisco as the example there. And for Cisco, they do have that go-to-market motion that they can do separately to Nutanix. And we would -- we're training their sales teams to be able to sell the Nutanix solution, and that's something that they'll be able to go and do independently. But we would expect on the larger customers -- so as you move further up the pyramid for that to be a joint go-to-market motion, especially in the early days, there's an element of us working in partnership with Cisco as they get used to our product, used to positioning our products in the market. But we do think that, that will scale over time as they become more confident in selling Nutanix. Now the second dimension, I think behind your question, Jim, was regarding resellers. And again, it will be -- depend on where we are in the pyramid. As we go further up the pyramid, so we talked about the 65% of the serviceable addressable market in the top 10,000 customers and prospects, we would expect to sell our full portfolio of solutions there, and that means a lot of breadth, which adds a lot of stuff that we need to talk to the customers about. So in those areas, we'd expect that Nutanix will have a higher lift working with our reseller partners. And as you move further down the pyramid, we expect more autonomy in that lower end of things. To the final part of your question, we always think more holistically about how we do our incentives for our own sales teams. And it's always been the case that we have competed against VMware. So it just fits into the wider part of how we do our commission structures.

Got it. And just a follow-up for Rukmini. Not that I'm disagreeing with this. Don't take it to be that. But why is ARR the best sort of north star at this point for a mainly term subscription model. And really, the crux of this is how much variability we could expect through the next couple of years? And any way to actually -- already answered the other part. So go ahead.

Thank you, Jim. So ARR, as we talked about, represents sort of the annualized value of our installed base. And we like it because it's annualized, so some of the contract duration changes don't impact it. So it's sort of a -- it normalizes for that. It captures retention and growth, right, which is good and sort of gives you a sense of -- it factors in both of those. Now you -- I think your question was around variability, Jim, in terms of -- so I think one of the reasons why we didn't begin there, Jim, maybe I'll start there, right, is because as we were early in our subscription journey, we did have some customers who are moving over from our sort of legacy way of purchasing, which is an appliance or a license that's tied to an appliance to subscription. Now that's quite a small portion of ARR. We believe it was a couple of points, for example, of the total growth that we reported ARR. And so that becomes a smaller and smaller portion over time, which really allowed us to sort of really narrow in on ARR as the right metric for the growth of the business. As I said, ACV billings was always intended to be transitory. And we think that it's time to sort of continue to really anchor on ARR. Some of the other dynamics that were impacting out are no longer or less the case. And so ACV billings will continue to provide for this full fiscal year, so we'll guide to it as we've already done, and we'll continue to report it as well. But starting in fiscal year '25, we will no longer be talking about ACV billings and move to ARR, along with revenue, operating margin and of course, an annual free cash flow guide as well.

Tom Blakey from KeyBanc Capital Markets. My first question is on, I guess, the Cisco partnership. You mentioned a small maybe amount is included in the fiscal '25 guide. Maybe a comment on the HyperFlex opportunity. I think we mentioned from the CRO and then maybe helping us handicap the opportunity here. What was the timing and drivers behind the deal, Rajiv?

Yes. So look, I mean, I think, the Cisco partnership clearly has been a long time in the making. It didn't happen overnight. It took time. And in fact, for a long time, they were competing with us, and they felt that they would succeed with HyperFlex in the marketplace. And I think over time things change on their end. I think they increasingly became convinced that they couldn't really make a dent to the market with HyperFlex and that they would be better served by partnering with us and selling our solution in terms of how successful they could be, it can drag UCS business as well, right, along with it. It also gives them ability to really attach some of their other solutions like networking, security; two, the hypervisor footprint that they would get by attaching to Nutanix solution. So multiple factors contributed to ultimately them making the decision that they would partner with us and go -- stop selling their own internal product. Now I think all that said, Cisco is, of course, a huge go-to-market machine. One of the best in the enterprise, I would say. They also have a great channel partnership. But I would also, I think, let's also be careful because they're not a major server vendor, right? They have a small share in servers. And they have a broad sales team that sells a lot of other products too. So they're not going to have their mind share entirely on our product for sure, I'd love too, but that's not going to be the case. And so they do have data center specialists, and we will be working with them quite closely to make sure they are well trained and so forth. So there's -- again, it's a great partner to have. We -- and they truly have a partner mindset, Cisco does and we're excited about it. But it's going to take time, and it's going to be gradual. And yes, as they've said, Cisco themselves have said that they would look to migrate their HyperFlex customers over time to a Nutanix solution, but that then has its own life cycle, right? If somebody bought a lot of HyperFlex now if Cisco said they're going to support them for 5 years, they're not going to migrate immediately. So there will be a natural evolution of when these things come up to the end of their life, they will naturally propose the Nutanix solution and we will have some of these customers migrate over to us.

As a follow-up for Rukmini. Providing -- in the prior fiscal '21 guide for fiscal '23 from the predecessor, you guys did very well on the free cash flow side, maybe missed on the revenue growth top line numbers. Just wanted to understand levers that you have here, Rukmini under a slower growth outcome. If we sit here 2 years from now, what kind of levers you have to continue to maybe that trend of beating on free cash flow under a lower growth environment?

Thank you, Tom. So I think there's -- you touched on both growth and profitability there, but growth -- clearly, we are in a very different macro environment and you saw sort of our outlook for growth here. And when you think about levers on profitability as well -- so let me start by saying, I think, for us, it's -- there's puts and takes. The market environment, macro is uncertain. We've talked about elongated date cycles in our earnings calls. So that dynamic is playing out. We're all, I think, waiting to see how that plays out. We also talked about a lot of factors that are going to help us drive growth. Rajiv just talked about Cisco. We talked about the other factors here. So we sort of put all that together, and those are sort of the levers that you think about when you think about growth, right, for the business, including from a billings perspective, which again is quite correlated to free cash flow, renewals helps that, which derisks sort of the total billings growth that again there's visibility around that, and we have a 90-plus percent GRR. And billings highly correlated to free cash flow. Now we talked about the expense profile, which, of course, also has an impact on how much we're able to develop from free cash flow perspective. And we're making thoughtful investments here, right? We're looking at what the growth is, what the growth opportunity is. And when we invest, whether it's in sales and marketing or in R&D, that's not an instant return as we all know. It takes time. It takes time for sales rep to get ramped up. It takes time for our product to be developed and then go to market. So we want to be thoughtful about investing ahead of the opportunity and commensurate with the opportunity acknowledging that things are uncertain, right? So we've tried to kind of blend all of that together. And as I said at the beginning, it is an interesting time to be giving multiyear forecast, but it's our best estimate based on what we can tell today. We haven't made -- with regard to macro, we said in fiscal year '24 guidance that we're not assuming it gets much worse or much better, frankly. It's hard to gauge in terms of how the recovery will look like. We are assuming that over the course of this period, at some point, things will start to improve more gradually and get back something close to normalcy. Although I think all of us are looking to see what the trajectory will look like and what normalcy might look like, but it does assume sort of a gradual improvement over that period.

This is Simon from RBC on Matthew Hedberg's team. So you had spoken a lot about your opportunity around generative. Can you talk a little bit more about your AI road map and any opportunities for monetization?

Yes. So the principal monetization on AI is simply our platform. What we said to every other customer, right, the Nutanix cloud platform and all the elements of the portfolio. I look at AI as a workload. So it's another workload, AI-based applications are going to be another workload that we would like to land on a platform. So the principal way for monetizing is exactly that line. Land those workloads on our platform and work with companies to go help them, get those workloads deployed, provide -- make it easier for them. So that's really a fundamental approach. Now we're not going to talk about our future road map here, but what we've talked about here is what we have today with the GPT-in-a-Box, and we'll continue to make enhancements over time to that portfolio. And in a large sense, you can think of this as our first foray into really delivering something for generative AI. And we are like every other customer is at this point, looking to see how the market is going to evolve and we'll tailor our road map appropriately.

Okay. And one follow-up. So in terms of M&A in the context of the long-term ARR guide, it seems like you are considering smaller tuck-in deals. So would it be safe to say that the long-term deals are essentially going to be organic?

Yes. It's the short answer. I think over this period, you should assume that -- the vast majority of the growth here, if not all of it really is based on organic growth opportunities. So you'll see when we talked about growth, we had vectors of organic growth. So that's going to be the large portion of where growth is coming from. And to the extent there's tuck-ins, you can talk more, Rajiv, but it will probably be more on talent acquisition or areas complementary to our portfolio from a technology perspective.

Rich, just one point. Do we have questions online? Is there a way to get questions online and read them out if we do.

Wamsi Mohan, Bank of America. On the cash flow and uses thereof, I mean, it looks like your cash trajectory is really impressive. If you look -- if you just look at like our $800 million fiscal '27 and where you're trading at today, it's extremely cheap and sort of like looking at the cash trajectory and your growth trajectory. So my question is really, would you consider maybe capital return at an elevated level or put a time frame on your capital return? I think Rukmini you said no real time frame there. Why not? Why is there not a time frame associated with that? And why can't this be something that you kind of institutionalize and say annually, we would do [ X ] in terms of capital return?

Thank you, Wamsi. I think it's a fair question. We've -- we're coming out of a year in fiscal year '23, where we had our first year of meaningful free cash flow generation. Now it was $200 million plus and we feel good about that and the trajectory that we gave you today. It's also our first share repurchase program of this kind. We've done some small ones, but mostly in conjunction with a convertible offering or along those lines versus a stand-alone share repurchase authorization of this magnitude in this kind, Wamsi. So we want to retain some flexibility in the near term. We do intend to begin to transact on the repurchase relatively soon. And we'll keep you updated as we get further along in this journey of consistent free cash flow and growing free cash flow over time on a more -- to the extent it makes sense to put something more structured or more quantified from a time and magnitude perspective in place.

Nehal Chokshi from Northland again. Rukmini, you showed a slide that was really interesting to me, where you're showing the percent of your ACV billings renewal and then your sales and marketing efficiency. And I think in your fiscal year '27, we're saying something like 50% will be renewals and showing that you would have the same sales and marketing to billings ratio as mature SaaS companies. Qualitatively, why do you -- implying that you're going to have much better sales efficiency than your SaaS peers at maturity, fiscal year 2027 maturity. So qualitatively, why do you expect to have much better sales efficiency than SaaS peers.

So I think there were a few points that I want to clarify, actually, Nehal, thank you for that question. The percentages we showed for renewals mix was not ACV billings. It was total billings, not ACV, but total billings. But you're right about the percentages. So we're about 1/3 for the year that just ended. We'll be at about 50% by the end of the period is what we showed. And we did, as you are -- just to complete the thought on at-scale companies which have much higher mix, we showed kind of a 30% to 35%, I think was the number around sales and marketing expense. The one thing that's not on that chart, I think is also important here to remember is what our folks are doing from a new and expansion perspective? And what is overall growth in those companies, right? So what we see is that, could there be opportunities at that stage for more leverage potentially, right? I think we're sitting here now giving you an outlook for the next 4 years. I'm not going to go beyond fiscal year '27. But we'll continue to be looking at areas in which we can leverage and grow more. And I think we also need to be mindful that the opportunity is really large, right? So the extent of how that shows only renewals and it shows sales and marketing, but there's also the investment in new and expansion that we need to consider. So I know you said qualitative, so I'm giving you a qualitative answer. But we feel good about that trajectory, and we feel like we have data points, including the most recent year, where that leverage has played out from a renewals perspective as it ties to sales and marketing.

I guess, I was looking for more of a qualitative answer in terms of like, is it because you already see that you're getting much better net revenue retention rates because you have a much more efficient renewals engine? Is it because you have a much more efficient landing in.

So Rukmini, just -- I think clarify the question. He is asking, why do we think they're going to be more efficient than our peers.

Well, that assumes that we will be, though. I guess I'm just saying that we're not projecting beyond fiscal year '27. So we're not making a statement about whether we will be more efficient or less efficient from at-scale SaaS company.

Simon Leopold, Raymond James. I want to see if maybe you could help walk through the mechanics of how you get the stock-based compensation down to 10% of revenue? Because there are a couple of ways to get there. One is just grow revenue a lot faster, the other is to give employees less compensation in the form of stock. So what I'm wondering is, do you end up raising their cash. So is your OpEx growing faster as a substitution or the stock they would have received -- there are a number of parts to that. So I'm just wondering how do you keep employees whole and happy if they're not getting stock from you?

So we've been on the journey already, Simon. So it's not necessarily about paying cash more for everybody across the board, right? We have been reducing our participation rate on equity. We have been giving performance-based equity to our [ XX ] that's based on stock performance. But for the rank and file, we're no longer giving equity to everybody. It used to be that case a while ago. And that's not industry practice, that's way beyond industry practice. So we've come down gradually to becoming more like what other people are doing. And so we have the ability to remain reasonably competitive in the marketplace, and our goal is to remain competitive in the marketplace. But what that means, by the way, is that -- and we also don't have today a systemic bonus program all the way through the company yet as well. So we will -- we have already reduced our participation rate significantly. And we will continue to probably taper that in, but we'll make sure that the people we want to keep. It's also rewarding a high performance, not just peanut buttering the equity across everybody, right? So it's going to be used in a much more strategic way going forward [ stock is ], and we feel we can be quite competitive with the industry. Of course, we have to be competitive. We monitor our benchmarks and we may do that. But it's not going to result in an outsized increase in OpEx. Whatever we need is factored into the projections that we gave you already.

So just looking back as -- during the period where you've brought it down, have you had to raise cash compensation as an offset?

Not in any significant way. We've seen the OpEx. We've seen our number of people. So no, not really. We have tilted -- we've taken away stock from some people, and we've given them some cash for some categories of people. But no, we haven't had to raise the cash comp. It was more inflation based. For example, there was a time where the industry was seeing 2 years ago, if we were to go look at it, people were compensating like crazy, right? There was a whole hiring craziness going on. And at that point, we had to take some steps to retain our people, and we did pay more. But that's not based on the ratio of stock versus cash. It's just more based on industry dynamics and competitive pressures, which have come down a lot now, okay, compared to where they were 2 years ago.

We do provide periodic cash increases as most companies do. And so we do continue to monitor the mix and use them thoughtfully across the different functions and the different levels, Simon, but there isn't a sort of one-for-one type of rate of happening. So I think it's partly your question.

[ Mehdi ] from Susquehanna again. Going back to the FY '27 target, there is about $1.5 billion of incremental billing from FY '23 to FY '27. Could we put that incremental billing on the TAM that Rajiv had. VDI and the other 2 segments and explain or elaborate on how this incremental billing mix is split in the 3 buckets that you had there?

Well, we haven't -- we don't quite have that honestly made across those workloads, right? That is a workload-based cut of those billings. That's a little hard for us to predict exactly. But you can see that, just to give you a qualitative perspective on that, there's a big chunk of markets sitting in mission-critical and business-critical workloads and data add basis. That's a big chunk. And we saw the projections, we felt like we could penetrate that by incremental 12%. So that's clearly going to be -- so we're seeing much more like going beyond VDI, where we continue to grow a little bit VDI, but the bulk of our growth is not necessarily going to come from VDI. It's going to come from these other core enterprise applications that we are targeting. Some of which are also going to get modernized under the covers, and those will also land on the platform. So that's the rough way I would think about it.

Which kind of ties into your earlier comment that when it comes to data base management or data management, your goal is to offer a more simplified, more cost-effective solution, right?

Yes, that is correct.

Are those the kind of the greenfield opportunities that you're pursuing?

Not -- none of this is very greenfield. There's always people who are running various things in a different way, right? There's 3 tiers that we're replacing. So that's not entirely greenfield. The databases today, there's some -- people do handpick tools. Some of them do their own tooling to go manage databases. But the problem with that is it doesn't really manage a whole range of engines. And so in every one of these situations, we are typically doing things better than what their current state is and replacing current situations out there, while also profiting from new deployments and new growth, for example, when you look at databases in particular, people are not building modern applications using Oracle databases for the most part, right? They're building using modern databases. They're using open source one like Postgres. So there is a secular growth of Postgres happening in the marketplace. NoSQL database is happening in the marketplace. So some of those also play in our favor.

Aaron Rakers with Wells Fargo. So I want to go back to, I think, where the financial discussion started the questions. And if I'm just doing the math right, it looks like you're going to have a 33%, 34% increase in your ACV billings based on the guidance that you've given for fiscal '24, the midpoint of the guide. So I guess I want to maybe try and appreciate a little bit more what you're seeing in that ATR number, right? The ATR having slower growth this year. And really, it seems like a massive acceleration into fiscal '25. I guess, help me understand it a little bit more if, again, you've guided $1.4 billion to $1.5 billion, right, off of, call it, $1.085 billion midpoint guide for fiscal '24. So how do I really get comfort in that acceleration again with that ATR benchmark?

Yes. So what we had said around ATR is that, again, going back to I think Meta's question was along the same lines of we are seeing from '23 to '24, the ATR is growing, growing at a slower pace than what it did in '23. And that, that growth in ATR -- ATR is going to continue to grow for a multiyear period, right? We've been pretty consistent around that point because we have a long way to go as our renewals continues to waterfall that, that renewals ATR is going to grow for many years. So we're only talking about the pace at which it grows. And that pace decelerated in fiscal year '24, and we said it would reaccelerate in '25. So that's a big driver of that ACV billings number from the midpoint of the guide to '25. We're also expecting continued improvement. We said even in our '24 guide, we said that we're expecting some improvements in new and expansion. And this also assumes that there's some improvement in new and expansion going into fiscal year '25. And a lot of the drivers for those are the things you heard here, right, around, obviously, the puts and takes in our macro versus all the other things that we believe are good market conditions for us. And when you pull those together, is the outlook that we provided around ACV billings.

Okay. And then a real quick follow-up question. There's been a lot of discussion around VMware and Broadcom and the opportunity that you see in the competitive landscape. One of the charts you gave was obviously this 9% to 10% CAGR that you see in OpEx expansion. It looks like the majority of that is going to be driven by sales and investments. I think the last couple of years you've had a little bit of attrition dynamic. So I guess my question is, have you stabilized the attrition within the company? Number one. And #2, are you actually seeing opportunities to hire VMware people? And how quickly could those come on and ramp given obviously, they're [indiscernible].

Andrew, do you want to take cut of the sale-side and comment on the overall? First of all, by the way, just on the overall piece, it's not just all sales and marketing investment. It's a two-pronged thing, right, R&D and sales and marketing, both just to answer that first part of the question. Andrew, do you want to comment on the other piece?

Yes. From a sales perspective, retention is in a good place at the moment. And also the motivation of the broader sales team is in a good place. We do surveys, as you'd expect. And I think because of where we're at as a company, its meaning that we can attract very good people, but also our own team wants to stay on the Nutanix journey. To the second part of the question, we will always look to get the best sales people in the market, and we are finding that we can attract people from multiple companies, and that includes VMware, but they wouldn't be just a one company to target. We would look very much in breadth of how we bring talent on board.

Erik Suppiger with JMP. A couple of questions here. First off, can you give us a little more description on what the AI workloads look like? When you're -- when you have a large language model at the edge, is that a large workload relative to, I don't know, VDI or other -- what -- how does that pricing...

Yes. On the edge workloads are not massive workloads, right? They have to be compact and easy to infer by default. The core workloads tend to be bigger workloads. So edge historically, we've seen things like video surveillance. We've seen analyzing mining data, for example, that's gathered at mining sites. We've seen fraud detection at retail stores. We've seen manufacturing quality checks post manufacturing. So these are some of the edge automated visual inspection of defects. These are some of the edge type use cases that we are seeing, yes, and they have to be compact by definition in terms of inferencing, the ability to infer at a reasonable cost without having massive compute infrastructure at the edge. The data center ones tend to be a little bit more heavy weight, like, for example, document scanning and analysis, very much a data center use case, right, in terms of in-depth analysis of documents, trying to extract relevant information and making decisions. That's very much a data set.

So is an AI project similar in pricing to your traditional kind of productivity workloads?

Yes. In general, yes, they tend to be a little bit more heavy weight if they're using a lot of GPUs and we might sell more compute cores, I mean, we charge on a per core basis right now. So companies buy more cores, they pay more. So from that perspective, if the workloads are heavy, they will require more compute and we sell more of our software instances at that point.

Okay. And is the competitive dynamics for that is it similar to your traditional part?

It's actually pretty similar, right? I mean, you've seen some of the other announcements from our competitors as well in the space. So yes, I would largely say it's not much different in terms of what we compete with for the other workloads.

And then Rukmini, in terms of the converts maturing in '26 and '27, can you just remind us of what the convert pricing is? Or are you expecting those to convert? Or how do you pay those off?

Yes. So the 2026 notes are the private investment that we got from Bain Capital back in 2020. The strike price, the conversion price on those is [ $27.75 ]. They are not callable, though, until 2025. The '27 notes are the one I talked about in my portion, which are our publicly traded converts. Those are not due to '27 and the conversion price on those if memory serves, I want to say, is 50-something, Erik, 50 -- 57, 58, maybe.

So would you be aggregating cash to pay that off in '27? Is that the thought process on that?

Look, I think the reason we sort of showed that is one of the things we consider, Erik, because we do look at that and sort of assess whether it makes sense for us to do something with those notes. If you look back, in 2021, we actually exchanged most of our notes that were due in January of 2023. And when we paid off the stuff that we had in Jan 2023 with cash on hand. And so we'll keep looking for opportunities like that to make sure we're using that cash thoughtfully and being mindful of the options with regard to the convert.

Thank you very much for joining. That concludes our Q&A and concludes the webcast portion of the event. Thanks all for joining and for the rest of you that are here in person. We're going to have a cocktail hour. So thank you very much.

And we'll all be there for that. Thank you.