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

So I'll turn to the room while I read disclosures, which nobody wants to hear anyway. So if you have any questions on research disclosures, please see the website at morganstanley.com/researchdisclosures. Otherwise, please talk to your Morgan Stanley sales representative. I'm Meta Marshall, for those who don't know me. We are delighted to have Nutanix here with us today, Rajiv Ramaswami, CEO; and Rukmini Sivaraman, CFO.

It's been a phenomenal year for Nutanix. Very happy to have you guys here. The stock has more than doubled, I think, since you guys were -- or since a year ago. Some of that has been a variety of different kind of overhangs that went throughout the business or just kind of changes in the competitive landscape. But versus a year ago, just how is the opportunity set you have seen changed? Or have investors just kind of caught up with the opportunity you guys saw?

And Meta, first of all, thank you for having us here. With respect to the opportunity set itself, I think I'll talk with 3 factors here and then also a couple of factors from our own execution perspective. On the demand side, I think one thing that's become very clear now as we talk to all our enterprise customers is they think of their world as being a hybrid world, hybrid and multi-cloud where their applications and data in multiple locations, not just all in the public cloud, not just all in one place, right, multiple places, including on-prem. And there's almost a renewed focus on saying, "I'm going to be looking at continuing to modernize my on-prem infrastructure, look at edge applications." And the latest example of that is just GenAI, which I think is also going to be another hybrid application running everywhere. So that's the fundamental trend, number one. Number two, of course, over the last year, we've had our major competitor, VMware being bought by Broadcom now, and that's creating a lot of unrest and concerns in the -- within our customer base as well as within the partner community. So that's the second factor. We have been also growing new channels into the market, the latest one being our partnership with Cisco. So all those factors are starting to contribute. And then from the execution side, one of the things that you know is we've gone through our business model transformation to be subscription, and we are now coming out of that. And as we come out of it, of course, we are continuing to gain leverage in the model from a renewals perspective. Renewals business is continuing to grow every year for us as a portion of our business, and we have been doing a good job prosecuting those. And then finally, managing our OpEx quite tightly as well. So that combination, I think, is what's led to the performance.

Okay. And so we've all just caught up. But you guys were there the whole time. All right. At your recent Analyst Day, you laid out kind of a $76 billion TAM by 2026. Just what do you see within that TAM that's kind of the biggest opportunity that we should be thinking of? And what are kind of areas where you'll continue to grow into?

Yes. I think if you look at the core aspect of that TAM, the bulk of the TAM is simply replacing legacy infrastructure with a modern cloud-based infrastructure. And we sometimes call it replacing 3-tier architectures where compute, storage, network are separated with a more modern combined HCI architecture where everything is managed through software, software defined. And that's still a huge opportunity out there. And that's the bulk of the TAM that we continue to gain share into. And then there's extensions of that TAM, of course, into the public cloud with extending it seamlessly into the public cloud providers, which we've been doing in the last few years and will continue to be a vector. So that's the biggest chunk of the TAM. Now there's additional opportunities for us when it comes to, for example, going a layer above the stack beyond the infrastructure layer, the platform services layer. We've got our first foray in there with what we call Nutanix Database Service. Still very early days, but lots of opportunity there as well. But I think in the short term, if you look at the TAM, the biggest opportunities come from the 3 factors: hypercloud becoming mainstream, the VMware competitive situation and growing channel and partnerships.

Okay. So VDI has always been thought of kind of like the killer app for HCI, but just are there other apps where you're commonly seen as that kind of next foray into the applications?

Yes, we've come a long way since those days of VDI. This is the very early days of hyperconverged in the market, and VDI was the first app to land on the platform. Today, it accounts for maybe 15% of the apps that are running on our platform and the installed base. Today, the platform is capable of running pretty much every application that's out there in the enterprise, including the most mission-critical ones. We have people running their ERP systems on us, mission-critical database is on us, security workloads on us, modern applications using containers on us. So the platform is very broad-based at this point. It can pretty much run all the applications on it and including the latest one that we talked about is GPT-in-a-Box where people can start running their AI, generative AI applications from the platform as well.

Okay. So I think the example you gave on the earnings call last week was a customer who moved their VDI back from cloud and then moved it back on to premise for better performance. Just -- we've talked about this kind of hybrid environment. But how often are you seeing this kind of applications either coming back on-premise or just tweaking kind of with what people thought that their strategy was for cloud versus on-prem?

Yes. I think we do see some examples of people actually repatriating cloud workloads, public cloud workloads back on-prem. This was an example of that. By the way, I think Elon Musk was here a little earlier and...

I heard that.

And are free to go with Twitter or X. They actually did a bunch of repatriation, and they published white paper saying they saved like 50% or something when they did that into their own data centers. But more often than not, people, of course, very focused on managing the cost of their public cloud and [indiscernible]. But the bulk of enterprise workloads are still sitting in data centers. And what we see now is a much more measured view in terms of should those be continuing to be modernized in the data center versus simply moved to the public cloud. Five years ago, it was all about moving everything to the public cloud. But now the conversation is much more around, yes, I know public cloud is easy, but in some ways -- but it's also very expensive. I've got potentially other issues that I have to deal with regulatory, sovereignty, et cetera. And it might make sense for me to have a lot of my workloads continue to run very efficiently in my infrastructure. So that dialogue has changed quite a bit for us in our favor.

Okay. And then just how are you kind of easing that more fluid environment across your portfolio, not just with HCI, but kind of with the entire portfolio of just making it easier for customers to kind of move their applications around?

When you say fluid, you mean across clouds or on-prem to public cloud and back?

Yes. Yes.

Okay. Yes. So I think one of the value propositions for us is we provide that single platform that runs in exactly the same way wherever a customer wants to run their apps and their data. So that same platform that's available on-prem is also available on top of bare metal in AWS and Azure today and hopefully, other cloud providers down the road. And now with the single team, the same team with the same set of tools, it's very easy for customers to, for example, move workloads back and forth, automated tools to do that, right? And so makes the operations aspect of it very, very simple. You don't have to go refactor, replatform your applications to really move them around where you can. What this means in practical terms is people can, for example, decide to do a cloud migration, and it can take -- that's been done within a month versus taking years, for example, or they can use a public cloud for disaster recovery of on-prem workloads or they can choose to use a public cloud as needed for temporary capacity expansion, spin up and back or use it for geographic expansion. So it enables a whole set of use cases that wasn't really possible before.

Okay. So everybody here is disappointed that I got 10 minutes in without asking about VMware. So we'll kind of drive into that. So the biggest driver of the stock probably over the last year, at least in my investor conversations, has been the opportunity that people see and we're all hearing about with VMware's acquisition. How are you guys seeing kind of that -- versus what you thought maybe 6 months ago, just how are you seeing kind of that investor -- or the customer conversation evolving?

Yes. Now as a company, Nutanix has been competing with VMware for a very, very long time. So that part is not new to us. And we have historically migrated customers from VMware to Nutanix. In fact, in many cases, customers may start with Nutanix running on top of a VMware hypervisor. And over time today, by the way, 70% of our installed base is running on our own hypervisor, having migrated from a VMware hypervisor. So we know how to do this. We've been doing this for a long time. What's changed, of course, in the last, let's say, 18 months to now more recently in the last 3 months even is that now VMware historically was very well-regarded company from a technology stack perspective, mission-critical workloads, many customers. But now with the Broadcom acquisition, many people are concerned about increases in pricing, reduction in the level of innovation, cost cutting, which means poorer support and especially when you're running mission-critical workloads. So that created a lot of concern and churn within our customer base as well as within Broadcom VMS partner network, many of whom are also our channel partners. And so now the doors are more open than they were before in terms of willingness to consider alternative approaches, reducing the dependence on VMware over time. So what we say is that this is a multiyear, long-term opportunity. It's not that people are going to shift overnight. It's going to take many years. But -- and some of the reasons for that are many of the smarter customers actually did lock in 3- to 5-year deals with VMware before the acquisition closed. That's number one. And number two is this transition is not simply a like-for-like replacement. In many cases, it is a migration of a legacy architecture onto a modern hyperconverged architecture that sometimes gets tied to hardware refresh cycles. And so that also gets factored into the migration timeline. And number three is not everybody is going to migrate everything at once. They're going to give us a piece of the infrastructure, start small perhaps and then expand over time. So for these 3 reasons, we see this as a long-term multiyear opportunity.

I mean as far as that process, and you've kind of mentioned this like they'll start small and move applications. I mean that almost seems to me like it would make your environment more complex in the near term, bringing more vendors into the space. And so kind of what is that thinking around the fact that they want to start small versus kind of just saying, "It may take a longer time, but I'm just going to move this all over at once?"

Yes. So they might make a decision to move most of it over time. But it will have to be a phased migration, especially in the complex accounts. Now in smaller accounts, it's very easy. I mean there's a customer that wrote a white paper with us recently, a pediatric health care group. So they've been thinking about this migration from us -- from VMware to us for like 3 years or so. They didn't act on it. They did a lot of planning. They didn't act on it. And then I think once the deal got done, they pulled the trigger to go do it. And they did a wholesale, 100% migration, in 3 months. And they're out of it now. But that's -- that can be done for smaller customers. Now when you're a large customer with a large estate, it doesn't happen overnight. It takes time to migrate. And so they'll probably do this in phases.

Okay. And is that application by application? Or is that just data center by data -- just how do I think of what are those chunks of the...

Yes. I mean I think usually, it tends to be workload or application by application most of the time.

Okay. And then you mentioned 70% of your customers are already using your hypervisor. I think investors have kind of thought, okay, well, this is -- vSAN customers will kind of come over to you guys. Just how are you thinking about that opportunity of kind of VMware customers across the board, not just kind of vSAN customers coming over?

Yes. I mean we -- in fact, the bulk of the VMware estate right now is not vSAN, right? It's tied to standard storage, 3-tier storage. And that's the migration we've been doing for a long time, nothing new, right? We've been converting VMware connected to 3-tier storage to HCI. Now the HCI-to-HCI migration is more for a like-for-like migration, which tends to be easier, right? They've already adopted the HCI architecture, and now it's our HCI versus their HCI. But the 3 tier is where the bigger market opportunity is. And again, we've been doing those conversions for a long time. It's just more -- just gives us an ability to accelerate that.

Okay. And then I think maybe when a year ago, you were kind of thinking, oh, maybe you were actually seeing more traction with larger customers kind of initially in conversations. More recently, you've talked about smaller customers are where you're seeing more traction. Just how are you guys thinking about that process of customers migrating over?

Yes. I think the larger customers are more attuned to the Broadcom playbook, having seen the experience with CA before Symantec and the other Broadcom acquisitions in the past. So they were the ones to start the engagement process relatively early. And a lot of the smaller customers had no prior experience with Broadcom. They're not an enterprise provider for them. And so they have really very little awareness. But now over the last 3 months since the deal is closed, there's been a lot of awareness building with respect to the changes that have been happening. And so now the smaller customers are also starting to realize, okay, this is a potential risk factor for them that they need to go address, and they are starting to also take a step up -- wake up and take notice on this.

Okay.

And the other thing if I can add something to that, Meta. So we've also continued to refine our segmentation in terms of where we're pointing our resources. So when you think of that segmentation, at the top of the pyramid are the largest customers, right, which clearly are important. To Rajiv's point, they almost engaged with us early on. There's a middle tier that I would say still enterprise, but probably slightly smaller than the largest group, where we have our resources focused and they are the ones that are starting to realize now what this means for them. And then in sort of our -- the bottommost tier is where think of that as more commercial, where we've sort of really left that to the channel. And channel has been an opportunity for us for a while. And so we've said we'd love for the channel to go and execute on that tier. And we don't really have any direct resources. Our employees targeted there because we want the channel to be empowered to go bring that in. And the channel now also has an additional catalyst than what they had before because Broadcom had said they are going to take some of these customers direct, right? So there's sort of an additional incentive for them to consider us as a more viable alternative.

Okay. I mean you've talked about strength with other portions of the portfolio. But are there other portfolio additions that you need to kind of round out the stack for VMware customers? Or do you have everything you need today, and it's just kind of highlighting the customers that you have?

I think for the most part, we have everything we need today. Our Nutanix Cloud Platform has a full stack, includes compute virtualization, storage virtualization, network virtualization and operations and automation. So it's pretty much a full stack.

Okay. And are there partnerships -- I mean we'll talk about Cisco in a minute, but are there partnerships with other kind of ecosystem vendors that you think can make better inroads kind of together?

Yes. We have a broad ecosystem, and we've been working to build that ecosystem. For example, all the backup providers. That's a complementary ecosystem to us. Security providers, those are also very much part of our ecosystem, people like Palo Alto Networks, for example, on the one side. On the other side, you've got Veeam, Rubrik, Cohesity and a whole bunch of other players on the backup side, for example. And modern applications, we have a strong partnership with Red Hat for OpenShift and OpenShift running on top of a Nutanix platform. So that's that and then our public cloud partnerships and ecosystems with both AWS and Azure. So clearly, I think we live in a world where we work together with these best-of-breed ecosystem players to provide ultimately, whatever the solution is as the customer wants because the customer is going to need a full stack solution that can run in many multiple locations, has built-in security, has backup capabilities. So that's what we try to provide.

Okay. Okay. That's helpful. The other kind of incremental piece that you mentioned was just kind of the growing go-to-market or partnership channels. Cisco has clearly been a help here. I think a question that we often get or have ourselves is just, should we think of that as okay, they're first going to go after the HyperFlex business and that's kind of the nearest term opportunity for you guys? Or is it they have reached to all of these large customers that are probably largely parallel with VMware, and so they're going to kind of help you get inroads with...

Yes. I mean I think the low hanging, of course, wins are converting over the existing HyperFlex space, but that was never big to begin with.

Yes.

That was a relatively small portion of the market from a share perspective. The opportunity that both Cisco and us, we both see this as being an opportunity to expand our relationship well beyond the HyperFlex installed base to grabbing new customers, right? So our interest together is really to go land more customers on the Nutanix platform beyond the HyperFlex installed base. And we'll convert, of course, the HyperFlex customers.

Okay. Okay. It's TMT 2024. I have to ask about AI. You have a GPT-in-a-Box solution where you've seen early interest. Just where are your customers in their AI journeys? And just how do you see kind of helping them along the way?

Most of our enterprise customers are pretty early in their journey. They're all experimenting. Everybody is looking at how they can use generative AI to make themselves more productive, more automated, more efficient and potentially create some new capabilities. But most of them are also in the early stages of experimentation, trying to figure out where it can provide legitimate business benefits, ROI for the investment that they make. So with that in mind, our -- what we are doing is to help them run these AI applications where their data resides. And the data is not all residing in the public cloud. The data, some of it is in the public cloud. And clearly, there's been also a lot of focus of training large language models in the public cloud on generic data. But for enterprise customers to make use of it, they also have to fine-tune those models on their own data sets and then run inferencing wherever the data is, which in many cases could be, for example, at the edges. Like if you're a manufacturing company, then you might, for example, be using your machinery in your shops to manufacturing plants, generating a lot of data, and you might be using the analytics on that data to optimize how you run your manufacturing process. So that's an example. And that's where we can help customers, right? We can help customers fine-tune those models in -- on their data and then use it for inferencing wherever they like to do the inferencing.

Okay. Do you think that there's other opportunities? Just clearly, GPT-in-a-Box has kind of been that first foray. But just in terms of easier data sets you know that they're going to need or applications, workloads that you know are going to be most helpful kind of as you look towards AI, where you can expand kind of the addressable market?

I think the 4 use cases that we see for generative AI, I think one of them is around customer service, and it's not just chatbots, by the way. That's the easy part. But even what we are doing internally, which is using GenAI to see if we can actually use -- get faster resolution to incoming customer request by searching through our knowledge base of articles and coming to a quicker resolution, being a co-pilot to our customers -- to our support engineers. And of course, developers, right, productivity assist for our developers, very important co-piloting there. We are seeing document summarization search and being a big use case as well and then enhanced fraud detection. So these are the type of use cases that our customers are using us for.

Okay. Okay. That's perfect. Okay, Rukmini, moving over to you. Nutanix was at a tail end of a business model transition when you stepped into the CFO position. Since then, you've improved operating margins 1,800 basis points kind of between what's expected this year and fiscal year '22. And cash flow went from essentially breakeven to kind of a midpoint of $430 million this fiscal year. Just where have you found kind of that efficiency in the model, particularly against kind of a very large opportunity you're addressing?

Yes. And I would say again, this is a result of the model playing out as I think we hypothesized it would, Meta. And I've only been the CFO in this role for coming up on 2 years, but I was with the company longer than that. And secondly, been through that journey, and this was always the thesis, right, which is that once we emerge from completing the transformation phase, if you will, that the leverage in the model will start to play out as -- if you look at our total billings, as the mix of that comes more and more increasingly from renewals, which we're starting to see. And I think that's what you all -- everything that you just talked about in terms of operating margin, free cash flow margin at 20% at the midpoint of our guidance for this year. That's a big driver of all of this. The other piece, and I think you alluded to this at the end of your question in terms of the growth opportunity and how do we think about investing for that. So if you look at our operating expense profile over the -- look at fiscal year '23 as of last year and going back, our operating expenses in absolute dollar actually was flat, actually slightly down compared to fiscal year '20. So we were very disciplined in that time in order to complete the business model transition and also some work we were doing internally to make sure we were getting more efficient and effective. This year, coming into fiscal year '24, our year-end is in July, we made a very deliberate decision to invest because we see the opportunity. We've talked about all the growth drivers here. And we think now is the time because invest -- when you invest in sales and marketing or in R&D, there is a ramp time before those folks can be fully productive. And we want to make sure we're investing in the places with the highest ROI and where it's pointed in the right direction along with allowing for some time for those folks to ramp. So if you look at this year versus last year, there's an implied increase in OpEx. Even second half of the year versus first half, there's a meaningful step up because we are investing. And the areas we're investing are both in go-to-market and in R&D. On the go-to-market side, it's a few different areas from a rep -- from a field sales rep perspective. We are -- we would like to hire a few more folks before the end of the year. We're not very far off from where we'd like to be, but there's a few more folks we'd like to hire. And then there are other areas like channel where we talked about where we're investing more, both from a head count perspective, but also incentives for the channel to bring us incremental business. And then lastly, on the sales and marketing side, more awareness, right? Like how can we amplify the volume of our messaging in the market so folks know what we bring to table and why they should consider us. And then in R&D, as you've talked about our areas, we have a pretty ambitious innovation road map. It's something that we want to continue to do, especially in an environment where our competitors may or may not be investing as much in innovation. So that remains a priority. So you'll see both of those lines continue to kind of tick up here over the rest of the year.

I mean, I think I asked you this question at the Analyst Day about how you could find so much leverage when it's -- you're investing so much. And I think part of the answer you gave me was like, well, we've always been addressing these customers. We've always been kind of targeting these customers. And so is there a way to think of, okay, how much of these investments are kind of net new markets or amplifying net new products versus we'd always kind of had great customer coverage?

Yes. So I think on the investment side, a lot of the things I talked about here on the sales and marketing side certainly are focused on driving incremental growth. So it's really on the new and expansion side, Meta, because to your point, when we think about ARR growth, for example, right, that, of course, is an element of retention and making sure we're prosecuting on our renewals really well. But that growth, big driver there is all of the new and expansion business and getting more of that in the door. So that's certainly a driver. The other thing I'd say, especially on free cash flow is that we collect our -- largely our cash upfront from customers, right? And so if the customer is doing a 3-year transaction with us, we collect all of the 3 years of cash upfront. And so that gets amplified from sort of an annualized versus a cash flow perspective. It's amplified somewhat on the free cash flow line. But yes, I think it's the renewal mix going up, and then it's sort of, I think, investing where we see the opportunity for new and expansion and doing that in a thoughtful way.

I mean maybe for both of you, you mentioned you want to kind of amp up the sales reps. I would assume there's a lot of good reps and kind of sales leaders available from kind of your competitors. I mean as you look at that, is it simply a matter of, hey, we know who reps the top 1,000 accounts and we think about bringing those over? Or how much of your hiring is focused on hiring away from competitors versus maybe new other software companies, other kind of areas where you're finding the deepest pool to hire?

In fact, the talent market for us has actually been very good over the last 1.5 years or so, I would say. And we have had no trouble upgrading our talent pool across the board, whether it's in sales, whether in sales leadership, whether it's in marketing, whether it's in product engineering, and we're able to get people from multiple kinds of companies, not just VMware, okay? Of course, that's an obvious choice, and we have our share of VMware talents who are here, including me. But even from the other hyperscalers, for example, we've been able to hire people over the last 1, 1.5 years and across a wide spectrum of companies. So the market is pretty good right now for talent. We are, as Rukmini said, hiring judiciously adding in both R&D and sales. So you are seeing that step up for us in the OpEx line. But we're also not going crazy here. We're not hiring well beyond because our goal is still to continue ultimately to drive profitable growth. So continue to drive growth and increase leverage on the bottom line. So we want to make sure we continue to achieve those goals, while at the same time, making sure we invest enough to capture the growth opportunity ahead of us.

Okay. I mean maybe on kind of go-to-market expansion with the channel. Clearly, Cisco is a great new avenue for you guys, and there's a lot of disrupted kind of VMware channel partners. But just how are you -- there's probably a lot of people you could add right now. How are you being disciplined about kind of channel or go-to market to kind of amplify the voice of -- that you guys can have internally?

Yes. And I think getting more leverage from our channel has been one of our priorities for the last 3 years since I started. And we've been working on enabling that, giving them more autonomy, giving them more incentives. In fact, last year, we took the step of segmenting. Of our 3 tiers in the go-to-market, the third tier at the bottom is all completely left to the channel to prosecute. And they get more rewards, more incentives for them to go do this themselves.

Yes.

And so we are continuing to invest in those channel partners. Many of our channel partners are also servicing other competitors in the market. But this is an opportunity for us to get more with them and more driving, so we have been giving them incentives to bring in new customer logos for us, which may -- which are new to us maybe, but not new to them because they're already servicing those customers. But if there's an opportunity, so we want to incentivize them to bring those customers to us.

Okay. Okay. Perfect. I've got a whole list of other questions, but any questions from the audience? All right, perfect. Maybe for Rukmini, you talked about at the Analyst Day basically, we're going to have some deceleration in ACV billings this year or billings growth this year and then kind of reacceleration into fiscal '25. You've also kind of talked about some of these renewal cohorts and kind of the size of that. Just how much of that should we kind of -- or what should we think of the contribution of kind of these renewal cohorts to some of that deceleration, reacceleration that we've seen?

Yes. So I think the renewal cohort, as you talked about, just to maybe frame what we mean when we say that, right? As we look at what is available to renew or ATR or renewal cohort is another term for it, which is the things that we've told before and are coming up for renewal in any given period. So what, Meta, you're referring to, as you rightly point out, is that at our Analyst Day back in September, what we said is that the pool of that renewal, so how much is coming to renew in each given year is going to continue to grow for several years to come. So it is growing in '24 compared to '23, but the pace of that growth was decelerating relative to '23 and was going to reaccelerate in '25. A big driver of that, which is how the cohorts play out, which is customers buy licenses from us that maybe anywhere from 1 to 5 years, sometimes less than 1 year rarely, but sometimes more or less. And so it just depends on the mix of that and when those deals come up for renewal, right? So that's what's driving the cohort. So passage of time really. So there was that dynamic that was causing this deceleration and then acceleration. So that's certainly one driver. And that remains the case. We obviously monitor this on an ongoing basis, and we still see that reacceleration happening in '25. The one other piece, I think just to call out a caveat, is there are 1-year deals that we will do in the second half of this fiscal year that will, of course, impact the ATR or the renewal pool for next year. So that's [indiscernible]. The other thing that could move this is our renewals teams choosing to sort of do things a bit early, which we have seen or do coterms, which is taking all of our licenses of the entire estate and kind of making them coterminous at a single date, all of which are generally good. We don't mind early renewals because it helps us lock in the customer, and it comes in good -- got good economics, and they're giving us the cash, but we're happy to have them. It's important that we retain the customer. And so those can move this around somewhat as these move over annual boundaries. But I think our focus is still on making sure we retain the customer, they remain happy, they're expanding with us and all of that. But as of now, we still see the dynamic of reacceleration into fiscal year '25. Now we haven't quantified that, Meta, beyond what we said at Investor Day, and plus we sort of think about guiding for next year, we'll continue to monitor that.

Okay. And then another question we get sometimes is just is there any kind of meaningful impact of pricing increases that have kind of come into effect over the last couple of years that's kind of driving growth that we should just be mindful of?

So we do periodically look at assessed pricing in the market and have made some adjustments and price increases over the last few years, mostly to keep up with inflation, that's how folks should think about that. And so we'll continue to do that as the market evolves. That's on the new and expansion kind of list price dynamic. And then on renewals, what we do is even there, so let's say someone had purchased from us 3 years ago and it comes up for renewal, same thing, right? Like we will adjust that price up for inflation or for a duration change if they're deciding to make that. And we've gotten better at being able to capture those economics over time. So for example, in the most recent quarter -- for the January quarter, we did talk about that as being one factor of our performance on the renewal side is our ability to capture that uplift.

Okay. And then just thinking about how kind of macro is influencing how you're thinking about the business. Just cloud optimization seems to be kind of waning in terms of a headwind. Just what are you seeing in terms of kind of macro overhang to the environment or just kind of engagements and new projects starting again?

Yes. I can start, and then, Rajiv, you should -- feel free to add. So I think on macro, we -- what we said on our call last week was still uncertain. It doesn't feel like we're still out of the woods yet. So still uncertain, but stable is how we'd characterize it kind of compared to maybe 3 months ago or even 6 months ago. So stable, we're still seeing demand for our solutions but remains uncertain. We've also talked about there still remains the additional scrutiny that folks are putting on purchases, right? There's more -- so in many cases, more approval levels, things like that, which we believe is one of the contributors to somewhat elongated sales cycles compared to historical level.

Yes.

So that continues to be the case. And then do you want to talk about the cloud optimization piece, Rajiv?

Yes. I think, again, I think like -- I think I mentioned that in the beginning, right? So people are not simply wholesale moving to the public cloud anymore. They're optimizing what they have in the public cloud and then looking at what they should do with their on-prem footprint. And in a lot of cases, that means modernizing their on-prem footprint, running it more efficiently on-prem. So that's certainly helping us.

Okay. But they're kind of stopped going out of just conservation mode and actually started thinking about, okay, what does that longer-term landscape look like?

Yes.

Another question. And I know I asked you this last week. Just in terms of -- you just mentioned in a 3-year deal, you're going to get the cash upfront. There's been more sensitivity about interest rates. Your duration of contracts have kind of continued to come down. Are you assessing any sort of kind of macro pressure just from customers wanting to kind of hold on to their cash longer that's having any sort of impact?

So nothing systematic yet, although I think it's a really fair question. And the duration for us coming down is really -- the duration is -- that we report out is actually a mix of new and expansion and renewals. And renewals tend to transact as with more subscription companies that have lower duration. That mix is going up for us. So that's really what's driving that duration coming down. I think the other thing I'd say is when folks purchase from us, often they're using CapEx budgets to do so, which then means that they're actually fine with an upfront overlay, but clearly something to continue to watch. But that's why we typically collect our cash upfront.

Okay. And then just maybe as a last question, what do you -- you guys have talked to a lot of investors today. Like where do you find that there's still kind of the most education that's needed to be done or kind of most disconnect between how you guys think about the business and how investors understand it?

That's a good question. I think, look, for us, we are -- again, like I said, we feel like I think the model is -- the business model has started to work and kind of see the leverage in the model. So I think there's fewer questions on that now. And now I think the question that folks are trying to answer is, how should we think about growth drivers? And I think you asked some of those questions earlier, Meta, which is how is this going to play out? When is it going to play out? And they're here, there are some drivers that we have more control over others that will just be -- will just take time. And so that's what I think we've been trying to educate folks on is this is more of a multiyear growth journey for us. Now there's some really fundamental hybrid multi-cloud drivers that are still solid and we think will drive a lot of growth. And then there are some other things that are more recent in terms of the VMware disruption in the market. Otherwise, this would be more multiyear, right? So just sort of getting more of that out there has been a lot of our organizations today. Anything you would add, Rajiv?

I'll add a nonfinancial thing, which is really about what we do as a company. I think even like what you asked at the beginning, right, beginning about the workload, but it's no longer the workload for us, right? So the platform has now evolved quite a bit to really being a much broader platform, right, with many more elements to it, compute, storage, networking. So the TAM that we are going after is much bigger. We can run all the applications. And I think the awareness of what we bring to the table as a company, I think investors who have followed us a while got it, but I think a lot of investors who are new to the story are only now picking it up.

Okay. Perfect. Rajiv, Rukmini, thank you so much for being here with us today.

Thank you for having us.

Thank you for having us, Meta.

Yes, thank you.

Good to be here. Thank you all. Thank you.