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

Good day, everyone, and welcome to Nutanix First Quarter 2026 Earnings Conference Call. [Operator Instructions] This conference is being recorded. Now it's my pleasure to turn the call over to Nutanix' Vice President of Investor Relations, Rich Valera. Please go ahead.

Good afternoon, and welcome to today's conference call to discuss first quarter fiscal year 2026 financial results. Joining me today are Rajiv Ramaswami, Nutanix' President and CEO; and Rukmini Sivaraman, Nutanix' CFO. After the market closed today, Nutanix issued a press release announcing first quarter fiscal year 2026 financial results. You'd like to read the release, please visit the Press Releases section of our IR website. During today's call, management will make forward-looking statements, including financial guidance. These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements. For a more detailed description of these and other risks and uncertainties, please refer to our SEC filings, including our most recent annual report on Form 10-K as well as our earnings press release issued today. These forward-looking statements apply as of today, and we undertake no obligation to revise these statements after this call. As a result, you should not rely on them as predictions of future events. Please note unless otherwise specifically referenced, all financial measures we use on today's call, except for revenue, are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided, to the extent available, reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Nutanix will be participating in the UBS Global Technology and AI Conference in Scottsdale on December 1; the Raymond James TMC and Consumer Conference in New York on December 8; and the Barclays Global Technology Conference in San Francisco on December 11. We hope to see some of you at these events. Finally, our second quarter fiscal 2026 quiet period will begin on Monday, January 19. And with that, I'll turn the call over to Rajiv. Rajiv?

Thank you, Rich, and good afternoon, everyone. In our first quarter, we saw solid demand for our solutions with bookings that were slightly ahead of our expectations, and continued progress with our partners. However, the solid performance of the business didn't translate into revenue within the quarter as previously expected. Late in the quarter, we saw more business than expected with start dates outside of the quarter. This resulted in some revenue being shifted out of Q1. As we evaluated the impact of this recent change in our business mix on our fiscal 2026 outlook, we now expect to see more revenue than we had previously planned. driving a reduction in our full year revenue guidance. Rukmini will provide more details on these changes in our comments. But there are a few key points I'd like to make. First, our view of the fundamentals of our business and bookings growth expectations for the year remain unchanged. Second, these changes do not impact our free cash flow expectations for FY '26, which we are modestly increasing. And finally, this is solely a timing issue and the amount of revenue we expect to recognize over time from business booked in FY '26 remains unchanged. With that said, in our first quarter, we delivered quarterly revenue of $671 million within our guided range and grew our ARR 18% year-over-year to $2.28 billion. We also saw another quarter of healthy new logo additions and solid free cash flow generation. In Q1, we continue to see success in the marketplace with our cloud platform. Our most notable wins, a few of which I'll highlight demonstrates the appeal of our solution to businesses that are looking to modernize their IT footprint, deploy modern apps and AI and adopt hybrid multi-cloud operating models. One of our largest expansion wins was with a North American-based provider of agricultural products and services. That was looking for an alternative to their existing 3-tier virtualization solution that included a potential future path to public cloud. They chose our Nutanix slot platform to run their mission-critical applications across their global manufacturing and business operations footprint. Appreciating the public cloud optionality provided by our Nutanix cloud clusters or NC2 capability. They also chose Nutanix Kubernetes platform in anticipation of future deployment of modern workloads as well as Nutanix cloud management and Nutanix unified storage. Another example of a new logo win with a customer looking to take advantage of the hybrid multi-cloud capabilities of our platform was a European government agency that we're looking for a solution to deploy and manage their modern applications across public and private clouds. They are planning to run their modern applications on our Kubernetes platform on top of NC2 on AWS. And we continue to add some of the world's largest companies as new customers in Q1, including a 7-figure Global 2000 new logo with an EMEA-based provider of energy products and service. This customer was looking to implement a comprehensive cybersecurity solution. They chose the Nutanix Cloud platform to run these security applications as well as cloud management for its common management interface, superiors of use, simple one-click upgrades and the ability to secularly run across multi-cloud environments. They also chose Nutanix unified storage for management of unstructured data. Finally, the first quarter new logo in our U.S. federal business highlighted the Gen AI and modern application capabilities of our platform. This government agency was looking to modernize their infrastructure and to utilize AI to enhance its effectiveness and efficiency. They chose a full stack metallic solution, including our cloud platform, Nutanix unified storage and Nutanix database service as well as our Nutanix Enterprise AI and Nutanix Kubernetes platform to support development and deployment of their modern and Gen AI applications. Moving on. We also continue to make progress on our initiative to support external storage with our platform. including selling our solutions supporting Dell PowerFlex to another Global 2000 customer in Q1. During this quarter, we also announced that Nutanix plans to support Dell's Power Store with general availability expected in the summer of 2026. And we remain on track to deliver our solutions supporting Pure Storage FlashArray within this calendar year. Finally, we continue to receive industry recognition in Q1. Nutanix was named a leader in the 2025 Gartner Magic Quadrant for distributed hybrid infrastructure. Our inclusion in the leaders quadrant, along with several leading public cloud providers, reflects the evolution of our offering to a true hybrid multi-cloud platform. In closing, our business performed solidly in the first quarter, including bookings that were slightly ahead of our expectations, ARR growth of 18% year-over-year another healthy quarter of new logo additions and solid free cash flow performance. The change to our revenue guidance relates solely to the timing of revenue recognition. I believe the fundamentals of our business remain healthy and unchanged. We remain focused on delighting our customers while driving sustainable profitable growth. And with that, I'll hand it over to Rukmini Sivaraman. Rukmini?

Thank you, Rajiv, and thank you, everyone, for joining us today. I will first discuss our Q1 '26 results followed by Q2 '26 guidance and our updated fiscal year 2016 guidance. In Q1, we reported quarterly revenue of $671 million, within the guidance range of $670 million to $680 million, representing a year-over-year growth rate of 13%. While bookings in Q1 were slightly ahead of our expectations. We saw a larger-than-expected proportion of land and expand bookings with future start dates late in the quarter, resulting in a shift of some revenue from Q1 into future periods. As a reminder, under U.S. GAAP, revenue recognition generally begins when the license starts which means booking with future start dates, shift revenue recognition into later periods, even though cash collection may occur earlier. This is solely timing related and does not change the overall revenue expected to be recognized over time. If land and expand bookings had come in with the proportion of future start dates that we had assumed Q1 revenue would have been above the high end of the guided range. ARR at the end of Q1 was $2.284 billion, representing year-over-year growth of 18%. The NRR or net dollar-based retention rate at the end of Q1 was 109% flat quarter order. Note that this ARR and NRR are under our updated methodology that started with Q1 26, as previously discussed on our last earnings call. In Q1, average contract duration was 3.1 years. Non-GAAP gross margin in Q1 was 88%. Non-GAAP operating margin in Q1 was 19.7% and towards the lower end of our guided range of 19.5% to 20.5%, primarily due to lower revenue. Non-GAAP net income in Q1 was $121 million or fully diluted EPS of $0.41 per share based on fully diluted weighted average shares outstanding of approximately 297 million shares. GAAP net income and fully diluted GAAP EPS in Q1 were $2 million and $0.21 per share, respectively. Free cash flow in Q1 was $175 million, representing a free cash flow margin of 26%. Moving to the balance sheet. We ended Q1 with cash, cash equivalents and short-term investments of $2.062 billion, up from $1.993 billion at the end of Q4. Moving to capital allocation. In Q1, we repurchased $50 million worth of common stock under our existing share repurchase authorization and used about $89 million of cash to retire shares related to our employees' liability for their quarterly RSU vesting both of these help to manage share dilution. Moving to guidance. Our guidance for Q2 '26 is as follows: Revenue of $705 million to $715 million, non-GAAP operating margin of 20.5% to 21.5%. Fully diluted weighted average shares outstanding of approximately 296 million ships. Moving to the full year. Our updated guidance for fiscal year '26 is as follows: revenue of $2.82 billion to $2.86 billion, representing a year-over-year growth rate of 12% at the midpoint of the range. Non-GAAP operating margin of 21% to 22%, same as our prior guide despite the lower revenue guide, free cash flow of $800 million to $840 million an increase from our prior guidance and representing a free cash flow margin of 28.9% at the midpoint. I will now provide some additional context regarding our fiscal year '26 guidance. First, as Rajiv mentioned, it is important to note that our full year bookings growth expectations remain unchanged relative to our last earnings call. We are also pleased to raise our free cash flow guidance for the full year. However, as we saw late in Q1, we are seeing that the timing of conversion of bookings into revenue is evolving with our business. We believe this is due to a couple of factors, including: One, increased customer demand for greater flexibility to start licenses aligned with their adoption time line, resulting in more bookings with future start dates; and two, the growing proportion of our business through our third-party OEM partners for which we only recognize revenue when our partners ship an appliance. As a result, we now expect more revenue to shift from fiscal year '26 into future periods, while the total amount of revenue recognized over time remains unchanged. Second, a note on seasonality. We expect the quarter-over-quarter revenue trend from Q2 to Q3 to be similar to what we saw last year in fiscal year '25. Third, we continue to balance prudent investments for continued growth with a focus on efficiencies and expanding margins over time. This is reflected in our updated operating margin and free cash flow guidance for the full year. In closing, we believe the underlying value of our business remains unchanged. Demand and bookings expectations are unchanged. Our free cash flow outlook is higher. Revenue expected to be unchanged over time, but starting later, and our guidance philosophy is unchanged. With that, operator, please open the line for questions.

[Operator Instructions] It comes from Matt Hedberg with RBC Capital Markets.

This is [indiscernible] on for Matt Hedberg. So just to start with NRR, this was flat quarter-over-quarter. Would you be able to speak a bit more to these dynamics? I know last quarter, you had mentioned that the average deal size is growing for new logos could be a headwind to the growth rate of expansion. So how should we think about new logos versus expansions this quarter and throughout 2026.

Simon, I can take that. So on we had talked about, as you said, some puts and takes there where the new logos generally don't affect NRR directly. Because if you think of all the components that add up to our ARR growth. The first one is good retention, making sure we're getting as many of our customers as we can. And then there is this expansion component, which is reflected at NRR. And then -- the third element is new logos, which then add to make up the full ARR number. So new levels in general don't affect NRR. I think the point we had made in the past was that as our average deal sizes for new logos has gone up over time, potentially in some customers, we might be doing a complete migration of their estate onto Nutanix platform even at the get-go. And that doesn't happen all the time, to be clear, right? There are bigger customers where it will be a migration over time. We talked about that a little bit in the prepared remarks as well. So there are puts and takes here. Overall, we saw the NRR for for Q1 as reported stabilized. It was flat quarter-over-quarter.

Okay. Okay. Got it. And then could you also provide a little bit more color on Fed. How did it perform relative to expectations 90 days ago and the impact of the government shutdown.

Yes. Let me talk a little bit about U.S. Fed. So first, I'd say, as a reminder, we don't report U.S. Federal as a percent of our business, just to give people an idea. But what we have said is that U.S. Fed has been 10% or less of our annual revenue with the seasonal strength, of course, seen in our fiscal Q1, the quarter that we just reported, which is fed fiscal year-end. In this Q1, specifically, our U.S. Fed business saw double-digit year-over-year growth off of admittedly of a relatively easy comparison last Q1, but we saw nice growth there. And going forward, we continue to expect a higher than historical level of variability in the U.S. Fed business given recent personnel changes, some policy changes, of course, we just came out of the government shutdown. So given all of that, we expect some variability there. But overall, we remain optimistic on the opportunity for this business to benefit from our platform's focus on modernization and lowering TCO, which we believe TCO being total cost of ownership, which we believe is well aligned with government objectives as well. And we have factored sort of all of this into our Q2 and updated fiscal year '26 guidance, we have factored this overall uncertainty into the updated guidance.

Our next question comes from the line of James Fish with PSC.

Look, let's get right to the point here. if bookings came in better than expected and granted it's apples and oranges slightly. Why did RPO bookings that -- I'm happy that you guys are finally talking about RPO because I think it's a more meaningful metric. But why did RPO bookings themselves [indiscernible] can you guys help us with what that bookings growth rate was. And Rukmini, if it really shifted out of fiscal Q1, why does it seem that so much is pushed into fiscal Q4? Because if I look at your commentary here of seasonality, it means we have a pretty large ramp into fiscal Q4 versus fiscal Q3 then so help us out here.

Thank you for those questions. As you pointed out, we've started this quarter, providing RPO remaining come obligations in our earnings release. when before we were providing them in our filings, so in our 10-Qs and Ks. We believe that this is an additional relevant metric because, Jim, as you, I think, are alluding to, captures bookings activity in the period that is expected to be future revenue. And it includes deferred revenue, which, of course, is also on the balance sheet and it also includes noncancelable backlog. Those are the components of RPO. I'll also mind folks that RPO is a TCV or total contract value-based metric. And so it is -- it has all the revenue, meaning it has duration as well as opposed to ARR, which is an annualized metric. Now to your question, Jim, on and why we saw a small decline in backlog component as part of the RPO or subset of RPO in our first fiscal quarter. And I would say that's consistent with our historic seasonality, if you look at sort of what backlog does. And then there's a small component that is not visible, which is noncancelable backlog that is [indiscernible] sorry, cancelable backlog, which is a smaller proportion. And so that also typically does translate into revenue. So overall, look, we look at RPO, we are pleased with overall year-over-year growth in our peer, which is 26% in Q1. Your second question, Jim, I think, was on the seasonality point. So when we look at the full year, what I would say is we still see a mix that is similar to what we've seen in fiscal year '25 last year, for example. So if you look at fiscal year '25, our revenue mix first half versus second half was $49.1 million. And for '26, the updated guidance we just gave you at the midpoint of Q2 and full year, it's just a touch more weighted towards second half. So it's not meaningfully different from what we saw last year.

Good. Got it. And then I think anyone that's been following you guys for a while, will recall the time frame when it was out of your control the supply chain issues a few years ago that led to what we'd all call pushouts. So can you walk us through in terms of what you're seeing that's similar versus different on how we should think about the sort of push out time frame?

Yes. So why don't I start on that, Jim, and then I welcome Rajiv to add here as well. And maybe, Jim, it's a broad question, right? So I'll start with first maybe broadly talking about 3 relevant factors that are related to the recent dynamics that we see in our land and business specifically. So first, with the growth of Broadcom migrations, we're finding that these customers want to commit to us, but often need more flexibility to help them match their license deployments with their migration time line. We have seen some of this in the past as noted in prior earnings calls, although the impact then was minimal relative to our expectations. We saw this become pronounced late in Q1 and we now expect this trend to continue, which is why we're expecting more revenue than previously expected to be shifted out of '26 and in the future period. That was the primary factor in the Q1 revenue performance. The second one is a growing proportion of our business. It means through our third-party OEM partners for which we only recognize revenue when our partners ship an appliance. Third, and perhaps more directly to your question, Jim, we don't believe supply chain shortages or longer lead times were a meaningful driver of the revenue performance in Q1. However, based on what we have been hearing anecdotally about component shortages and the potential for longer lead times, we believe supply chain tightness could impact the business going forward. So we believe now that we have more refined insights based on recent trends on orders with future start dates, partnershipping time lines and the extent to which these factors impact timing of revenue. Now with all that said, I'd like to reinforce a few important points or reiterate a few important points that we said in the prepared remarks. We believe the underlying value of our business remains unchanged. Demand and booking expectations for the year are unchanged. Free cash flow outlook is higher. Revenue is expected to be unchanged over time, but starting later, and our guidance will obviously is unchanged. Rajiv, anything you would add to that?

Let me provide a bit more color on the supply chain aspect. I think you called the other aspect Rukmini. On the supply chain side, I mean, we didn't believe that supply chain constraints were a meaningful factor in our Q1 results. But as we all know, there is a big massive AI buildout being done by a handful of large companies. And that has the potential, and it seems to be starting to cause supply shortages in the industry. Now we don't see this directly, but we are hearing anecdotally about component shortages and the potential for long lead times. Now this could impact our land and expand business going forward. renewals aren't affected. So we are monitoring this closely, and we have factored in a modest tightening of the supply chain to our updated outlook. Now again, in terms of looking at the supply chain per se, while, again, we don't control the supply chain ourselves. But we have done a few things to help mitigate supply chain issues. I'd say 3 things -- there are 4 things actually. First is we do have more server partners now than we've in the past where notably, we've added Cisco as a server partners. So our customers have a choice of server vendors to pick from, and they can do that based on who's got the best supply. Second, we have continued to expand our hardware competitor list so that we can include more existing server configurations that customers have already deployed to run our infrastructure. is there, for example, looking to get it to their existing software and putting our software on, we can run that more on existing hardware that they've deployed. Third, we've also added additional external storage options, such as [indiscernible] Pure Storage that mitigate the need for customers to purchase new hardware to run our software. And finally, we also have more offerings in the public cloud, including now NC2 on Google Cloud, our Kubernetes offerings, et cetera. So these are all -- I think the overall set of things that we are doing on our end to provide broader applicability of our software across different hardware.

One moment for our next question, please. It comes from Matthew Martino with Goldman Sachs.

First one for me, like on the revenue that slipped from Q1 into future periods, like how much of that was tied to customer requested future start dates versus OEM shipment timing versus simple deal slippage. And I guess like what evidence broadly do you have that this is timing only an emerging demand softness? And then I have a follow-up.

Thanks for the question. Let me start. So in Q1, the revenue performance in Q1, I think I want to be clear, was primarily related to the proportion of orders that we saw with these future start dates. And as we -- bookings in Q1 were ahead of what we had expected going in. And so it's that bookings view, Matt, that gives us -- that we were alluding to. And we said that, look, we have seen bookings to come in Q1, in fact, slightly ahead of what we had planned. And our view for the full year on bookings also remains unchanged from before. But the primary factor of Q1 revenue coming where it did, which was within the range. And as we said, if those proportion has come in as we had assumed it would above the high end of the range.

Got it. And then for a follow-up, just given on entry on [indiscernible] recognition landing in later periods. I mean, how should we think about the duration and the timing here as we kind of think about framing our models for fiscal '27 kind of given the commentary that you expect unchanged bookings growth, but a delay in that [indiscernible]?

Yes. So when we think about '27, I think it's part of your question, Matt, what is change for; 26 imply for fiscal year '27 if I were to paraphrase your question. Look, we have -- we've given you our view of revenue for this year. revenue growth in '27 is, as in any year, is dependent on 3 factors: business deferred from '26 into '27 business booked in '27? And then how much do we book in '27 might get deferred into future years. So there's a net effect there as you can see along with actual performance itself in '27. We look forward to providing more color on that, really anything beyond fiscal '26 during our Investor Day [indiscernible]

The only thing I'd add to that, Rukmini, in terms of the demand side of the equation, you talked about, of course, bookings coming in slightly ahead of expectations. The other thing you could look at Matt also is the fact that our cash flow is fine, right? In fact, we're actually slightly taking up our free cash flow guide. And we're still collecting cash on all those bookings mostly upfront.

One moment for our next question, that is from Samik Chatterjee with JPMorgan.

This is [indiscernible] on behalf of Samik from JPMorgan. I just wanted to ask on the customer spending plans like we have seen hardware costs, particularly impacted by the increased component component costs. [indiscernible] the overall propensity of like customers in terms of spending towards IT? And also like if you could help us understand FY '26 guide adjusted for the timing issues?

So I'll talk about the first one. I mean, look, we talked about the supply chain. I think Look, I mean, hardware, again, prices could change, prices go up, prior lead times could go up. And like I said, our approach is to provide -- fundamentally to provide more densification to customers. So they can try and arbitrate amongst all the hardware providers and provide -- we provide the broadest flexibility to run our platform, right, run our software on -- as many hardware platforms as they can. That's our approach of dealing with the hardware issues. We don't control the hardware directly, right? Now we have it to your question, we haven't seen any drop in demand in terms of customers saying, oh, yes, prices have gone up. Therefore, we're not going to buy as much. So we haven't seen that at this point at all. Rukmini, do you want to talk about the guidance?

Yes. So I think the question was for the full year '26 guide, what would it have been if not for the timing of revenue. And look, I think a reasonable starting point to look at that is what we had guided last quarter, which was [indiscernible], and our current guide is $282 million to $286 million. And as I said, the reason for that is we're expecting more revenue than previously expected to shift out out of fiscal year '26. And the factors I talked about, right? One is the fact that more customers want to commit to us but are looking for more flexibility to help them match their migration time line with when they need licenses from us. and it's a growing proportion of our business that's coming through third-party OEM partners for which we only recognize revenue when our partnership and appliance. And the third one, which we really haven't seen thus far, it was not a factor -- a meaningful factor in Q1 revenue is that some of the supply chain shortage of the longer lead, which we sharing about anecdotally in which you alluded to as well.

And my [indiscernible] question would be like, have you seen any increased competitive increased competitiveness across this space over the last 90 days or something like overall view on the competitive environment?

I would say nothing has changed really on that front. We're seeing the same set of competitors that we've always competed with. And we really haven't seen any major change in the dynamics. Like I said, I think the migrations that we're seeing customers do onto our platform right? I mean they tend to be staged over time, right? It's not everything coming out front. And we're seeing -- as we see more of those migrations, as Rukmini explained, I think that's driving the customers to need more flexible start dates, right, in terms of when they actually want to activate their licenses so that they can activate those whenever they're ready to actually do the actual migration. So that, I think, is what we've seen. And I don't [indiscernible] the competitive side of the equation really hasn't changed.

Our next question comes from the line of Wamsi Mohan with Bank of America. .

It's [ Ruplu ] in for Wamsi today. I have 2 questions, one for Rajiv. When you look at the rest of fiscal '26, how do you see the pipeline of large deals and the impact from that. And you talked about a growing proportion of revenue from the third-party OEM partners Raj, what percent of revenue this year is coming from those third-party OEMs? And can you give us any updated expectations for revenue from Dell and Cisco specifically? And I have a follow-up for Rukmini.

Okay. So first on the large deal, second on the OEM. So look, I think we continue to see our share of last. So at any point in time, we have a pipeline where we have a good number of large deals with this uncertain timing. And when you have these deals, larger deals, it's longer to really prosecute them and a little less clear about when, right? So we don't factor in all those deals into forecast but some likelihood of some subset of them hitting. I would say we're seeing a quite -- it's a good mix, right? We're seeing -- we did more million-dollar deals last year than prior year, we probably will do more this year as well as we go through the year, still early in the year. So we certainly have a pipeline of several deals out there that we should be -- we are working currently on that front. Now on the OEM side, I will say that we haven't broken it down yet in terms of what percentage of our revenue is coming from it, but it's clearly growing, right? Cisco has now been out there for a while, and they are continuing to ramp along nicely. Dell is still early in that life cycle. But I think as we've now got PowerFlex on, we will have [indiscernible] sometime next summer. And so in general, our alignment with Dell is getting better. And so I would expect that to continue also growing. And we've also had historically [indiscernible] although they're a smaller OEM partner. That's been there for a while and it's business as usual on that front. But I would say I would expect the mix of Cisco and Dell both to grow for us over time. We haven't quantified it.

Rukmini one for you. It sounds like a structural change in the business where more bookings going forward will have future start dates. I guess the first thing is like how -- what is giving you that confidence that this is a permanent change and not something just specific to the near term or fiscal '26. So am I reading this correct that this is a structural change? And then second and part of this question is on Slide 10, it says that we you're going to balance prudent investments for continued growth with a focus on margins, and you're keeping free cash flow more or less same, up a million at the midpoint. Is there any risk that investing less now can hurt future revenue growth in outer years. So if you can just comment on that.

So on the first point you made in terms of the change to future start date and why we think it's going to continue. One thing we said earlier was that -- what are the factors we think that's driving this, the primary factor has been sort of this growth in Broadcom migrations. And we're finding that these customers, they want to commit with us. they often need more flexibility though to help them match their migration time lines and so on. And so that dynamic, as we've talked about for a while, we expect those migrations to be a multiyear journey for us. and so on. And we're always looking to balance customer needs with our own business goals. And so we'll continue to do that. The reality though is for some of these migrations, typically the larger ones where the customer might say, look, I need these licenses over time rather than all upfront, depending on their own migration time line. So that's the underlying dynamic around that. Second to your question around we're keeping margins the same margin guidance -- operating margin guidance same as before, while we've taken revenue down relative to before and same on free cash flow, I think we take free cash flow up slightly, I think, relative to last -- what we told you last quarter. So if you think I would say, right, on the operating margin side, we do want to balance those 2 things, which is continuing to invest, investing prudently in growth. while looking to grow margins over time. I will say a few things on this. So one is with revenue getting deferred or shifted out of '26, there's some commission expenses that get deferred with that. We're also seeing slightly higher partner payments. These nonrecurring partner payments we've talked about before are slightly higher than what we had assumed when we gave you guide 3 months ago. And then overall, we'll always be to manage the business efficiently, right? So when I think about all of that, we feel good about the balance between investments and growth. And then again, on free cash flow, the one other factor I'll say on free cash flow is that while we're seeing this more revenue shift out of '26, we still typically invoice on bookings and collect cash upfront regardless of when the license deployments occur. So that's another thing to keep in mind when you think about free cash flow and cash collection.

Let me add one more thing, Rukmini -- sorry, on that front. So when you talk about a structural change to the business, I think one element of it is structured, which is more of our business is going to our OEM like Cisco and Dell. And there is a structural aspect of that in the sense that in that case, what we do is -- we give them our software and then they put it along with the hardware, they create an in kind of model and then they sell that, right? And so for us, fundamentally, at that point, we only recognize revenue when they ship right? We don't recognize revenue when we just provide the software to them, but only when they ship to their customers. So that, I think, we do expect that side of the business to continue growing, right? And that means that from the time we get a booking to the time that they -- we could get revenue for that. I think it's going to be similarly delayed, right? And so the more of that will see.

Our next question comes from Nehal Chokshi with Northland Capital Markets.

I do have a couple of questions. First one, Rukmini, you said the bookings came in ahead of expectations. Did you actually state how much were bookings up on a year-over-year basis?

We did not. We don't typically report or give you specifics on bookings. So we did not call that out specifically.

Okay. And so that's why you were talking about the different components of bookings, those being RPO in cancelable orders [indiscernible]. Is that correct?

So just to be clear, right, so RPO captures a lot of things. RPO has deferred revenue, which is obviously coming as a waterfall from prior periods as well. The majority of deferred is support [indiscernible] piece of our business. And then there's some that's licenses that are coming from prior quarters and that proportion that's increasing. And then we also have in RPO, the other component of RPO is noncancelable backlog. And what I think what I was answering the prior question or the 1 before earlier from Jim, I think, was around the fact that RPO does give you a sense of what is expected revenue in future periods. We give you CRPO as well, which is next 12 months that is coming off of either the balance sheet or from this noncancelable backlog. So it does keep -- embedded in there is some proportion of the bookings that we had in Q1, but did not yield revenue.

Okay. Cancel backlog, though, that you have said something about cancel backlog in 1 of the other questions. What do you specifically say about that?

Yes, I was just saying that there's a small component of cancelable backlog relative to our PO number, it's small that we don't put out. But that's also -- eventually most of it does turn to revenue over time.

Okay. Rajiv, for you, and your best estimate, what market share do you think Nutaxis picking up of VMware migrations?

Look, that's a little hard to estimate, right? I mean if you get the customers who are doing the migrations, I mean, the choices are us, Red Hat, and then I would say, public cloud, which being, I would say, a minority, right? And I can give you some qualitative color quantitatively, it's very hard for us to really say. I would say, look, I mean, the proof of the pudding is we've got customers plus who we added last year, and we added another [indiscernible] this quarter as well on top of that. And those are all customers who are doing migrations. Perhaps the one that might be pertinent is Red Hat, right? And if you look at it, I think we are winning a good chunk of business compared to what it had in terms of these customers migrating. That tends to be playing primarily where containerization is the main thing. Our platform is very solid when it comes to virtualization, the ability to run mission-critical workload and the flexibility to provide both virtualization solutions as well as container solutions. And we see some significant wins, some of which are public, right? So take finance informatic as an example. -- large bank in Germany, all the real banks. And for example, they had IBM and that had significant existing departments. And of course, big VMware shop, and they're migrating their VMware workloads over to Nutanix. And that's just one example of [indiscernible] so I don't have an exact quantification to your question on the number, by the way. But we do believe we are winning a significant portion of those migrations.

Okay. And then with respect to this container versus mix environment. Is it fair to say that increasingly organizations are looking for the modernized container-only solution? Or is it more organizations are looking for a next solution?

Most companies that we talk -- most customers that we talk to have a mix with the majority of that state is still very much virtual machine-based and the newer stuff, everything that's new, net new being built is being built on containers. So almost everybody we talk to, at least, it's a mixed environment. with more of the existing asset being, what's the machine based.

[Operator Instructions] Our next question is from Jason Ader with William Blair.

So I think, Rajiv, what you guys have been saying is that the pushouts on the licensed start dates are due to the complexity of migrating off VMware, and it just takes a while and we kind of knew that, but you've been doing these migrations for almost 2 years now. I guess why do you think this pushout issue didn't pop up sooner what makes this current time period maybe special, forget about the OEM part of the business, but just on the flexibility question, do you think it's a budget issue, a macro issue or some other issue?

Yes. First of all, by the way, to your point there, it's not entirely new, right, Jason. We've seen this in the past, too. We've talked about how on some prior large deals, we've had to provide this kind of flexibility to align with the migration time lines. Now I think in the past, there were a smaller portion, right, of our business. Now we've got a growing set of broad cord migrations, right? So as that grows, again, we're finding that again, there's more of this that requires that flexibility. And that's really, I think, is the inflection that we saw. And we saw this very late this -- in Q1 as well on this front. So I would say it's just the fact that we have more of this man now. That's the primary driver. Rukmini, do you want to add any color on this one?

I agree, Rajiv. I think you covered it.

Okay. Great. And then as a follow-up for you, Rajiv, also, one of the comments we've heard from the channel is that when people compare the renewal from Broadcom compared to the upfront pricing, including hardware from Nutanix, it's not that different. And I know that you guys. You've talked about this. But I guess the question is, should you be more aggressive on the upfront pricing to win business? And then is it -- is it going to be more problematic on that delta between the renewal for the customer versus the full hardware refresh with the NAND pricing going up as much as it is. So I guess that ties into the supply chain question that we discussed earlier. But how do you think about sort of upfront pricing and how that might change over [ time ]

No, that's a very good question, right? I mean I think and a lot of it is also, do they need to buy new hardware or not, right? -- tied to that. Because look at it from a software perspective, we're not leading with price, but we aim to be very, very competitive, right, with Broadcom otherwise we will not win the account. And especially when we are landing a new customer, I think we will be aggressive. Now I think the big barrier is they do need new hardware, and they have to purchase new hardware. Now there again, that's why the hardware timing. Timing of hardware refresh is a very important question, right? So now -- of course, so on our part, we've been doing a lot to try to get our software to work on as much of the existing hardware that our customers have, whether it's external storage now with Dell and Pure or even their existing servers that they may have running, for example, VMware VSAN or they're very equivalent hyper-converged. So we've been trying to reduce that hardware portion of the outlay for the customer. And that will help us also, of course, the more that we're able to do there the easier it is for us to insert. So those dynamics haven't changed really significantly. I think on our part, we've been working to, again, make our software more broadly applicable so that our customers don't have to go reinvest in hardware. Now when they do reinvest in hardware, by the way, I think the other point that we should not forget is that a lot of the VMware deployments, 80% of it is still 3-tier storage. And if they move from 3-tier storage to HCI including the hardware, there is a significant TCO benefit. As long as they're ready to replace their hardware, there is a significant TCO benefit there, too. So we monitor this. We look at every deal. We look at the situation at the customer and then decide our strategy there.

Our next question comes from the line of Mike Cikos with Needham

I just have a quick one and then a follow-up. Wanted to add to just to make sure I was clear on it for the first question. When we add some of the guidance commentary here and specifically the second point around the growing proportion of business from third-party OEM partners. Is the point here that you're dependent on those partners as far as their time line to ship those appliances? Or does that default back to again the flexibility that these customers are requesting. And the heart of the question is, is there anything you can do on your side to help those OEM partners move boxes out the door?

Yes, I'll start, Mike. It's more -- the point you made about our revenue recognition is tied to when they ship the hardware at which point our license provisioning is tied to that. It's less so, we believe, tied to this customer dynamic, which is why we call them out separately, Mike. So it's more the ability of the OEM partner to get the hardware shipped from their side, then our license deployment is kind of linked to that, leading to our rev rec. Rich, do you want to add anything to that? Or on what we can maybe help them with in terms of [indiscernible]

I mean they're not really, right? I mean we don't quite control when they ship, right? So it's up to the OEM partners to shift their hardware. And so we don't quite control that.

Understood. And then for the follow-up. I was just hoping to ask [indiscernible] a complexity of layers as far as how you put the guidance out there. But if I look at some of the delta here that we're talking to between the bookings and the timing of revenue, how much of the -- if I look at the full year guidance [indiscernible] of about $80 million at the midpoint, how much is based on what we saw exhibited in Q1 versus what is now expected to transpire as we get the Qs 2, 3 and 4. I just wanted to see if there's any way to triangulate or conceptualize the different moving pieces there. And I know that's a complex one, but again, just trying to get a little bit more of a firmer understanding.

Yes. So I think what we said for Q1, Mike, was that if our assumptions have played out as we had expected from -- when we gave you the Q1 guide, that our revenue for Q1 would have been above the high end of the range. And instead, it was 671, right, which is what the reported revenue number was. So -- and then that gives you, I guess, a bit of sense of how much we were expecting in Q1 before we saw this late in quarter dynamic that we've talked about here. And so that's maybe -- I'll leave it there. Mike, we're not sort of breaking it down more than that, right, on specific quarters or so on. And then the other comment I made, which I'll say again is around seasonality like first half, second half. where for fiscal year '26, if you take the first half, Q1 actuals, Q2 guide and then compare it to what second half will be that mix is not meaningfully different from what we saw last year. So that will be the one other way to think about the contributions.

Our next question comes from the line of Ben Bollin with Cleveland Research.

Rajiv, I think you touched on this a couple of times indirectly. I'm interested in your thoughts on the progress you're making with large customers in making this transition from Broadcom to Nutanix. What you're doing to make that process easier, either reducing the duration of the POC or aiding in the reengineering and the replatforming and the training. You talked about the hardware relationships. So I'm interested in your thoughts on some of the things you're doing to improve that process or make it easier for customers. And then I have a follow-up.

Yes. I mean it's a very good question. And the larger customers tend to have more complex environments, right? So typically, if you want to go win them, there's, of course, a POC phase. And we do actually a pretty good job with the POC. It's not really a technical issue, right? So the POC is rarely actually a sting point. So we get through that usually easily. There are all these other factors that come into play, right? The commercial relationship and the dependency that they have potentially across multiple products with Broadcom, right? So that's a big dependency. The hardware piece, which again, is we try to do support as much more of their hardware as we can so that they don't have to go to fresh hardware when they switch to us. The third thing that we've been working on, of course, is making sure that we can support the baby of applications that they have. Now I would say this kind of the 80-20 rule. We support the vast majority of applications and being certified on a hypervisor. There's always going to be maybe a handful of players that aren't fully supported. I'll give you one example. Cisco's unified communication appliances. And those until recently when -- they used to work on our platform, but they were not officially certified by Cisco. And for customers would be reluctant to run those on a Nutanix platform. But now we're certified, right? So we are working on getting a certified Cisco officially said they're certifying it now. So that's a barrier that we have to overcome in some cases for specific applications. Then, of course, the migration itself in terms of professional services required. Almost every one of these larger customers needs a project team to go help them with their migration. So we have we have that. And then, of course, for the larger deals, we also have a deal pursuit team that looks at all of these aspects in terms of putting together an appropriate commercial proposal. Now that said, Ben, for the very largest customers, we typically tend to find insertion points as opposed to trying to do complete pro comp takeouts, right? So we try to find places where we can actually -- they can use our solution for, say, specific workloads, specific use cases. And for example, we have a pretty good database management solution. We have a good corporates offering. So these are things where I think we try to differentiate and also try to get in with a subset of applications. And so that's I think typically what we do. Then of course, the last piece, I would just say we go through security audits, and we've gotten pretty good at doing that as well and carrying that across true. So we have won a fair share of what I would call, certainly Fortune 500 customers. I think as you get to the Fortune 50 at the very top of the pit and mid it's very hard to do a full displacement, right? And like I said, those will be partial entry points for specific workloads.

Okay. Okay. That's really helpful. And I guess the follow-up would be -- when you look at the enterprise footprint you are working with, obviously, AI is talking up a lot of mind share and dollar share. I'm interested how you think enterprise investments in AI may or may not be influencing your opportunity to go out there and capture bigger footprint? Are they trying to do too much at once, they got to pick their priority, how do you think about that? .

I mean it's a very fair question, Ben. I mean, almost everybody that we talk to as to AI at the top of their minds. But I would just say that it's not -- I mean, the vast majority of our customers are, I would say, more experimenting with AI right now than really deploying it at some massive scale. There are exceptions. There are some subsea customers that are further along the journey. But most of our customers are still very early. So it's not like they've diverted the bulk of their AI their spend to AI. And so we haven't quite seen that yet in our subset of customers. And keep in mind, our customers aren't the AI native companies, right? They are the typical industrials and financial services and manufacturers and retailers who are all wanting to use AI, but still fairly early in their adoption.

One moment for our next question, please. And it comes from [indiscernible] with Oppenheimer.

I have a couple. So Rajiv, Rukmini [indiscernible] migration piece, but I really want to understand the impact, right? I would have assumed that with migration, we'll probably have larger deal sizes because migrations from VMware are much bigger. So that should layer on and impact your RPO in a much more positive way rather than just to see the impact to RPO this current quarter. We really haven't seen that. So please, if you could help me understand that. And if it is true that you are gaining all these migrations, I would assume, since migrations take multiple years, as you get more and more migrations, your revenue would technically start to accelerate into next year, right? Like this year's revenue to next year plus whatever else you get. So you will see an accelerating trajectory to 2027. Am I wrong in this?

Yes. So let's first start with the first question, [indiscernible], thank you for those questions. So on the migrations, -- you're right that in general, it's for the -- typically for the bigger ones where they will say, where a customer might say, look like, can I have these licenses phased out over time versus all upfront. And so what we're saying is that in Q1, we did see bookings come in slightly higher than our expectations. And the mix of orders that came in with these future start dates that we saw late in Q1 meant that more of that revenue got pushed -- or shifted out into Q2 and beyond than we had previously expected. And so that's the point around just migration and so on. Now if you look at -- I think you were trying to tie that and so if I look at RPO, like I said, includes deferred revenue waterfall, which is pretty standard, right, and you can see in the balance sheet. And it also includes this noncancelable backlog, which what I said earlier was that in seasonally, you do expect that portion to be lower quarter-over-quarter. And that's what we saw in the Q1 as well. And if you look at RPO growth, it's quite significant year-on-year. which is a good thing, right? And when you look at total RPO growing meaningfully over time. So that's, I think, the first piece of the answer. And then I think the second part of your question was around, again, fiscal year. And why wouldn't they sort of be maybe an acceleration in '27, I think, is how you phrased the question. as what I would say there, right, like look, I think this is -- if this was sort of a onetime thing, you're right, then we sort of have some kind of a catch-up. And we've talked about 3 factors here as we thought about the forward-looking view. One was these migrations. And if we believe, as we do, that these migrations are going to continue, and we're going to be able to prosecute more against the Broadcom displacement opportunity that we will see more of this sustain, and we expect bookings to grow as well over time, right? So even if you assume proportion of orders with wire stays the same and you expect bookings in general to grow over time, land and expand bookings to grow over time, the dollar amount that's getting shifted out and will be higher than shifted in, right? So there's a net effect there that will matter in any given period, including and then like I said earlier, right, 27% overall revenue will also depend on our bookings expectations for '27, which, again, not commenting on today, but we'll -- we intend to cover some of that in our investor [indiscernible]

And really quickly, as my follow-up, strategically thinking about this, right, obviously, there's an opportunity to take share from VMware here. Why not be more aggressive for the rest of the VMware business here? I know you're going through your reference architectures. But is there a way to accelerate that? Or maybe not -- or you don't want to compete in that. I don't know how you're thinking about it. on the stand-alone virtualization side and how aggressive you want to be attacking that market. So anything you could share is appreciated.

Yes. That's another good question. I think on the stand-alone virtualization again, we -- look, I mean, we have been adding, right? And we have been investing eerily to expand the support for third-party storage, right? So we have now their PowerFlex. The number two coming on board very shortly, is pure. We have Dell PowerStore and yes, there will be more, right? Now at the same time, we have to also balance those investments versus investing in our future, right, where Kubernetes is and cloud-native and AI, right, on the other side. So we have to strike that balance, right? We don't want to go too far backwards in time to go support everything that's out there. We want to support the big ones. And if you look at it, once you've got Bell and Pure, I mean, that's a big chunk of the market, right? And we'll probably get the other big ones to out there. So we'll focus on, again, getting sort of the big picture, big ones out there and then not trying to go meet everything and then also balance it out with investing in cloud native and AI.

And with that, ladies and gentlemen, we conclude our Q&A session and conference for today. Thank you all for participating, and you may now disconnect.