Nutanix, Inc. Class A Stock

Good early afternoon, everybody. We have Nutanix today, CEO, Rajiv Ramaswami; and CFO, Rukmini Sivaraman. Welcome back, guys.

Thank you.

Thanks for having us, Matt.

Awesome. All right. Well, Rajiv, let's kick it off with you. A lot has changed around Nutanix over the past year from the continued disruption at VMware to the progress across external storage, public cloud, AI. When you step back, what feels most different about the opportunity in front of the company today?

Yes. I think it's important to realize that Nutanix is no longer just the HCI company. That's how we started. That's what got us on the map and brought us to where we were. But today, we are a much broader cloud platform company. What that means is that we can handle a much broader set of customer needs, resulting in a much larger market opportunity for us to go after. So today, the platform itself works on-prem. It works across multiple public clouds. It supports built-in storage with HCI. It supports third-party storage, which makes it much easier for customers to migrate to our platform. We have a full-scale Kubernetes platform. We have a database platform.

And increasingly now, we also have an enterprise AI stack that's starting to gain traction with customers as they look at deploying inference. So the platform has become much bigger. What that means is that if you look at the landscape of what we can serve for customer problems, we can help them modernize their infrastructure in a very flexible way. We can help them adopt hybrid cloud architecture for them to run their applications and data. We can help them build and run modern applications, which they're doing plenty of. And we can help them in this world of enterprise AI where they're starting to build and run more and more of these enterprise AI applications that rely on inferencing from a variety of models, both frontier models and open weight models.

So that portfolio is now much broader, and it allows us to address a much broader need. And then while that's happening, of course, we've also seen the supply chain crunch happening and prices on the hardware side going up, which, of course, indirectly puts a crunch on many of our customers, but we're able to offset some of that with the fact that we have a much broader portfolio with some of these newer elements in our portfolio like external storage ramping up.

Okay. That's a great overview. Rukmini, maybe we can bring that into the fiscal '27 outlook. You're entering the year with strong bookings momentum, several new growth drivers beginning to contribute. But then as Rajiv mentioned, you've got a more challenging hardware environment, slower growth in the renewal pool. How did all those factors come together in the initial guide? And what would need to develop for the business momentum to prove stronger than that initial starting point?

Yes. So I'll maybe touch on 3 things. So first, as Rajiv has already alluded to here, we have really robust and strong growth drivers for the business, including growth in our core hybrid cloud platform, including storage; b, all of the cloud-native and AI capabilities that we're driving; and c, our growing partner ecosystem. So you put all those together, several core growth drivers. That's the first point. Second, as Rajiv said also was that the supply chain environment for our customers means that when they -- if they need to procure a server on which to run our software, that has become more expensive and it's taking longer.

And so what we're assuming for our fiscal '27 is that those dynamics continue. And we only saw it for a portion of '26, as you'll recall, Matt. So for '27, that is a headwind. And so we're assuming, for example, that one of the assumptions around that we think about is orders that come in with start dates in the future. So we're assuming that, that percent is higher in '27 compared to '26. And then the third piece is we've talked about our renewals cohort. So the first 2 pieces that I talked about are more about incremental business, land and expanding -- landing new customers and expanding with our existing customers.

The third piece when you look at our renewals cohort. So we expect that to grow in '27, but at a slower rate compared to '26. And so you put all of that in, we believe we have a lot of great tailwinds in the business that we've both talked about. And then the supply chain is a bit of a factor outside of our control, that's a headwind. We're trying to mitigate those as well with our support for external storage and our cloud offering that came around bare metal. So that helps mitigate, but it doesn't fully offset. So we expect that to be a headwind in '27, Matt, but the core demand for the business continues to be strong.

Okay. So you touched on future start dates a little bit, but let's just go a little deeper there. I think some of the business pushed out of fiscal '26 should be contributing this year, but the new bookings could continue to shift to the right. So how do you think about the net effect of that in the guide? And then how could that change if hardware availability actually improves?

Yes. So the net effect of that is a net headwind in '27, just to be clear on that, Matt, and the reason for that is we really saw some of these supply chain headwinds only in the second half of '26, whereas we expect a full year of that in '27. So it is a net headwind. And to your point, what could cause us to do better than what we expect at this time, it is if somehow this supply dynamic eased, which, again, at this point, we don't expect that, but if that were to happen, that would help, or another vector, for example, is our support for external storage offerings, which are, to be clear, small today, but Rajiv said on the earnings call, for example, that we have seen a significant uptake into our fiscal Q4, our July quarter. So if that uptake and interest on that offering from our customers were to be much higher than we have expected, that would help as well. So those are some of the factors that could lead to us doing better than what we gave.

Broader adoption of hybrid cloud as well in the public cloud. That would be the other option.

Yes. So Rajiv, maybe staying with the supply chain backdrop for a moment. Given that hardware availability remains uneven and server prices are putting additional pressure on customer budgets, how are those dynamics actually surfacing in the pipeline today? And how do you see customers adapting their plans?

Yes. I think you mentioned some of this, Rukmini, already. But clearly, hardware prices are now 4 to 5x what they were a year ago, right, for servers. And that's certainly putting a crunch for customers as they have to manage their budgets. Now in a lot of cases, the applications that we play in are mission-critical applications. And when it's a mission-critical application, if the hardware is end of support or whatever, you have to refresh it regardless of the price because it's business-critical application that you're running. So in that scenario, they have to go ahead and do the transformation. There are other cases where they can defer things.

If you're a public sector, for example, and you have no budget left, this is all we have for the year and you have to go out and get new appropriations. There's not much you can do. So we have seen projects getting postponed as a result of some of these things until budget becomes available. So we have seen those kinds of dynamics. And again, we're able to offset some of that by saying, in a lot of cases, we can help you modernize without you having to buy any new hardware whatsoever. You can use the servers and storage you've got or you can use the public cloud where there's hardware easily available and use that as offsetting factors.

I guess I'm kind of curious because if you go to kind of the fiscal '26 time frame, it felt like from a customer behavior standpoint, with the supply chain backdrop becoming increasingly volatile, it felt like it was very reactive in nature in terms of pushing out future start dates and requesting separate deal terms for Nutanix. When you think about fiscal '27, given that we're now, call it, 12, 18 months into this sort of challenging procurement environment, do you anticipate maybe a little bit more steadiness in terms of the activity across the customer base? Like talk to us about kind of what you're hearing from customers themselves.

I think, for example, future start date will continue because that's a means for customers to anticipate the fact that we can close a deal with them, but their hardware is going to be available whenever it becomes available and so forth and they can time their licenses to start. That's a natural thing that we expect it to continue this year for sure. Now I think customers are getting much more adept themselves in understanding and navigating through the supply chain. It used to be that when it came to hardware, it was like, okay, they had their set of 1 or 2 vendors that they would just have frame contracts with and just procure.

Now they're being increasingly going and checking to see what's available across multiple vendors and trying to bring in new vendors if they think they can get better prices or lead times as needed. So they're starting to adapt quite a bit. We had, for example, a large Fortune 500 customer that we talked about who decided to migrate to the public cloud, right, using our platform so that they could keep all the applications exactly the same way they are, but that was their VMware migration, and they're actually using our database management also to run their databases on top of the public cloud using our platform. So they're starting to become more savvy about using other options, right? External storage, multiple vendors, moving to the cloud, all of these as options to help them navigate through this.

Okay. Great. I want to talk a little bit more about sort of your diversification away from hardware. Let's start with external storage. So as Rukmini mentioned, bookings increased sharply in the fourth quarter. You had several 7-figure wins even with NetApp and limited availability. I guess what are those early results telling you about the breadth of the opportunity? And how much could that opportunity expand as those integrations roll out more broadly?

Look, I mean, we've been driving HCI for the last 15 years as a company. And HCI today represents about 20% of the installed base. 80% of the installed base out there is still external storage connected to third-party servers. And what we're able to do now is to go after that installed base and not have to convert it with an architectural shift with new hardware to HCI, but instead tell those customers that they can deploy Nutanix software in those environments without changing anything. So that has a huge effect in terms of -- rather than trying to fight to convert those customers over, we can meet them where they are today, especially in a world where hardware prices are high. They want to continue to get as much as they can out of their hardware investments and at the same time, make it much easier for them to migrate to a Nutanix platform.

So it's a pretty significant thing. So increasingly now, we think of our platform as a much broader platform where storage is one option. You can actually consume our platform with or without our own built-in storage. And the rest of the stack is still available. You've got compute virtualization, you've got network, you've got cloud management, you've got a Kubernetes stack. You've got databases of management, you've got a public cloud and you've got AI. So there's a whole stack that we can sell and offerings we can be very relevant to the customers with storage just becoming increasingly an option for the customer based on where they're at.

Yes. Maybe just a follow-up there. Just you expressed that you've been at this for 15 years, HCI is about 20% penetrated. So I guess like question one is, why has it taken so long to really capture more of the 3-tier architecture? And then two, do you see products like external storage accelerating that penetration for Nutanix?

Yes. I mean I think the answer to the second question absolutely is yes. There's no doubt, right? I mean I see external storage support as one of our biggest growth drivers as the biggest growth driver, I would say, for FY '27 and beyond for the next few years. And our portion of the business that's coming from external storage will continue to grow over time because we're not fighting the tide, right? Now with HCI, as they say in IT, there's people, process and technology. Technology was the least of it actually because from a technology perspective, the fact that you can consolidate compute storage, all of this together into a hyper-converged offering has delivered 30%, 40% TCO. That's not changed.

But what's required for that to happen is for customers to adopt that architectural mind share. There are different teams managing servers and storage. They have to consolidate those teams together into one team, change their operating processes, and they need fewer people to run this infrastructure because of the level of automation. Those are people and process changes. And those things happen slowly in the enterprise. And that's why I think we -- it's taken us this long. And again, I think -- like with every new technology, we started out for, let's call it, simpler applications like virtual desktops and then gradually now migrate to the heart of the enterprise business-critical applications. So HCI will continue to grow over time. There's no doubt that it will continue to eat into the overall market. But now for us, rather than fight the rest of the market, we can actually embrace the rest of it with external storage.

Okay. Great. And then with NC2, I mean, this is another area that gained momentum in the fourth quarter and customers appear to be using it in several ways, right? One is a bridge while they wait for hardware as part of a VMware migration or as a more permanent public cloud deployment. So which of these use cases is proving most repeatable? And what does that tell you about the longer-term role of NC2 in the portfolio?

I think what's important, I think we've been with NC2. We've had it in the market for 7 years, but I feel like its time has really come. We're now across all the major cloud providers. We have the supply chain constraints in place that make it harder for customers to get hardware on-prem. And we have cloud migration, which has been an ongoing theme for many years at this point. So if we take all of those things, the NC2 use cases are plentiful. The thing that I want to say is regardless of what the use case is, there's a very high retention rate for customers. Once they use NC2 in the public cloud, they tend to stick with it.

Our retention rate, we haven't talked about specific numbers, but those retention rates are very high. Once they start consuming, they continue consuming. But use cases, to go back to your first part, there is just cloud migration. And when I say cloud migration, it's migration and ongoing running, right? They don't migrate and throw away the platform. They migrate and run on this platform. Why? Because they can run the application without making any changes. It performs beautifully. The application owners don't even know it. In fact, we had, for example, State Street Bank talk about how they are using us at pretty massive scale across both AWS and Azure today, right? And they actually said that their users actually got better performance. They didn't even know this happened, but they were getting better. The outcome from a user perspective was much better.

That's the kind of value that we can deliver for these customers. And they are operating in a permanent mode across our 2 clouds, 2 public clouds and their on-prem data centers. We see it being used for temporary capacity expansion, whether it be for -- while they're waiting for hardware or just elasticity. We see it being used for disaster recovery. We see it being used for global expansion of footprint without having to own data centers. So all of these use cases, I think, are sticking, and there's -- we have customers using every one of these today.

Okay. Great. Let's turn to VMware for a moment. I think some customers moved quickly following the Broadcom acquisition, others renewed and used that time to assess their options. So as that second group comes back to that decision, like what's changing in the seriousness of those evaluations and the scope of the workloads under consideration?

Yes. I think the -- it's becoming more and more clear that in the long term, this is not the platform that they're going to bet on. In fact, if you talk to Gartner, they say only 7% of customers will remain long term with VMware, at least from a sentiment perspective. So they're all looking to -- many of them are looking to migrate over a period of time. What we've done is to make those migrations even easier, right? The migrations are always automated, but now you can do so without changing out hardware as well. So -- and in many cases, now we're able to go in and meet the customer where they're at with their existing hardware and do a seamless migration and get those migrations done.

We've done many successful migrations already. But to your point, we always said this would be a 5-, 10-year journey. Customers are going to migrate in waves depending on their situation. We still have many customers just starting their migration now, and many still to start. So this opportunity will continue for many years to come. It will be in phases. It depends on the customer sentiment, their time lines for renewal, their time lines for hardware refresh cycles and then, of course, their own priorities on this versus other things that they have in their mind.

Rukmini, anything you'd like to add on sort of the quality and health of the pipeline around the VMware opportunities?

Yes. Look, I think as Rajiv has said, I think we think -- we always said it's a multiyear journey. It continues to be healthy. And I think increasingly, it's hard to sort of say how much of it is because of the Broadcom acquisition versus just we've competed with them for a long time, as we said. So this, we expect will continue to be one of our core growth drivers for the years to come.

Okay. Rajiv, maybe turning to the competitive landscape. Have you seen any meaningful change over the past year in alternatives customers are considering or the factors driving their decisions? And how is Nutanix positioned to evolve relative to those options?

Yes. Look, I think we spend a lot of time talking about VMware competes for sure, right, and VMware migrations. But almost -- the first question they say is, okay, we might get called in for one of those. But then top of mind for all these customers is also, can you help us with AI? And that's where we get into what we can do with AI. I'm sure we'll cover that later, Matt.

But with respect to the competitive picture, right, they're looking for a platform that's not just a platform that they use for migrating away from their current vendor, but also a platform that can take them into the future, into the future when it comes to be a platform for AI, for modern applications, for hybrid cloud.

And so from that perspective, we haven't seen a huge amount of change in our competitive landscape. The public clouds are both our partners and our competitors when it comes to landing workloads. Red Hat is a competitor. We see them. We see Microsoft occasionally on-prem as a competitor, but not very frequently. And of course, the biggest competitor we have is inertia on the part of the customer where they say, let's just stick with the status quo.

Okay. Rukmini, this one for you. Beyond the core infrastructure opportunity, the fiscal '29 framework for mid- to high teens growth, I think it assumes a larger contribution from products like Kubernetes, database automation, cloud management, AI. What needs to happen for portfolio attach to reach that next level? And where are you seeing the strongest early evidence that, that model is beginning to work?

So I think one thing we said at Investor Day, which I think is what you're alluding to, Matt, is that if you look at our -- 2 fiscal years ago, our proportion of land and expand bookings that was coming from those solutions was a low 20s. And we're saying in fiscal year '29, that will grow to be about 1/3. So that is a big meaningful change and means it's growing faster than the rest of the business.

So in terms of what it would take, I think there are some areas where it's a much more natural motion for our sellers to go out there and make the case that Nutanix as a platform company should be more embedded in their systems. And in others, we're investing in areas like specialist sellers. So technical specialists who will come in once the seller has identified a deal and it's progressing to make sure that, like, for example, our database management platform that you alluded to, NDB, Nutanix database solution, is one where that would be applicable.

So the sellers, the core sellers are working on a deal, and then we'd have our specialist sellers come and help them as the deal progresses and gets more technical. So what one thing we've done over the last few years is we have invested more in those specialist sellers where needed, Matt, to help our core sellers drive more of that platform.

And I think there's also, I think, market interest as we've thought up, we've talked about container management or NKP, Kubernetes platform, and NAI, as Rajiv talked about. But those markets are large and growing fast. So we intend to capture our fair share of those going forward.

And just on the portfolio specialists, like I know those investments have been underway for quite some time. Like how comfortable are you with sort of the maturity of that motion today? Like how successful is it in contributing to new product attach today?

So if you look at our most recent fiscal year, year-end was July 31, we saw really great progress and great growth in many of those. So NKP, the NC2 platform that Rajiv talked about, NDB, all those had a really good year, and we expect -- we have high expectations for them going into '27 as well.

And going forward, I think we're doing the same for AI. We're investing in AI specialists because I think when you look at some of the motions here, the external storage versus HCI, that's something that our mainstream sellers know inside out and they can go sell it. With some of the newer elements in the portfolio, Kubernetes, modern applications, AI, public cloud, these are where I think we augment with specialists, and that's actually proven to be working very well for us.

And just on the Kubernetes piece, I mean, what does it look like in terms of an RFP or a POC that you guys actually win against a Red Hat? Like why typically go with Nutanix?

In many cases, by the way, so there are situations where we win against Red Hat and there are situations where we coexist along with Red Hat. So I'll give you the example from this large financial services win in Asia Pacific that we talked about this last quarter. This was a customer that believes in having 2 vendors for everything.

So for the virtualization side, they've been a long-term customer of ours and VMware. For container management and containers, they had Red Hat. And they brought us in to become that second vendor for Kubernetes. And that was our -- the ticket to the large deals that we closed with them in Q4. So that is a situation where we were in there as a second vendor.

There are situations where the customer also wants something that's more simpler, right? Open -- Red Hat OpenShift, I'd say, is a great platform. It's well suited for the needs of large-scale deployment with a lot of services attached to it. Sometimes the customer just wants something simpler or their experience with standing up Red Hat hasn't been as good. So in those cases, we end up displacing them or we end up being used for much smaller cases.

For example, when we look at commercial accounts, we've seen actually great success with Kubernetes in commercial accounts, especially in emerging countries like India and so forth. Why? Because there's a lot of software know-how over there. People are building their own custom applications, and those are all containerized applications. And Kubernetes is rapidly becoming a mass market thing.

And so those types of customers need much simpler platforms. They don't need a very services-heavy platform. They need something that can be deployed easily, quickly, open source compliant, and that's where we win in those accounts.

Okay. Makes sense. Let's shift to AI. I thought this was an interesting anecdote you provided on the earnings call. You spoke about Nutanix's experience moving more AI workloads from frontier models onto your own dedicated infrastructure as usage and costs started to increase. So is there a similar tipping point you see emerging from enterprise customers? And what will determine when most of them reach it?

Yes, absolutely. As we talk about enterprise customers, I mean, we talk about 3 components to what they need to think about for AI deployments. The first one is you have agents and you have applications. They need to be running largely wherever your data is, and they'll be running on CPUs. And we have a platform for delivering that for them.

The second is they need to consume intelligence. These agents and applications need to consume intelligence. Intelligence can be consumed in many different places, right? They can be consumed through frontier models. And in that case, they just go do an API call to a frontier model, and that's it, right?

Or increasingly, to your point, we are seeing more and more interest in optimizing costs by deploying open weight models. Our own internal case study was a good case in point where we were using widespread deployment of tools for our software development effort. Because we are a software company, our engineering team has widely adopted these tools, everything coming from GitHub Copilot to Cursor, to Claude.

And our costs were shooting through the roof, especially as everything went to a token cost model. And so we invested $20 million in our own clusters, running open weight models, and we expect to service about 80% of our needs through those clusters and go to the frontier model for the remaining 20%. And for that 80%, it's a onetime CapEx spend. We spent $20 million. That will go take us for about 5 years or so.

We're no longer paying on a per token basis. We have full use of those clusters. They can be used for multiple applications and shared. So it's a win for us. The ROI on that is very good for us. Within a year, we expect to recover some of those costs.

That story is starting to play out. That's part 2 of our story for enterprises. And for the ones that are using AI at reasonable scale, there are companies -- customers out there that are spending over $100 million a year on AI spend, right? And they are now starting to think about how to optimize that.

And that's where this plays a lot, right, just using open weight models on their own clusters, whether it be in a colo or on a neocloud, or even on top of a hyperscaler makes sense. And then in the middle is the agent gateway or our model router, where that sits between the agents and the applications and the models.

And there, that's a control point for regulating access to these models, for optimizing the user models for these applications, for providing control costs and governance and security around these. So those are the 3 components that we provide. And it's early days for enterprise adoption to be clear.

A lot of companies, everybody wants to get a handle on their AI spend. So the gateway piece is very critical for everybody. And then the ones that are starting to spend at large scale are interested very much in optimizing those costs. And then as agents get broadly deployed, they need a secure platform to run those agents, right?

So that combination, I think enterprise adoption is still fairly early, but starting to take the product market fit is there, and we have a number of wins, and that's a growing portion of our portfolio.

You mentioned AI gateways. I'm just curious because -- do you see this as sort of like an infrastructure-first problem? Because it does seem like a lot of companies are trying to own sort of model orchestration layer today. So what's kind of your perspective on how this shakes out longer term?

Yes. I mean I think there's companies coming in from different angles. We are coming in from the fact that we are a platform that applications run on, right? So we understand the applications and what they need, and we can -- our gateway is built around open source constructs. So it's built around Envoy Proxy. So that's where we come in at.

And then there are security companies that come in from a security angle, observability companies that come in from that perspective, cost governance. So you can come at this from many different places. But that area, there's going to be a lot of players. And our value-add is the fact that we also understand how to run applications and agents and how to provide the intelligence. And therefore, that translates into how to operate the gateway for us.

But again, customers have a lot of choice in that middle layer to pick from. But I think when it comes to both sides of the coin, there's not too many players, right? For running agents, who do you go to? You go to us, you go to Red Hat, maybe you go to VMware.

Same thing on the other side. It's either a homegrown stack that the big guys can afford to go build out for intelligence, or they come to us or Red Hat or somebody like that, right? So those are the players on the -- on both sides of that equation.

And then maybe let's just talk about sort of the broadening partner ecosystem, especially on the AI side, right? You've got an existing relationship with NVIDIA. You announced a new partnership with AMD a couple of quarters back. You just announced something with ChronoScale. So just tell us how this fits into sort of the -- how you're sort of advancing the AI infrastructure opportunity at Nutanix.

Clearly, I think the silicon providers are driving a lot of the ecosystem, right, starting with NVIDIA and now AMD coming on board. And so for us, it was very important to partner with both of them. So we've been working with NVIDIA for a long time. We've been working with AMD on the CPU side, but now most recently with this new partnership, we are working with them on the GPU side.

And the idea being to enable our full stack on top of these platforms so that enterprise customers can get access to that intelligence wherever they want. And so that's the rationale for these partnerships with the silicon layer.

Now as we get into where people consume intelligence from, that's where neoclouds come into play. So we believe that there's multiple options. AI will -- intelligence will be a hybrid use case. There'll be some quantum models. There'll be some running on hyperscalers. There'll be some running on these open weight models and neoclouds or on-prem. And so by working with these neocloud partners, such as ChronoScale being the first of them, we expect to be able to deliver a full stack service for the neocloud to be able to deliver a full stack service to enterprise customers.

So when we go talk to an enterprise customer, one of their challenges is, yes, I'd love the idea of optimizing my cost, but now I need to go set up my GPU clusters and I need to go manage all of this. I may not even be able to get my hands on one. So can you help me? And then we say, okay, why don't we work with the neocloud that already has this, or even with the hyperscaler where you might be able to get access to bare metal, and we'll help you with standing up the stack and getting what you need.

So that becomes a very important part of the ecosystem where working with neoclouds to enable access -- easy access to enterprise AI. Ultimately, the goal is to simplify how enterprise AI gets deployed and adopted, and that's really what we aim to do as a platform.

Do you expect more ChronoScale-esque partnerships? Are you able to broaden this out a bit?

I mean we're working with a number of other neoclouds. We hope to see more of them announced shortly.

Okay. Great. Rukmini, let's bring you back in. You're funding additional sales coverage and investing across external storage, cloud-native, AI and digital sovereignty while still planning for operating margin expansion this year. So how are you prioritizing those investments today? And where do you see the clearest path to further leverage as the business scales?

So I'll start with the last part of your question first, Matt. So in terms of further leverage, we've talked at our Investor Day about how we think there is a path here for us to get to greater than 30% operating margins over time. For our -- this fiscal year that we're in that we just started, we've guided 24%, 25%, which is a margin expansion from last year into this year.

And our take in the near term has been to balance this need for more investment because we've talked about how we ended the year strong. We think there's lots of growth drivers for the business. And so we want to make sure we're investing in a thoughtful way to capture that growth while continuing to expand margins. So that's sort of the balance we're trying to strike.

In terms of areas of investments, you touched on a few of them already. From a product perspective, we think that our innovation in several areas is really important for us to continue, supporting more external storage platforms because that can only sort of help us in terms of capturing the market, our agentic and AI capabilities that Rajiv just talked about, the sort of 3-pronged approach that he outlined.

All of our cloud-native efforts, we think, are also important areas because those are large established markets, cloud-native, external storage that are really there for the taking in terms of our ability to execute once we have the offering out there. So those are all areas that we're investing in from an innovation perspective.

And then from a go-to-market standpoint, we are adding more salespeople. We're hiring more salespeople this fiscal year because, again, we think that we have the capabilities, the set of products available for us to go and address this market. And Rajiv said the market is really big. So we want to make sure we're capturing that. So investing in that area.

So those are the 2 big areas, I would say. And then there are smaller investments like digital sovereignty that you alluded to that we mentioned in our earnings call in terms of making sure that we are ready to capture the market largely outside the U.S. where they are thinking about sovereignty, and we think that's the revenue opportunity that's worth addressing and going after. So we want to make sure we're making those investments.

So generally, we think of these investments as, as Rajiv said, like the GPU farms that we invested in have -- we'll make that up in a year. And so our horizon, that one was a very clear choice that we made. And a lot of -- some of the other ones will take a bit longer, but we still think the return is absolutely there for us to go and drive those. Anything you would add, Rajiv?

No, I think you covered it.

On the digital sovereignty piece, Rajiv, like how developed is that opportunity today?

I would say it's a developing opportunity. There's more and more -- it's, of course, entirely outside the U.S., whether you go to the European Union, whether you go to the Middle East or to Asia, it's an increasing concern. And there's multiple elements to that. Essentially, it's about ultimately owning and operating their own infrastructure and reducing dependence on others.

What that means is, first, they want to have their own clouds or their own operators operated by their citizens. They want to have, ideally, data sovereignty also locally. They want to have local support. They don't want to be reliant on outside support.

And then ideally, they also want to have technology independence, but that's very hard because you don't have a lot of local tech providers. So they're still dependent on U.S. technology in many cases, but they'd like to get some insurance around that by making sure that if there's any kind of policy, geopolitical concerns, they have rights to use that for some period of time, for example.

So those are, I think, the different elements of the sovereignty thing. They're starting to be codified in the EU, especially they're taking a lead approach to codifying some of these things starting to be part of RFP requirements.

And so we believe we are very well positioned to address those because we enable countries and companies in those countries to run their own clouds fundamentally and do so in a place where they can control, where their data is provided. We are adding to our local support so that we can support them entirely in region without having to go outside.

Okay. Great. Rajiv, just to step back and close out the discussion, Nutanix now has several potential growth vectors beyond traditional HCI. Which of those opportunities do you believe could have the greatest impact on the company over the next several years?

I think if you look at it in the long term, I do believe that Nutanix will be the platform for AI applications because I do think AI is going to be widespread, deployed everywhere, and we aim to be the underlying platform to help enterprises adopt AI. Now in the short term, as we look at this, VMware migration continues to be a big thing. The -- of all the growth drivers that we have, our ability to now address the 80% of the installed base out there that is just external storage connected to servers is going to be the fastest growth driver, right, in the short term.

If you look at this fiscal year, I think that's going to be our biggest growth driver. But like I said, as you start looking out, the picture of Nutanix being not just a platform for today's applications, but also for the modern applications that are coming in the AI-enabled applications. That's really, I think, why this is a long-term growth play.

Okay. Excellent. Well, that's a great place to leave it. Rajiv, Rukmini, thank you so much for joining us today.

Thank you, Matt.

Thank you for having us, Matt. Thank you.

Thank you, guys.

Thank you for standing by, and welcome to Nutanix' Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to Rich Valera, Vice President of Investor Relations for Nutanix. Please proceed.

Good afternoon, and welcome to today's conference call to discuss fourth quarter fiscal year 2026 financial results. Joining me today are Rajiv Ramaswami, Nutanix' CEO; and Rukmini Sivaraman, Nutanix' CFO. After the market closed today, Nutanix issued a press release announcing fourth quarter fiscal year 2026 financial results. If you'd like to read the release, please visit the Press Releases section of our IR website.

During today's call, management will be making 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 and our subsequent quarterly reports on Form 10-Q 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 mass editions and 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 Goldman Sachs Municopia and Technology Conference in San Francisco on September 8, and the Piper Sandler Growth Frontiers Conference in Nashville on September 15. We will proceed you with these events.

Finally, our first quarter fiscal 2027 quiet period will begin on October 17. And with that, I'll turn the call over to Rajiv. Rajiv?

Thank you, Rich, and good afternoon, everyone. Our fourth quarter was a strong finish to our fiscal 2026 year. We saw strength across our business and are happy to have exceeded all of our guided metrics for the quarter. We saw a strong uptake of our external storage offerings and Nutanix cloud clusters or NC2 in the quarter, both of which are helping to mitigate the impact of ongoing supply chain challenges on our customers. We also saw good performance from our portfolio products with notable strength in our [indiscernible] and database management offerings.

Turning to our full year results. In our fiscal 2026, we demonstrated good progress on a number of fronts. Despite increased hardware prices and supply shortages, we delivered solid top line performance, including revenue of $2.85 billion, up 12% year-over-year and ARR of $2.55 billion, which grew 16% year-over-year.

We also saw strong new logo performance across all of our customer tiers, including the Global 2000, adding over 3,000 new customers. And finally, we generated free cash flow of $841 million, yielding a free cash flow margin of 29%. We are pleased to have delivered our third year in a row with a Rule of 40 score above 40.

In FY '26, we also saw tangible progress on the product and partnership fronts, especially as it relates to AI, and our support for external storage. We delivered Nutanix Agentic AI, a full stack software solution designed to reduce complexity, optimize performance and security, and enable lower and more predictable total costs for agentic AI applications.

On the partnership front, we signed a strategic agreement with AMD to deploy our agentic AI platform on AMD's GPU solutions. This partnership complements our existing integration with NVIDIA GPU solutions. It also includes broadening our support for AMD CPUs, ensuring that our customers have maximum flexibility for both GPU and CPU based solutions. We also announced new capabilities for our agent AI solution to support a new generation of AI cloud providers or neoclouds, opening up a new market opportunity for us.

Our partnership with Cronos Scale announced last week represents some early success for us in this market. More recently, we have announced important new capabilities for our agentic AI solution. These include Nutanix Agent Gateway, which provides unified governance and cost control over AI spend to our customers and a model context protocol server for the Nutanix cloud platform, which brings secure natural language agentic AI automation to hybrid multi-cloud environments.

Finally, we made good progress on our initiatives supporting the use of external storage with the Nutanix Cloud Platform. In FY '26, we added solutions supporting Dell Power Store, which became generally available earlier this month and Everpure, which has been generally available for approximately 2 quarters. We also announced agreements to support NetApp and Lenovo's storage platforms. Notably, our solution supporting NetApp is currently in limited availability and was instrumental in the signing of several large wins in Q4.

I'd now like to highlight a few of our largest and most notable wins in Q4. These wins demonstrate the appeal of our platform to businesses that are looking to adopt hybrid multi-cloud operating models and deploy modern applications and AI and increasingly to deploy our cloud platform while retaining their existing hardware, including servers and external storage.

We saw strong momentum with our initiatives to support external storage in Q4, which included a sharp quarter-over-quarter increase in bookings and the signing of several 7-figure ACV deals. These included one of our largest wins in the quarter, a new logo with a Global 2000 aerospace, defense and security provider that was looking to modernize its IT environment. This customer chose the Nutanix Cloud Platform, along with Nutanix Cloud Manager based on its lower total cost of ownership, ease of migration and ability to utilize their existing NetApp storage.

We also had a 7-figure new logo win with 1 of the premier hospital systems in North America that was unhappy with the renewal terms they received from their existing infrastructure provider. This customer chose the Nutanix star platform to run their business-critical applications and plans to utilize their existing Dell PowerFlex storage arrays going forward.

We are pleased with the progress we've seen to date with our offerings supporting external storage and expect continued momentum on this front in FY '27. Some of our marquee wins in the quarter also reflected the strength we saw with our portfolio products. An example is another one of our largest wins in the quarter with a Global 2000 financial services provider in the APJ region. With this multiproduct expansion, the customer now plans to use Nutanix Kubernetes platform to deploy and manage their container-based applications while continuing to run their VM-based applications on our cloud platform. They also plan to extend their use of Nutanix database service to automate the management of their Oracle databases. And we continue to see adoption of our AI solution in Q4 with wins across a broad array of industry verticals in both civilian and government markets.

Finally, in Q4, we saw continued momentum with NC2, our public cloud offering. This included a strong quarter-over-quarter increase in bookings and cores deployed. One 7-figure NC2 win was an expansion with a Global 2000 provider of financial services based in North America. This customer was already using the Nutanix cloud platform and cloud management to run some of their business-critical workloads on-prem. However, they were looking to shift a portion of their estate to the public cloud and automate the management of their SQL databases. To address these requirements, they plan to deploy Nutanix database service on NC2 running on AWS.

We also landed a new logo with an EMEA-based provider of automotive technology. This customer was looking to exit their data centers, avoid lock-in with their existing on-prem vendor and switch from a CapEx to an OpEx model. They plan to deploy our cloud platform on NC2 in OVH public cloud.

In closing, we were pleased with the broad-based strength we saw in our business in Q4. Our opportunities with AI, modern applications, hybrid multi-cloud and support for external storage provide us with a strong foundation for long-term growth.

Finally, I would like to express my sincere gratitude to our investors, customers and partners for their trust in us and to our employees for their hard work that led to these results. 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 cover our Q4 fiscal 2016 results, followed by a review of our full fiscal year 2026 results and then discuss guidance for Q1 '27 and full year fiscal '27. In Q4, we reported results that were above the high end of the range for all guided metrics. Our team executed well to deliver a strong finish for the fiscal year. despite a challenging supply chain environment and continuing uncertainty in the macro environment.

In Q4, we reported record quarterly revenue of $757 million higher than the guided range of $725 million to $745 million. ARR at the end of Q4 was $2.549 billion. representing year-over-year growth of 16%, an increase in growth rate compared to the prior quarter. NRR or net dollar-based retention rate at the end of Q4 was 106%, flat quarter-over-quarter.

In Q4, average billings contract duration was 3.3 years, slightly lower than our expectations. Non-GAAP gross margin in Q4 was 87.7%. Non-GAAP operating margin in Q4 was 26.2%, higher than our guided range of 21% to 23% due to lower operating expenses related to timing of hiring, among other factors, and higher revenue than expected. Non-GAAP net income in Q4 was $175 million or fully diluted EPS of $0.60 per share based on fully diluted weighted average shares outstanding of approximately 293 million shares.

GAAP net income and fully diluted GAAP EPS in Q4 were $1.27 billion and $4.34 per share, respectively. Note that Q4 GAAP net income benefited from a onetime $1.2 billion valuation allowance release related to our U.S. deferred tax assets. We had previously noted the potential for a tax valuation allowance release in our prior 10-Q filing. Excluding this nonrecurring benefit, GAAP net income and fully diluted GAAP EPS in Q4 would have been $61 million and $0.21 per share, respectively.

Free cash flow in Q4 was strong at $278 million, representing a free cash flow margin of 37%, benefiting from good bookings linearity and collection in the quarter. Moving to the balance sheet. We ended Q4 with cash, cash equivalents and short-term investments of $2.361 billion, up from $2.018 billion at the end of Q3. Moving to capital allocation. In Q4, we repurchased $50 million worth of common stock under our authorization. We also used about $26 million of cash to retire shares related to our employees' tax liability for their quarterly RSU vesting. Together, these actions help manage share dilution.

Moving to a summary of our results for the full fiscal year 2026. We were happy with our fiscal year '26 results, achieved while navigating an uncertain macroeconomic environment along with significant supply chain constraints related to the pricing and availability of servers on which our customers run our software. Fiscal year '26 revenue was $2.854 billion, higher than the most recent guidance of $2.82 billion to $2.84 billion and representing a year-over-year growth rate of 12%. As we have discussed in earlier calls, we believe it is important to put this revenue growth in the context of the overall growth of the business.

TCV bookings growth in fiscal year '26 was in the high teens percentage, higher than our revenue growth, partly because customers are experiencing longer lead times for servers on which they run our software. We help our customers manage through this environment by providing them with future start dates for our software licenses where necessary to align with the timing of their server delivery. And we recognize software license revenue aligned with the delayed license start date.

Fiscal year '26 ending ARR, as mentioned earlier, was $2.549 billion, representing year-over-year growth of 16%. For the full year, average contract duration was 3.2 years, slightly higher than last year's average contract duration of 3.1 years. Non-GAAP gross margin in fiscal year '26 was 88%, relatively flat year-over-year. As mentioned in prior calls, gross margins could move around slightly depending on the mix of professional services revenue in a given period.

Non-GAAP operating margin in fiscal year '26 was 23.7% higher than our most recent guidance of approximately 22.5% and a year-over-year increase of approximately 2.6 percentage points. Non-GAAP net income in fiscal year '26 was $597 million or fully diluted EPS of $2.04 per share based on fully diluted weighted average shares outstanding of approximately 292 million shares. GAAP net income and fully diluted GAAP EPS in fiscal year '26 were $1.507 billion and $5.17 per share, respectively, which includes the $1.2 billion of nonrecurring income tax benefit associated with the release of the valuation allowance that I mentioned earlier. Excluding this nonrecurring benefit, GAAP net income and fully diluted GAAP EPS in fiscal year '26 would have been $299 million and $1.04 per share, respectively.

Free cash flow in fiscal year '26 was $841 million, representing a free cash flow margin of 29%. In fiscal year '26, our Rule of 40 score, defined as revenue growth rate plus free cash flow margin was a healthy 42%, reflecting our continued focus on sustainable, profitable growth, driving durable top line growth while improving bottom line margins. In fiscal year '26, in addition to our ongoing share repurchase activity, we completed an accelerated share repurchase of $300 million in fiscal Q2 and our Board subsequently increased our share repurchase authorization in Q3, indicative of our conviction and confidence in the business.

Moving to Q1 '27. Our Q1 guidance is as follows: revenue of $755 million to $765 million, non-GAAP operating margin of 26% to 28%, fully diluted weighted average shares outstanding of approximately 294 million shares. Moving to the full year. Our initial fiscal year '27 guidance is as follows: revenue of $3.18 billion to $3.23 billion, representing a year-over-year growth rate of 12% at the midpoint of the range; non-GAAP operating margin of 24% to 25%, an increase from fiscal year '26 at the midpoint; free cash flow of $850 million to $950 million, representing a free cash flow margin of 28% at the midpoint.

I will now provide a few points to note regarding our full year guidance. First, we continue to believe in the robust market opportunity and growth vectors driving our business, which include: a, core demand for our hybrid cloud platform, including the support of external storage platform; b, cloud-native and AI offerings; and c, a growing partnership ecosystem. Second, our guidance assumes that server supply constraints will continue, potentially impacting customers' decisions on the size and timing of their projects with us. Because of this, we are assuming a moderately higher percentage of orders with future start dates in fiscal year '27 compared to fiscal year '26. We also expect to continue to provide flexibility where needed for our larger customers to do phased migrations.

Third, -- we expect the renewal ACV cohort are available to the new pool to grow year-over-year in fiscal year '27, but at a slower rate than in fiscal year '26 as the overall renewals base gets larger over time. Fourth, our non-GAAP operating margin and free cash flow guidance reflects the expected operating impact of the restructuring we announced earlier this month was impacted approximately 5% of our global workforce. The full year free cash flow guidance incorporates $33 million to $43 million of nonrecurring charges from the restructuring, and we expect $30 million to $35 million of that to be paid out in cash in Q1. We expect to reinvest the majority of the savings from this restructuring into growth areas, including our agentic and AI solutions, our cloud native offerings, hiring more salespeople to target our large market opportunity, digital sovereignty investments and more.

Fifth and finally, a note on billings and free cash flow. The vast majority of our customers continue to pay us multiple years of cash upfront upon purchase. Consistent with the discussion during our Investor Day in April, we expect to offer more pain plan flexibility to our customers in fiscal year '27, whether through third-party financing or annual payment structures. This provides customers with more flexibility as they make purchasing decisions. This is incorporated into our free cash flow guidance, which at the midpoint of the range implies a free cash flow margin of 28%.

In closing, we are pleased with the strong finish to fiscal year '26, and we look forward to continued momentum in fiscal year '27. With that, operator, please open the line for questions.

[Operator Instructions] Comes from Matt Martino with Goldman Sachs. .

Rukmini, maybe just starting with the FY '27 outlook, there are a few moving pieces between the healthy bookings backdrop, the hardware constraints you've been navigating and the potential for some of that delayed activity to convert as supply improves. So can you walk us through the assumptions behind the growth guide? And what gives you the confidence around that starting point?

Yes. Matt, thank you for the question. So I highlight a few of the points that you brought up, Matt, and that's just a broader backdrop as we thought about growth for next year. So first on the growth driver side, as I said in my prepared remarks and as Rajiv alluded to as well, we think we have several growth drivers strengthen the core platform, our hybrid cloud platform, including support for external storage, the growth in our cloud native, NAI offerings and some of our other portfolio products continuing to grow, and then the third piece being continued help from our partner ecosystem, which has also continued to evolve and grow nicely over time. And as you said, we were happy with the strength of our business in Q4 and the momentum coming out of fiscal year '26.

Now on the other side, we believe that the ongoing supply chain challenges that our customers are facing with respect to both pricing and availability of servers on which on our software will continue and continue into fiscal year '27, which could impact customers' decisions on size and the timing of their projects with us. So that's one of the reasons. We want to continue to provide flexibility with future start dates, and that's why we were assuming a moderately higher percentage of orders with future start date in '27 compared to '26. And the other reason for that, we intend to continue to also provide flexibility when larger customers want to complete phase migrations onto our platform.

The other piece that we mentioned was renewals cohort, expected to grow in 27%, but slower -- at a slower rate than it grew in '26, Matt. So those are some of the puts and takes. And look, we finished '26 with good momentum, and we're comfortable with the guidance that we provided you today for '27.

All right. Very helpful. And Rajiv, for you, nice to see the strong uptick in both NC2 and external storage this quarter. How is that changing the opportunity for the business, both in terms of the customers you can reach and the pace at which they can move forward, especially with the supply constraints out there?

Yes. The whole reason for doing this was to make it easier for customers to adopt our platform. So that's certainly -- when we went into this supporting external storage, yes, we were more thinking of this as broadening our platform, providing our customers with flexibility to adopt our platform for compute, networking, management, cloud native, AI, et cetera, with storage being an option. Storage could be HCI or storage could be external storage.

Now in the face of supply chain and what we're seeing today, this has become a really great opportunity because customers can now migrate to Nutanix, which -- while keeping their existing hardware, right, both their servers and storage. So we saw a very good uptake for our external storage opportunity just in Q4 alone.

In fact, today, we now support multiple Dell platforms. We support Everpure. We are in limited availability with NetApp. And that's already led to multiple deals, significant deals, 7-figure deals in Q4. And so we do expect that to continue to accelerate in FY '27 for us.

A very similar thing is public cloud. We are in the major public clouds, all the 3 major hyperscalers, and we also extend our platform to some of the European providers like OVS, et cetera. And this is also providing customers a very easy way to adopt our platform when you have supply chain constraints. And we saw a good uptick in our NC2 business this quarter. We expect that to also continue during FY '27.

That comes from Sanjit Singh in with Morgan Stanley. .

Congrats on the very strong bookings this quarter. Definitely, when I look at my model net new ARR, so that the most it's been in quite a long time. And so, Rukmini, I wanted to understand a little bit about the revenue guidance and in terms of what's actually making it so strong. I mean you talked about the headwinds, right, a lower, slower growing renewal base. We have a higher mix of future start date deals, more phased migration deals and that you're guiding to sustained growth. So on the other side of those potential headwinds going into next year, what's driving the sustained growth outlook? Is there an element there of better bookings that you guys delivered this year converting into revenue next year? I just want to understand some of those dynamics.

Sanjit. So yes, to answer your question on what is driving the growth next year I think it's a few things that we've touched on, and I'll add a little more color to that, Sanjit. So one is, like I said, we're exiting '26 with strong momentum. Q4 was a great quarter across multiple dimensions. And as Rajiv said in his prepared remarks, we saw strength practically across the board. So it was a great quarter, I feel like we're entering '27 with good momentum. So yes, we do expect continued growth in overall bookings to continue and some other specific growth drivers were -- that I mentioned. So for example, external storage support that we've talked about here and NC2, the question that was asked right before, we expect those to grow faster than the overall growth, meaning that they're going to be an accelerant to our overall growth because those are all options and choices for our customers that we didn't have before, and we believe is allowing people to transition on to our platform even amidst what's happening on the server supply chain.

So I would say that includes external storage, includes NC2. And then we also have our cloud native offerings, which we had a good year for those in '26 and we expect that to also be an accelerant to growth next year off of a smaller base. Now all of these are smaller portions of our overall business but are expected to grow nicely going into next fiscal year. Rajiv, anything you would add to that?

Yes. I would just say the ecosystem around us is also helping the OEMs, the cloud partnerships that we have. What I would say is I think we feel good about all the growth vectors while also providing us some levers to handle the supply chain issues, which are real and will continue this year, no doubt about it, right? I think -- I expect the supply chain shortages and price increases to continue through the rest of this fiscal year for us. But despite that, I think we feel good about the fact that we have a portfolio that really meets the needs for what customers want.

They're looking to do these migrations from their existing providers. They're looking to adopt cloud native. They're looking to go run AI in a cost-effective manner and manage and govern that. They want to operate on-prem. They want to operate in the public cloud. They want to operate in service providers and neoclouds. So we have all of these coming together, and those are the growth drivers that are the underlying foundation for the numbers that we gave you.

Understood. That's very clear. And just as a follow-up, Rajiv, as we think about that ecosystem, particularly the storage partnerships and the storage OEMs, between what you have coming online with NetApp, what's already available on the Dell side of the equation as well as Everpure, which of these partnerships do you think will be the biggest potential accelerant going into next year?

I would say all of them, Sanjit, because I think with every one of them, that we have PowerFlex and Power Store, whichever payer we have all the flash arrays. And with NetApp, we have, again, a good chunk of their arrays that we support. I would say those 3 are all going to be significant for us and significant growth drivers.

And we've already seen that now. We've seen deals across all of those and an acceleration in Q4 of that business. And even though NetApp is only limited availability, what that means is we are bringing on a subset customers. We don't want to -- and we will expect to be soon opening it up broadly to anybody who wants it. We are already closing deals with NetApp. So I think all 3 of those providers are going to be quite significant for us this year.

Our next question comes from James Fish with Piper Sandler.

Maybe just wanting to understand a little bit if you guys are seeing any net pull-in of demand actually given what's going on with hardware. Are we seeing that backlog still built given your sort of high teens bookings come into the year? Those kind of details would be helpful.

Jim, I'll start, and Rajiv can add if you like. So on the question about pull-ins. So the short answer is we did not really see anything unusual in terms of pull-ins in Q4. Now you remember that in our fiscal Q2, in our January quarter, we did call out that we had seen some pull-in activity into that quarter given some anticipated price increases for servers. That did not really appear to be the case in either fiscal Q3 or fiscal Q4, Jim.

Now that's sort of one piece of it. And then more broadly, I think we've talked about this future start date dynamic for a while now, and that continues to be something that we continue to expect to continue to see in '27, and I made some comments about that in my prepared remarks. So that's in there, but I don't think that's to your specific question that we saw anything unusual about pulling activity in Q4.

Yes. Just to add to that, Rukmini, certainly, I agree with you. We didn't see anything on the pull ins. What we did see though was our -- we were able to close a reasonable number of large deals, multimillion-dollar ACV deals in Q4. And forecasting those is generally very hard, of course. We tend to see -- figure out some subset of them that we came in, but we had -- we executed very well on our large deals in Q4. And we gave you several examples in the script.

Yes. Wins were pretty impressive, especially on the NetApp side, this early Rajiv. Circling back with you actually on free cash flow guide here, understanding you're reinvesting the majority of the reduction in force here and you're also dealing with multiple moving parts, including hey, look, we don't know in terms of what percentage of customers might go on this flexible billing arrangement. So I guess, is there a way to break down how much you guys are embedding in terms of a shift more towards third-party financing or the annual billings terms instead of the multi upfront? Just trying to understand like where we're at overall in terms of annual versus multiannual billings payment structures.

Yes. Thanks, Jim. So I think I'll make a couple of comments on just cash flow overall. So to your first point, if you look at our ACV bookings, currently for the full year '26, we were just about a double-digit percent of our TCV bookings were TCV bookings, not ACV were from these annual payments. And as I noted, and you alluded to, also, Jim, we expect to continue to offer more payment plan flexibility to customers in '27, whether it's a third-party financing or annual payment structures, and we've assumed a mix there, Jim. And because we think that it does provide more flexibility for customers as they think about their purchasing decisions.

The second piece I'll say is the restructuring charges, which we've said we expect to be between $33 million and $43 million, will be paid out in fiscal year '27 and those are obviously -- we don't expect that to be a recurring charge. But even if you normalize for that, if you sort of add that back to the guide we gave you, the free cash flow margin is effectively the same as it was in fiscal year '26, right? So that's one piece that you can add back to the free cash flow guide, if you want to normalize for the restructuring activity. And yes, as we said, we do expect to reinvest a majority of the savings from the restructuring into the growth areas that I talked about. So that -- all of that is factored into the free cash flow guide.

One moment for our next question. That comes from Joseph Cardoso with JPMorgan.

Maybe just the first one is a bit of a clarification and whether you can flesh out kind of the supply constraint environment that you guys are talking about. I know you touched on it in a few questions, but maybe just being a little bit more pointed. Are you seeing any expansion of lead times? How are you thinking about constraints in pricing exiting the fiscal year and whether these things are -- have been worsening? Or are they stabilizing as you kind of progress through the quarter? And are you seeing it impact demand even more near term?

And then as we think about the outlook going to fiscal '27, are you expecting a deterioration across those vectors? Or are you thinking about it more stabilizing but at this higher level? And then I have a follow-up. Just trying to understand those moving pieces there.

Yes. Can I maybe take a broadcast, Rukmini, you can add also. I mean, so we did see significant price increases in fiscal '26 on hardware, big jumps, I would say. We do expect to see additional price increases this year, but perhaps moderating, not perhaps to the same extent, but it's hard for us to predict. But we have assumed that prices will continue to go up at least modestly during this fiscal year.

From a lead time perspective, what we've seen is kind of very mixed. We are seeing lead times starting to stabilize, but some vendors and some SKUs will have extended lead times. Others will be able to deliver within more normal lead times. So I think what we try and provide for customers is to say, encourage them to look at the whole set of vendors that we work with, which is pretty much every OEM out there every server vendor out there, and we go procure what works best for them, both from a pricing and availability perspective. And we work very closely with them to help them through this process.

So that's what we expect. I do expect that this will continue through all of FY '27. Rukmini, anything to add?

Yes, I had maybe a couple of comments. So both on pricing and lead times, we saw that really in the latter part of '26. We didn't really see in Q1, for example, fiscal year '26. What we expect in '27 is that lead times will continue to remain elevated at this point based on what we know for the entire year '27 and same for prices, right? So that is sort of a different way to think about '26 versus '27 and what we've assumed in the '27 guide.

Got it. Very useful color. And then maybe just for my next, just on the 5% head count that you guys disclosed. You're also guiding for growth while reinvesting the majority of savings into some of those areas like agentic AI, cloud native sales, et cetera. How should we think about the savings relative to how it hits margins versus redeployment? And maybe just kind of walk through like how you guys are thinking about voting cutting sales capacity right now as you're thinking about some of this demand converting and the payback time line there?

So I can start and Rajiv, I welcome you to add on. So I think the way we thought about planning for fiscal year '27 is that there's things that we plan on doing every year. So for example, there's an annualization of all the people who are hired in '26 and all of them will be sort of now in the full year of '27, right? So that's just an annualization of those who are hired. There's also raises that we give everyone, all of our employees every year. So those are things we do every year.

And then there were all these areas that we alluded to, right, so agentic and AI offerings, adding more reps to sort of we have enough sales coverage out there to address the market opportunity, digital sovereignty, all the areas that I called out, what it is if we wanted to make sure we were investing in commensurate with the opportunity that we saw. And so the restructuring was intended to make sure that we were deploying those resources and investments aligned with the areas where we think we will have the highest return. And so that's how you should think about it.

And you put all that together, and given all that and incorporating sort of the top line pace that we have guided to, you'll see that our operating margin guide is higher than fiscal year '26, right? So we've sort of shared with you all that we're going to continue to drive increasing operating margins. And so we feel good about being able to do that and guide to that while making sure we're investing in all the right areas that we need to. Rajiv, anything you would add?

No, you covered it.

One moment for our next question. That comes from Radi Sultan with UBS.

First for Rajiv. As I think about sort of the neocloud opportunity, the Cronos strategic agreement. Like can you just walk us through the revenue opportunity to Nutanix there? And like is there a potential to upsell other parts of the portfolio like NKP and NDB into those end customers? Or is it just limited to AI solutions for now?

Yes. First of all, Radi, thanks for the question. It's actually the full stack that we provide to Cronascale. It's everything our Nutanix cloud platform, our NKP offering and on top of that, the Nutanix agentic portion. So it's a full stack that they will deploy on top of their hardware and deliver a range of AI-based services, right GPU services, GPU-based services to enterprise customers. So that -- so it is a full stack, so not just AI, number one. .

Number two, they are a service provider. So the revenue model for us is as and when they onboard customers, when they go out there and win customers, that's when we start seeing the revenue coming in, right, for us. So -- and that's the case with all our service provider business for the most part, right, which is it's [indiscernible] customers on the platform. And we also expect that Yes, this is the first neocloud that we did such a partnership with. As you know, we only recently announced our -- and brought our portfolio to market for the neoclouds with a full multi-tenant offering the interstate. So we are working with other neoclouds as well here during the year to win them over.

Awesome. And then, Rukmini, just on duration, continue to kind of tick up healthy here year-over-year. I guess, like what's driving the health of duration and sort of what's embedded in the guide in terms of average contract duration for this year? Maybe just walk through the key moving parts there.

Yes. Radi, so for duration in fiscal year '27, we're assuming it will stay flat to maybe slightly higher compared to -- and so I think we've talked about before, there's a lot of things that can drive duration. We have seen in the past and we saw some in fiscal year '26 as well, just some larger deals with longer durations, and those can play that number. We've talked about overall renewals duration is shorter than land and expand duration, generally speaking, but sometimes customers will opt for longer renewals durations as well and now especially with -- if we get them more flexibility on payment schedules, et cetera.

So a few moving pieces there. And what's assumed and embedded in the guidance we gave you is that overall average contract durations in '27 to be flat to slightly higher.

Our next question comes from Pam Singh with Oppenheimer.

Great quarter. I had a couple of questions here. One, thinking about your full year guide. I appreciate all the color and the conservatism. But as you think about it in terms of the growth drivers on a year-over-year basis, if you could rank or quantify what do you think is going to come in from, let's say, the traditional hyper-converged business, including taking share from VMware versus, say, your NCI compute or I should say, qualification external storage and then finally, the other pieces of the portfolio, whether it's databases or on the AI side. And then I had a follow-up question.

Yes. Maybe let me start there. So the bulk of our new business for this year, the land and expand business that we will close will be HCI, right, still, right? That's the bulk. But that's not the fastest growing, but that's going to be the majority of the business.

Now our external storage, which is really what you refer to as NIC was off to a very strong Q4. And we expect that to grow very nicely this year. So I think the growth rate on that is going to be pretty high and quite substantial this year with a lot of opportunities there. So I would put that in terms of contribution from a growth perspective. That's probably going to be the largest growth contributor. Right behind that would be our cloud native offering, our cloud native public cloud as well as our AI offerings and our Nutanix database services, all of those really coming behind that will also grow.

So I would say those are the 3, right, NCI largest component of the business, external storage, fast grower for this year and the remaining portfolio products will also be growing very rapidly.

And as my follow-up, maybe for Rukmini. I appreciate that you're reinvesting into the business as you should. But with this level of growth rate, I was hoping to see a little bit more margin expansion. So maybe help me think through how do you think about the necessary components of organic investment at this point? And how much would you want leverage to show up versus reinvest into the business going forward?

Yes. Look, I think the growth versus margin balance Paris obviously one we spend a lot of time thinking about -- and we believe it was important, as you alluded to, to invest in certain areas where we think we are well positioned to win and we would think we see the return. I mean we had already seen the write and want to double down or we believe it's important for us to go and play in those areas because we know -- we expect to have a higher return there.

And look, the reason we did the restructuring was because we believe that there were certain things we could do within our existing OpEx and overall spend envelope that we should reallocate in order to be able to go and fund some of this growth, right? So that's how we've approached it. And we do believe that there's more room for margin expansion. I think we've been quite consistent in saying that our -- non-GAAP operating margins today are not where we think our steady-state operating margins will be. We think there's room for it to expand meaningfully from here over time and are happy that from even for an initial guide for '27 that the midpoint is higher than what we delivered in '26.

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

Just to maybe not beat a dead horse here, but are you assuming that the server availability gets better or worse or remains unchanged as you look into fiscal '27? Rukmini, I think you said you only have the back half impact on server availability in '26. So is there a way to also think through how much of growth impact that had in fiscal '26 and that the growth impact that you're anticipating in fiscal '27 is maybe roughly double of what you're thinking in fiscal '26. Is that maybe the right way to think about it?

Yes. So we haven't sort of quantified that explicitly, Wamsi. Yes, I think what we want to say though is that from a lead time perspective, we really saw that elongate in any kind of meaningful way only in the latter part of 2016. '26 we know starting '27 that it's -- we expect it to stay elongated and lead times will -- I think, will move around, depending on what's happening in the market. Obviously, it's a very dynamic market. And people's ability to get various components and memory and everything else. So we think lead times will still be elevated and move around maybe from time to time in fiscal year '27. So yes, what we did say was it's a full year in '27 versus a partial year in '26 and that we expect to continue to offer this flexibility with start dates to make sure that people are -- customers who are willing to make commitments with us and are ready to do so are able to do so while timing it with when they're getting the servers.

So that's how I would think about it. And the other piece is on pricing of servers, which I think Rajiv talked a little bit about earlier, which is that we expect that to continue to increase in '27, perhaps not at the same pace but continue to go up, which can impact us how customers think about their projects and timing and sizing and all of that. Rajiv, anything you would add?

Yes. So Wamsi, there are some offsetting factors here. There is no doubt that supply chain impacted us for a portion of last year, and we expect it to impact us for the full year, right? So that's more headwind this year compared to last year. And the prices are going to remain elevated. And so we expect that.

But offsetting on the other side is that our external storage portfolio is growing. We now have many more storage arrays that we support compared to last year. And so that allows us to offset some of this issue, right, because those customers can use us without buying new hardware. So we have some other offsetting factor. And then the public cloud usage, I think -- and also, we've learned from the last 6 months on how to work with our customers to help them with the supply issues. So we've got some offsetting factors to counter the headwinds, the broader headwinds that we see with the supply chain this year. So that's what we factored in as we try to give you our guide for the year.

Okay. I appreciate that. And then maybe, Rajiv, for you. You made a quite a few comments around sort of the agentic AI. I was curious as to your perspective on how much -- are we at a point where agentic AI in the enterprise on-prem side is inflecting in a meaningful way as you think about '27, '28? When do you think we start to see meaningful inflection for the industry and for you in particular?

Yes. I would say for us, by the way, it's a relatively new portfolio product area for us, and it's growing quickly off a small base, as we continue to add significant capabilities to the platform over the last 6 months even. Now from an industry-wide adoption, I would say we're still very, very early. I wouldn't necessarily say we are at an inflection point where this is going to scale rapidly. But more and more customers -- this is a topic of conversation with everybody, starting with a gateway that everybody wants to have to have some regulation around cost controls and governance, that's fairly broadly deployable and applicable to a lot of companies. And then there's going to be a subset of companies that have significant usage relatively speaking, that will deploy either on-prem or in, say, a third-party service provider and a colo, their own infrastructure, right, GPU clusters for running their AI workloads.

And that opportunity, we're starting to see. I mean, we have some initial wins that we talked about some of those even at our user conference earlier this year. And we expect, for example, at Nutanix, we have our own internal usage where we are a software company. We have been using AI models for the entire software development life cycle for quite a while. And like most of the companies, we started out using frontier models and cloud models. And the cost -- as the costs start going up and usage are going up for us dramatically, we have now shifted to deploying our own clusters with our software stack on it, running open models, and we hope that we will be able to service the majority of our internal needs with that rather than going to the frontier models.

And we will, of course, still continue to go to the frontier models to get the best in the pie, but we expect that to be a smaller portion. And for all the stuff that runs on our clusters with open wade models, we no longer have to pay on a per token basis, right? That's a onetime investment that we make, and then we can use it to the maximum extent over many years.

So I think this kind of a model, I think I would say more enterprise customers will start to adopt over time, but we're still very early days.

It comes from Matt Hedberg with RBC .

This is Simran on for Matt Hedberg. Congrats on the quarter. I have 2 questions. First, Rukmini, the color around ATR for fiscal '27 was helpful. Just double-clicking on that. How should we think about linearity of renewals through the year? And the level of deal visibility you have as we think about the supply chain constraints?

Yes. Simran. So I think the first thing I'll point out, right, that is on renewals, we don't really see or expect any kind of meaningful impact from supply chain because the supply chain comes into play really largely when customers are using us or choosing us for newer deployments or for migration, things like that, where they are adopting our cloud platform, specifically HCI, right, not extend storage fees, and therefore, need to go and procure servers, which is not the case for renewals?

So that's the good news on renewals that those are largely independent and insulated from any kind of supply chain challenges. And then I think part of your question was what about linearity through the quarters. Look, I think based on our visibility, it's -- there's nothing unusual, I would call out, Simran, and if we were to see that, we'll make sure to update you going forward. As you know and as we talked about before, like with any other subscription-based companies, sometimes things can renew early, if customers are ready or if we are selling them expansion and the customer wants to sort of bundle all of that renew early. We're, of course, happy to do that as long as it's good economics and so on. And so that can happen in timing from time to time, but that also, again, even those instances, the revenue really shows up in the quarter in which it was due.

So yes, other than that, nothing unusual, I would call out about renewals linearity at this point.

Got it. That's helpful. And then anything to call out in terms of or expectations around U.S. Fed?

Yes. So we had a really good quarter with the U.S. Fed in fiscal Q4. As Rajiv said, we had really good broad-based performance in Q4 and U.S. Fed was no exception. We had a really strong quarter in the U.S. Fed for Q4. And looking at Q1, seasonally, it tends to be our largest quarter for U.S. Fed. And the teams are, of course, looking -- working hard to make sure that we deliver to our opportunity with the U.S. Fed. Anything you would add, Rajiv, to that on Fed?

No, no, I think you covered it.

And our next question is from Mike Cikos with Needham.

I'll echo my congrats on the quarter as well as the strength of the net new ARR in this quarter in execution. I just -- I think it's been asked a couple of different ways, but maybe not as bumpy. But if I think about this quarter and the strong results you posted, can you just comment on to what degree this quarter may have benefited from a catch-up on contracts that have been signed with future start dates, and ultimately converting into revenue. Was that a factor that we need to consider here? Or no, we continue to see things like to the right and this really was just execution in the quarter? And I appreciate any quick follow-up as well.

Mike, I'll start. I don't think we saw -- where we didn't see any kind of catch-up in future start date in Q4, Mike. So I wouldn't call that out as a reason for the overall outperformance in Q4. You mentioned net new ARR. And one maybe piece of additional color I'll add on that is that even our net new ARR performance was also a function of our strong overall performance in the quarter.

Specifically to ARR, we had a lower-than-typical average billing duration in the quarter. And I called out that sort of billing duration was a bit lower than expected in Q4. And that drove a higher net new ARR relative to the revenue we generated in the quarter. And billing duration can move around from quarter-to-quarter. And based on our view of Q1, we expect billing duration to go the other way, to be meaningfully higher into Q1 based on what we know. And that would tend to drive a lower net new ARR for a given revenue. So that's the only additional color I would add, Mike. But no, there wasn't kind of a future start date catch up in Q4.

I would just add to that, Rukmini. I think that we are also assuming a moderately higher percentage of orders with future start dates in FY '27 compared to '26. And so this continues.

Understood. Understood. And I appreciate the call out on both fronts there. I also wanted to ask -- I know you guys are calling out the available to renew this pool is going to continue to grow, albeit at a slower rate versus what we just saw in fiscal '26. My question, I know it's a little bit longer term here, but like I'm looking at the number of new logos that you guys have acquired and we really saw a pickup exiting fiscal '24 in that 4Q, right? If I'm just assuming average of, call it, 3-ish plus year contract duration, when the volume of new logos really started to tick up, is it fair to assume that, that ATR pool, like the growth there should see an acceleration, if you will, if we think about fiscal '28?

And again, I'm just trying to think about the volume of new logos that you guys acquired as well as the breadth of the platform.

So I'll take a shot at that, Mike. So look, overall, generally happy with the new logo performance and I'm trying to harken back to Q4 '24, Mike, and what was happening then. And look, I would say, I think when you look at our land and expand ACV, which is think of that as net new kind of business coming on to the platform, land or new logo ACV is actually a minority of land and expand, which is not a surprise. I think we've talked about that before. And as you would expect for a company of our size, expand just as a proportion of the total land and expand is the higher proportion. Expand is much -- or most of that is expand relative to land. So while very happy with the land performance over time, it is still a minority of the land and expand.

And so no, I don't think there's any kind of dynamic where there's some year where it would go up or anything like that, Mike. And remember that the renewal base has also gotten larger and larger every single year. And we had those initial few years where it was growing really rapidly because we were really only starting to build a renewal base in those early years. So yes, that's what I would sort of say. I don't think there's a big of a correlation perhaps as you think between any kind of things that happened in Q4 '24 and the renewal ACV expectations.

Understood. Congrats on the strong finish to the year.

Thank you, Mike.

Thank you. And ladies and gentlemen, this concludes our Q&A session and conference for today. We want to thank everyone for participating, and you may now disconnect.

Good afternoon, everyone. Thank you for joining us here on Day 1 of Bank of America's Global Tech Conference. I'm Wamsi Mohan. I cover the IT hardware space here. I'm delighted to welcome Nutanix again. Thank you so much for being here. We have CEO, Rajiv Ramaswami. We also have CFO, Rukmini Sivaraman. Thank you both for joining us today over here.

Thank you for hosting us.

Thank you, Wamsi. Glad to be here.

Yes. No, great to see you both again. So I guess to kick this off, Rajiv, when you think about the changes that are happening across the enterprise landscape, AI has obviously dominated the headlines. So for the investor base here, maybe it will be helpful to contextualize like what is Nutanix's place within this domain of AI growth?

Absolutely. So customers need to run AI inferencing and AI agents. And as we've all seen, the market is transitioning from a focus on training these large models to inferencing and delegating with agents. So these applications, there's a whole host of new AI agentic applications that are being built. And these applications are going to run in multiple locations.

You will have agents sitting in enterprise desktop, in your laptops that will be accessing inferencing, running in different locations. Some of this inferencing will actually happen on GPU clusters, CPU/GPU clusters inside data centers. Some of them will happen in neoclouds, and some of them will happen in public clouds and in frontier models. Nutanix as a platform, we provide a complete stack for customers to run these agentic applications, build and run these agentic applications.

Those applications for us in our sweet spots tend to be when they're running them on-prem and when they're running them in neoclouds and also providing cost and governance and security for people accessing all of these models and inferencing because when you're sitting in an enterprise, you care a lot about managing your token costs. You care a lot about which model to use for what use cases, how much access -- who and how much access is provided to these models. So as part of our stack, we provide this gateway capability to enable enterprises to consume all of these models and inferencing wherever they'd like to with the appropriate visibility, security, governance, et cetera. And at the same time, we deliver the stack for inferencing.

So which inning would you say we're in, in terms of adoption? What are you seeing in your customer conversations?

Yes, the market is moving very rapidly. Today, what we see is simple inferencing use cases being deployed in enterprise. We see things like document search, summarization analysis, proprietary applications. For example, we had a bank build a custom application that used a simple open source model to -- they record all the conversations between their sellers and clients and then the model looks for patterns of noncompliance and summarizes those conversations. That's proprietary data, regulatory reasons why it has to be kept on-prem. And so they run a dedicated cluster to do that.

We have a large government agency using this for investigating financial fraud. Again, similar proprietary data running on-prem. That -- those are the initial use cases we're seeing. But now the use cases are starting to broaden out with these agentic use cases starting to emerge, very early days. But again, I think for Nutanix as a company, we talked at our Investor Day as to how I think this whole AI inferencing wave, we are going to be a beneficiary of that from providing a platform that can run and harness all of these AI inferencing applications.

Okay. That's helpful. Maybe just to talk a little bit about the competitive landscape that you see out there when it comes to your longer-term sort of outlook. Who are you seeing? What is your outlook around potential for share gains? Obviously, VMware, you kind of have like an opportunity there. But more broadly speaking, where else are you seeing a competitor, whether it be with IBM, whether it be with like actual cloud players, too?

Yes. I think the interesting thing is I think the infrastructure providers, it's the same bunch of providers who are providing solutions today and are also moving to provide infrastructure for these AI applications we just talked about. So we have -- on the other -- one hand, we got Broadcom who's very well established with VMware in these accounts -- in these customers, but most customers are looking to migrate away from them over time. And in fact, there's Gartner data out there that says the majority -- vast majority of customers will not have VMware long term.

It's going to be a long, multiyear migration. But we are adding somewhere in the range of -- last quarter, we added about 730 customers. We've been adding in that range or more for the last several quarters, and most of these customers are coming from VMware. Where do they go to? Well, we compete against IBM Red Hat really, the Red Hat portion of IBM, largely. Public cloud would be the other big set.

And the thing that if you look at Gartner's Magic Quadrant and what they call distributed hybrid infrastructure, which is really hybrid cloud, we are in the Leader Quadrant along with some of these big players. And we are the smallest player among all these big giants, and we've been able to compete pretty effectively and hold that leadership position for a long time, partly because our products are easy to use, very simple, provide very high degrees of customer satisfaction, customer NPS of 90.

And so what we're doing as a platform company from a competitive perspective, again, is today, of course, the bulk of our market is on virtualized traditional applications, moving to modern containerized Kubernetes applications and then to these agentic AI and inferencing applications. And we are evolving our platform to keep pace with that migration of what the customers want. And also these applications are now running not just on-prem, but in the public clouds and neoclouds everywhere, right?

So that's our philosophy. And we compete against these same folks now. There's, again, differences at the next level. I mean the public cloud folks are mostly focused on running everything in the public cloud. We have very hybrid. Broadcom, of course, is mostly focused on private cloud and holding on to the customers they have.

Red Hat is perhaps somewhat similar to us, but they're a virtualization platform. We believe we have a very strong virtualization platform that's geared for mission-critical applications. So we feel good about the opportunities and the competitive positioning that we have as a company.

Well, I think like the VMware story in terms of potential share gains, you guys have been executing on that path. When you think about the -- and you mentioned, I think, Rajiv, that like this can be a long like sort of tail here of customers over time. What are some of the things that as customers are looking to migrate, like, I'm sure there were some who were doing just virtualization, which could move more easily, but like further up the stack becomes harder and harder to do it. Where are we in that complexity of migration? What are some of the steps that you've taken to ease that process? And what is VMware doing competitively that you think might change the trajectory?

Yes. So to put this in perspective, today, we have about 31,000 customers. There's over 200,000 customers or so on VMware. So a lot of migration still to happen. And we -- like I said, adding 700 to 1,000 customers perhaps every quarter. So with these customers -- most of these customers today, 80% of the base, we talked about this at our Investor Day, are running simple virtualization connected to external storage.

And historically, what we were doing was to migrate them over from that use case, what they were deploying to a complete HCI platform that we provide. That includes compute and storage, much simplified, lower cost of ownership in the long term. Now we have evolved to become much more of a broader platform company today, especially in the light of what customers have today with the VMware situation, where we are now able to actually just replace the software on servers, the legacy hypervisors with our stack, at the same time, allowing them to keep their existing servers, keep their existing storage arrays, whether it be Dell, whether it be Pure and whether it be NetApp.

So that allows customers to do more in-place migrations without having to buy new hardware as well. And from our perspective, we give our customers choice. If you'd like to use the storage that you like, use us for the compute platform, the networking capabilities we provide, operations and security capabilities. But from a storage perspective, either use us or use any of our partners.

Okay. And any competitive like response that you've seen from VMware thus far...?

Yes. No, of course, VMware is -- their focus is on their big customers, and they're doing everything they can to keep those big customers that have very complex deployments. And from that perspective, the complexity goes up as you deploy more and more of the VMware solutions, right? And once you deploy the networking solution, the vSAN solution, all of those, they get more embedded. But most of the migration is actually fully automated.

We have automated tooling to migrate these customers over fully. It's more on the planning of the migration because once the planning is done, it's like a factory. You can keep migrating, automating these migrations. We showed at our recent conference how a lot of this can be done even without touching the data that they have. They can retain the data that they have and just replace software on servers to get the migration done very, very quickly and efficiently.

Okay. That's super interesting. Maybe to touch on the fact that you said you moved from just being sort of a core HCI player to much more of a platform. If we look out 5 years from now, like how does that mix of ARR look across like the broader portfolio?

Look, I think the -- I mean just in terms of the migration there in terms of what we have done, we started out being the HCI leader, pioneer HCI leader in the market, still are the HCI leader in the market, we then expanded into a hybrid cloud approach where we now support the platform on AWS, Google, Azure as well as a number of other service providers who can deploy our solution as well.

We've also then added support for external storage. So now we provide a platform that has choice. You can use our storage or external storage. You can run them on-prem or you can run them in the public cloud. And then 2 latest additions to our portfolio are a full Kubernetes stack to run modern containerized applications, again, running them anywhere you like. And the last bit and the newest bit of our portfolio is the platform to run agentic applications and inferencing applications. So we've broadened our platform to address a wide range of critical use cases for our enterprise customers.

Okay. Okay. That's helpful. Maybe I think -- maybe even Rukmini can chime in on this one. But just sort of can you talk a little bit about the visibility in the business, like as you look at the predictability and sort of the comfort that you have in like looking at the revenue stream ahead, like maybe you can address some of that, Rukmini.

Yes. So one of the things I would say, if you look back at the history of the company, I think we have a lot more visibility now than we did several years ago because now we have a term-based subscription business model, renewals coming in, et cetera. And maybe what's been more uncertain more recently, Wamsi, as you know, and we talked about these in our earnings calls and so on, is the fact that customers when they are choosing to deploy Nutanix software need servers, generally speaking, and we'll talk about when they don't need that.

But generally, they need servers to run our software. And that, as we all know, because of the supply chain challenges in the industry have been harder to come by, more expensive. And so those are now factors as we think about when customers are ready to not just buy and make a commitment to Nutanix, but when they can actually use our licenses. So what's that meant for this fiscal year, for example, is that we've had really strong underlying bookings growth. For example, in the most recent quarter, we talked about TCV bookings growth being 20-plus percent, but it's taking longer to show up in revenue because we can only recognize revenue when customers are deploying these licenses.

So feeling good about the underlying demand and booking strength, renewal timing is getting shifted. Now when you think about next fiscal year, so we are currently reported Q4, we're currently -- Q3, we're in our Q4 right now. So when we start our new fiscal year on August 1, as we think about planning for that, I would say there's probably 3 things at least that we think of as building blocks.

The first one is when we finish our Q4, we'll know what our CRPO is, the current remaining performance obligations, which, by definition, gets recognized in 12 months. So that's coming through, both from the balance sheet from deferred and from backlog. The second piece that we have a great degree of confidence in is our renewal stream. So we know how much is coming up for renewal and generally, a good degree of confidence that those will come through.

And then the remaining piece, which is actually quite meaningful is everything incremental. So new customers on the platform are expanding with existing customers. And that's the piece that we have the sort of less visibility on because of some of the dynamics I talked about with regard to, well, what will customer behavior be in the light of server prices going up and in the fact that it's taking them longer from when they actually place an order or server to when they get it, regardless of the fact that our software can be deployed as soon as they have it.

So those are sort of the building blocks. The other piece I would say is duration of contracts, which can also have an impact on our -- into our revenue visibility and what it will do. ARR not so much because ARR is agnostic of duration. So those are all the pieces. Now as Rajiv has alluded to, there are some things that we are doing to mitigate some of that. For example, external storage support, which we haven't had historically, but now we support Dell PowerFlex' storage platform. We support Pure Storage as of December, and we have more coming online.

For example, NetApp is coming online, Lenovo, Dell PowerStore, et cetera. And so what that allows customers to do is they don't have to actually go purchase a server. They can just use existing hardware, which helps. We don't think it fully mitigates some of the headwinds we talked about, but it certainly helps because that is really small today, and we expect it to grow nicely going into '27 and beyond.

Same with the ability to run our software on public cloud, as Rajiv talked about. So some puts and takes there, Wamsi, but I think the piece that we're spending a lot of time thinking about and planning for that we have less visibility into is this dynamic around land and expand and what does the supply chain dynamic mean for that piece.

Yes. Yes. I've been trying for the last 1 month to say Everpure instead of Pure Storage. Well, so maybe just on your point here on the server side, right? Like we've had some of these large server OEMs report over the last couple of weeks. And their industry standard server revenue numbers are through the roof. I mean growing like 90%. A lot of that is ASP driven, not necessarily unit driven.

But I guess just what we're hearing from the supply chain and from these companies reporting is that the unit -- there is unit growth that's coming over here in the next several quarters. And so I'm wondering, as you look at the business, if, let's say, that server availability got better in some way because customers are willing to -- they feel like we need the compute capacity now and we just need to deploy this. How does that flow in for you relative to the way that you sort of described about some of the uncertainty associated with server pricing?

I'd say our land and expand business is fairly closely coupled to core count. We price on a unit core basis. And the more cores that get sold into the enterprise, the more likelihood our market expansion, right? So from that perspective, yes, I mean, clearly, the hardware folks have been benefiting from the fact that they can pass on the higher costs on memory and even CPUs to their customers.

And so the ASPs, as you said, have been going up, Wamsi, quite a bit. We're not so sure that units have been going up that much. But if they do go up, that's great. And by the way, the other thing I would say is even aside from the units, core count in processors is going up. So as long as the core count goes up, if you have the same number of units, you will likely have more cores as well going forward. So that also helps.

Okay. Okay. That's helpful. When you think about enterprises, looking at there's finite budgets, there's worry that sort of with the spend that's going across on certain categories going up quite significantly. Are you seeing, a, any change in the purchasing behavior as far as your conversations with your customers? And are you seeing -- I mean it sounds to me more like there's lack of availability of units that might be actually causing later start dates as opposed to not. But would you say that there is a sense of urgency also on the other hand, to like pull forward anything from an implementation standpoint or the urgency to bring forward things as opposed to pushing out?

So I'd say customers are acutely aware of the supply chain, so are our sellers. This was not a factor before at all, right? It was something that we never worried about. And now we worry about it, the customers worry about it a lot, too. So it's a factor in every deal. Now how -- what's changing? Well, the first thing is customers are now looking far and wide to see who's got the best prices and the lead times.

In the past, they just used to have their regular vendors that they would go to. And now it's really changed -- that part of it has changed quite a bit. In some cases, they're looking to see if they can defer purchases for some period of time. And we have seen some of that happen, in which case deals do get delayed in that scenario, right? So that's the second thing that we see.

And the third thing they're also looking for is can they reuse their existing hardware while still modernizing and accomplishing their goals or migrating away from VMware, for example. So more acute focus on that for sure. All vehicles to do that, right, including moving to the public cloud. And we've seen, therefore, external storage picking up nicely, public cloud also picking up nicely because they're not dependent on the server availability on-prem to make that happen.

So those are all, I think, the factors that we see from the customer front, and it comes down to both pricing and lead times. Lead times typically will lead to more deferral of revenue for us. Now in terms of the actual sort of behavior that we've seen, we certainly did see some pull-ins in Q2, our January quarter, where customers were afraid of prices going up, and they did place orders ahead of time to try and catch the prices before they went up.

And certainly, that worked out very well for them because prices did go up a lot in Q3 and on hardware, I mean, just to be clear. And so now in Q3, we didn't see as much of that because I think the prices have already been elevated, right? So we haven't seen a whole lot of people rush to get more orders in. So we'll have to see how this goes. I think as the pricing changes, I think so will customer behavior.

Okay. Okay. That's helpful context. Maybe just talking about like large deals, right? Like these deal sizes have gotten larger for you over time. Can you give us some sense of how that's like where we are with like deal sizes, maybe contract duration, some -- what are the trends that you're seeing versus maybe a year ago in terms of this and the outlook sort of going forward?

Yes. So I think we gave you some of these at our Investor Day in April. So we gave you a view on like $1 million-plus ARR customers, for example, and how that's grown over time. One other data point we provided was if you think about new customers coming on to our platform, the initial transaction size or average ACV has also grown for those folks, and that we said it was about a 16% CAGR over the last couple of years.

So yes, we have seen that sort of increase in our efforts to go upmarket and focus on areas and focus our reps on where we think the largest opportunities are. So that continues to be a focus. Now to your point on contract duration, we did see in the April quarter that we reported that duration was higher. It was 3.4 years on average across land, expand and renewal, which is the highest it's been in a while.

And that was higher than our expectation as well. And what I would say is that it's more of an instant for now than a pattern because the first quarter we've seen this high of a number. And there were a few deals that were of larger size and had a longer duration. And so that contributed to that being -- to that larger contract duration, it was both across renewals and land and expand is what we saw the higher duration.

So yes, I think it's something we're watching closely. I think it's too early to declare that it's a trend, but something we continue to watch. So that was something we saw and it does -- I think it's important to note that, that does impact some of the other things I talked about earlier in terms of RPO, revenue, et cetera. So that's something we're watching as we think about planning for '27 as well.

What would be your best guess as to why that is happening, if you were to -- but we don't know if it's a trend or not yet, but why do you think it's happening?

Well, I'll give you some anecdotal maybe reasons why customers have shared with us. So one is they are looking for certainty in terms of just pricing, their own planning. So they know that they have -- if they sign a 5-year deal rather than a 3-year deal, then they know that, that's -- they have certainty for 5 years instead of 3 years. And just I think given what the competition has done in many cases where they've sort of been these unexpected surprise and so on, customers are seeking more of that comfort around I know I'm set for 5 instead of 3 in my example. So anecdotally, we've heard that, Wamsi. But again, I wouldn't call that a trend just yet.

Would you say that, that's like there a larger cohort of like customers coming over from VMware committing to that? Or wouldn't that be a trend that you would call out?

Well, I'd say, look, in general, we know that practically all of our new logos have VMware in some way, shape or form, and that's been the case for a long time, even before the acquisition. So yes, is that a factor? I think, yes, it is. The only other thing I would add is on the renewal side, for example, one of the things we talked about at Investor Day where when we were talking about our payment options for customers, as you know, historically, our default option and even today, our default option is that we collect multiple years of cash upfront from customers because many of them are paying for us out of their CapEx budgets, and so they have that outlay.

However, in certain circumstances, we might choose to provide some flexibility for annual payments, for example. And so in some cases, that can lead to a customer agreeing or willing to do sort of a longer duration because they have flexibility on paying for it on an annual basis.

How recently has that flexibility been instituted? Has it been pretty typical? Or is this atypical?

Just to be clear, it's still a small minority of what we do. And we've talked about, I think, over the last couple of years, and I think at Investor Day, we sort of laid out sort of our view of how we expect to manage that. And that's one of the reasons, by the way, we sort of said that as you think about fiscal year '29, which is the sort of year we gave at Investor Day, if you look at free cash flow margins, those -- from a margin percent standpoint, we expect to remain more or less the same, high 20s percent.

Dollars will grow as revenue grows, of course, and we said leverage in the model can be more easily observed on the operating margin line. And the free cash flow margin staying at the same -- more or less the same percent is partly because of this, where we might provide more flexibility over time, but want to manage it within that framework.

It seems like you clearly have been overachieving on your operating margin lines. And it would be -- maybe you can share some perspective about as you think about your planned revenue growth, like how should we be thinking about OpEx growth and incremental leverage because the incremental margins are quite strong. And I'm just wondering if like we're not giving you enough credit for incremental margins.

I'm always happy to take more credit. I will say I think that if you look at where we are today, so for the full year, obviously, we're at Q4, so we have one more quarter to go. For the full year, we guided to about 22.5% on operating margin. And we said, again, in April at our Investor Day for fiscal year '29, we said mid- to high 20s. Now so -- and we also know that if you look at generally software companies at scale, many are even higher than that, right?

So we know that we have really room to improve that margin over time. And we've also said, I think, repeatedly that growth is our #1 priority. We've had a large market. Rajiv has talked about how we've expanded our offerings to go and address -- to open up new markets and address those markets. So growth remains the #1 priority. So if we can go and drive that extra point of growth, we want to make sure we're investing to go do that.

So that's sort of the first thing I'll say. Then in addition to that, we want to drive that growth in an efficient way. And so that's where I think this combination of how can we continue to drive all the growth that we can possibly go and capture, but do so efficiently. So then the question, I think, Wamsi, where you might ask is, well, okay, now you're about -- you've guided to 22.5% this year, mid- to high 20s [indiscernible] and what happens in the middle. And so that's the -- I think that's -- as we think about '27 planning, those are the discussions we're having internally.

And I think the only other dynamic I'll point out in the near term is that as we've talked about, timing of revenue is a little more variable than we have seen historically and that we have to factor that in as we think about the P&L, obviously, it starts with the revenue line. So look, our intent is to grow operating expenses slower than revenue to make sure that we're doing so in a thoughtful way. We laid out all the drivers at our Investor Day as well. And I think in the near term, it's this dynamic of -- we've talked about how bookings growth have been strong. We want to make sure we're driving that and continue to invest thoughtfully where we can do so while continuing to improve margins during that time period.

I know you addressed this in different forums, maybe, but I'll ask this. As you think about the way that you used to guide sort of your long term versus the way that you guided your long term, you've typically given a pathway in some ways. And this time, we didn't have a pathway to fiscal '29. So it might be helpful to just hear again like what is the rationale behind sort of guiding the way that you guided this time around?

Yes. I think it's a fair question. So in the past, we've given CAGRs, for example, and/or dollar numbers as well. And we did neither of those this time, we gave you sort of a point in time, fiscal year '29, and we gave a growth rate in that year. Now if you think about when we announced our Investor Day, it was in the fall of last year before any of these supply chain challenges were upon us. And we were -- it had been more than 2 years since our last Investor Day, so we were certainly due to do one.

But what's happened is in the near term, again, the timing of our revenue and ARR is being impacted by this -- some of these supply chain dynamics while we continue to drive underlying demand. And so that was the main reason why we sort of said in fiscal year '29, we're assuming a normalized environment with regard to supply chain and just a more normal macro environment. We think that, that's the underlying strength of the business, the mid- to high teens growth that we put out, Wamsi, but it was harder for us to give something like a CAGR or a dollar amount because of this near-term lack of visibility.

Is the -- and sorry to push a little bit, like is fiscal '29, like why is that the right time frame to think about normalization? Is that what you fully believe? Or is that sort of how...

I think the point was -- I mean it was a point in time, right? But the point was to talk about what are our fundamental growth drivers. And we are excited as a company in terms of what we can offer, right, to be this platform of choice for all our enterprise customers who are migrating from VMware to going to be a platform for AI inferencing and agentic applications. So there's a rich set of growth opportunities in front of us.

There's a growing and broad ecosystem forming around us with all the major players partnering with us. And we -- the point was at Investor Day, we wanted to provide what would that look like in a normalized environment. And we just picked FY '29 because we thought that would be a normalized environment. If it were normalized today, we'll probably say, a, we can do that now, right, the mid- to high teens revenue and ARR growth and on a sustainable basis with continuing leverage in the operating income line.

That's what I would look at what we could do at scale in a normalized environment. And I think we are well positioned to do that. Now in the near term, we couldn't give you much because of what's happening with the supply chain. But the long-term prognosis is what we wanted to share with you all.

Yes. No, that makes a lot of sense. I know we're almost out of time. 30 minutes is just too less to really dig in by a lot. But maybe, Rajiv, just to close out, like what should investors be most excited about over here, right? Like I mean, barring sort of the supply chain uncertainty, it looks like you've built a lot more capabilities. You have a lot more partnerships coming online. Would love to hear from you what people should be excited about.

Nutanix has really expanded from being a HCI pioneer to a multi-cloud platform that can serve the needs for -- critical needs, I should say, for enterprise customers as they move from traditional legacy applications to a modern world of AI and running everywhere, running on-premises and public clouds and service providers and neoclouds, we can be that platform of choice for the enterprise. Our track record over the last several years has been delivering consistent growth, growing profitability, while at the same time, delivering very high degrees of customer satisfaction.

To this day, our customer Net Promoter Score remains at 90. That's very unique for a company in this industry. We want to keep it that way. And I think as long as we keep doing this, we will continue to acquire customers, we will continue to have happy customers, see a lot of expansion and continue to grow our top line and bottom line.

Amazing. Thank you so much, Rajiv. Really appreciate it. Thank you, Rukmini. Thanks for being here.

Thank you very much.

Thank you.

Hello, and welcome to Nutanix Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to Rich Valera, Vice President of Investor Relations. You may begin.

Good afternoon, and welcome to today's conference call to discuss third quarter fiscal year 2026 financial results. Joining me today are Rajiv Ramaswami, Nutanix' CEO; and Rukmini Sivaraman, Nutanix' CFO. After the market closed today, Nutanix issued a press release announcing third quarter fiscal year 2026 financial results. If 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, 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 and our subsequent quarterly reports on Form 10-Q 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 Bank of America Global Technology Conference on Tuesday, June 2 in San Francisco. We hope to see you there.

Finally, our fourth quarter fiscal 2026 quiet period will begin on Saturday, July 18. And with that, I'll turn the call over to Rajiv. Rajiv?

Thank you, Rich, and good afternoon, everyone. In our third quarter, we continue to see healthy demand for our solutions as reflected in our strong bookings and outperformance versus our guided metrics. We see this demand driven by businesses looking to modernize their IT footprints, adopt hybrid cloud operating models and deploy cloud native applications, including AI.

In our third quarter, we delivered quarterly revenue of $703 million, above our guidance range, grew our ARR 15% year-over-year to $2.43 billion and a solid free cash flow generation. We also saw another healthy quarter of new logo additions, adding over 700 new customers in Q3.

Looking ahead, the environment remains dynamic. Supply chain challenges continue to drive higher prices and generally longer lead times for server hardware from our partners, which are pressuring customer budgets and timelines. However, Nutanix' focus on customer choice helps mitigate some of this impact and enables customers to better manage their deployment timelines and budgets. These include choice of server vendors, choice of running in the public cloud on Nutanix Cloud Clusters or NC2. And in particular, choice of adopting our cloud platform with a growing number of external storage options.

Note that the majority of current data center infrastructure is based on external storage and legacy hypervisors on servers. Our support of external storage platforms is simplifying migrations to Nutanix from these environments without requiring significant hardware changes. In Q3, 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 adopt hybrid multi-cloud operating models, deploy modern apps and AI, and in some cases, deploy our cloud platform while retaining their existing hardware, including external storage.

Two of our largest new logo wins in the quarter reflects success with our initiative to support external storage. One was a 7-figure win with a North American-based health care services provider who chose the Nutanix Cloud Platform to replace their incumbent infrastructure software, while retaining their EverPure flash array external storage. Another significant win was with the financial services provider who chose our Cloud Platform for running their Microsoft SQL databases while retaining their existing Dell PowerFlex arrays. We're pleased with the progress we've seen to date with our offerings supporting external storage and expect continued growth as additional solutions become available over the course of the year.

We also continue to see good uptake of our cloud native and AI offerings in Q3. An example is one of our largest wins in the quarter with an aerospace defense supplier in the APJ region. With this full stack expansion, the customer now plans to use Nutanix Kubernetes Platform, or NKP, to deploy and manage their container-based applications while continuing to run their VM-based applications on our Cloud Platform. We also plan to use Nutanix Database Service for database automation, and Nutanix Unified Storage for managing their unstructured data. And we continue to see traction with our AI solution in Q3 with wins in areas, including financial services, health care and higher education.

Finally, in Q3, we saw increased uptake of the public cloud deployment option for our platform, NC2. This included a notable quarter-over-quarter increase in both customer wins and course deployed. NC2 wins included a Fortune 500 financial services provider that was looking to expand its use of our cloud platform as they migrate away from their existing on-premises provider. Facing longer lead times and higher prices for servers, this customer chose to deploy NC2 on AWS. We also landed a new logo with an EMEA-based provider of outsourcing services. This customer was looking to replace their existing data center infrastructure provider and chose to deploy our cloud platform on NC2 in OBH public cloud, pending availability of server hardware. Over time, they plan to migrate their production workloads back on-prem while maintaining disaster recovery services on NC2 in OVH. They also plan on migrating their omni workloads to the Nutanix Cloud Platform.

During the third quarter, we made a number of important product and partnership announcements, many in conjunction with our annual Customer Partner Conference in Chicago, which drew over 5,000 attendees. We announced Nutanix Agentic AI in March at NVIDIA's GTC 2026. This full stack software solution is designed to reduce complexity, optimize performance and security, and enable lower and more predictable token costs for agentic AI applications. Today, our agentic AI solution works on platforms using NVIDIA GPUs. With our recently announced AMD partnership, we will also be supporting AMD's GPU solutions going forward.

Then in April, at .NEXT, we announced new capabilities for our agentic AI solution to support a new generation of AI cloud providers or neoclouds. This solution is anticipated to become available in the second half of 2026. We also introduced NKP metal which brings the automated life cycle management and data services of the Nutanix Cloud Platform to bare metal Kubernetes. Finally, at .NEXT, we continue to demonstrate progress on our initiative to support external storage, announcing new partnerships with NetApp and Lenovo to support their storage platforms. Availability for both of these new solutions is expected within this calendar year.

We also held our Investor Day in conjunction with .NEXT, and it was a pleasure seeing many of you in person at this event. We were happy to be able to share how our platform has evolved to a unified platform for running AI in both modern and traditional applications, to provide an update on our large and growing market opportunity and to provide an update on our medium-term target model, including mid- to high teens revenue and ARR growth in FY '29. We look forward to continuing to drive towards the vision and targets we shared.

In closing, we believe our business performed solidly in the third quarter, including strong bookings, healthy new logo additions and solid free cash flow performance. Our opportunities with AI, modern applications, hybrid multi-cloud and support for external storage provide us with a strong foundation for multiyear growth. And with that, I'll hand it over to Rukmini Sivaraman. Rukmini?

Thank you, Rajeev, and thank you, everyone, for joining us today. It was great to see many of you at our Investor Day last month.

I will first review our Q3 '26 results, followed by our guidance for Q4 '26 and the updated full year '26 guidance. In Q3, we reported results that were above the high end of the range for all guided metrics. In Q3, we reported quarterly revenue of $703 million higher than the guided range of $680 million to $690 million. ARR at the end of Q3 was $2.435 billion, representing year-over-year growth of 15%. NRR, our net dollar-based retention rate at the end of Q3 was 106%. In Q3, average contract duration was 3.4 years, slightly higher than our expectations. Non-GAAP gross margin in Q3 was 87.8%. Non-GAAP operating margin in Q3 was 22.3%, higher than our guided range of 16% to 17% due to lower operating expenses related to timing of hiring, among other factors and higher revenue than expected. Non-GAAP net income in Q3 was $136 million or fully diluted EPS of $0.47 per share based on fully diluted weighted average shares outstanding of approximately 287 million shares. GAAP net income and fully diluted GAAP EPS in Q3 were $72 million and $0.25 per share, respectively. Free cash flow in Q3 was strong at $197 million, representing a free cash flow margin of 28%, benefiting from good bookings linearity in the quarter.

Moving to the balance sheet. We ended Q3 with cash, cash equivalents and short-term investments of $2.018 billion, up from $1.874 billion at the end of Q2.

Moving to capital allocation. In Q3, our Board increased our existing share repurchase authorization by $750 million and we repurchased $50 million worth of common stock under our authorization. We also used about $32 million of cash to retire shares related to our employees' tax liability for their quarterly RSU vesting. Together, these actions help manage share dilution.

Moving to Q4 guidance. Our guidance for Q4 fiscal '26 is as follows: revenue of $725 million to $745 million, non-GAAP operating margin of 21% to 23%, fully diluted weighted average shares outstanding of approximately 292 million shares.

Moving to the full year. Our updated guidance for fiscal year '26 is as follows. Revenue of $2.82 billion to $2.84 billion, an increase at the midpoint from our prior guidance. Non-GAAP operating margin of approximately 22.5%, an increase from our prior guidance. Free cash flow of $760 million to $780 million, representing a free cash flow margin of 27% at the midpoint also an increase from our prior guidance.

I will now provide a few points to note on our guidance. First, while we continue to operate in a dynamic environment, our TCV bookings expectations for the full year are higher relative to our last earnings call. Second, our customers continue to experience supply-related shortages and price increases for server hardware from our partners on which to run our software. This continues to impact the timing of conversion of our bookings into revenue and is factored into the updated guidance. We expect this to continue in fiscal Q4 and into fiscal year '27. Third, we continue to invest for continued growth against our large market opportunity, while finding ways to do so effectively and efficiently, resulting in the increased operating margin guidance for fiscal year '26.

In closing, Q3 was a strong quarter in which we beat all guided metrics, and we are pleased to raise our full year guidance. We would like to thank our employees, customers, partners, investors and stakeholders for their continued trust in us. With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Matt Martino with Goldman Sachs.

Rajiv, maybe just start with you, we're now several quarters into the supply chain dynamic. Are you starting to see indicators that customers are getting better equipped to manage through it? Whether it's building hardware lead times into procurement cycles or leaning more of that software/hardware decoupling option? And does ultimately that translates into smoother deal conversion for Nutanix, even if the supply backdrop doesn't improve materially over the next kind of 3 to 6 months?

Yes, Matt. And for sure, customers are much more aware of the situation and are better navigating the situation. And we are also helping them with that. If you look at the last couple of months, we had seen hardware prices from server vendors out there continuing to increase. But lead times are normalizing at some of the vendors, but remaining extended at others. We do expect hardware prices to remain elevated going into FY '27. Now customers, how are they adapting? Well, they're looking for more flexibility on software licensing terms. There are some instances of customers delaying projects, but those are not very common, but does happen once in a while. Now to your point earlier, I mean, we have a number of tools to help them offset these issues, and they're actually also making use of this. They have choice of several vendors. We have external storage platforms now available where they can do migrations without requiring new hardware purchases. They can use our solutions in the public cloud, and we've seen some customers do that directly where servers are more easily available and sometimes cheaper than buying enterprise servers. So our customers are certainly getting used to this, and we are also providing them the options to help them adapt to this supply chain environment.

Yes. Very clear. And then Rukmini for you. Good to see the full year guide come up a touch. I think the 4Q guide, though, is a touch shy of kind of what you guys were guiding towards coming out of last quarter. Can you just unpack for us what's in that number? Is it the supply visibility you have today? Or is there conservatism baked in? And what would you need to go right for guidance to land at the high end of that range that you put out this evening?

Thank you, Matt, for that question. So a couple of points to note. One, as you pointed out, and as Rajiv just covered, is the supply chain environment continues to be dynamic. And so -- and as we've talked about in the past, some of those dynamics can impact revenue timing from quarter-to-quarter. So that's the first piece. The second piece I will say that the Middle East region has been a good growth driver for us in the past and represents a mid-single-digit percent of our revenue. And we saw good performance from that region in Q3. But as we all know, given the situation there, conducting new business in the region is more challenging. And so we factored those in and are taking a prudent approach with regard to our Q4 outlook. And so to your point, Matt, in terms of what it will take for us to get to the higher end, it's really, I think, if the supply environment continues to progress as it is, then we factor that in. But if it's better or we find that customers are able to navigate it better than we have assumed, then we should be able to get to the high end of that range or if things improve in the Middle East or some combination there of those should help as well. .

Maybe I'll -- yes, I'll add a couple of more things just clarifying Rukmini, I think it also depends on how much traction we get quickly with our external storage solution, for example, and public cloud solutions. So we do have new products coming to market. We've got the Pure Storage array and the AMD already in the market. So that could also help.

Our next question comes from the line of Param Singh with Oppenheim & Company.

So for my first one, I wanted to understand how much incremental ARR is coming from selling to attach on the external storage vendors? And how are you priced compared to your closest competitor, VMware? And trying to get a sense of what the ARR traction could look like once incremental vendors come online, we have Pure Storage this summer and then NetApp and Lenova

Yes, Param, let me take that. Good question, of course. And what we -- as we said in my -- and during the call here earlier was -- the vast majority of data center infrastructure today is still external storage connected to your legacy hypervisors on servers, right? And with the solutions that we have in the market, with the tools that we already have, we have already started seeing traction. So you saw, for example, we had two significant deals that we talked about just on the call here, one with PowerFlex, one with EverPure. And then PowerStore coming on fairly soon here is going to also accelerate that. And then later in the year, we should get NetApp. So as we talked about at our Investor Day, over time, we intend to get to a big chunk of this addressable market and we do expect good continued growth. Now obviously, it's slow. I mean it's a small portion of our business at this point in time, but it's rapidly growing, and we expect it to be a more and more significant chunk of our business, especially since it makes it much easier to adopt our solution without having to change our hardware in a supply chain constrained environment. So that's the -- that's a piece there. Was there a second part of your question that I didn't address, Param?

Yes, I wanted to understand how are your price compared to the...

Pricing. Got it. So on the pricing, our goal is to try and price the solution as close to our food stack as possible. So we have today, if you look at our stack, we have virtual compute, we have virtual networking, we have, of course, storage. And then we have the operations and management capabilities. And on top of that, we have Kubernetes and AI. As I said we have Kubernetes and AI and look at the core platform. So in the core platform, customers have an option, right? They can either use our own storage or they can use external storage. And we try and price this as close to the full stack solution as possible. And the idea being we want to make it attractive for customers to go deploy this, especially when they have hardware, that's not fully depreciated that they want to reuse, right? We want to make it easy for them. And at the same time, we're always looking to, over time, bring them on as a HCI customer because we do believe that is the single best way for running these cloud environments from a TCO perspective, from an operational simplicity perspective, et cetera. So our pricing strategy is to try and capture as much of the value as we can that we will capture normally with the full stack, but with customers using external storage.

As my follow-up really quickly. On the AI product that you introduced and you talked about, any early feedback from customers that enterprise AI adoption is still in early stages and kind of in flux, but I want to understand how the customers feel about your product portfolio as it stands today? And would you price that as an add-on or kind of like part of your full stack?

First of all, just we do capture incremental value for that. The Nutanix AI is an additional SKU that is on top of the rest of the full stack solution, so we are able to capture some extra value. Now if you look at it, there's two parts to the solution then is the solution that we can sell directly to enterprises where they build their own GPU clusters and build and run and operate it. The second part of our solution that we announced at our .NEXT conference targeted towards new cloud and service providers. And I would say we are in the early stages on both. We continue to see wins every quarter here. We have seen wins this quarter as well across the verticals that we talked about, financial services, for example, health care, education, some of the more regulated verticals tend to focus on having clusters on-prem. But it's still early days. And yes. And the fees is evolving very rapidly. We will continue to make advances very rapidly. But we do think this is a significant long-term opportunity for us and a tailwind to our overall business over time.

Our next question comes from the line of Jim Fish with Piper Sandler.

Maybe circling back on the first one and kind of trying to get it more certainty here in light of the comments that you made also Rajeev. You talked about an increase in public cloud deployment. First, any sense to the size of NC2 at this point or public cloud within the portfolio today? And secondly, how much that increased server cost is actually causing the shift towards cloud essentially, at least temporarily, that it seems like you're seeing a pickup in NC2 because of rising server costs. Is that kind of the message you're trying to convey here is, hey, look, use us we can help you kind of go between it. And as a result, your NC2 offering is seeing incremental growth.

Yes. And for sure, by the way, Jim, on the second part of your question, there's no doubt that server constraints or enterprise server constraints are causing customers to look more at the public cloud with NC2. We have a couple of examples that I can talk about here just to give you some color on this. We were doing a -- at a financial services company, we had a win this last quarter where their plan was originally to do a on-prem to on-prem migration, migration from their legacy vendor to Nutanix. And what they discovered as they went along, given the server pricing was that they could get actually servers on AWS and use our software on it. And those are more easily available and faster to get going. And so they're doing that, right? They're probably going to do some mix of on-prem migration but also use a portion of this to migrate to Nutanix on AWS. In other cases, we've seen customers saying, well, it's going to take me some time to get servers. Let me start with NC2 on the public cloud, and then I can bring that back on-prem as and when my servers get ready. So we have certainly seen this to be a contributing factor in terms of acceleration of our NC2 bookings. To your first question, I mean, what we said was we are seeing an uptick. We have seen more customers, and we also see more consumption of NC2. We haven't really quite given you any more specifics at this point yet. And it is still -- I would say it's still a minority portion of our business for sure, but it's a growing portion of our business.

And then Rukmini, on the metric side of things, decent spike up of duration here, which is a little bit atypical of this quarter to begin with as. And you guys didn't really call out any major massive kind of wins that would have influenced that. So can you walk us through what's causing that little bit of pick up here and if that's kind of the rate we should be thinking about heading into Q4? And if we're going to see a bottom in net retention rate now here at 106 or if this is, again, kind of the rate to think about?

Thank you, Jim. So the first question, I think, was on duration. So correct. As I said in my prepared remarks, we did see average contract duration come in a a little bit higher than we had expected for the quarter. No specific deal to call out, Jim. It can vary quarter to quarter based on the deal mix. So what we saw in Q3 was generally just a higher mix of larger and longer duration transaction across both land and expand and renewal. And of course, as we know, duration can also help on the revenue performance. So that's on duration, nothing specific to note. And I wouldn't necessarily assume that, that continues. We just saw a mix in Q3 that contributed to that. And then to your question on NRR, I will say, it's important to note that the factors that we've outlined over the last couple of quarters as to the delaying recognition of revenue relative to bookings also impacts ARR and NRR, right? So that's what we're continuing to see here. And then the other piece that I've noted before is that the average ACV or ASPs of our new logo transactions have been sort of increasing over the past few years, and we give a bit of quantification of that at our Investor Day. And so that does create a bit of a headwind on expansion growth rate, which is reflected in NRR. Now all that said, we are continuing to focus on driving adoption and expansion of our solutions within the customer base, and that continues to remain a focus going forward. .

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

You said full year TCV bookings are higher than that last earnings call, but customers are still facing the server-related issues. So any quantification on how much revenue and maybe free cash flow is being deferred because of these constraints, maybe best guess or qualitatively, any color that you can share there?

Yes, I can take that, Wamsi. Thanks for the question. Look, I would say, I think the reason we sort of gave you the color on bookings, which historically, we haven't done as you know, but we've been doing it over the last few quarters because we think it's important for you to know what's happening in terms of bookings. And of course, some of you, I know, calculated based on RPO as well. So that was strong in Q3. Now we haven't quantified specifically how much revenue is being deferred because of this But what I will say that is, look, I think we have -- I think we've abundantly made clear on this call that some of the challenges on supply chain are continuing. We had made a comment last quarter. You might remember where we felt that we would have been able to raise all the numbers for our full year, if not for the supply chain challenges. And of course, this quarter, we're happy to be able to raise our full year number coming off of our Q3 and going into Q4. So I would say it continues to be a factor here, Wamsi, in terms of our revenue impact, but we haven't really quantified it in terms of specifics.

And then maybe just a follow-up. You mentioned something in your prepared remarks around the margins, right, just basically better top line and timing of hires. You have been obviously outperforming on this metric. Like how much of this upside would you say is just timing of spend, maybe whether it's hiring, whether or maybe other things around revenue mix or delayed investments. I mean how should we think about sustainability here, given what we know from like internally, what you know from your plans here?

Yes. So on operating margin, I'd say, look, we were happy to take our full year guide up relative to what we said 3 months ago. And the point I was making is that, look, we're -- obviously, we've taken our revenue guidance up for the full year as well. And we do believe that there's a large market opportunity that we have to go and tackle and we do believe in continuing to invest for that, Wamsi, but at the same time doing so in a way that is efficient. So there are a couple of things, I would say that's sort of a headline message. Now in addition, like I said in my remarks, we have some fluctuations quarter-to-quarter in terms of timing of hiring, which we do expect to get caught up here over the next coming period of time. And then I think we'll continue to be thoughtful about how we invest going forward. We gave you our intent to continue to grow operating margins over time. And that continues to be our intent, right, in terms of going into next year and beyond. .

Next question comes from the line of Samik Chatterjee with JPMorgan.

This is MP on for Samik Chatterjee. For my first question, I just wanted to ask like how did the sales where the OEM partners track relative to your own expectations heading into the quarter? And any color on expectations for that to track through the rest of the calendar year? And I have a follow-up.

So you're talking about sales through our OEM partners, right? And -- if you look at those, we have Cisco, we have Dell and we have Lenovo, largely, those are the OEM partners and et cetera. We do a small amount to HP as well. And I would say they're largely tracked as we expected. We've had -- Cisco continue to grow, and Lenovo has been a good steady state partner for us for several years now. I would say with Dell and the business is growing, but it's growing from a small base. And we do expect that to potentially do more once we have the PowerStore solution in the market. because they are much more aligned towards external storage than they are to selling HCI, which is what we have today in the market with them.

And for my follow-up, I just wanted to ask on the new logo addition. Can you please discuss your performance relative to different cohorts of customers, maybe large enterprises versus small and medium enterprises. Do you see any meaningful difference across those cohorts?

Those new logos, I mean, we got 700 this quarter. They're well distributed across that entire spectrum. We have a 3-tier segmented model to go after our customer base. We have the top tier, which is a large enterprise, and then we have the middle tier, which is a smaller side of enterprise and commercial and then third tier is below that and more channel led in that scenario. Now if you look at just the volume, typically, of course, there's more customers available in the lower tiers than the upper tiers. But from a distribution perspective, we are seeing wins across all of them, right? Everything from the Global 2000, the largest customers all the way down to the smaller customers. So it's a well distributed set of new logos. .

Our next question comes from the line of Matt Hedberg with RBC Capital Markets.

This is Simran on for Matt Hedberg. Congrats on the quarter. Just one for me. Can you help us think through your available to renew pool into fourth quarter? And any early thoughts you have around fiscal year '27?

Sure. I can take that, Simran. So for Q4, look, I think nothing to call out, and we've said that we have quarter-to-quarter movement in terms of when those renewals get transacted often just due to the normal course of business and when customers choose to transact, Simran. So nothing unusual to call out on that front from a Q4 perspective. And then in terms of fiscal year '27, again, I think as you all know, we really typically guide to fiscal year '27 in our August since call after we report Q4. So I will just leave it at that for now and say that ATR is expected to grow in fiscal year '27 as one would expect and leave it there.

Our next question comes from the line of Tim Long with Barclays.

Yes, two questions, if I could, as well. First, I wanted to go back to the competition, not just -- not as much on pricing, but when you think about competitive landscape, VMware and the others, you obviously got a lot going on here with bringing on storage vendors and options around servers and bringing in cloud-based and other more flexible solutions. How do you think the competitive landscape is stacking up against all the options that you guys are providing to keep growth going here, number one? And then number two, on the AI offerings, I understand that some of them are pretty new, but can you just give us a sense of kind of how they're scaling and how we should think about thinking about the TAM or growth or size that those businesses could be ultimately? Any color you can give us around that would be helpful.

Yes. So on the first one on the competitive dynamics, Tim. So I mean, if you look at the competitors there, and some of them are partners to. So the competition typically will be, I would call out, of course, VMware and Broadcom, I would say now. there and that's where most of our customers are coming from or migrating away from. And if you look at what Gartner talks about, I mean, the vast majority of customers are looking to exit over time. So that's more of a come from situation. And then where do they go? They go to 1 of 2 or 3 places. They go to Nutanix, they go to Red Hat, they go to Microsoft, a small number and then some of them go to the public cloud directly. So that's the competitive landscape. It hasn't really changed much in the last several quarters. It's kind of been the -- competing there with their cobot based virtualization solution. And we tend to do very well when it comes to mission-critical VMware workloads running in production because we have a very solid platform for doing that. With the public cloud, sometimes customers do make strategic decisions to go to the public cloud. But what they find is it's much, much easier for them to go to the public cloud on the Nutanix platform itself, and we've seen that part of our business continuing to grow very nicely. We had some good examples that we showcased at our conference as well. State Street, for example, with a large bank that's operating at pretty high volumes across Azure, AWS and on-prem, all using the Nutanix solution. So we -- so that's the competitive landscape. We feel quite comfortable that the easiest option for the Broadcom customers to migrate to is to Nutanix. It's much simpler. It doesn't require any work on the application itself, and can be largely automated as well. And with our expansion into external storage, we provide even more options and easier options for those customers to migrate.

To your second part about AI adoption, I think I covered that a bit earlier. It's -- we've had -- the latest versions of our AI solutions are fairly new. The agentic AI stack that we announced in February and an enhancement to take that into the service provider base in April. And we're starting to see good traction, but it's still early days. I would say most of our customers are still in their early days of experimentation. They're still trying to get GPU clusters on-prem. The supply is always an issue there as well. But we are encouraged because we see this is a huge market opportunity. We talked about this at our last Investor Day recently here about being a multibillion dollar TAM over time, but it's still pretty early days, but we're starting to see good encouraging signs among several industry verticals.

Our next question comes from the line of Sanjit Singh with Morgan Stanley.

This is Abhishek for Sanjit Singh. I was wondering if we could get an update on the AMD partnership. I understood that revenue contribution is supposed to happen in fiscal year '27, but I guess we're already on track, the platform to go into effect by the end of the year? And how is the pipeline shaping up?

Yes. There, again, it's very early days, right, in terms of actually having a solution in the market, right? We don't quite have that yet. I mean, of course, to be clear, we're already selling -- our platform already supports their CPUs and we will support more and more of their CPUs. And that's here and now, and that even predates this latest partnership. On the GPU side, again, we don't quite have that solution in the market. But what I would say is customers are looking for options, right? In fact, if you look at the market for AI chips, the NVIDIA, of course, and then there's AMD, and then there's a public cloud providers building their own chips and then there's a whole slew of chips targeting inference coming out into the market. So our customers generally want more and more choice. They want to be able to run their AI applications, especially the inferencing and agenetic applications with the lowest cost, the most efficient way possible and minimize the cost per token. So having AMD as an option here for us as we go into the market, really, I think second half of FY '27 is where we're going to see the first traction with that solution, is going to help from a customer perspective.

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

Congrats on the consistent execution in the volatile backdrop here. This is now the second consecutive quarter where management has discussed higher bookings expectations versus the prior earnings call, which is great color, particularly in light of the delayed conversion timeline of revenue. Two questions, if I could. But first, the company doesn't guide to or communicate its bookings at least externally. Is there any way you can help qualify or quantify to what degree your bookings outlook has improved over the last 90 to 180 days? And then the follow-up there is, did the volume of deals with delayed conversions become more material in Q3 versus what was observed in Q2? Just any color on those two dynamics would be really appreciated. And again, congrats on the consistent execution here.

Mike, thank you for those questions. First, to your question on bookings, you're right that it's not a metric we report or intend to report. The reason we've been providing some incremental color here over the last couple of quarters is exactly the reason that you pointed out, which is that we are having revenue timing shift out. And so we thought it would be important to provide that color of the underlying demand and the underlying performance, if you will, from a bookings perspective, that will translate into revenue over time. And so one sort of point I would say is if you look at -- in Q3, Mike, we saw that bookings were strong at over 20% on a TCV basis. And so I wanted to call that out. I know some of you again calculate -- try to calculate bookings based on RPO. So you'll see that there as well. So that was Q3. We haven't really quantified on a full year basis, mike, how much it was related to kind of 3 months ago or anything like that, but I won't give you that number, which was really strong for Q3 from an overall bookings growth perspective. And then I think your second question was on thinking about the volume of deals that are coming in with sort of this revenue in the future in Q3 relative to Q4. And look, again, I'm not sort of breaking out the specifics of that, Mike, because it can move around from quarter-to-quarter because, again, it just depends on what these customers are saying, which platform they're going to go with. I think Rajiv mentioned earlier that with some of the server providers were actually seeing lead times normalize, although prices remain elevated and in others, the lead times remain really elongated. So it does vary based on what the customers are choosing to deploy. And so I would say that, again, we're not giving quarter-to-quarter how much revenue is moving around. But in the aggregate, of course, we were pleased to be able to raise our full year revenue guide on the back of Q3.

Our next question comes from the line of Radi Sultan with UBS.

Maybe just first for Rajiv. Just with the VCF 9 deadline end of next year, any sort of trends in customer behavior as we approach that the deadline? And then what are you doing to sort of attack and accelerate some of those migrations ahead of the deadline item next year?

Yes. First of all, I mean, it is a point in time, right? And we've already said that this migration happens over time in multiple waves. And this is just one more point where customers have to make choices. Now the color I'll give you on this is that most customers who have purchased VCF to date have not fully adopted VCF, right? They're buying VCF, but they're deploying what they were deploying before, which is VCF with external storage. And now the same thing will happen with VCF 9. It's going to force these customers to go deploy go by VCF 9, but it's not clear to me that they're going to all deploy it fully, right? It's going to take time. And they may still deploy portions of it. Now if they want to deploy all of it, by the way, it's going to require a substantial hardware refresh, including their embedded storage solutions. Now at that point, they have even more of a choice to choose to migrate to a modern platform like Nutanix or keep going with them. So we are certainly giving these customers a lot of options now, right, more options on the table saying, preserve your hardware, for example, come to us with the existing solution you've got with external storage, if you'd like to be into a full HCI conversion. VCF 9 is going to be quite a significant upgrade for you all in terms of the effort that you're going to have to put in. You may still not benefit from all of its capabilities. It is complex. So -- and then, of course, we have these options of external storage, public cloud. We -- and then we have also the automated migration tools behind that. And of course, the commercial incentives, all of those put together to provide a good proposition for customers to migrate. And like I said, we're seeing this, right? We're seeing this with customers coming and migrating every quarter as we saw in our new locos. .

Got it. Got it, super helpful. And maybe just 1 follow-up for Rukmini Just to be thinking about that TCV bookings coming in higher relative to expectations for the full year. I just wanted to clarify, was that simply Q3 TCV bookings outperformed and now your expectations for the full year are higher or that's also inclusive of sort of Q4 TCV bookings you kind of expect to be higher than last quarter than maybe if that is the case, maybe just unpack like what actually is driving that outperformance?

Yes. Thanks, Radi, for the question. So I would say, look, I think overall for the year, was the comment we made that for the full year, we're expecting the TCV bookings growth to be higher than we expected 3 months ago. And in terms of what's driving that, I think a couple of things. One is the point that someone asked earlier on longer contract durations, which is -- which helps with TCV, of course. And then we've also seen better renewals performance. So those are the two main things driving the TCV bookings growth higher. And of course, we're continuing to make sure that we're watching and navigating all of the factors around the timing of bookings to revenue, but pleased with the overall bookings performance to date and we gave you color on the expectations for the full year.

Our next question comes from the line of Simon Leopold with Raymond James.

This is Victor on for Simon. I think you kind of answered that in your last remark. But just to clarify, the higher full year revenue revision is a reflection of your expectations around better bookings traction and the higher TCV. Is that correct?

Yes, I'm not sure what the question is, Victor, I think what we said in our prepared remarks is that our bookings expectations for the full year on a TCV basis is higher than we had expected 3 months ago. And then I also pointed out that if you look at Q3, and I know some folks calculate Q3 booking pace on RPO, but overall bookings growth in Q3 was also strong at over 20% year-over-year.

And that and slightly higher revenue rec and that's what's driving your higher guidance outlook slightly. What changed between last quarter and this quarter that's giving you confidence in your ability to do that? Is it just better traction that you're seeing -- bookings...

To raise the full year revenue guidance? Is that the question? .

Yes.

Yes. So I mean we obviously beat Q3, which we were really happy to see that Q3 was a really strong quarter. So happy to beat Q3 and then take up the guidance for the full year as well.

Okay. And just really quickly, how much of the new logo wins are coming from your competitors versus new HCI customers. I think it's predominantly from customers transitioning? Is that correct?

Most of them are coming from VMware customers, right? We have a Broadcom customers. .

Next question comes from the line of Ben Bollin with Cleveland Research Company.

Rajeev, I think you've introduced some programs to decouple software from hardware and kind of make customers' lives easier. Could you talk about some of the things that you're doing and how you think that's impacting the overall visibility? And then I have a follow-up.

Yes. By the way, we've had this with most of our OEM partners for quite a while, right? I mean we -- if you look at the selling motion today or even in the past, we sell software to customers and they choose the hardware, whether it's the HP or Lenovo. The exception was Super Micro, right, where typically with Super Micro in the past, the solution was more Nutanix software and Super Micro hardware together. But of course, we don't see the Super Micro solution on our books at all, but it goes directly Super Micro. But typically, they tend to purchase those together. Now given the supply situation that we have right now, we wanted to decouple this, right, and say, customers, you make your software choice. And then yes, if you'd like to go buy Super Micro hardware, please feel free to do so. You also have your choices about the customers. So that's the only change that we've made recently in terms of the supply situation, right? Just to provide customers, again, make very clearly the choices of where we tend to go. Now in the past, this is more not an issue, right? But with the supply being what it is, now we have to provide even more flexibility and choice. And that's what we did. And so that is now how we typically sell today, right? And basically, what we're doing is customers usually are looking at buying our software and you choose which hardware you want to put it on.

The one other question is I know you're not quantifying the amount of time or the duration from when you're collecting the cash to maybe when the software rev rec is commencing today. But could you talk a little bit about where you think average lead times are on the appliance business or from appliance vendors today, where that stands with customers and how that has changed over the past few quarters?

I mean I'll just give you a broad range because it depends on the configuration. It depends on the vendor. Anything from a few weeks when I say 3 to 4 weeks to 6 months, right? That is a range that we see. And it varies by the week, by the month, by the configuration by the vendor.

Ladies and gentlemen, I'm showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.

All right. Good afternoon, and welcome to Nutanix Investor Day 2026. Thank you all of us for joining us both in person and on the webcast. This time around, we're doing something different with our Investor Day. We're holding it in conjunction with our annual user conference, our .NEXT user conference. We wanted to do that because we thought it'd be a great way for the attendees to get an in-person view of our customers and our partners. For those of you here in person, you got to be in that opening keynote with those 5,000 customers, it's hard not to feel that energy, and I hope we get to explore that more the rest of the day here.

So with that said, it's an interesting time to be holding an Investor Day given the current geopolitical and supply chain backdrop, but we thought it was important to give you all an update on the progress we've made over the past roughly 2.5 years since our last Investor Day. First, on the product side, in areas like AI, Kubernetes and external storage, then on the go-to-market side, and Rajiv is going to cover those in his presentation.

We also want to give you an update on what we'd consider our medium-term model. And for the purpose of the discussion today, we're going to be focusing on our fiscal '29 as sort of our medium-term time frame. And assuming that we have a normalized supply chain and a stable market backdrop during that time.

With that said, I'm going to just -- I want to highlight a few of the many announcements. Hopefully, you've been checking our Press Releases section of our website and seeing all the announcements. There's many more than this. I'm just going to highlight 3 of them here. Our agentic AI full stack solution, making it easier for customers to deploy agentic AI, making it more efficient for them to do it. NKP [ Metal ] giving another deployment way for our customers to deploy our NKP or Kubernetes stack.

And finally, the one that's probably the most interesting to this room is around external storage. We've heard from a number of you or the question, are you guys going to support NetApp. Now you know the answer. We announced that partnership today, along with one with Lenovo. Both of those should be available by the end of this year.

Next, I just want to quickly go through the agenda. Rajiv is going to follow me, go over the strategy update and technology and going to talk about some of the topics I mentioned earlier. Rukmini is going to give you -- I know what you came for, a financial update, and what we're thinking of our model. Then we're going to take a brief break and a Q&A panel. And finally, for those of you in the room here, we'll finish it up with a cocktail, where we'll get a chance to chat with Rukmini and Rajiv, among others.

So with that, I'd like to welcome our CEO, Rajiv Ramaswami to the stage. Rajiv?

Thank you. Thank you, Rich. Thank you. And welcome, everybody. And I hope those of you in the room got to see at least portions of the keynote that -- how many people were able to cast the keynote? Just so that I don't repeat myself here as much. Thank you. Vast majority of you. Then for those of you on the webcast here, we will summarize some of the key points, but -- and also talk about where we're headed as a company.

Now I -- this is a moment in time where I'm actually feeling really excited about our future as a company. We are at a place, an inflection point in the industry with a number of things going on in terms of the opportunity in front of us, modernizing infrastructure, moving to the public cloud, deploying modern applications, a shift to agentic AI. And I believe that Nutanix is very uniquely positioned to be able to capture and benefit from those trends. That's what I'll cover here during my session here.

And let's start by really talking to you about the 3 things that I'd like you to walk away from, from the [ CWT ]. First is that Nutanix truly delivers a unified modern platform, powering the apps of tomorrow, the AI apps of tomorrow. But also the mission-critical apps of today, enabling our customers to use us across a wide variety of fronts, running their existing business, modernizing everything and innovating in the AI future.

Now this platform enables us to capture an even larger and growing opportunity in the market than what we had a few years ago. And we've done a lot of work on our go-to-market engine, which we'll cover, to be able to best capture the opportunity. At the same time, these two together enable us to also, from an investor perspective, continue to drive durable growth and profitability on the other hand and be a consistent Rule of 40 plus performer.

So over the next 40 minutes or so, I will cover these 5 things. What are we seeing from a customer landscape? And what's our fundamental value proposition to our customers? Talk about some of the new growth opportunities, second. In terms of AI and agentic AI and inferencing, we expect these to be significant long-term growth drivers for us. And talk about the core bread and butter of what we do today, which is really a lot of what you folks are here for also. How we're expanding that, how we're capturing more of the market with our external storage platforms, our hybrid cloud opportunity in front of us. And we'll also cover, I'm sure what's on top of your mind in terms of where are we at with respect to this whole Broadcom/VMware situation. And then talk about our go-to-market acceleration, what we're doing about that. And then end with a financial summary, what that means in terms of a financial summary, and Rukmini's going to then come in and give you a lot of details on that piece of it.

So let's get cracking. Our value proposition. As we talk to customers today, I mean, there's a lot that's on their minds. On the one side, every CIO that I talk to, every customer that I talk to is thinking about how can they operationalize AI in their enterprise while dealing with the complexity that it brings to the table. They are in the public cloud AI, on-prem AI everywhere, and they struggle to figure out how to deal with it and how to operationalize it in their companies and get tangible ROIs on it.

The AI factories are here. But then again, putting it all together to make this thing work for them is not no easy task. At the same time, we've got the geopolitical situation that we're all sitting in. What that means for us as a company is that there is a lot more focus on sovereignty. And I hear that everywhere from every company in every industry. And this is a big theme that could play to our benefit as we move forward.

And then last but not the least, of course, we're not going to spend a lot of time on the supply chain here. Rukmini will cover some of that. But we are dealing with a supply chain shortage, as we all know, today with respect to memory, and that's impeding the pricing and availability of servers in the market. So customers are dealing with all of this, trying to figure out how to go from today to tomorrow, and that's where we help.

Now for those of you who are here and you heard customers on the main stage, there's a certain set of themes that resonate among all of them in terms of what they said and also what we said on the reel here before we got started. The value proposition that they see from Nutanix. We deliver them the simplicity of experience while giving them great total cost of ownership on the other side. We give them the flexibility to use us for many different use cases and give them at the same time, the control, the security they need and the performance they need for their business critical applications, all the while making sure we support them fantastically, in a fantastic way.

Our Net Promoter Score, we've talked about this for the last 10 years, and it's remained at 90-plus even as we continue to grow and as you heard from many of those customers, and that leads them to pick us as their long-term partner. They start with us, and they continue to grow with us. And what Nutanix does uniquely, I would say, more so than anybody else in the industry is that we deliver that single unified platform for today and for tomorrow.

I mean, you look at the kind of use cases that we can address. If customers want to modernize their infrastructure, we have a solution for them. They want to reuse their existing hardware while modernizing, we have a solution for them. They want to run in the public cloud, we have a solution for them. They want to modernize their applications, go to a cloud native framework, we have a solution. And now with our agentic AI platform, we're enabling them to run their agentic AI applications.

And I'll give you a set of customer examples, I'll just summarize what we heard from customers who are at the keynote, especially for the benefit of the folks who are not in the room. So we had, for example, win casinos. Talk about how they've moved to a modern infrastructure, use Nutanix as their platform. And they chose -- they started with Nutanix in Boston -- in their Boston location. Now they're going to use Nutanix in their new upcoming facility in the UAE. And we are becoming the de facto enterprise standard.

You heard about how Blue Cross Blue Shield of Tennessee used us from the beginning. They're using more and more of our platform, and they were one of the early customers to adopt our solution with EverPure. Very soon, right as it came out. We saw one of your financial peers adopting a cloud first mindset, State Street. And they're all in, deploying us at massive scale across both Azure and AWS. We are a key part to enable them on their cloud-first journey.

You saw how Tire Rack, an online tire retailer, is moving their e-commerce platform, their critical platform. This is what their business runs on. It's been running on Nutanix as a monolithic application running on virtual machines. And they've been refactoring that to a microservice application now running on the Nutanix Kubernetes Platform.

And you heard -- and I summarize Power International, which is based in the Middle East, in terms of how they are using Nutanix to deliver. They started again with Nutanix for other use cases, but now they're using Nutanix to deliver a shared AI platform across all their entities. This is just a sampling of the way we work with our customers to deliver the experience. And everybody at a different point in their journey, but we are there with them, take them from where they are today to where they need to go. And that's something that we do uniquely in the industry.

Now let me -- last quarter together for our Investor Day in 2023, we talked about our market opportunity for this year in CY '26. And it was already a pretty large opportunity. We have the $76 billion TAM across the areas that we were covering back then, our core, which is a hybrid cloud infrastructure, the Cloud Management, Unified Storage and Database Automation. Together, that already represented a big market.

Since then, with all the innovation that we've done, first thing we've done is increase our ability to capture the hybrid cloud infrastructure portion with our support of external storage. Then we've also added significant new TAM with Kubernetes Management and Enterprise AI. So the current TAM with all the innovations that we've done is now already larger than where we were before a few years ago. But this isn't static. This TAM is also growing. It's growing at about a CAGR of 14%. And by CY '29, we expect this to be a north of $100 billion TAM, with many of the elements here continuing to grow very nicely. So we're on a large TAM. We are not limited by the market opportunity. It's about how we can execute to capture it.

So let's go to the second portion of this, which is let's start with the AI and Kubernetes growth opportunity. Now if you look at the industry, it's making a decisive shift from training to inferencing in agentic. A lot of focus was on trading over the last few years. And we were, frankly, not a big part of that training journey. That is being done in the public clouds on very large-scale dedicated compute clusters.

But even as Jensen said at GTC recently, it's moved decisively now to inferencing in agentic AI, which is, by the way, very much in our sweet spot and where our platform can really help. Now this agentic AI is going to be through hybrid application as well. There's going to be applications that run in the public cloud. There's going to be many applications that run in the private cloud and the edges. And there's going to be many applications that run in these so-called neoclouds, which are a whole host of new service providers that provide AI services.

And we are focusing on capturing the opportunity across all of these. And the reason that AI will be hybrid is, again, if you look at the private cloud and the edge, you've got data -- you've got sovereignty being a big push. You've got regulation being another big push. You've got the proximity to data being another reason. You've got the need to do real-time inferencing for a lot of these new use cases that are being -- coming up at the edge and in these manufacturing sites and other places.

And then there's customers who are going to be consuming this, of course, in the public cloud and in neoclouds as well. They can get there for a good subset of applications, that will also be an option. And we expect that the slew of AI applications will continue to be hybrid, just like today's world is hybrid.

Now how are we addressing that? So you've all heard about AI factories, and the AI factory becomes the building block for AI. And when we started with AI factories, they were specialized elements. They were serving the needs of a subset of users. They were kind of a small portion of enterprise. But this is exploding. It's exploding because of scale at which people are now building and deploying these applications is just tremendous. You're servicing more and more business users. You're servicing more and more developers, AI engineers and the number of agencies exploding.

This leads to a problem that we know how to solve really well. So you've now got these AI factories that deliver critical infrastructure for all these needs. They need to be operated by the infrastructure admins and the platform engineers. And we know how to do this. It's a constrained resource. We need to optimize it. We need to provide security, governance, all of these things. All of these things we do for the compute-centric world, we can now do for the AI inferencing and agentic world.

And that's what our Nutanix agentic AI solution is about. And to put this in perspective today, you have -- when you say -- when they'll say the AI factory or Cisco said the AI factory, they're really talking about their server platforms with NVIDIA chips inside or other GPUs inside and from CPUs from Intel or AMD, GPUs mostly from NVIDIA today. And then customers want to run their apps and the models and the models that they choose. And in between is this layer of software that's needed to get all of this to work together properly.

And this is not easy to put together. You can start cobbling things together with open source, and some people do, and they are able to integrate it. If you're a very large provider, you might have the resources necessary to go build it all together, but it's not easy to build this enterprise grade stack. And this is where we come in.

In summary, what we do in very simple terms is to deliver this -- make this a cloud operating model, for these AI factories. We provide a turnkey experience so that customers don't have to do the work of integrating everything, and they can start being consumers of infrastructure for their AI use cases rather than trying to go put it all together and run it all themselves.

And so this stack has 4 elements to it. At the top is the set of AI services and the underlying Kubernetes platform to run those services, and that includes a catalog of third-party services that are needed to go build these applications. Underneath is our bread and butter. It's the same core platform in terms of how we can optimize the resources, how can we optimize the utilization of expensive GPUs, get great performance out of GPUs? How can we run these things securely?

And then next up is a data foundation. Which is really, again, making sure that the data needed for these AI applications can be streamed with low latency, high performance. We can offload key value [ cases ] from GPUs on to deeper storage memory, freeing up GPU memory and also be able to do operations to filter, clean the data and vectorize the data so that applications can consume it.

And last but not the least, the ability to provide the management of all the shared infrastructure across multiple tenants and multiple users. You don't want your HR agents to share or have common access to data that finance agents have. You want to make sure those are segregated, those are managed. Or if you're a service provider or a neocloud, you have to be able to split your tenants and make sure they are isolated. We do all of that work. And essentially, what we deliver with this cloud operating model is a turnkey platform that allows companies to go run their AI apps, build and run their AI apps with all the stuff that they need to do so, the security, the control, the governance. Being able to manage all of this, it's all the best performance and drive to the lowest cost per token, which is a unit of intelligence.

So that's our -- what we're doing with the AI factories. And what do these AI applications run on? They run on Kubernetes. And we've built this complete Kubernetes platform. And again, one of the unique things that we do at Nutanix is that when people move to cloud native, you typically end up deploying containers and Kubernetes in another silo, in another stack, operated by a different team. And then you have your virtual machines and another stack, another silo managed by another team. And these are all different. Everything about it is different, how you do security, how you operate. Everything is different.

We bring it all together into a single experience. Whether it's containers, whether it's virtual machines, what about the mix of applications. We enable a single team to manage all of this, bring it all together, use the same set of data services, use the same set of networking services, use the same set of security services to put it all together, enabling customers to go deploy this mix, enable them to go from today to tomorrow in a very seamless way, uniquely. That's what we do. And again, we covered this a lot in the keynote. This is more for those folks who are not there for the keynote.

Now how does it all translate into reality? What we've seen with a lot of customers, again, the ones who spoke on stage is how they've started using Nutanix for one use case and then over time, they use us for more and more use cases. And here is an example of a customer. They are in EMEA, Europe, Middle East and Africa. They're a sovereign digital services provider. Not -- again, a good team here, right? Sovereignty is very important for them. They are a digital services provider to many people.

And they have been a customer for several years now. They started out with a standard use case with us. Modernizing their HCI, they run all their databases on our platform. And then over time, they consolidated the vast majority of their enterprise applications onto our platform. That was the second stage. And that is at this stage, they're now deploying Nutanix to create a shared AI infrastructure for their multiple tenants. So then, again, they can provide a shared service to all their tenants, maximize the utilization of their shared infrastructure and deliver this in a secure way using our agentic AI stack.

Now the result of all of this,is that today, they are a multimillion dollar ARR customer. They didn't start out that way. The ARR has grown by a factor of 10 over the last 4 years as they have expanded with us. And that's really, I think, the nature of how we work with a lot of customers over time when they start using us. And you heard that again, like I said, with many people out there on stage you've talked, right? They've started with one case, and [ Brukha ] said that, for example. They were a great example of a customer that keeps moving with us. Tire Rack was another one of those. And it's true with a lot of other customers, including State Street. They started out with the media application on-prem. Then they went to a hybrid multi-cloud way of running their media. And now they're running all their compute workloads on us. And it's the same -- all of this leads to more and more expansion over time. And that's how we grow with the customer, and a common theme is that we support them through this journey very we'll.

Well, let's get to external storage and hybrid cloud, and this is the core part of the conversation around our current business. So I thought I'd give you some numbers in terms of what this means to us and you as investors. Now today, the hybrid cloud infrastructure part of the TAM, the private cloud portion of it, not the public cloud portion of it in 2026 is roughly about a $30 billion market. Now out of that, with just the pure HCI solution that we have to market, we believe that we can -- our served addressable market, which is really the market that we can actually serve and capture with the solutions that we have with HCI only, is about 35% of that market. This means that about 35% of that, we can actually successfully go out there, be able to sell our HCI platform for.

Now we've announced a number of external storage platforms. And largely, I would say for this year, PowerFlex and EverPure are -- PowerFlex came on middle of last year. EverPure came on late last year. Those are going to start scaling and deploying. We've already got the initial customer wins this year. And then now we've got Dell's PowerStore, we've got NetApp, and we've got Lenovo's ThinkSystem that are coming in later this year. That allows us to expand the served addressable market to about 45% of this $30 billion.

And it also reflects an important change in the way we approach this problem, which is, at this point, we are not just an HCI company. We are a platform company, and we provide customers choice. Customers can choose to buy our full stack, they can decide whether they want to use our storage or third-party external storage. And from our perspective, we try and monetize them as close to each other as possible. Whatever customers want, we'll meet them.

So it is hard to actually now start talking about the mix of how much of this is HCI, how much of this is external storage, right? Because they start getting mixed up because we are now selling a single platform for all these use cases. But what's clear is that we're able to capture more of the market with the products that we're bringing on to board. Now the one thing that I do want you to understand is when we go after the external storage market, that market is divided into two parts. There's a part that is fiber channel connected, technology-wise, and there's a part that is IP connected, IP Internet connected.

We are squarely focused on the IP Internet-connected market at this point. Our solutions do not support fiber channel. Why? Because that is a legacy architecture. And as the world moves forward, more and more of it is going to go to IP. And so our solutions address the IP side of the market.

Now as we look into the future here into CY '29, we expect to continue to add more and more storage platforms to the mix so that I do expect that we should be able to cover a good majority of storage platforms by this time frame. And the HCI piece of it will also continue to grow. And the IP addressable portion of the market will also continue to grow. There will be more IP deployed in terms of the mix between IP and fiber channel. What that allows us to do is to increase our served addressable market in 2029 to be able to reflect about 60% of the TAM. So a significant growth in our addressability with the external storage solution that we're bringing to market over the next few years. Okay.

Now let's talk about the Broadcom displacement opportunity, which is, again, I'm sure, top of you -- top of mind for all of you. Although from our perspective -- by the way, it's just one more element in terms of our growth story. So this is a report from Gartner. In 2024, they said 33% of customers, about 1/3 of the customers were negative about Broadcom. In 2025, that number rose to about 64%. And we have an early preview of an upcoming report from Gartner that's going to say it's far more than that. The vast majority of customers, much more than 64% are going to have a negative perception of Broadcom today and are looking to migrate. And they said that about 35% of the workloads will migrate by 2028.

And I look at this as multiple waves happening. So the first wave started after the acquisition closed, where a subset of customers started migrating. And many of them have signed multiyear deals with VMware even just prior to the deal closing. So those customers have migrated, and we've done a lot of large-scale migrations. Again, I mean, at the show here, there's many customers talking about how they migrated. You heard some of them talk about on stage. The win is now fully migrated, for example, in Boston, that's what they said on stage. But there's many large-scale migrations of 100,000 type cores that we've been able to do in less than a year to get customers completely off of Broadcom.

So that was the first wave. But there were a number of customers who didn't do anything during the way, waiting to see what happened and what the shoe drop. And those customers, after a few years came up on their renewal, and they have not done anything. So they had to go do a renewal with Broadcom at that point. And now with subset of those customers are saying, okay, I saw what's going to happen here with me having to buy the full stack. And I'm starting a migration. And we are in discussions with many of those customers. Many of them will continue to sign up with us, and we're now in the process of migrating those.

There's going to be another wave happening as Broadcom starts to force more and more during the next cycle to their newest platform, VCF, and force them to upgrade. I will also say that that's not an easy upgrade. It's almost like a full forklift upgrade at that point. And at that point, you have to wonder, right? Are the customer is going to go -- do all the effort to remain on the Broadcom platform? Or would that lead to more people choosing to walk out?

So there's going to be another wave after that. And there's going to be multiple waves that keep going after that, right? So this is not all going to happen in one fell swoop. This is going to happen batch by batch of customers coming. And they're not all on the same time line either, but they're all on their time lines based on their renewals with Broadcom.

So what does this mean for us? So if you look at the big picture, there's about 300,000-plus customers for Broadcom/VMware, out of which we are really focused on about 155,000 of them that are enterprise and commercial customers. Today, about 30,000 are Nutanix customers. And of these, we've added over 3,000 customers in the last 4 quarters. And this number of customers keep growing, by the way, because last quarter, we added about 1,000 customers roughly.

But there's still a fair number of customers here that you realize you can go after. And out of the 30,000 customers we have, by the way, that includes roughly about 1,000 of the Global 2000. And in those Global 2000s, in many cases, we have a piece of the estate. We don't have the entire estate. So there's still plenty of expansion opportunity within the 30,000 customers that we have as well.

So we have a long way to go in terms of continuing to capture this opportunity over time across all these multiple waves in the industry. And again, I think the calculus for customers now is not just -- price is one element of it, but it's also about can they trust Broadcom as a long-term partner to innovate. And you saw that again in some of the innovations that we brought to market today, for example, with the announcements we made with the broadening set of partner ecosystem that we have.

Here's one interesting data point for you folks. 2 years ago, this show that we are at here, .NEXT, we had about 25 partners sponsoring that show. Last year, there were about 85 sponsors. This year, there are over 100 sponsors. Our ecosystem continues to grow. Recently, we had a partner ecosystem summit here before the show. And they were like about 200 partners or so who are there. And a standing room only. And so our partner ecosystem is broadening.

And you can see we are doing more and more solutions with more and more partners and more and more coming to the fold, whether it be channel partners, OEMs, external storage partners, cloud partners, SIs and also service providers. All of these, I think, is a side of the fact that they're recognizing Nutanix as a platform that they need to do more work with. And why are they doing that? Because they see the customer opportunity.

Now the other thing that many of you have articulated is that, hey, these migrations from Broadcom appear to be pretty complex, not easy. And I'll tell you this though. We have been doing a lot of work over the last several years to make these migrations easier and easier and simpler. And every year, it gets better. I mean, if you sort of start ticking off the things that you need to cover. First is, can Nutanix handle all the applications that the customer is running. And the answer is pretty much yes. There are a few outliers here and there. And in fact, we continue to work on getting those third-party applications certified. Like today, we heard about Cisco's Unified Communications. And we are, by the way, one of the first to get Microsoft AVD operating in hybrid mode. VMware doesn't quite have that yet.

So these are some of the things that we are working on in terms of the list, right? Pretty much, that's no longer much of a barrier at all. Then we're giving our customers even more choice to run with their existing hardware platforms. Hardware was a barrier. If you have to go do a hardware forklift to go use Nutanix, that typically happen only when there was a hardware replacement cycle. And with every new platform that we are now supporting, we start to increase the ability for us to capture our software footprint on top of what the customers already have by way of hardware. And it's especially important in this world where customers are trying to sweat the hardware and not delay purchasing new hardware, given what they're seeing in the market.

The migration itself, it's amazing, once you plan the migration, almost all of it is actually automated. We have automated tooling to make the moves happen. And a lot of the work that goes in, by the way, is in planning those migrations, making sure the environment is ready, and then the actual migration is automated. And for some of those planning and program management services, we also have professional services, especially in the bigger accounts. And we also work with partners to deliver their provisional services to customers as well.

And the last piece is that we meet the customers where they are. They get to purchase what they need. We're not trying to force it to get them to purchase just everything that they don't need. So they buy what they need. This allows them to also get better TCO. And at the same time, like I said, a major driving factor is what you heard from many customers on stage today, which is they trust that Nutanix can innovate, take them into the journey of the future and make sure that we have their backs protected with the support that we provide.

So we're seeing a lot of this, and the proof points, again, is the number of migrations that we've done. And we've done a fair amount for all these customers who are coming on board, we are migrating them, some at very large scale. And there'll be -- and many of them continue to be advocates for us after the fact and grow with us.

So if you look at all of this, again, Nutanix uniquely provides this unified platform that runs a gamut. We support today's applications with VMs. We support tomorrow's applications with containers, cloud native and AI. And also, most importantly, we support them anywhere across any public cloud, on servers, on bare metal, in the edge. And we do this uniquely.

And you see the list of competitors. I mean, these are all the people that we come up against every day. And it's interesting that in many cases, some of them are also our partners, the public cloud folks are our partners. In fact, at State Street, for example, we worked very closely with both AWS and Azure. It was a joint 3-way engagement to get State Street successful. And they all recognize -- Azure and AWS recognize the value working with us to enable State Street to accomplish their goals. So sometimes there's -- we compete, but we also collaborate with some of these guys. But at the end, we can work across every one of these platforms, run anywhere. And we can go support all the applications that they need, while at the same time, making sure our customers are super successful and supporting them.

So now we've talked about the opportunity in front of us. Let's talk about how we capture that with our go-to-market work. So I'll talk about 3 areas that we're focused on. The first is platform selling. You've seen the broader portfolio that we come to market. Second is the growing partner leverage that we're seeing with all the ecosystem that we have. And the third is around scaling our customer success so that the customers continue to be very successful as they adopt our solutions.

So let's talk about each of these. On the first one. So this is a segmented view of how we approach the market with respect to how we sell into the market. Now here's the 165,000 customers that we're going after. And there's about 5,000 customers who are what we consider to be enterprise accounts at the top. And we have specific criteria in terms of revenue sizes and number of employees that determine these customers in these different segments. And about 50% of our addressable market is in those top 5,000 customers. And then we've got the next 20,000-plus customers who are the lower end of the enterprise and the commercial segments. And that's about 30% of our addressable market. And then below that, we have the 140,000-plus accounts that are smaller customers. And that represents a total of about 20% of our market.

And of course, we have targeted ways of how we go after these customers. Now at the top end, we go after all the applications, including their business-critical applications and their modern applications and their AI applications. We also position the broader platform with our platform selling approach. Because many of these customers that you heard are investing in modern platforms, they're investing in cloud native, they're investing in -- starting to invest in AI. And so the entire platform, selling everything we've got and migrating them from one use case to the other use case is how we grow our footprint within those customers.

And then for the 140,000 customers at the bottom shown there, they are smaller customers, and they want consumption simplicity. They're not going to have the staff to go do a whole range of things in a very sophisticated way. So we tend to have more of a partner-led motion there. And we tend to focus them on the core platform, getting them simple, up and running very quickly. These are the kind of customers, for example, a law firm in Florida would be in that category. And this is a law firm, for example, that -- one of these law firms, they were able to do a full VMware migration by themselves to Nutanix in a couple of weeks because they have a relatively small footprint. And it's just a core product. That's the kind of set of customers there.

Now we've been doing this for a few years, and we've actually been tilting more upmarket over time. And the net result here -- Rukmini will cover this in more detail -- is that we have doubled the number of customers with $1 million-plus ARR over the last 3 years. And she's going to cover what we are seeing with respect to our deals, getting to higher ASPs, et cetera, as part of this.

And then the partner ecosystem. I talked about this a bit earlier, but across all of these vectors, cloud, OEMs, channel service providers. And you saw at the chip level, you saw the investment from AMD in us in terms of really getting us to take their solutions to market and investing in us to make that happen for them. Because they truly believe that we can help them get to the market for AI inferencing. And they see that we're doing this today with NVIDIA, they want to be part of the game as well.

So this continues to grow for us. This ecosystem continue. We have more and more solutions with them together. And from a customer perspective, for example, when we announced a NetApp solution, there were a lot of customers in the room today that really wanted it, and we're already engaged with many of them in early access type of experiences where they talk to us well ahead of time. We get their requirements. We understand that, and we know what it takes to be successful for them. And they're early adopters. And the channel again, again, we have all the major channel providers now, channel partners coming to us. We do more with them. So all of this is going to help us drive, at the end of the day, leverage and sales productivity, which again, Rukmini will cover with respect to numbers.

The third part of our go-to-market is around customer success. And this is both for retention and expansion. We have a pretty good track record of retaining customers. But what we're finding is as we get more and more use cases as we get more and more sophisticated, we need to have them more adopt, especially the latest products in our portfolio. And so for the top end of the pyramid, those customers at the very top, we have a white glove type experience that we provide, a hands-on engagement where we have a customer success engineer. These are technical people who help them get the best out of their investment in us. With the idea that if they're successfully adopting, they will become champions of us, they will continue to renew and expand with us.

As we go further down, it becomes more of a high-touch engagement. And then over time -- or as we go further down, it just becomes more of a digital engagement with these customers. And this is one where the idea being it will lead over time to higher adoption expansion and renewal. So that's the third pillar in our go-to-market strategy.

What does this all mean, coming together? So truly, we are the platform of the future. And we talked about how with all the customers that you saw, how we are taking them on a journey across all of this, modernizing their infrastructure with the existing storage or new -- running in the public cloud, modernizing their apps cloud native approaches and agentic AI.

And here are some stats for you to think about that we haven't necessarily provided all of it in the past. But for example, at HCI, we are still the market leader, about 49% market share. The external storage, we talked about how this helps us grow our addressable market to 60% of the market through CY '29.

On public cloud, as you can see from the likes of State Street and so forth, we are starting to drive significant consumption in the public cloud. The platform is the same. It's exactly the same platform, same license customers can choose to deploy it whatever they want. But what we've seen is that the usage in the public cloud has been growing significantly over time. Over the last couple of years, it's grown by about 5x.

And also now with the supply chain constraints, people -- more and more people -- I just had a conversation this morning with a customer who is looking to do a Broadcom migration and thinking, "Oh boy, given that it's probably easier for me to get a bare metal server in the public cloud, I might actually just migrate directly from on-prem into the public cloud with Nutanix." So those are the kind of discussions we're having on that front today. And as we start selling containers and cloud native into the same customer base that are already doing a virtualization, we're able to get more, higher unit economics. You're able to go sell the Kubernetes platform on top of the existing virtualization platform and capture 20% or higher unit economics.

And then, of course, as agentic AI is still early days for us, but opening up a pretty large new opportunity to go after. And so we're very much focused on capturing value across all these customer needs. And you've seen a lot of examples of how this is actually turning out in practice today.

So what does all this mean in terms of the outlook? So I'll just give you a summary here. With the portfolio that we have and the go-to-market acceleration that we're doing, this is enabling us to accelerate our capture of the market opportunity. We believe that with everything that we've got, we can do a mid- to high teens revenue growth in fiscal '29. At the same time, we're able to drive leverage to the bottom line. With all the work that we're doing in terms of efficiencies, in terms of driving sales productivity, in terms of intelligent usage of AI, et cetera, why continue to invest to achieve the top line. We believe that we can target non-GAAP operating margin in the mid- to high 20s in FY '29. And then together, the outcome of all that is strong free cash flow and a consistent Rule of 40 plus performance.

So with that, thank you, and I'll bring Rukmini up to stage to talk more about the financials. All yours.

Thank you. Thank you, Rajiv. Great to be here with everyone, both in the room and on the webcast. Before we get into it, I want to address why now are we doing an Investor Day now and why here. It's an interesting time to do an Investor Day. A lot going on in the world, both from a geopolitical perspective, from a macroeconomic perspective and from what's going on in our industry. Supply chain, AI, a lot going on.

We thought it was important now for us to take the opportunity to update you all on how we think about the opportunity in the medium term. And we're defining medium term here as fiscal year '29. Because we believe there are many growth drivers that will allow us to grow during that in that time frame, it's always important to take you all through that.

Why here? This is the first time we're doing our Investor Day in conjunction with our customer conference. And we believe it's powerful for all of you to hear not just from us, but also from our customers first and from the partner. So I hope many of you -- I saw the hands in the room got to attend the keynote. And also I hope you get a chance to walk through a solutions expo and really feel the energy is an important event for us, and we're glad that some of you could join us here in person to attend that. And for those who are joining on the webcast, I hope you've seen the announcements and also can feel some of the energy here in person.

So with that, I would hope at the end of my 30 minutes here, that you will all take away sort of 3 things. One is that we have a proven track record and a durable business model in a large and growing market. Two, we are ambitious about our growth prospects for the future and achieving those, all while driving expanding operating margins. And three, our intention is to continue to drive significant free cash flow generation. And I'll also be thoughtful and prudent about how we think about using all that cash that we expect to generate, including how we return capital to all of you as our shareholders.

So what I'll cover today, a rough agenda for this section will be -- we'll spend a brief amount of time looking back on how we have done relative to what we've told you before and current state. We'll spent the majority of the time looking forward on what the medium-term targets look like, and then we'll wrap up with our approach and framework around capital allocation.

So here is what we showed you at our last Investor Day. Hopefully, this looks familiar to many of you in the room, as many of you were there. How did we do against those? Let's start with top line. On revenue, we've delivered a 17% CAGR relative to the 15% that we told you back then, overachieved on that. On ARR, we came close. We did a 19% CAGR out of the 20% we told you back then. And on bottom line, which is significantly better than what we committed to you all back in 2023. I won't belabor each line here, but you can see on all of the line items, whether it be non-GAAP operating margin, free cash flow margin, free cash flow dollars, significantly above what we said we would do.

And the way we accomplish that is by prioritizing growth because we've always said that we have a huge market opportunity and we intend to capture as much of that as we can. So growth remains the priority, doing so in a way that involve prudent investments and efficiencies. So we delivered on our growth targets while doing significantly better on the bottom line. And all of that meant that we got to a Rule of 40 plus score much sooner than we told you we would, 2.5 years ago.

So our most recent fiscal year, we did a Rule of 40 score of 48, relative to what we told you, which was less than 40 back in 2023. So we want you all to know that we take our commitments to you all seriously. And this is reflected in sort of our comparison of how we did relative to our last Investor Day.

Now with respect to new customers joining our platform and who we welcomed as our customers, you've heard from us in recent quarters about the nice momentum we've seen in adding new logos onto our platform. What's driving this? You'll see here, one, of course, is a lot of industry disruption happening. And we have really focused and pointed our resources in a way that allows us to capture that market opportunity. So that's the first piece.

We've also enabled both our channel partners and our OEM partners to also help us because we can get efficiencies and scale that way. Because they, as many cases, you've heard from many of them today, both on main stage and from Rajiv, many of these are much larger companies than us. And we've done a nice job of getting them to also help us land more customers onto our platform. So more customers. They're also joining us with larger commitments.

So if you look on the bottom here, what you see is that the initial ACV deal size of customers joining our platform has grown by 16% CAGR over the last 2 years. So more customers with larger initial commitments. Not only have we added new customers onto our platform, we've also expanded with our existing customers. So this NRR of 107% will look familiar to you all. It's our most recent NRR that we reported as of our last quarter.

Now NRR, our net dollar-based retention rate, as most of you know, has 3 components, primarily. One is our ability to retain our existing customers and their installed base with us. Second is our ability to expand with them. And third, and not necessarily in that order, I would say, expansion is bigger, but we also periodically increase prices for our customers. Think of that as more of an inflation price increases.

Now Rajiv talked about customer success, which is always very important to us. We've talked a lot about our Net Promoter Score, and you heard it on main stage as well. And so that is something we take very seriously. And as Rajiv said, we've also made and continue to make some investments around that area as we've gone upmarket. And I want to make sure that our customers are not just purchasing from us, but they're adopting our solutions and being successful with their business outcomes. That's making sure we retain them.

Now we also ideally want them to expand with us. And there are 3 vectors of expansion. You've heard us talk about these before, there's customers using more of our solutions. To take that example is if a customer had purchased virtual desktops or VDI from us, they may choose to buy more VDI from us. The second vector is where if they purchase VDI initially, they now expand with a different workload that might be an AI workload or it might be a database workload. So that's the second vector of expansion. And the third vector is a customer who may have purchased our core platform, the Nutanix Cloud Infrastructure platform in the beginning and then subsequently expands to our database solution or our Unified Storage solution. So those are the 3 vectors of expansion.

One of the things we've done more recently is added to our portfolio specialist selling team. And these are folks that are experts in those specific products. And they serve to help and support our core sellers to drive that last vector I talked about, which is going to really truly sell a platform. So you've had a lot of platform selling as well. And that's an investment we've made, and those folks are ramping now when we expect them to help our core sellers be more productive.

Now Rajiv talked about this move upmarket. And if you remember the sort of pyramid slide that Rajiv talked about, he talked about how we go to market within various segments and our move upmarket, meaning that we have made sure that our resource allocation is done in a way that our sellers can focus on those sort of top part of the pyramid the middle, while the channel does more and provides us leverage in that more bottom layer in the pyramid.

One of the results of that move upmarket has been that we've doubled the number of $1 million-plus ARR customers over the last 3 years. The last time you all saw this chart, we were sort of in the middle of that at the end of fiscal year '23. And you can see that we've continued to add more $1 million-plus customers over time. The other thing I'll say here is that we've also doubled the number of $1 million plus customers in that top of the pyramid that Rajiv talked about. So it's the largest enterprises in the world are choosing Nutanix and spending significant amounts on our platform.

So that brings us to today. So we've done a brief look back, and a current state review. And so hopefully, some of that is familiar to you, some of that is recap, some of that is new information that we thought was important to share with you all on this occasion.

Now let's look ahead. Now 1 thing I want to spend a minute on here, and I think it's important, is that, as I said earlier, we are in a dynamic environment. And before I start talking about the medium-term outlook, let's acknowledge that there's a lot of uncertainty out there when it comes to supply chain. Now many of you already know, as a software provider, we are not directly in the middle of the supply chain. However, for the majority of our land and expand opportunities and land and expand customers, customers do need to procure hardware, a server on which to run our software. That's been more difficult more recently, just given what's happening with the supply chain situation in the industry, both from an ability of procuring servers in a timely manner and what prices are doing in the market.

What are we doing to help our customers? The first thing we're doing is we're making sure that they have choice, that we have now certified more and more platforms that our customers can run their -- our software on so that wherever they're able to get supply, that they can run Nutanix software on it. You've got a lot about external storage. That, of course, allows customers to reuse their existing hardware and use that to run Nutanix software on. And of course, there's a public cloud option. Which, again, you heard a lot about where if the customers can run our software using NC2 on the public cloud.

In the middle, you can see that we are extending support where needed. So if the customer wants to continue to use their existing platform, they can do so, and we will support that. And then the third piece on the right here is some commercial flexibility that we're offering in certain cases. You've heard us talk about this before. So none of this is new, where we have offered some flexibility around license start dates where customers can tie more closely, the start of their license data, along with when they expect their server.

So we thought it was important to acknowledge that there is near-term uncertainty. We'll continue to talk about that as we go through the coming quarters. At the same time, it's important for us to give you an update on what we believe our medium-term drivers are. So the rest of this presentation will be focused on fiscal year '29. And what we're assuming about fiscal year '29 is that it will be a normalized supply chain environment. And what we mean by that is a customer can generally get their hands on a server when they need it. It's not always the case today. So that's what we mean by normalized environment. And we're assuming that will be the case in fiscal year '29, but also assume a stable market backdrop.

Okay. So with that, this is the same slide that you saw in Rajiv's section. So I won't repeat what he said, other than to say that this is a rising tide. We are in a market that is large. It's more than $100 billion in terms of the market size. We have done our work to make sure that we are able to address this larger market and created that market opportunity for ourselves, and it's growing nicely. It's growing at a 14% CAGR.

Now think of this as a way to map our portfolio to the market opportunity. So the bars here represent the percent of land and expand ACV bookings. They don't represent dollars, they represent a percent of land and expand ACV bookings. And what we wanted to give you a sense of was that in our most recent fiscal year in fiscal year '25, about 21% of our total land and expand ACV bookings came from what we're calling our portfolio solutions. In fiscal year '29, which, remember, we're using as our reference here for this medium-term outlook, we expect that to be 34%. That's a significant increase in the proportion of our land and expand bookings that's coming from these portfolio solutions. And it's also a significant driver of growth because it's growing faster than the core platform.

Not only does this drive growth, there's a strong correlation, as you might imagine, between adoption of these solutions and lower churn. Customers are more committed. They're invested in the platform, and they're likely they'll stay with us longer. So there's a correlation there as well. Not only is it helping growth, it's also helping lower churn overall.

The other point that I think many of you will notice here is look at that bar, that top bar for AI and Kubernetes. That is driving a huge portion of the growth here as we go from fiscal year '25 to '29. I hope not a surprise to anyone, of course. That's a nascent market today for us. And it is one of the growth drivers as we think about going out to fiscal year '29.

So if I put all that together and if you combine all the product drivers we talked about here, which are these 3 things that are listed here -- and Rajiv, you heard a lot from Rajiv about this as well -- and our go-to-market drivers. So meaning all the innovation we're doing on the product front, now all the acceleration we are driving on the go-to-market side, we believe that our targeted growth rate in fiscal year '29 -- I want to repeat that this is not a CAGR -- this is a growth rate in fiscal year '29. Our target for that is mid- to high teens percent growth in both revenue and in ARR.

We're excited about this opportunity ahead of us. We think there's significant growth to be had, mid- to high-teens percent revenue and ARR growth in fiscal year '29. Again, we're assuming a normalized backdrop in terms of supply chain and a stable backdrop.

Now let's move to how will we get there from an investment perspective. And I'll talk about the sales and marketing investment and the R&D investment. On the sales and marketing side, we believe that we're going to continue to invest on our frontline sellers. You heard from Rajiv about the 165,000 plus accounts out there that we are aiming to go and capture over time. And so we intend to make investments to make sure that our people are targeting those, all those right accounts and those right markets.

Channel and partner ecosystems. We talked about that a lot today. You heard them on main stage as well. So we intend to continue to leverage that because not only is that going to help us drive growth, it's also a leverage way for us to do it. Customer success, again, hopefully self-evident in terms of why that's important for us as we continue to grow that, our customers are successful with the solutions they're buying from us.

On the R&D side, I won't read all of these, should all be very familiar to you all by now in terms of how we think about where our innovation will come from. And think of these two as sort of two sides of the same coin. These are not separate kind of pillars. When we think about planning internally, we think of them very much as going together and making sure that our platform innovations and our go-to-market priorities are very much aligned.

If you put that top line growth and these investments that we expect to make, what that leads to from a non-GAAP operating margin in fiscal year '29 is a mid- to high 20s percent non-GAAP operating margin. Now I just told you about the investments we will make, and there will be some investments required here to attain that kind of growth. But we do target that our operating expenses will grow slower than revenue, allowing us to get from the 21%, 22% margins that we've guided for this fiscal year to the mid- to high 20s percent in fiscal year '29.

In addition to the investments, there are some areas where we're driving efficiencies as well. And you can see them here, one is increased sales productivity. We've talked in the past about how we've driven increasing sales productivity with our frontline sellers, our sales reps. While we've seen good improvements there, we think there is opportunity for more to get to what we would consider market-level benchmarks. And how will we do that? Through more portfolio selling, platform selling, through more OEM and channel partner enablement, through more enablement of our sellers themselves as they go out and sell the platform.

AI enhancements, this is, of course, top of mind for everyone here, and it is for us as well. And I would say the 2 main areas, and Rajiv touched on this as well, that we have seen improvements on efficiencies from AI are on the customer support side. We have been able to maintain our really high NPS scores and drive productivity. And on the developer side, so our R&D team has been more productive as a result of AI.

Now every department in the company does have AI use cases, and all of that and all of the benefits of that are baked into this target for fiscal year '29. And then last, this is the mix of renewals is one we've talked about before. And as we've said that it is more efficient for us to acquire a [ dollar ] of renewal, as you would expect, than it is to go and acquire a [ dollar ] of land and expand. And so as that mix evolves, we expect that to contribute as well.

Now two other important points I want to make while we are on the operating margin line. The first one is that structurally, we believe that we can get to 30-plus percent non-GAAP operating margin here in the long term beyond fiscal year '29. We are driving towards that. And the second thing is we know that you all are quite focused on stock-based compensation. And the biggest difference between our GAAP and non-GAAP margin is, of course, stock-based compensation. So I'll talk more about that a little later.

What I do want to make sure we cover here is that we do expect that GAAP margins will expand faster than non-GAAP operating margins. We talked about growth on revenue and ARR, expenses and operating margin. Let's talk about free cash flow. So first, I'll start with the target. We're saying that our target in fiscal year '29 on free cash flow is the high 20s percent of free cash flow margin.

Now there are a few things here that I want you all to think about. First is that our standard process in terms of invoicing and collecting cash from customers, as many of you know, is a multiyear all upfront process. So if a customer is signing up with us for a 3-year duration, we typically -- and our standard procedure is to collect all of those 3 years of cash upfront. And we believe that our customers do that, and that's been our standard process because often, their budgets for Nutanix come from their CapEx budgets.

We've also talked about how in certain circumstances, we have provided flexibility from that standard process, whether it be annual payments or more flexible options. Today, those nonstandard payments, the non-upfront payments are just about a double-digit percent of our TCV. And we expect that to evolve over time. And in fiscal year '29 though, we still expect that the significant majority of our TCV will come from the standard upfront payments from customers. So today, it's just about double-digit percent of our TCV, the nonstandard payment options, and we expect that to grow as a proportion. By the time we get to fiscal year '29, the standard option will still be the significant majority in fiscal year '29.

So because that is an evolving portfolio, we intend to manage it as a portfolio. And what that means for you all is that this free cash flow margin target of the high 20s percent is more or less where we are today. And so we expect to maintain that. Of course, you will see a growth in free cash flow dollars as revenue grows. And you'll see leverage in the model more in the operating margin line. As I talked about, we expect operating margins to go from the low 20s to the mid- to high 20s while we maintain free cash flow in this high 20s percent from a free cash flow margin perspective.

Here's a summary of our medium-term targets. Fiscal year '29, normalized environment from a supply chain perspective and from a stable market backdrop. Revenue and ARR going in the mid- to high teens, expanding operating margins. And free cash flow in the high 20s percent from a free cash flow margin. You put all that together, you've got a Rule of 40 score in the low to mid-40s. So really excited about the market opportunity ahead and how we intend to execute to achieve these targets.

Okay. Now let's talk about what we're going to do with all of that cash that we intend to generate. Let's talk about capital allocation. So this is a fairly, hopefully, simple and straightforward framework. There's only so many things that companies can do with their cash. So first and foremost, we're ambitious about growth. We want to make sure that our growth is our first priority. So we intend to make sure that we continue our organic investments. We also intend to make sure we keep our eyes open for opportunistic M&A opportunities.

The most recent acquisition we did was a little over 2 years ago of a company called D2iQ, and they allowed us to really accelerate our road map around Kubernetes management. So we were able to integrate them very quickly and bring to market what is today, our Nutanix Kubernetes Platform or NKP. And we also acquired some great talent as part of that acquisition. So we intend to keep our eyes open for acquisitions like that, where it can either accelerate our road map in some way or be an adjacency in terms of what we'd like to do and what our customers need from us. So that's the first pillar. It's continuing to invest in growth.

The second piece, again, fairly straightforward. I think as most of you know, we have 2 convertible notes on our balance sheet, with the first one being due in 2027. And we intend to make sure we have sufficient liquidity to maintain flexibility around the repayments of those notes. And then importantly, capital return. We intend to continue our ongoing and opportunistic repurchase program. As many of you know, in December, we did our first ever accelerated share repurchase of $300 million. And you should view that as a continuation of our commitment and our conviction around the long-term future of the company.

We also intend to continue to use cash to settle RSU taxes for our employees. I think many of you know this, just to give you 30 seconds on what that is. So if you have an employee who has 100 shares vesting and they owe 30 shares of that in taxes, in the past, more than a few years ago, we would sell those shares in the open market and use that cash to fulfill the IRS obligation. What we're doing -- we've been doing for the last couple of years is instead, retiring those shares, those 30 shares, and instead using our cash from the balance sheet to fund the IRS obligation of employees. So it has the effect of those 30 shares not being in the market, which they would have been if we weren't using our cash for that obligation. So we intend to continue doing that.

And then finally, we're targeting a net dilution from a share perspective of less than 2% going forward. It's actually been less than that. I think this year, for example, but we're targeting less than 2% from a net dilution perspective going forward.

Let's talk about stock-based compensation. I know this is top of mind for a lot of folks. So we thought we'd take this opportunity to summarize where we've been and how far we've come. Our stock-based comp was more than 20% of revenue not that long ago. And in the most recent full fiscal year, it was 14%. And we know our work is not done here. Our intent is to continue to drive this to be a lower percent of revenue going forward.

And our goal is to balance two objectives. One is we need to continue to be able to hire and retain great talent. At the same time, make sure we're disciplined about the use of RSUs and equity, make sure that we are doing the right thing here from a stock-based compensation perspective. And I think it's important for all of you to know that we think of stock-based compensation in our P&L like any other expense line. It gets budgeted for, it gets reviewed by our Board. It gets approved as part of our annual plan. So it is very much like any other expense in our P&L. And our intent is to balance those two objectives, making sure we can hire and retain great talent while making sure that we're managing SBC appropriately as an expense. And again, we're committed to making sure that our net share dilution is less than 2% here going forward.

Hopefully, many of you saw this announcement that came out, I think, at the start of our session here. Today, we announced a $750 million increase in our share repurchase authorization. This is by far the biggest share repurchase authorization the company has had and the Board has approved. And it's actually more than double any other prior share repurchase authorization that we have had. And again, you should view this as a conviction that we have in our opportunity ahead of us and in our ability to go and execute and capture that opportunity.

This is the same slide that I started with. What would I like to leave you all with as we wrap up sort of the prepared remarks portion of this. Our intention is to grow both revenue and ARR in the mid- to high-teens percent in fiscal year '29. We have a large opportunity, the market is a rising tide, and we intend to capture more than our fair share of that market. And we will do so by expanding operating margins and making sure that we're thoughtful about capital return to you all, our shareholders.

Thank you for being here. And I think we'll do a short break and plan to be back for Q&A at 5 p.m. Thank you.

[Break]

Okay. We're going to -- oh, everybody's going back. Hands up. Everyone knows the drill.

Okay. So we're going to kick over Q&A, a few instructions first. So you need to speak into the handheld mic. So when you raise your hand, we'll try to point to you, and you get the handheld mic. And then please state your name and company affiliation before you actually ask your question. So Matt, do you want to kick things off?

Matt Martino, Goldman Sachs. Thanks a lot for doing this today. Rukmini, the question is for you. So you laid out a midterm target for mid- to high teens growth in fiscal '29. So first of all, you acknowledge that the backdrop today is highly uncertain, right? So maybe a multipart here. Like one, the Street is considerably below that target from a growth perspective as it stands today. So maybe walk us through what informed the decision to provide this target today?

And then the second piece is, if the path to your fiscal '29 target is to be nonlinear, how should we think about framing fiscal '27 and fiscal '28 revenue, which ultimately had to be a consideration when developing these midterm targets?

Yes. Thank you, Matt. Fair question. And I'll start by saying what we intended to give you in fiscal '29 as I think I've said a few times, have a normalized supply chain, stable market backdrop, is what we think is the sort of fundamental normalized growth of the business, assuming we didn't have some of the uncertainty have today. So that's why we gave you fiscal year '29. And I also said that it is not a CAGR, precisely for the reasons you're saying Matt, which is that the near term does look uncertain.

And you've heard from us in the last few quarters. And so it does look uncertain. We don't know how long the supply chain situation will last. And to your point on fiscal year '27, we do expect to guide to that in less than 6 months here as we get into our August earnings call when we finish Q4 '26 and look forward into '27.

So I'm not really going to comment on that, rather than to say that the near term does look uncertain. We do expect to guide to '27 here in less than 6 months. And you should take this mid- to high teens growth as our view based on all the drivers we talked about today, right, which are multiple, it's not sort of either just AI or just the Broadcom displacement or just external storage, it's a combination of all of those things and what we think we can execute in that -- within that market growth opportunity in a normalized world.

Okay. Ruplu? Right there, sorry. yes.

It's Ruplu Bhattacharya from Bank of America. I'm filling in for Wamsi Mohan today. Rajiv, you talked about a lot of different avenues for growth, and it seems that Nutanix is really moving beyond just an HCI storage company into more of a cloud infrastructure software company. So can you help us size all of the different product growth vectors and go-to-market vectors you talked about? So you talked about AI revenue growth, OEM partner revenue. You talked about land and expand, renewals. How should we size all of this over the next couple of years? What gets you the most excited? Which do you think is the biggest revenue growth opportunity?

Look, I mean, I think you got a hint of that in the portfolio slides that Rukmini showed, right? I mean if you look at it, we're -- certainly from a growth rate perspective, we expect those portfolio products to be growing faster than our core, right? And that shows up in the attach going from [ 29% ] to 34%, based on what you can see. And you can see in that, that there's a lot of growth in some of these nascent things, right? Kubernetes, cloud native and -- albeit off a small base, right, going up a small base at a faster growth rate on both Kubernetes and then AI -- agentic AI and inferencing, which are early days for us. So that's the, I would say, the highest growth rate components.

But then I think the bulk of the revenue, I think, is still the remaining 60 something, 66% is still the core. And within the core, it's coming from this combination of external storage being added to the mix and truly becoming that cloud platform, like you said, where we can handle all kinds of different use cases there with that. The combination of, I would say, the core HCI plus the external storage plus the public cloud portion of it, all that represents that 66% of our core. So I would say that's the framing that we have for you.

Simon? In the -- back there.

Simon Leopold with Raymond James. I hear you on the supply chain constraints. And there's another variable here that I want to understand if it's factored into that comment is around hardware cost inflation. So if IT organizations, your enterprise customers have to pay more money for their servers and for their PCs, is that squeezing the budget available for Nutanix? Or when you're talking about the supply chain constraints, are you suggesting that can't get the servers because there's no memory and so they have nothing to run our software on?

So in the medium-term environment, what we are saying is supply chain is back to normal, okay? Normal, meaning, I do expect like as more memory -- look, we know all know the semi industry is a cyclical industry, right? So if you look at memory, for example, now there's a massive shortage, and you're seeing this massive price inflation.

Now do we believe -- and when we say normal, we do think that there will be a normalization of that, right, as demand starts keeping up -- catching up to supply as new fabs get built and so forth, right? So when we look at the normal situation, we are expecting that there will be a normalcy both in terms of lead times, but also pricing of servers and components over time.

Yes. Sanjit?

Sanjit Singh, Morgan Stanley. I wanted to get, Rajiv, your perspective on the agentic AI side of the equation and what gives Nutanix essentially the right to win, particularly in terms of your framing around unified governance policy enforcement. There's a number of vendors speaking to the sort of similar value proposition. And so the right to win in there. And then Rukmini, if you had any updates for us on the -- where we sort of stand with those supply chain issues and -- that you could speak to versus what you reported last quarter?

Sanjit, there's 2 questions on the right to win, right? I mean you heard from a sampling of our customers as to how they like to evolve with the platform that they already have that can be used for other things to grow. And that's kind of 1 of our things, which is the factors, they already have a platform that they trust to run their critical applications. Now we are providing them a lot more capabilities on this platform in an integrated way. Right? We are not just providing a point product. We're providing an infrastructure stack.

Yes, there are -- I mean -- and there's a reason why I laid out competitors that I laid out in my deck, right? Those are the big ones that they are like similar from a platform perspective. But then, yes, at every layer in the stack here, there are so many startups are looking at focusing on cost on governance, right? There's -- at every layer in the stack, there's individual pieces and competitors. But the value of actually a platform right, that they have today that can evolve to the future with consistent operations that they don't need to go train a whole bunch of new people to go run on. I mean, that is part 1 of that -- why we can win.

The second, I think there's a natural -- this has to do with -- I do believe fundamentally, there's a thesis that AI will be hybrid, right? And to the extent that it is hybrid, I mean, again, by way of where we are, sitting there today, it's a natural sweet spot for us, right? And if you look at sort of, frankly, sort of the order of sweet spots for us today, out of all those 3 deployment modes, of course, on-prem is our sweet spot, right? It's been historically our sweet spot, on-prem and edge. And then the second sweet spot with the investments we're making now will be the service providers and the new clouds who are actually building this. And the third is a public cloud, right.

If I can do the second part of that question, I think, supply chain in the near term. So things are more or less as we told you at our last earnings call, Sanjit. I would say we still have a few more weeks left to go in the quarter, and a lot can happen in those weeks. But more or less, supply chain situation remains largely as what we had told you when we did our last earnings call.

Great. Yes, if we can move to Radi over on the -- yes. Right there.

Yes, Radi Sultan, UBS. Thank you guys for having us, first of all. Rajiv, I want to start with you. Talking to customers on the floor, NC2 seems to be sort of the biggest area of focus. I'd love for you to just unpack, like what are the biggest growth drivers there? And then maybe Rukmini, if you could just on the other side of that, like how much is NC2 contributing to growth? Do you think about the outlook over the next few years? And sort of you kind of gave the 5x of the public cloud core count. But how is the actual revenue contribution tracking there?

Yes. So on the drivers or rather the use cases for NC2, the first one, of course, is you want to go cloud first and you want to go take your existing applications and move them to the cloud and run them well. You saw State Street doing that very effectively. And they're actually operating in a hybrid world, right, running both in multiple public clouds and in their colos, right. Colos [ equal on ] pretty much for us. So that's use case number one.

Use case number two is disaster recovery, be using the cloud as a disaster recovery piece. Use case number three is global scale, right? You're operating in 1 region, you want to operate in another region. You can easily set up and deploy all virtually, right, without having any feet on the ground and get going in whatever region you'd like to. So that's use case number three.

And then this new use case that is emerging really is VMware migrations. And now we've done already VMware migrations cloud to cloud. So customers who were on VMware Cloud on AWS, we migrated to Nutanix and AWS. That's another use. So that's a more recent use case that's picked up. But now we were also seeing interest in customers who have on-prem. VMS waits to migrate potentially to the public cloud. And that's, in turn, also somewhat triggered by the supply chain situation that they're seeing with respect to server availability. And so that's actually a fifth driver.

Now -- which I would say we haven't really seen much of yet, to be fair, right? You've seen 1 season to this, but it is an interesting twist, right? It used to be that you could -- most of our customers could get lower price servers on-prem compared to going to the cloud, which is in their minds, almost always more expensive. But now at least in this kind of imbalance, because the cloud guys have gotten these massive contracts for supply, they may be able to get better pricing. And they are today providing in some cases, better pricing for bare metal servers compared to what the customer might be able to buy. So we haven't seen a lot of them, but those are the drivers.

Maybe to your question on quantification, Radi. So what I would say, I think it's important to point out that it's the same license. And in that, it's the same license for a customer using our platform on-prem as it might be to use them on the cloud. So in State Street case, for example, as Rajiv said, they're using it in a hybrid way and so it's sort of -- they can use it anywhere.

And so in terms of how many -- if I were to maybe answer your question in a different way, how many -- how much of our -- how many customers or what's -- how do you quantify the people that are using our platform on the cloud. I would still say it's a minority today, but it's harder for us to quantify because again, it's the same license. And it's not like we're selling them a different product.

Also, what clarifying that in that portfolio attach slide that we had, there was no NC2 in there, if you go back and look at that, and we will post the slides on our website. By the way, if it's not already up there, of that same reason, where it's not sort of a separate thing. It's part of the core motion, and it gives customers flexibility to adopt it and to use it wherever they'd like to.

Param, right here at the front table.

Mic. Mic, please.

Yes. Right there. Thank you.

Param Singh, Oppenheimer. So I appreciate all the color, Rajiv, that you gave on the expansion of the technical capabilities to address agentic AI and AI inferencing workloads. But when I look at your TAM revenue and portfolio attach slides, it appears to me that you're viewing this mostly as a cross-sell opportunity to your typical installed base. However, Rajiv, as you mentioned, that neoclouds could be an additional opportunity. So as they look to expand into inferencing workloads, is that something that you could help them with? And if so, wouldn't that significantly expand TAM and your revenue growth?

Absolutely. In fact, I mean, one of the key things that we announced today as part of the agentic AI stack is what we call service provider central. That feature is targeted at the neoclouds, okay? It enables them to provide these shared environments across multiple tenants for a GPU-based infrastructure.

Now I'll give you a little bit more color on the neoclouds. There's many different tiers of neoclouds. There's -- at the very top end of the pyramid, you've got the [ core weeks ] and the [ Lambdas ] and an ADSs. And then you've got set of what I would call Tier 2 neoclouds. And then -- and these are -- and these include, in many cases, sovereign clouds. Outside the country, for example, they have been set up with GPU clusters. As an example, in the Middle East, we have [ Corfo ], but many like that, right? In different countries, Deutsche Telekom has a sovereign cloud. Everybody has 1 of these that they're looking to build.

And then the third category is existing service providers who are delivering compute-centric services, many of them are looking to go offer AI-based services as well. So out of these 3 categories, I think the top tier guys like [ Corrib ] and so forth, I think largely had their own big software teams, they have actually done a lot of their integration, build their own homegrown stack in many cases, [ Cruso ], [ Core Weave ], all these guys.

But the second tier of neoclouds, including some of the sovereign clouds, they don't have that. So that's an opportunity for us. And then the other tier of existing service products that we are building are the -- our compute centric business, but we can also help them go into these AI. So those 2 are definitely categories that we are targeting with our agentic AI stack.

Okay. Jason, in the back table there. Thank you.

Jason Ader with William Blair. I have 2 questions, 1 for Rukmini, 1 for Rajiv. Rukmini, for the FY '29 target, the revenue growth target, what are you assuming for NRR there? You're at [ 107 ] today. I assume that it's going to be higher. So I'd love to get an answer to that. And then for Rajiv, a big part of the NRR story is going to be the portfolio attach, the portfolio selling. But that's not a new story for Nutanix. I mean I've covered the company since the IPO. Why will it be different this time? Why you think you're going to have more success selling more of these sort of add-on solutions than what you've had in the past?

Sure.

I'll start. Thanks, Rajiv. And thanks, Jason, for the question. So when you think for the '27 growth rate -- and specifically, I'll focus on the ARR growth rate on perhaps I think your question is more around NRR. For us, we think that both the addition of new logos and NRR are both important to get to that mid- to high teens ARR target that we pay our growth target we put out. And I would say, I think as we think about the mix of contribution from NRR, which is contribution from new logos, we think it will more or less be the same as what it is today. So our most recent ARR growth, we put out for 16%, and [ 107 ] was NRR. And so yes, will we expect to move around a little bit? In '29, it could, but the composition between new logos, landing new logos, NRR, we think will be more or less the same in '29 as it is today.

And remember that, of course, we've talked about in the near term that ARR is impacted by some of the dynamics in supply chain, but so was NRR, right? And so there's some of that in the near term. But in '29, contribution more or less similar to the contribution today to ARR growth. And then Rajiv, you want to comment on why we...

The portfolio, yes.

Platform selling.

So yes, so we have been doing platform selling. But I'll tell you a few things that have changed over the last couple of years. First is many of these portfolio products are now more mature than they were. For example, we have a very mature Kubernetes platform that we didn't quite have a couple of years ago. So we have that. Of course, I would say the AI solution is still early, so I wouldn't put that in the mature category yet.

Our cloud management solution is very mature right now out of that. Our database solution is actually getting better and better every day and capable of handling its price grade scale now. So maturity is a platform. That's one. Portfolio products is number one.

Number two is we have actually, for the first time or since over the last couple of years, invested in a portfolio specialist team of sellers who can effectively represent this portfolio in the market and complement our core sellers. So we made that investment, and that's starting to pan out. And we've seen that in recent quarters in terms of showing faster growth for our portfolio of products. So that's second.

Third is that we are seeing reason success from our full stack motion. For example, when we sell our Kubernetes platform today, a lot of it, a good chunk of it is actually sold as a full stack, not just as a Kubernetes piece by itself, but Kubernetes along with the rest of the stack, right? So the portfolio is selling -- what I'm saying is it's more effective. We're able to now actually go in there and just attach these portfolio products to the stack, right, as opposed to try and sell them individually in pieces as well. And that's the power of the platform, right? That's a part of the platform selling.

So those 3 things, I think, are different. And we are basing our projection there on the fact that we've seen more of this in recent times, that this is actually working for these 3 reasons.

Aaron, middle table there.

Yes. Aaron Rakers at Wells Fargo. I want to ask about, like, I think the Dell PowerFlex solution came out with support back early part of '25, FlashArray came out in the latter part of '25. I'm trying to conceptualize, if I do the math, like you've got an implied SAM growth of about 20%, right, $30 billion going to $40 billion, and you're expanding piece of that. So how do I gauge success in terms of that market? Can you give us any evidence of like the success you've seen in the Dell relationship and attaching in current environments of PowerFlex? And how are you thinking about that NetApp relationship in that context as we move forward?

Yes. I mean, for example, if you were -- I mean, we've already got several PowerFlex customers in production today. One of them actually talked at .NEXT last year, that was [ Moody's ], and you saw that in the reel here as well. And there are other customers. And then Pure just came out -- EverPure, I should say now, came out in December. And you saw, for example, Blue Cross Blue Shield talk about how they've adopted it, and they were able to get it running within a day. And so we've got a good pipeline building on those.

Now I think NetApp and PowerStore are early. PowerStore really is going GA soon, and NetApp has to be at the end of the year. So there's a time lag also between the time we have GA and broad-scale adoption as customers go to testing, it takes a couple of years to build. But it will continue to build. And now we're looking at 3 years out and all of these will be very mature offerings and part of the portfolio at that time.

So we certainly feel good about where we are on this external storage in terms of the customer traction we are seeing. And now especially like we're seeing with customers saying anything you can do to help us run on existing hardware, we'd love to do that. And so we've got that added in [indiscernible] the near term, at least with the supply chain stuff that is also making it easier for customers to adopt the external storage piece.

Jim, in the back there.

Jim Fish with Piper Sandler. Wanting to build off of Jason's question before. Is there a way to think about how big the portfolio specialist team is, their quotas, any accelerators that they have for the kind of buckets of portfolio products? As it seems like a large reason for this growth to mid- to high teens or this reacceleration at some point is based on this attach going higher. And I don't know if all of us got the sense of why that actually should increase given the kind of limited success we have seen historically on the portfolio side.

And then Rajiv, you did say something early on today, where you had mentioned like, hey, large customers, they could look at open source. And obviously, there's a huge debate as to custom development I don't think many here think like, hey, there's going to be a big swing off of you guys to sort of custom development. But what creates that moat that makes it so that large enterprise customers aren't going to start looking at developing this themselves.

Yes. I'll give you that. Do you want to take the first one?

I think the first point, I think, Jim, was around the portfolio. And why do we think that's going to do what we expect it to do in terms of the growth rate. And I would say, I think a few things that we are doing differently. As Rajiv said, I do want to emphasize -- and we won't give you sort of the size necessarily, Jim, I think you were looking for kind of sizing of the portfolio, selling team. Of course, they're smaller than our core selling team. These are folks that are much more targeted and focused on specific products in the portfolio. So we might have, for example, NDB specialists because that is quite a different sale and a different -- sometimes even a different persona who's engaging with us on that from a customer perspective than our core platform.

And so the way we've talked about that is making sure we have the right capabilities, both mainly on the technical side to make sure that our core sellers have the support they need when they go and try and make a platform sale as opposed to what they're used to, which is the traditional HCI Nutanix core infrastructure platform. And as Rajiv alluded to, 1 of the things we did think long and hard about as we thought about fiscal '29 sort of goalpost is what have we seen some early success in.

So this team has been -- some investments we've made are fairly recent in the last 12 to 18 months, they have just started to come into ramp. And we have seen that attach rate tick up even in the recent periods. And so as we thought about where we think and where we believe that growth will come in the future, a lot of this is from this area.

The other thing I will say on this, and this came up -- I pointed this out when we went through that slide as well is that there are some markets that there are some of those solutions like AI and Kubernetes, that's quite small today. And we've seen good growth, for example, in NKP, as Rajiv has talked about. And so that is baked into that growth as we think about the opportunity and our ability to capture that going forward.

I think you also had a question in there in terms of just quotas and things like that. Absolutely, these folks have quota only on those. So the specialists have quotas only on those solutions. And so that's what they're there to do and go and drive. Now they, of course, have to partner with the core sellers. So there's also -- we make sure that, that is aligned that when those sellers can work as 1 team when they go out to the market, but they are focused on selling those specialists.

Before I get to the moat, I'll also add 2 things to what she said. The first is that on some of these portfolio products, the market is growing and there's demand coming, right? We certainly see that for Kubernetes already today, right? There's more and more of our customer base that want to move to cloud native. You heard from Tire Rack today, for example, they're an existing customer. They want to modernize that application. They want to run Kubernetes in the same platform. So there is some pull there. And so at this time, we're going to have to push it, right? So on some of these products, certainly on the Kubernetes side, we are seeing that.

And then the only other thing I will just say is that on some elements of this portfolio, we have specialist teams. And we expect, depending on like how this evolves over the next few years, when you look at specialists, there's specialist sellers and there's specialist sales engineers. And so over time, we might as -- the intent with some of these is to move them to be more mainstream and core as just becomes more and more of our business as well.

I could see that happening. I don't think it's happening today with Kubernetes, but I could see that happening over time with Kubernetes. As it becomes just mainstream and part of the core, like -- today, for example, I think a lot of customers that we talk to with NC2, it's like more of an extension of the core. But with Kubernetes, I would expect that's also going to go and get there in at some period of time, where we might then say, we don't need specialists for selling. We might need to keep them fresh to sales engineers. And over time, even that could be mainstream, right? So that's the way we think about this.

So now going back to your question around the moat and open source. There is no doubt that some of the large customers could try doing this and billing. And certainly, larger neoclouds are doing this today. That's how they're doing. They're building this based on open source platforms. They have a fairly large software team that does this.

And I would just say that the components of this are not that easy, right? We spend, for example, we've been at -- with our hypervisor for 10-plus years and then looking to building all the capabilities to go take an open source hypervisor, KVM. And then on top of that, add all the resiliency capabilities, all the optimization, utilization capabilities. It's not easy and then building an ecosystem around that. The same stuff has to be done for GPU workloads.

So there is -- it's not easy to take pieces that are open source and put them together. Of course, if people put the effort, they can do it. I'm not saying they can't do it, but it's just not easy. And yes, could large organizations try to? And by the way, the other thing I will just say is the closer you are to the hardware, the more you need a limit -- to lean on a limited set of expertise. I mean, if you are at the very top of the stack, you could imagine AI wide-coding being able to do some of that stuff, okay? Like if you're building user interfaces and user experiences. But if we're trying to do real-time work, optimizing how software can be used on top of the hardware, the skill sets are far and few, and it's not something that AI can help that much, today at least, to go to.

So there is a fairly significant mode to get all of this working, put them together. And in fact, as we look at our team, by the way, that's doing all of this, the way we are doing this is taking all our core team and getting them to move over time from CPU-centric work to GPU-centric work effectively. And that includes a core virtualization team, the core networking team, the core Kubernetes team, everybody. And so we have the expertise across all of these to be able to go take those skill sets and apply them to GPU workloads. In fact, some of the optimization of AHV that we talked about today are exactly coming from that mindset. We've optimized how CPUs get utilized. Now they're using the same team, same capabilities and skill sets to go optimize GPUs. So it's not an easy thing to do.

One thing I'd add to that is ecosystems, I think you have to obviously...

Yes, I covered the ecosystem on the HV side, right, it took us 10 years to go add to that ecosystem. And the GPU ecosystem is evolving very rapidly, too, and you've got to make the investment to keep up with that ecosystem. Rich?

Okay. Matt, please. Yes.

Are there people who haven't gotten questions in?

Matt had the last one.

[ Matt Coutry ], sitting in for Mike Cikos over at Needham. In regards to the fiscal year '29 free cash flow target compared to where we are today. So that's helpful color on the expectation for a greater shift to billings, flexibility and understood how customers not paying the entirety of the deal upfront creates a headwind there. But if it weren't for that dynamic, would you have expected the free cash flow margin to rise in tandem with the operating margins? Or how should we be thinking about that?

Thank you. I think if we weren't managing that optionality for our customers that I talked about earlier, that I think it's -- we would have expected the free cash flow margin to be higher than what I said it would be. Now we haven't quantified the sort of a what-if over there, Matt. And also know that there's obviously now we have some of that, so there's a waterfall coming in as well, right, from prior periods. So we haven't quantified, but yes, it would have been higher than the high 20s percent that I talked about.

And look, I think we we'd encourage all of you to look at the operating margin line, both GAAP and non-GAAP, to measure us on leverage in the model and how we're driving growth while maintaining leverage in the P&L. And on the free cash flow side, like I said, we're going to maintain it as a portfolio, 1, between continuing our standard upfront payments, which you said will be a significant majority of TCV even in '29. We'll have some nonstandard payment with customers.

And the third thing, which I -- I don't think I mentioned actually, but it's worth mentioning is it's also an option that customers have to get third-party financing, meaning that they can do so with channel partners who might provide third-party financing, we might facilitate that. But that allows us to -- allows a customer to see periodic payments, and it allows us to get most of the cash upfront. And so that's another option, and we manage those as a portfolio. And where it makes sense, we'll offer flexibility, but significant majority in '29 will still be upfront. But short answer to your question is yes, it would have been higher than the high 20s percent that we gave you as a target for '29 if not for this flexibility.

Okay. Well, I think we'll have to -- we're at time. So we're going to have to wrap it up there. Thanks, everyone, for attending and for your participation in the Q&A, and look forward to chatting with you now in the cocktail hour. Thanks very much.

Thank you.

Thank you very much.

Great. Good morning. I'm Sanjit Singh. I cover infrastructure software for the Morgan Stanley software team. Super thrilled to have the management team from Nutanix here. We have a CEO, Rajiv Ramaswami; and Chief Financial Officer, Rukmini Sivaraman. Thank you both for joining the Morgan Stanley TMT Conference.

Thank you. Glad to be here.

Awesome. So before we get into it, real quickly, for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. So let's get into it. I think in this environment where there's a lot of things going on across software, across supply chains, global political activities going on, I think a lot of people getting back to like sort of first principle thinking and like what the companies we're investing in sort of actually do and where the value is being created.

And so with that context, as, what would you describe as the core problems that Nutanix solves for customers today that allowed it to become a multibillion-dollar company? And where do you want to take this business going forward?

Yes. Look, I mean, at a fundamental level, we help companies and organizations around the world modernize infrastructure, right, figure out an operating environment on top of which they can run their applications, manage their data very effectively regardless of where all of this is happening. Some of it happens on-prem, edges, public clouds, but we are providing this platform that creates a lot of value in terms of simplifying how companies can run and operate their businesses.

Now as we move forward, I mean, if you look at the specific demand drivers under that in terms of value creation, going from legacy infrastructure to modern, cloud-like simplified automated infrastructure, that's the first part, enabling them to run both traditional applications and modern cloud-native applications. That's the second part. Third is there's a whole new generation of AI applications, inferencing and agentic applications that are still on the cusp of being developed in the enterprise, very early days.

And those applications, again, are also going to be these hybrid applications that run across different locations. And we want to be a platform that can run those applications very well as well. And you saw some of that in some of the recent partnerships that we've announced.

Yes, which we'll definitely get into. Let's review some of the themes coming out of Q2 results. And on one hand, bookings remained strong. It's a kind of clear message that you saw both in Q1 and in Q2. But Q2 sort of echoed a similar theme on that while the bookings were strong, you had to cut your revenue outlook for the second quarter in a row.

The reasons are different. And Rukmini, I was wondering if you could speak to some of the server supply chain issues you're seeing today? And how is that impacting customer procurement behavior?

Yes. Thanks again for hosting, Sanjit. Great to be here. So what we sell, as Rajiv said, is infrastructure software. And so while we're a software company because we're infrastructure software, our software runs on servers and hardware. And what we saw as we got later into our fiscal Q2, which is our January quarter, is that -- and I think this is not news to anybody, the sort of supply situation in the market has gotten more challenging.

And what that's meant for our customers is that they have longer lead times in getting access to servers on which they would typically run our software. So we saw -- some of that was a headwind in our January quarter, but was more than offset by bookings sort of better than expectations and some other factors. So we were happy to sort of beat the high end of our range for our January quarter. What it meant to your question, Sanjit, for the second half of the year was that we think this is going to continue.

We don't think this supply chain situation will necessarily resolve itself in that time frame. And so while we actually have internally raised our expectations around bookings for the full year because we do think demand is there in the market, revenue timing is going to be later than we had previously expected, which is what we saw and which is why we had to adjust our guide to reflect that.

Can [ I just a ] quick follow-up on that, the confidence in bookings versus the revenue recognition. If there's uncertainty that customers have in terms of procuring the hardware, why wouldn't that also potentially impact bookings? Why don't they say, hey, we'll just plug this off? Or is there sales motions, incentives you're putting in place to incentivize those bookings?

So there are a few things. So there's -- I think on the one hand, in many cases, customers may have gone through all of their internal decision-making processes, procurement processes, and they are ready to make a decision. And so in those cases, they're ready to move forward and in some cases, give sort of us the software order, but also get in line for the hardware, right? Because they know these lead times are long, prices are likely going up on that front.

So why not get the price today and get in line for the hardware as well. So that's one reason. I will say there's also the other side of that, which is sometimes people are realizing that, oh, I went through my procurement process for a certain price, but now hardware has gone up even since I did that analysis. So there's puts and takes on that front. But the net result we saw certainly in our fiscal Q2 was that bookings were higher than we had expected. What are we doing? I think that's part of your question, Sanjit. So what we're trying to do with our customers is we've always been about choice -- so we're giving them a choice of server platform, so they can go out there and try to find the one with the best lead time and the best price that they can use to run our software.

Over the last year or so, we've also started supporting external storage, which was not the case before, where our architecture was software-defined cloud-defined storage was part of our reason for existence, but now we're supporting external storage. And what that means in many cases is customers can use their existing hardware. So they may not need to actually change it out. So that's another thing we're doing. We also have a solution called Nutanix Cloud Clusters or NC2, where customers can use bare metal -- public cloud bare metal to run our software. That seems to have more availability now.

That's another option. So we're trying to make as many options available to customers as possible, while also, again, to your point, being cognizant of where they are in their decision-making. We also have some commercial levers that was part of your question as well, Sanjit, where we say, for example, even if they're only buying the software from us, where we have a mechanism called a future start date where you can make the commitment today, we get a committed order today, but the start date for the licenses out in the future. We try to be judicious about how we use that, but that's another option we have for customers.

Yes, that's very clear. Maybe the last question on this specific point coming out of Q2 is just how do we compare the cycle that we're going through now? I mean you guys have been around for a while have seen multiples of these supply chain issues, probably pandemic was the last one.

If we kind of compare to the pandemic, any sense of like timing on how this cycle could last versus some of the past cycles you've been through?

Yes. I think there's a supply side to this and the demand side to this, right? So on the -- starting with the demand side, obviously, what's triggering this is the massive AI build-out that we're seeing from a handful of very large players, including the hyperscalers. And to the extent that continues over multiple years, right, that's going to continue to put pressure on the supply side.

Now I think if you're a supplier of whether it's memory or CPU, right, and the condition is slightly different, then you're looking at this and saying, how long will this demand last? And can I -- should I be building incremental capacity to go fulfill this demand? And on the semiconductor side, as you know, right, taking -- building new fabs and it takes time to bring on new capacity, especially with related to more fab capacity.

And so that's -- that itself is a multiyear cycle, right? So this time around, I think if this demand continues to last, I think this is not a short-term couple of quarters kind of phenomenon. We do believe this can last much longer than that. On the other hand, if there's a hiccup on the demand side, then I think things could normalize faster, right? So that's kind of what we see. But from what I can see right now, it does look like this is going to continue for a bit.

Yes. That's great. That's a great perspective. The other big news coming out of last week's earnings was the strategic partnership with AMD. And here, we have AMD making an equity investment in the company to the tune of $150 million and an additional $100 million for joint engineering and go-to-market activities for AI inference at the edge for both large enterprises and service providers.

So Rajiv, I was wondering if you could give us a back story on how this partnership came together. And from a commercial standpoint, how big of a revenue contributor could this be for the business over time?

Yes. We have been working with AMD for many years now as a partner because we -- our software works on their CPUs -- not the GPUs, but the CPUs for regular compute, right? It's -- our customers have a choice of Intel-based platforms or AMD-based platforms that they can procure through their server vendors. So this is not a new relationship for us. It's an extension of the existing relationship.

Both of us see an opportunity for inferencing workloads and agentic workloads in the enterprise and that we are in the early stages of this. I think this market is going to continue to grow. And from our perspective, we want to be able to offer an open set of choices for our customers to be able to pick what they would like to do and build solutions off. And so AMD looked at this, and they looked at Nutanix as a great partner to enable them to take their GPU ecosystem into the enterprise market. And so that is the genesis of the partnership where they are investing in us, first of all, to get this full solution built, which is our infrastructure software stack, combined with their GPU ecosystem, their software and ecosystem to put together a full solution.

So that's the first part of the R&D investment and then joint go-to-market efforts to take that complete solution to market. So that is the commercial side of the arrangement. And then, of course, in addition, they also put in an equity investment of $150 million. And from our perspective, that aligns the 2 companies. AMD has invested in Nutanix being successful and it gets the companies to work together better.

Yes, that's a great, great way to incentivize alignment. So let me just talk about Nutanix and sort of the question that everyone is asking across software sort of defensibility and sort of the age of AI. When this year started, investors came to me he's like, Sanjit, you have a great coverage universe. You don't cover any of the seat-based models, pure infrastructure, data platforms, compute networking, that was the beginning of the year. And now every single company is sort of being -- the question is being re-asked about any company's defensibility, software company's defensibility and the age of AI.

And so in terms of some of the flavors that I get asked about, I thought you'd maybe get your perspective. And it sort of goes like this. To what extent can customers use agents in combination with open source software and open source tooling to run and manage their own compute environments more cheaply than using a platform like Nutanix?

The answer to that is very little actually because down in the stack, first of all, there's a lot of work to be done to optimize your software to run on the hardware. And we do that, right? It's very core to how the hardware platforms themselves are built. So we do a lot of that. Second, we do a lot of work to build resiliency for enterprise-grade mission-critical applications. Keep in mind that the kind of applications that you're seeing from a seat-based SaaS application that are very different from what runs on our platform.

People are running their businesses on Nutanix software. And these are -- if the system fails, then you're going to lose your business or you're going to have create significant impact. Your manufacturing might stop working, right? Your ATM might stop dispensing cash. So when you have this kind of a situation, right, it's very core infrastructure. And people are very careful, right? They're not going to simply -- they have been, for example, open source capabilities available for many, in fact, our own hypervisor built on open source.

Our cloud-native platform was built on open source Kubernetes.

But there's a lot of work that we have done on top of all of that to make it enterprise grade, mission-critical. And we don't see that being displaced anytime soon by agents or others, right? So that's not as much of a factor for us. I mean we -- in fact, we look at it from an opposite perspective as AI creating potential tailwinds as more and more customers build these new applications with agentic AI and inferencing. They need a platform to run on, and that's creating additional opportunities for us to capture that business as you saw, for example, from the AMD partnership.

Yes. The point around running your business and executing ATM transactions, you need some pretty precise deterministic outcomes versus just relying on an undeterministic technology that GenAI can be. In terms of the AI opportunity itself, there's a lot of conversations on the risk side of the equation for companies. But from -- as we move more towards an agentic world, what are the opportunities for Nutanix in that construct?

Yes. And I think as people start building these agentic applications, but even before agentic, I would say, simple inferencing applications, these applications are going to be built where the data resides typically. And not -- data is going to be everywhere. Some of it in the public cloud, some of it on-prem, some of it being generated at the edges where data is being generated and you need real-time inferencing. So in all these cases, again, we have a platform that makes it really simple for companies to build and deploy these agentic applications.

And our job as an infrastructure software company is to create a turnkey environment on top of which people can build and run these applications. And that's what we are aiming to do. We have a solution in the market with a full stack, which is really our full cloud platform that's running on GPU-based servers instead of CPU-based servers as we've traditionally supported, right? And so that opportunity, I think, is still pretty early.

We think companies are still very early in building these applications. Today, what we see is the first set of simple use cases being deployed. These are not multi-agent use cases. These are simple use cases like customer service type use cases, document search and summarization type use cases. We had a bank, for example, that was recording conversations by salespeople and had an LLM go through those conversations, summarize them, but also point out places where there might be potential noncompliance. This is a homegrown application runs very simply. And a lot of these applications, by the way, don't require massive clusters. They run on small clusters, 4-node, 8-node GPU clusters that can be cost effectively run with privacy and security in an enterprise.

That's great. I want to switch the conversation to the sort of unpacking the growth drivers for Nutanix. But just sort of at the high level, the basic growth equation, the existing customers versus the new logos. Looking at like kind of the net retention rate, that has come down steadily over the last several years, recently sustaining in the high single digits. I guess the question here is basically how much opportunity do you see in the existing customer base? And then we'll speak to the great new logo performance you're seeing. But just in terms of the existing customer base, how would you sort of frame out the runway within your existing customers?

Yes. I think you've got to sort of, I think, segment the customers a bit there on that front. So if you look at the top end of the enterprise, the enterprise customers that we have, and we have plenty of them, about 1,000 of the Global 2000 are our customers. Our penetration levels are relatively small in the customers that we have over there, right? So we typically get adopted for 1 or 2 use cases. There's plenty more. So there's a lot of expansion opportunity in that segment.

If you go to smaller customers, they tend to be more of, let's take Nutanix and deploy them everywhere. And so less expansion opportunity. Now so expansion comes through in multiple forms, right? One is expansion of different use cases, which is what I talked about, but there's also expansion of more of the same use case. There's expansion by adding more of our portfolio of products, right, more products that we can sell to the same use case. So it's a combination of all those 3 factors that come into play. So I would say at the top end of the pyramid, there's plenty of opportunities there. At the bottom end of the pyramid, these customers are largely already with us. Do you want to add anything to it?

Covered.

So let's talk about the new logo side of the equation, which has been going well, I would say, for several years now. And in particular, last quarter was a great new customer acquisition quarter. A little under half of your growth is coming from new customers. What gives you confidence that this part of the growth equation from new customers will prove durable?

Yes. Look, I think if you look at, for example, the installed [ base ] -- I mean, the addressable number of customers for us in the enterprise is somewhere between 100,000 and 200,000 customers. And we have 30,000 customers today. So there's plenty of customers that we are not in. And so I don't see any reason why we can't continue to capture customers there.

And if you look at the kind of things that we're doing also, of course, we've done a lot of work on our sales force to be able to go out there and target these new customers. We have more channel work that we've done over the last few years to bring on board more channel partners and more routes to market through channel partners, through managed service providers.

We have more strategic relationships in place now with the likes of Cisco and Dell and even the public cloud providers like AWS. So we have more friends in the market overall, I think, at this point. And certainly, that allows us to go out there and capture the opportunity. There's also trigger points like people wanting to get out of VMware, for example, that also come into play in terms of this being a factor in terms of these new logo additions.

Any -- what's -- in terms of the strong performance that you've seen, not last quarter, but I'd say, over the last couple of years in terms of the new logo side of the equation, what's been driving that? Is it the VMware displacement opportunity coming around? Why has that been so strong? Or is there maybe something on the sales side that you guys been executed?

I mean I think it's a combination of multiple things. All the factors that I talked about really have been at play for the last couple of years. Yes, certainly, there's a VMware effect, no doubt about it. But there's also all the fact that we have more feet in the ground. We have more partners. We have more strategic engagements. All of those, I think, together, I think, are what's bringing out this new logo performance that you've seen.

Awesome. Let's sort of mark-to-market on the VMware displacement opportunity. I mean you guys have been very clear about describing the opportunity here as a multiyear opportunity that sees steady progress with each passing year. I used to come for VMware. Those ELAs are 3 and 5 years. And so that kind of speaks to kind of the timing. From your guys' perspective, what inning do we stand in the VMware replacement opportunity? And what's the profile of VMware customers that will choose to move to Nutanix versus stay with VMware?

Yes. I'd probably say we're in the second innings of that opportunity. We have been migrating a number of customers. I mean, in fact, the vast majority of the new logos that we are adding are VMware customers that are migrating. So that's been a trend for a while. Now that said, like I said, I think the first innings probably is the acquisition closed in 2022, and it's now been 3-plus years now. And people have -- the first round of customers have done migrations. We've done several large migrations.

When I say large, I mean like 100,000 CPU core type migrations. These are fairly large companies. We've -- for example, one example is a large insurance company in North America, fully migrated out within less than a year from VMware. Now as you look at the profile, so there's a lot to continue here. I mean now we're in the second innings. Many customers had -- didn't move initially, thinking what would happen, they had time.

And then they've just done their first Broadcom renewal and now there's more. They're starting to think about, okay, what do I do next? And what time do I make? So we are engaged with a lot of those customers now.

And with respect to the profile of customers, again, the smaller customers, we tend to do outright migrations. At the very top end of the pyramid, if you're like 100,000 cores, we can migrate fully. If you're 1 million cores at the very top end, for example, those customers, I think, will stay with Broadcom for a long duration. They're not going to get out.

The opportunity for us in that set of customers is can we get a footprint in some subset of use cases where we can go win. And we have seen many examples of that also.

When we think about what -- when we think about like the hypervisor opportunity, like one of the ways to get some traction is VMware stopped sales of stand-alone hypervisors. How much opportunity is there to fill this particular need in the market? And what's the impact on growth that the stand-alone sales are having for the business today?

Yes. I mean I think that's a very good point, right? Because until a few years ago, we were largely selling a full stack HCI platform, right, which included only our own storage. We did not work with third-party storage. A lot of VMware has deployed. In fact, I would say 80% of the installed base for VMware is VMware hypervisor working with third-party storage.

Now we didn't really have the opportunity to support that until recently because we were competing against those storage providers. But now it's much more synergistic relationship. They see a need for a hypervisor and more than a hypervisor, I would say, a compute platform. And we have evolved as a company to saying we're no longer an HCI company. We are a company that has a full cloud stack, of which storage is an option. You can use our own internal storage or you can use external storage. So from that perspective, that opens the door quite widely for us to go into existing deployments and not have to do wholesale architectural changes, right, but work with exactly the same hardware that our customers already have.

They already have their storage, they have a set of servers, and we can just be a plug-and-play software replacement. So that's the opportunity. And we are in the early stages of capturing their opportunity. We support 2 platforms today, Dell PowerFlex and Everpure. And we have more coming online. We have Dell's mainstream platform, PowerStore coming online this summer, and we'll be doing more of that.

And so that opens the door, right? It opens the aperture for us to get in the door easier, easier migration without having to go change hardware. So it's a significant TAM expansion opportunity. And the economics on that, by the way, again, there's a whole range, right? There's a floor price for what just a hypervisor is and there's a price for the full stack. And it's kind of somewhere in between, right, on a per node per core opportunity.

And it brings us a whole segue of questions around what you guys can do outside of the VM ecosystem within HCI as well. But one of the things that came up a couple of quarters ago, I think you sort of framed the competitive market between you and the Red Hat, IBM Red Hat and maybe 1 or 2 others, but mostly kind of IBM Red Hat. And the dynamic you described a couple of quarters ago was that Nutanix by far wins most in sort of lift and shift migrations and Red Hat does better for kind of container-based replatforming.

When thinking about the opportunity, what percent of the market is electing kind of the migration route versus doing more of a containerization replatforming?

Yes. I think the vast majority of the market, simply, if you're looking to migrate from VMware wants to do it in the easiest way possible. The easiest way means you don't touch the application. You don't impact. You don't have to go bring your developers to work on making something. The IT teams are able to do a simple migration, almost entirely transparent to the application and get the business moved over, right? And that's what we see, and that's what our platform can do. That's why these migrations are easy.

They can be automated, they can be done at full volume. We've got to take an existing application and refactor it to containers or replatform it. That requires more work. And of course, there's now talk about AI tools being able to help with that for sure, no doubt about it. But even with that, the application does get impacted, right? And you've got to work on the application, which takes more time, more effort.

And the beauty of the Nutanix platform is that we support both, right? If a customer wants to modernize and get into a container platform, our platform supports both virtualization and containers. And also, a lot of these applications that customers run on VMware are mission-critical applications. And so they need a robust platform and a proven platform that they can run it on, which is where we shine.

Let's talk about the opportunity for cloud-native workloads and the opportunity outside of the virtual machine ecosystem. Specifically with regards to NC2 and Nutanix Kubernetes engine, your ability to support and run and manage cloud-native environments. What's the traction today? And what do you see -- what do you think it will take to unlock the opportunity around cloud-native workloads?

Yes. On the Kubernetes front with our platform, it's called the Nutanix Kubernetes platform. It's reasonably early days, but we've been very encouraged by the fact that last year, the first full year we had the solution in the market, we got really good traction. We've been continuing to acquire new customers at a good clip. We continue to grow that this year. Also, what is very exciting is that's also the underlying foundation for all these AI inferencing workloads and agentic workloads, right? Because all of the AI workloads effectively are containerized, right? They're running on top of containerized applications. So the Kubernetes platform that we have is a foundation for all the AI workloads that we're building as well. So there's a lot to come.

Awesome. I want to spend a couple of minutes talking with Rukmini around profitability, capital allocation. One of the questions that we're asking a lot of management teams just given the downturn in the market, particularly for software companies is what is Nutanix message when it comes to share repurchases, the level of share dilution investors should anticipate going forward and the importance of getting to GAAP profitability?

Yes. So first, we are GAAP profitable. We have been for a bit. So really happy to share that. I also think that we look at SBC as any other expense and have done so for a long time now and have done a lot of work to manage that as any other expense line is managed. And so our SBC as a percent of revenue is sort of low double digits right now. It was, of course, much higher a few years ago, and we'll continue to do that. And I would say, I think as with most companies, for us, it's a balance between doing right to get more leverage in that line, but also make sure we're able to hire the right talent that we need in a market that's changing every day.

I think to your point, Sanjit. So it's something we'll continue to monitor very closely. On -- in terms of our overall capital allocation philosophy, look, I think we've said that capital return to shareholders in the form of share buybacks continues to be something that we anticipate doing. We did a -- our first ever accelerated share repurchase in December for $300 million. And folks should view that as a testament of where we think the upside is in the company and where we think our opportunity is going forward, and that continues to be the case today given what the markets have done. So yes, absolutely. I think share buybacks will continue to be a part of our capital allocation, capital return approach. We're also doing an Investor Day in early April and expect to sort of share more of our overall philosophy around capital allocation, but share return -- capital return is absolutely a part of that.

And just as a follow-up, the first 2 quarters of the year, you guys have come into a period of uncertainty. And while the revenue outlook may have come down, the bookings have been strong, but also you guys have held the line on operating margins, right? And you guys reiterated your operating margin guidance for fiscal year '26. What are you guys doing to hold the line on margins as top line visibility has been a little bit more uncertain through the first half of the year?

Yes. There, too, I think it's -- there's 2 sides to that, Sanjit. One is, look, we've talked a lot here about the growth opportunity, how we think AI is actually a tailwind for us in terms of landing more workload. And so for all of those reasons, because we see a big growth opportunity ahead of us, we want to make sure we're investing in the business enough to capture that opportunity. Now at the same time, we do believe there's -- from an operating margin standpoint that there's more leverage we can drive in the model. We don't think we're at what we would consider steady-state operating margin for our business. So we'll continue to drive those improvements over time.

So I would say -- and I think the third piece of that, of course, is efficiencies and how can we have our people continue to be more productive and more efficient in what they are doing. And obviously, AI is a big part of that as well internally. So I think those are the 3 pillars. And one is making sure that growth is the #1 priority. So we're investing in all the right places for that. Secondly, just driving leverage in the model, and we can talk more about that in terms of we think that, for example, there's more productivity from our sellers, but also more broadly in the organization. And the third piece is efficiencies and making sure that we're adopting AI wherever we can as a company and driving efficiencies through that.

That's fantastic. I want to spend the last couple of minutes going back to the point you made, Rajiv, around is the partnership strategy. So between your OEM partnerships with Cisco, Dell and others, your co-selling relationship with Pure Storage, what percentage of the business come from these channels today? And where do you ultimately want to get to over the next couple of years?

Yes. I mean, today, it is a minority portion of our business, right? These partnerships have been ramping. Pure is just literally now -- I mean, a couple of months in the market. Cisco has been with us now for a couple of years. Dell, it's interesting. The dynamic there is we compete in some areas, we partner in other areas. And the more we can actually partner, the more synergistic it becomes as a selling motion. So with all of these, I think, look, I mean, we've got to -- it's always both routes to market, right, which is -- we have our sellers who are out there creating demand.

And we want as many people and as many friends in the market who are helping us, right, in terms of being able to go out there and represent us and be able to go out there and push our products. And we're certainly seeing a lot more of it now than we had a few years ago. And the business, I think, I would say the sell-through business, that's what we call it, through these OEM partners has been steadily growing every year.

Now it's still a small portion of our total business. And I don't have a particular model in mind to say this much of the business has to come from partners versus this. But I do would like to see that proportionately grow, right, for us and get to a larger number than where it is right now. And I would like to see that grow faster than continue to organically invest in driving -- hiring more and more salespeople, right? We want to get more leverage, use it as a way to get more leveraged in the market.

With respect to the Dell partnership specifically, the PowerFlex solution is now GA. PowerStore, I think, is coming -- PowerStore is coming up in the summer of 2026. What customer segments do each of these solutions open up for Nutanix? And how big can Dell be for the company over time?

Yes. So great question there. PowerFlex is very much deployed at the top end, I would say, several hundred kind of accounts with large footprints. And we've captured several wins there already, and we'll get some more over time there. But it's not a mass market platform. PowerStore is their mass market platform, right? It's sort of with the equivalent of their midrange. It replaces all their midrange storage, and it's sort of a big chunk of their market, right? So as we -- and a lot of their selling motion is tied to PowerStore and selling PowerStore.

And so the more we can be aligned with PowerStore, I think the better we are going to be with Dell, right? And they're going to be more motivated to sell our platform with PowerStore. So I expect that to grow. And I think that will be a key unlock as we move forward with this summer, I think, once we get that to market.

And can we compare and contrast the partnership with Pure Storage versus Dell? What is the strategic rationale of partnering with Pure Storage? And how does that compare to your other OEM relationships [indiscernible] Cisco?

So again, I think the context for Pure and every other storage provider is by having our product work with theirs, we are able to get into our customers without any hardware replacement, business as usual, just replace software, right? That's the value proposition. And from their perspective, again, they don't like VMware either, right? I mean they're trying to go out there and push the whole stack and displace Pure Storage and other storage providers. So -- so that's the synergy that we see with Pure and with Dell.

Now I think with Pure, we have a co-sell, right, which is we don't -- they're not reselling our product. With Dell, we co-sell, but they also resell. So -- and they have a huge sales force in the market. They have a sales force. They have a broader sales force in the market. So they do both resell and co-sell.

Awesome. Maybe in our last minute or so, just talk about what are the right metrics to assess growth. So as I took coverage of the company, Rukmini, I came from a software background. And so I and my head things in ARR, net new ARR constructs. And when I hear the discussion on Nutanix, a lot of it goes to obviously like revenue, but then we go down the rabbit hole of all the various permutations of RPO and cRPO. And so from like your guys' perspective, maybe give us a sense of where investors should look at to sort of assess growth.

Maybe it's not one metric by itself, maybe it's a combination. But when it comes to understanding the growth dynamics of the business, how should -- which metric or set of metrics investors should sort of look at?

Yes. So I would say, I think I agree with you that ARR, net new ARR is a good metric in sort of steady state. And what I mean by that is when there's not some of these timing differences that are arising today that we talked about in our last earnings call and here, Sanjit. So absent that, I would say ARR, I would agree with you that ARR, net new ARR is a good way to assess the health of the business because it's independent of duration, et cetera.

Given all of those, though, I think we have tried to give you all a little more information to understand the underlying health of the business because there is a timing difference right now between bookings and ARR or revenue, for example, in that we expect -- and we said this as well in our earnings call, right, the TCV bookings growth, we expect to be higher than our revenue growth this year, for example.

And so we felt it was important to convey that so folks can see the underlying strength in the business even while some of these timing differences work themselves out over time. So I would say in the long term, ARR, net new ARR revenue, of course, everybody needs to model the P&L. And so that's a given anyway. And then I would say in the near term, folks should also look at something like an RPO, which incorporates not just deferred and so on, but also looks at the bookings performance, which has been quite strong actually for us that we've tried to highlight.

Well, I certainly appreciate the extra color that you guys have given as we try and understand some of the near-term kind of headwinds going on, on the timing differences. So I appreciate that, and I appreciate the conversation -- both of you giving us an update on the Nutanix story. Thank you so much.

Thank you.

Thank you for having us, Sanjit. Thank you.

Good day, and thank you for standing by. Welcome to the Nutanix Q2 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Rich Valera, Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to today's conference call to discuss second quarter fiscal year 2026 financial results. Joining me today are Rajiv Ramaswami, Nutanix' CEO; and Rukmini Sivaraman, Nutanix' CFO. After the market closed today, Nutanix issued a press release announcing second quarter fiscal year 2026 financial results. If 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 and our subsequent quarterly reports on Form 10-Q 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 Morgan Stanley TMT Conference on Monday, March 2, in San Francisco, and we will be holding our Investor Day in conjunction with our .NEXT user conference on Tuesday, April 7, in Chicago. We hope to see you at these events. Finally, our third quarter fiscal 2026 quiet period will begin on Friday, April 17.

And with that, I'll turn the call over to Rajiv. Rajiv?

Thank you, Rich, and good afternoon, everyone. In our second quarter, we continue to see healthy demand for our solutions as reflected in our strong bookings and outperformance versus our guided metrics. We see this demand driven by businesses looking to modernize their IT footprints, adopt hybrid cloud operating models and deploy cloud-native applications, including AI.

I'm excited to announce our strategic partnership with AMD, which focuses on the growth opportunity in agentic AI. This multiyear collaboration is focused on development and marketing of a Nutanix-powered agentic AI platform for enterprises and service providers built on AMD accelerated compute infrastructure. As part of the agreement, AMD will make a strategic investment of $150 million in Nutanix common stock and fund up to $100 million for R&D and go-to-market for the combined solutions. We look forward to delivering the first jointly developed platform from this partnership to our customers in late 2026.

More broadly, we see AI as driving a whole new set of new enterprise inferencing and agentic applications for which we are in the early innings. Nutanix provides the ideal platform to run them efficiently and securely on the hardware of their choice across any location, enterprise data centers, edges or cloud service providers. We see this as a significant long-term growth opportunity for us.

Moving to our results. In our second quarter, we delivered quarterly revenue of $723 million, above our guidance range, grew our ARR 16% year-over-year to $2.36 billion and saw solid free cash flow generation. We also added over 1,000 new customers, representing our strongest quarterly new logo additions in 8 years.

Looking ahead, we continue to operate in a dynamic environment and supply chain challenges, which were not a meaningful factor in our first fiscal quarter, became much more acute subsequent to our last earnings call. Specifically, there have been well-documented shortages of memory and resulting increases in memory prices as well as shortages of CPUs. This is driving higher prices and lengthening lead times for servers. Thus far, longer lead times largely driven by lack of CPU availability have been a significantly bigger challenge for us than pricing.

Nutanix' focus on customer choice across multiple vectors should help to mitigate the impact of supply chain challenges on our business. These options include choice of server platform from multiple providers, choice of running in multiple public clouds with our Nutanix Cloud Clusters or NC2, our support for selected external storage platforms where there is typically no hardware change required; and finally, support for software swaps on existing hyperconverged hardware.

We have been working with our customers on these options to help them better manage the current supply chain dynamics in the server market and maintain their deployment time lines. However, we expect that the longer lead times our customers are seeing for servers will have some impact on the timing of our near-term revenue and free cash flow generated from our land and expand business. We have factored this anticipated impact into our updated outlook. Rukmini will provide more details on these changes in her comments. But there are a couple of key points I'd like to make.

First, we believe the fundamentals of our business are strong; second, bookings growth expectations for the full fiscal year are higher than prior expectations, but the timing of the conversion of some of these bookings to revenue and free cash flow is expected to be delayed by availability of third-party servers; and finally, we see this solely as a timing issue, and the amount of revenue and free cash flow we expect to recognize over time from business booked in FY '26 remains unchanged.

In Q2, we continue to see success in the marketplace with our cloud platform. Our most notable wins, a few of which I'll highlight, demonstrate the appeal of our solution to businesses that are looking to modernize their IT footprints, deploy modern apps and AI and adopt hybrid multi-cloud operating models. One of our largest new logo wins in the quarter was with a North American headquartered Global 2000 financial services provider that is one of the largest asset managers in the world. This new customer was looking for an alternative to their incumbent infrastructure provider for a portion of their estate following a substantial price increase. They chose the Nutanix Cloud Platform, including Nutanix Cloud Manager to run some of their mission-critical applications, appreciating its common management interface, superior ease of use, simple one-click upgrades, and the public cloud optionality provided by our NC2 capability.

Another significant new logo win was with a North American-based provider of health care services. This new customer approached Nutanix initially looking for an on-prem alternative to their existing infrastructure environment. However, they ultimately also decided to leverage our NC2 on AWS to expedite the migration of a portion of their estate into the public cloud before their upcoming renewal with their incumbent provider. We see this win as demonstrating the flexibility of our cloud platform in enabling customers to quickly migrate and operate in the environment of their choice, including public cloud.

Finally, a large full stack expansion win, with an EMEA-based IT services provider reflected ongoing progress with our customers adopting the Nutanix Cloud Platform to deploy cloud native and AI applications. This customer is using Nutanix Enterprise AI and Nutanix Kubernetes Platform, or NKP, running on our cloud platform to deploy additional AI use cases in the areas of automation and optimization. They are also expanding their use of Nutanix Database Service for database automation and Nutanix Unified Storage for managing their unstructured data.

During the second quarter, we continued to make progress on our initiative to support external storage with our platform, including multiple meaningful wins with our solutions supporting Dell's PowerFlex. We also delivered general availability of our solutions supporting EverPure, formerly Pure Storage and saw our first wins for this new offering. In Q2, we also introduced several enhancements to the Nutanix Cloud Platform designed to strengthen security and drive operational resilience across increasingly distributed environments. These updates are a response to the growing demand we see from organizations that require the flexibility to run their entire estate, including traditional cloud native and AI workloads on a single consistent platform. This is particularly relevant for customers operating in highly regulated sectors, including those looking to deploy sovereign clouds and fully disconnected sites.

In closing, we believe our business performed solidly in the second quarter, including strong bookings, strong new logo additions, and solid free cash flow performance. While we have updated our outlook to reflect the expected near-term impact of supply chain challenges on our business, these changes relate solely to timing of revenue and free cash flow. I believe our partnership with AMD meaningfully expands our opportunity in the enterprise AI market. Our opportunities with AI, modern applications, hybrid multi-cloud and support for external storage provide us with a strong foundation for multiyear 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 Q2 '26 results, followed by an update on Q3 '26 and full fiscal year 2026. In Q2, we reported results that were above the high end of the range for all guided metrics. In Q2, we reported quarterly revenue of $723 million, higher than the guided range of $705 million to $715 ARR at the end of Q2 was $2.356 billion, representing year-over-year growth of 16%. NRR, or net dollar-based retention rate at the end of Q2 was 107%. Land and expand bookings in Q2 were higher than our expectations, which we believe is partially due to customers anticipating supply-related shortages and price increases for server hardware from our partners.

As we move through the latter half of Q2, we began to see that the challenging supply environment for CPUs, memory, storage and other components is delaying our customers' ability to procure servers from our hardware partners in order to run our software. We did not see this as a meaningful driver of our results in our fiscal Q1 as mentioned in our last earnings call. But later in Q2, we did start to see it become more pronounced to a greater extent than anticipated, and expect it to continue through the rest of the fiscal year. Thus far, longer lead times largely driven by lack of CPU availability have been a significantly bigger challenge for us than pricing.

Revenue in Q2 saw a headwind from these factors, but was more than offset by higher-than-expected TCV bookings that grew in the mid-teens percent and lower-than-expected percentage of land and expand bookings with future start dates. In Q2, average contract duration was 3.1 years, largely consistent with our expectations. Non-GAAP gross margin in Q2 was 88.6%. Non-GAAP operating margin in Q2 was 26.2%, higher than our guided range of 20.5% to 21.5% due to lower operating expenses related to timing of hiring, among other factors, and higher revenue than expected. Non-GAAP net income in Q2 was $164 million or fully diluted EPS of $0.56 per share based on fully diluted weighted average shares outstanding of approximately 292 million shares. The fully diluted weighted average share count incorporates the impact of the $300 million accelerated share repurchase transaction that was completed in Q2. GAAP net income and fully diluted GAAP EPS in Q2 were $103 million and $0.36 per share, respectively. Free cash flow in Q2 was $191 million, representing a free cash flow margin of 26%.

Moving to the balance sheet. We ended Q2 with cash and cash equivalents and short-term investments of $1.874 billion, down from $2.062 billion at the end of Q1. Moving to capital allocation. In Q2, we repurchased $333 million worth of common stock under our existing share repurchase authorization. We completed a $300 million accelerated share repurchase transaction and the remaining approximately $33 million worth of stock was repurchased through our ongoing share repurchase program. We also used about $48 million of cash to retire shares related to our employees' tax liability for their quarterly RSU vesting. All of these helped to manage share dilution.

Moving to Q3 guidance. Our guidance for Q3 fiscal '26 is as follows: revenue of $680 million to $690 million, non-GAAP operating margin of 16% to 17%, fully diluted weighted average shares outstanding of approximately 288 million shares. Moving to the full year. Our updated guidance for fiscal year '26 is as follows: revenue of $2.8 billion to $2.84 billion, non-GAAP operating margin of 21% to 22%, same as our prior guide despite the lower revenue guide, and free cash flow of $745 million to $775 million, representing a free cash flow margin of 27% at the midpoint.

I will now provide some additional context regarding our fiscal year '26 guidance. First, as Rajiv mentioned, while we continue to operate in a dynamic environment, our bookings expectations for the full year are higher relative to our last earnings call, indicating continued strong and growing demand for our solutions.

Second, the challenging supply environment I described earlier is, however, delaying our customers' ability to procure servers from our hardware partners in order to run our software. For our orders that are linked to the shipment of server hardware, which are a minority of our bookings, we can only recognize software revenue and collect cash alongside the shipment. These include bookings that are sold through our OEM partners, such as Cisco, Dell or Lenovo and our integrated offering partnered with Supermicro. As a result of this, we expect some revenue and free cash flow to be shifted out from this fiscal year. Both the Q3 and updated full year guidance are impacted by these dynamics. This is solely timing related and does not change the overall revenue and cash flow expected to be recognized over time from bookings in fiscal year '26.

Absent this worsening supply chain dynamic, we would have been in a position to raise all guided metrics for fiscal year '26 following our good Q2 bookings performance. We expect TCV bookings growth to exceed revenue growth for fiscal year '26. Third, we are doing several things to actively manage through these dynamics. A, as Rajiv said, we provide customers with options, including choice of server platform, choice of running in public clouds with our NC2 solution; our support for selected external storage platforms where there is typically no hardware change required; and finally, support for software swaps on existing hyper-converged hardware.

B, we are providing selected tools and promotions for our customers who are ready to make a decision to partner with Nutanix and lock in their server prices while facing uncertainty about server lead time. These include options around licensing start dates and increased flexibility to purchase the software separately from the server. We expect a higher percent of bookings in the second half of the year with future start dates than previously assumed.

Fourth, we are maintaining our full year operating margin guidance as we invest for continued growth while maintaining our focus on efficiencies and expanding margins over time. Fifth and finally, a note on seasonality of free cash flow. We expect our free cash flow in the second half to be more weighted towards Q4 rather than Q3 based on our current visibility into the supply chain dynamic outlined previously.

In closing, we believe the underlying fundamental drivers of our business remain strong. Bookings expectations for the year are higher than before. Revenue and free cash flow realized from these bookings are coming in later.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question will be coming from Radi Sultan of UBS.

Starting with Rajiv, just on the VMware replacements, like can you just take a step back for us and like Broadcom has been making a lot of changes like reworking the hyperscaler agreements for VMware on cloud, ramping up audits, things like that. Like just taking a step back, like how do you think about the magnitude of the VMware replacement opportunity versus 12 months ago? And maybe what have been the biggest drivers of that change?

Radi, Rajiv here. I don't think anything has really changed from an opportunity perspective. You can see that we are still continuing to add new customers at a healthy clip. We added 1,000-plus customers this last quarter. Our AHV percentage, which is our hypervisor adoption has hit an all-time high. To your point around the cloud partners, you've seen that we've extended our partnership with AWS post this Broadcom acquisition, and we're seeing some good traction. We talked about some examples on NC2 and how that's being used in the public cloud. And then we continue to add more external storage support. And you see the EverPure solution is now in the market. PowerFlex has been in the market and more public cloud options now with Google coming on. So all of these make migrations easier, right, from VMware.

So we don't think anything has changed from an opportunity perspective. I've always said that this is a multiyear journey, and it will continue to be a multiyear journey for us.

Got it. Crystal clear. And then just a follow-up for Rukmini. Just as you think about like in light of the supply chain constraints, like the implied Q4 guide does imply a pretty steep upsell. So just like what gives you confidence in that? And if you could just speak to your level of visibility, like what leading indicators should we be looking at to kind of give us confidence in underwriting that Q4 upsell?

Yes, Radi. So I would say a few things. One is that Q4 is traditionally our -- a very strong quarter for us. It's the end of the fiscal year, of course. So our sellers are all incentivized to maximize what they can do in Q4. And we also are guiding to Q3 and by implication to Q4 based on what we're seeing today in terms of supply in the market and when we can expect those to be reflected in our revenue, Radi. So those are sort of the two things I'd point to. And I'd also say, look, our RPO had a nice growth in Q2 at the end of Q2. RPO grew 24%. So that's one other metric you can look at in terms of how much is remaining, right, in terms of our performance obligations and cRPO as well. So those are sort of the 2 or 3 things I'll point to in terms of Q4 -- Q3 to Q4 seasonality.

And our next question will be coming from the line of James Fish of Piper Sandler.

I mean, Rukmini, you probably were teeing that up for me with the RPO comment there. But I did want to touch on that. Help me with this dynamic where you guys have mid-teens TCV bookings, but RPO bookings growing [ 4% ] against that really tough 34% comp last year. I mean that implies about 10 points coming from sort of off-balance sheet bookings that is a materially higher amount than what you guys have historically suggested? Or what am I missing here that you're starting to see more off-balance sheet bookings?

Jim, yes, so as I said, we saw strong year-over-year RPO bookings growth of 24%. And I believe what you're referring to, Jim, is the calculated bookings, which for everyone's reference is calculated as Q2 revenue plus quarter-over-quarter change in RPO. So similar to last quarter, Jim, the exclusion of cancelable backlog from our reported RPO has a meaningful impact on the RPO bookings calculation and year-over-year growth rate despite the fact that, that cancelable backlog remains a very small portion relative to our total RPO number. It's in the low single-digit percent as a percent of the total RPO. Now including that cancelable backlog number, which historically has very rarely been canceled, in the RPO bookings calculation, that results in a mid-teens percent year-over-year growth rate aligned with the overall TCV bookings growth rate that I alluded to in my prepared remarks.

Okay. And Rajiv, for you, I guess you're talking about a really good pipeline of conversion opportunity. But how are customers balancing the outlook of having to renew again with that incumbent and delaying their hardware purchasing versus the savings they get by deploying the hardware now and purchasing Nutanix?

Yes, it's a good question, Jim. So -- and we see kind of a combination of different things here, right, for all these customers. So -- there are customers who have gone out there and ordered hardware and they realize that prices are going to go up and they've ordered that ahead of time, and they are going ahead with the migrations. There are also customers who are looking and saying, okay, well, I've got my external storage now, and you guys can actually help me on that front without having to have me replace hardware. And that's a good -- that works very well for us actually.

And so the migration, if you look at a customer migrating from VMware, it's obviously already tied to hardware refresh cycles. And if a hardware refresh is needed, we do very well from a TCO benefit compared to our competition, which is why people are moving over. Now if a customer decides to sweat their hardware in this environment, given your pricing of new hardware, we can still enable a software migration, right, because of the fact that now we're supporting a larger number of third-party storage and also being able to work on existing HCI hardware that runs VMware today.

So we are offering our customers all of these options. And on top of that, they can also migrate to the public cloud, by the way, if they choose to. And there are some customers who are doing that. In fact, we talked about one of them here on the call. So we have all these choices, and that helps offset some of these hardware migration concerns -- hardware cost constraints, I should say.

And our next question will be coming from Sanjit Singh of Morgan Stanley.

Just some follow-ups on some of the headwinds in terms of revenue. Rukmini, last quarter, we talked about deferred start dates and that higher mix of deferred start dates. That doesn't seem to be the sort of near-term. It seems like that maybe came in line with your expectations and it's more of the supply constraints around CPU. I wanted to make sure that I understand the dynamics happening right now. And then it seems like the longer term or the midterm strategy here is to keep the bookings momentum alive by -- or keeping the bookings momentum strong by giving customers more flexibility when it comes to licensing and start dates. Is that how I should be thinking about it in terms of how you plan to navigate kind of the near-term turbulence around on long run on revenue of Nutanix?

Yes. Sanjit, let me perhaps first lay out sort of how we take our software to market, and then I'll address your question on future start dates and flexibility and so on. So we have two types of orders for our software, right? So one go-to-market motion, which typically accounts for the majority of our ACV bookings, involves software not linked to any hardware delivery, which we often refer to as software only. Now for the software-only deals, we typically will build a customer and recognize revenue -- so sorry, we'll build customer at the time the purchase order is made and revenue is recognized at the time of the license start date, as we've talked about before, and that's what you're alluding to.

Now the other type of order involves software that is tied to the delivery of the associated server. Now this includes business that's sold through our OEM partners as well as integrated offerings such as we offer with Supermicro. And in that case is where the software is tied to hardware delivery, revenue recognition is also tied to that delivery of the hardware. So now to your question on future start dates, you are correct that the percent of orders and future start dates in Q2 was lower than we had expected and was lower than what we saw in Q1. And that percent or that mix depends on a variety of factors, right? It includes customer migration time lines. It includes that time line to procure hardware as we're talking about now, and our approval processes around that. So -- and that number can move around from quarter-to-quarter. And given the recent supply chain dynamics and ongoing migrations, we have factored in a higher percent of orders than we had previously to come in with future start dates going into the second half of the forecast.

That's very clear, Rukmini. I appreciate the color there. Let me talk a little bit about the partnership with AMD. So Rajiv, maybe in terms of the time line of having a solution out to the market, maybe get your viewpoint on that. It sounds like it's going to be later this year. And then in terms of which customer segments within the Nutanix or AMD customer base will be most interested in the joint solution? Is it sort of particular industries, higher segments like large enterprise. I just want to get a profile of who's going to be most viable as potential joint customers of the partnership.

Yes. First of all, the target, just to be very clear, is we are building a platform together, that supports essentially inferencing and agentic applications, right? So this would be a full stack platform on top of which people could use run models and build these multi-agent applications or even simpler inferencing applications. The target customer base, to your question, really are enterprise customers, okay? Enterprise customers. And if you were to say within that enterprise customer base, it would be typically customers in more regulated industries, customers who care about sovereignty wanting to run their AI close to where their data is located. So it could also mean people who are running AI applications at the edge.

So if you were to look at this set of customer base, right, what it translates into is people who care about protecting their data, running it locally, running it inside their data centers for the most part, running it in edges. But also some subset of these customers are going to consume them from service providers. We have a lot of service providers these days who are also offering GPU as a service. So that would be the second way of serving the same end customer being the enterprise.

So in short, targeting enterprise use cases for these agentic AI applications, mostly regulated industries to start with, but also people are interested in being service providers delivering to these enterprises. And as you said, the first solution out of this will be delivered by the end of this calendar year, and we are excited about the long-term potential for this partnership.

And our next question will be coming from the line of Wamsi Mohan of Bank of America.

It's Ruplu filling in for Wamsi. I've got two questions, I think, today, both for Rukmini. Just looking at the margin dynamics, I mean, the fiscal quarter you reported was very strong, stronger than expected. You're guiding fiscal 3Q operating margins to 16% to 17% and then the full year unchanged at 21% to 22%. Can you just help us understand the dynamics impacting fiscal 3Q margins? And what's the -- what are the factors that will help get to the full year 21% to 22%?

And the same question on free cash flow. It looks like revenues are down $20 million for the full year, but you're taking down free cash flow down $60 million, but there's also potentially some -- the $100 million from AMD and they're also buying back shares or buying your shares. So can you just give us your thoughts on the cadence of free cash flow, the investments you're making and how we should model out free cash flow? And I have a follow-up.

Thank you, Ruplu. So on operating margin, I'll start there. So historically, our seasonality around operating margin is that it's higher in Q2 and Q4 and lower in Q1 and Q2 on a relative -- Q1 and Q3 on a relative basis. And that's because the revenue roughly follows that pattern as well. And of course, we're investing typically through the year. So that also flows in. But it's not unusual for us to have operating margin be higher in Q2 and Q4 relative to Q3, which I think is the dynamic that you're pointing out.

And I will say that in terms of overall -- our overall view on investment, look, we still continue to believe there's a large growth opportunity ahead of us. And so we're investing for that growth, but doing so in a thoughtful way in a prudent way while also working on efficiencies and productivity within the business. So that's on the margin point, Ruplu.

And then on free cash flow and your point about revenue versus free cash flow. So one thing I'll say is that when you think about the orders that I described earlier, where orders that are linked to the shipment of server hardware, and we said that those are a minority of our bookings, we can only recognize software revenue and collect cash alongside the shipment. And as a reminder, we typically recognize about half of an order's TCV bookings upfront as revenue, while we typically collect all of the cash upfront. So you would impact the cash impact on free cash flow to be higher than on revenue, and that is, in fact, what we're expecting. So the change to our free cash flow guidance was largely due to these longer server lead times, which is delaying the timing of when we can bill and collect from customers. And that's why the free cash flow guidance change is higher than the revenue change, Ruplu. So those are some of the dynamics around free cash flow and on operating margin.

So Ruplu, you also asked about the AMD piece, right? Do you want to cover the accounting?

Yes. So AMD is choosing to invest $150 million in our common stock, and that really has no impact on free cash flow because it's not going to be in the operating cash flow section.

Right. And -- but they're also investing $100 million. Is that all this year?

Correct. So that's -- I will say, look, I think we aren't getting into the specifics of that, Ruplu, but we did say it was a multiyear strategic partnership with AMD, and it's up to $100 million over that period over that period -- over a multiyear period.

Got it. If I can ask a quick follow-up. So you mentioned 2 delays. One is the delay because of availability of servers. And then you also, in the commentary said that there's a higher the orders with delayed start dates, I mean, that is also growing versus your thought 90 days ago. Which is -- can you help us quantify this? I think last quarter, you had said it was about $80 million of revenue that was being pushed out because of future start dates. Can you help us quantify how much is the impact from delayed availability of servers versus orders with later start dates? Like how are each of these impacting revenue recognition?

Yes. So for this quarter's updated guide, Ruplu, I would say the more meaningful change is in the supply chain environment. It is worse than what we had expected 3 months ago. And so that is a meaningful portion of the change in guidance. And as we said on the call, we're also assuming that the second half orders with future start dates, the mix of those orders is also expected to be higher than we had thought. So that is also factored in there. But we're not breaking out the quantification, Ruplu, but the more significant change was what we saw in the supply chain environment.

[Operator Instructions] Our next question will come from Matthew Martino of Goldman Sachs.

Maybe to start with Rukmini. You mentioned in the prepared remarks, extended lead times have been the bigger headwind and less so server prices. Can you provide us with some color on kind of what you've contemplated around guidance in the back half of the year, whether it's largely extended lead times or potentially lower initial deal sizes on higher server costs, just given the fluctuations out there in memory prices today?

Yes. Matt, so in terms of the forecast for the second half, we have factored in delays in availability of servers, right? So that is -- we factored in based on the visibility we have right now and what we see. But I will say, I think we've said this before, that we are indirectly impacted by this given that we -- it's our server partners that we rely on and our customers rely on to procure their hardware. But yes, we factored in some of the delays around server lead times and when we expect those to become available.

Now the second point about potentially impact of pricing on our software. As we've said, we continue to see solid demand for our solutions in Q2. We've talked about the bookings growth. And so far, I would say the impact of this higher server price and longer lead times can be mixed, Matt. And what I mean by that, in some cases, it is accelerating projects, while in other cases, it's requiring more approvals and lengthening procurement time lines. And as we said, we are also working with our customers to offer them many options, including choice of server vendor, external storage support, public cloud with NC2 solution and swapping software on existing hardware.

So, so far, we have not seen a meaningful impact to our software deal sizes or pricing in the market. Although customers are, in fact, experiencing higher server prices and looking for ways to mitigate that. So we will continue to emphasize our software value proposition and provide a range of options to customers as we have described. So that's the way we're approaching this, Matt.

Yes. Very clear. And then for you, Rajiv, you guys are offering multiple workarounds. Rukmini just flagged it with NC2, expanded server platform choices, external storage. I'm curious, Rajiv, from your perspective, what's proving most effective for those deals that are staying on track in terms of providing that wider array of options? And then in context of that, the new logo velocity was really strong this quarter. So wondering if Pure Storage was a large contributor to that dynamic?

Yes. I think Pure Storage or EverPure is still very early. We did close our first wins this quarter, Matt. But I wouldn't say that was a big contributor to logos yet. Most of the logos came from our typical VMware migrations on to the HCI platform. External storage is growing, but it's still a small portion. Now as we look at sort of which of these are moving the needle in a significant way, it's really a combination of all of these factors.

The fact that we're able to run our HCI platform, I mean, now support a broader set of configurations and provide more choice to customers. There was a lot of arbitrage in the quarter about people looking at different server vendors to say, who can get me the best price and best lead time. And the fact that we could support all of them, I think that's clearly a value proposition and a factor that our customers took advantage of for sure.

NC2 had a pretty good quarter, right? So people are starting to use the public cloud more and more as in terms of the -- getting around the fact that they can't get servers on-prem. They can also potentially use NC2 to do a migration to the cloud. And if they want to move it later on-prem and they have servers available, they can do that, too. So we are starting to see some of that come through as well. The external storage, like I said, is a third component, which is still early days. We're starting to see the I see the traction very clearly, though.

And I do expect that as customers -- if they start looking at sweating their existing hardware more, given the supply constraints that they're seeing, then it's going to start to become even more important. So I think it's not that there's one thing that's driving -- helping us in a big way compared to the others. It's a combination of all of these things that's helping us mitigate the supply situation.

And our next question will be coming from the line of Samik Chatterjee of JPMorgan.

This is MP on behalf of Samik Chatterjee. So firstly, just wanted to double-click on your AMD deal. What is the best way to size up your revenue opportunity here and the go-to-market strategy? Will it be just the attach rate with AMD's inferencing platforms or you will be able to do independent software sales as well? And then what is the likelihood of similar future deals? And how does the market look like?

Good question, MP. Let me take that. So first, in terms of the revenue itself, right, obviously, so the solution is the Nutanix software stack running on servers that include AMD's accelerated compute platform, right? So we take -- by the way, we already have solutions in the market today with NVIDIA on this front, right? In fact, all our AI solutions today run on NVIDIA, and now we are adding AMD to the mix to provide more choice for customers. So the go-to-market model is that we sell our software, the full stack, which is our Nutanix Cloud Platform, our Kubernetes platform and then our NAI, the Nutanix AI piece that runs on top of all of that.

All of that is now -- the R&D effort is to take all of that, get it to work very nicely and optimally on AMD hardware, right? That's inside the servers, AMD's GPU hardware and accelerated compute hardware. And so we sell our software just like we sell today. And more of that software will land on platforms that have AMD hardware inside. So that is the go-to-market collaboration, right? So AMD brings together their hardware solution, their ecosystem. And we then put our software stack on top, and we take that to market, take it into our enterprise customer base, and that is the go-to-market portion of this. Now revenue-wise, of course, the solution is going to be in the market at the end of this year. We expect to start seeing small amounts of revenue next calendar year or the second half of FY '27, our fiscal FY '27.

And my second one would be around supply constraints, between CPUs and memory, which are bigger supply constraints in your opinion, currently for server deliveries? And then how -- when do you expect the supply constraints to ease? Like do you expect it to ease within this fiscal year or go beyond this fiscal year as well?

Both good questions, again, MP. So currently, I mean, look, I think the real answer is actually both. Right now, the critical item in the path is the CPUs. But very quickly, if we start -- if the CPU supply situation starts getting better, in fact, Intel has talked about this, right? During their last earnings call, they talked about how they were way behind in terms of meeting their demand. And certainly, we're seeing some of that, right? So that's in the critical path right now. We also are bringing in more and more AMD SKUs to market, right, so that we can actually offer both AMD and Intel to ameliorate the situation a bit. But then very soon right after that, you run into memory. So the answer is actually it's both.

And with respect to timing on when this could get better, frankly, I think it's unclear at this point. I don't think it is very short term. I think it's going to be there for a period of time because obviously, this is being driven by the massive uptick in AI spending across some of these bigger hyperscaler providers that's causing this big supply issue overall in the industry. And so I do expect it's going to take some time to play out for the supply situation to normalize. And it's hard for me to tell you exactly when that's going to happen.

And keep in mind that we are a step removed from all of this, right? We are indirectly impacted. So it's very hard to predict exactly how quickly. But I do expect that -- I mean, obviously, the suppliers there, both the CPU folks as well as the memory folks are working hard to go get more supply online, and this is an industry-wide phenomenon. So again, it's hard for me to give you an exact prediction on when this is going to get normalized, but it will get normalized over some period of time here over the next couple of years.

And our next question will be coming from Ben Bollin of Cleveland Research Company.

Rajiv, I'm curious your thoughts how you think about the mix of revenue or ARR orders that you're getting from AI inference, agentic opportunities today. Essentially, how big is it? And what type of growth rate do you think you're seeing from that opportunity? And then I had a follow-on for Rukmini.

Yes. So Ben, first of all, it was 0, 1.5 years ago. And so clearly, you're growing from a very small base, and it is still fairly small for us in the scheme of things because we are in the very early innings of enterprise AI adoption, really early, right? Our customers today, we talked about one of these customers in the EMEA region, who's now created the shared GPU platform that they are providing to various departments. So we are -- the use cases today tend to be fairly simple applications, simple inferencing applications, not multi-agent use cases yet. So we are in the very early stages of enterprises building these more sophisticated AI applications that they will consume.

So for us, I mean, I look at this and say, over the next 5, 10 years, there's going to be a whole bunch of new applications that are going to be built in the enterprise. Existing applications will all start incorporating AI, workflows are going to change. So there's going to be a whole new set of workloads from our perspective that are -- including gen AI as part of these applications. And so for us, the opportunity is to become the underlying platform to run those applications, manage all the data associated with it. So we are pretty early in the cycle at this point. And enterprise adoption, like I said, is just starting really. I mean, because most enterprises at this point are still grappling with AI. They're starting to use it more and more, but they haven't really built a lot of their own custom applications and custom workflows. but they're all starting to do it. And when that happens, I think this will grow.

So short answer to your question, it is -- it was 0, 2 years ago. It is small right now, but growing and growing very nicely. And we have -- again, the fact that we now have a broad ecosystem that cuts across NVIDIA and AMD, along with more third-party people coming to the mix here, we are very focused on this. Please come to our April conferencing event where we will talk more about our AI strategy and road map. But we do expect this to be a good long-term driver for us.

That's helpful. Rukmini, I'm also interested in your thoughts. When we look at the RPO and booking strength, obviously, the appliance pricing is going higher from these vendors and it's changing by the week or the month or whatever. How much of what you're seeing right now would you attribute to customers getting in line because they'd rather put the PO in today, try and get current prices versus assuming the price may be higher at some point in the future? How do you think about that?

Yes. Look, we do think that some of our bookings performance -- outperformance in Q2, Ben, was tied to that. It's hard to be very precise and try to quantify that. But we do believe that our bookings in Q2 benefited from some orders being placed, as you say, earlier than originally expected as customers look to get ahead of server price increases or try to ensure access to servers. But it is difficult to quantify.

And our next question will be coming from Brandon Nispel of KeyBanc Capital Markets.

I think just one for me. NRR decelerated this quarter, I think, Rukmini, you called out 107%. Could you give us some color in terms of why NRR decelerated? That would be helpful.

Brandon. So the first thing I'd say it's important to note that the factors that we outlined last quarter and I'm talking about this quarter as shifting out the recognition of revenue also impacts ARR and NRR, because the dynamics are similar in terms of how we recognize revenue versus when something would show up in ARR and therefore, will be also reflected in NRR. So just important to keep that in mind, Brandon, right, because those dynamics are very similar.

Now in addition, I will say that our NRR in Q2 specifically was also impacted by timing delays we saw in some renewals in our -- with regarding our U.S. Fed business specifically that was created to some backlog related to the recent government shutdown, and we expect to receive those in Q3. So that was the timing delay from Q2 into Q3. And so those are sort of the things I'll call, other than things we've talked about before, right, in terms of, look, our ASP of new logos have become -- have steadily increased over time. And we've also talked about as ARR grows every quarter, the ACV dollars required to offset a point of churn increases even at the same churn percentage. And so that can make it challenging to achieve the same NRR over time. So the last two I mentioned are ones we've talked about before, but I will call out the first two as being -- just things to keep in mind as you look at NRR.

And our next question will be coming from Nehal Chokshi of Northland Capital Markets.

Yes. Congratulations on the good bookings quarter there. Talking about bookings, based on the color you provided so far, Rukmini, it sounds like cancelable bookings, while it's still in the single digit of the overall RPO, it is materially more than the total in terms of the year-over-year growth rate. So can you discuss what is behind canceled bookings year-over-year growth being much higher than non-cancelable bookings?

Nehal, so cancelable bookings, like you said, I think this is again referring just for everybody's benefit, a bookings number that I think folks can calculate based on looking at our revenue in Q2 and adding that to the quarter-over-quarter change in RPO. And the way RPO is defined for us like it is for most companies is -- only includes orders that are non-cancelable. Now as I said earlier, we have a small portion. It's in the low single-digit percent of our total RPO that is cancelable. It remains in the low single-digit percent.

But it can move around somewhat, Nehal, right? And which is why it sometimes distorts these year-over-year growth rates because you're looking at a quarter-over-quarter change in RPO and then we're trying to do a year-over-year calculation in terms of growth rates for bookings. So I would say it moves around a little bit. And why do we even have these cancelable orders? Like I said, internally, we look at them all as bookings because historically, these cancelable orders, even though they're officially cancelable, have very rarely been cancelable.

And so yes, there's really nothing else there other than we've had some old partners that have some of those clauses, and we're actually working to make sure that those are no longer the case, frankly, going forward, right? So over time, we would expect that cancelable number to go down, but it can move around from quarter-to-quarter because we have some of these from before.

Okay. So just to be clear, it's basically just quarter-to-quarter variability in these cancelable bookings, but it is 2 quarters in a row where we are seeing cancelable bookings have a greater growth rate than non-cancelable bookings.

Yes. As I said, when you calculate the bookings number, the using RPO that is taking the entire bookings and that's taking all of the RPO into account, the TCV bookings growth rate is in the mid-teens, which is also what we said in the prepared remarks. And there's some variation because what we report out externally to you all, we only include the non-cancelable orders in the RPO.

Okay. My other question, which I think is probably more for Rajiv. Can you explain -- I mean, clearly, Nutanix does not need the cash from AMD. Why accept an investment at $36 a share when arguably that's a very attractive price for AMD and not so attractive for existing Nutanix shareholders?

Yes. No, Nehal, that's a good question for sure, right? So our belief is that the equity investment from AMD aligns their interest with Nutanix' success. And they are a very important ecosystem partner for us. If you look at the AI ecosystem out there, it's built around NVIDIA to start with and AMD, right? So for us, it's really important to make sure that we are well aligned and both sides want us to succeed. And this equity investment from AMD makes it very much their interest to see Nutanix succeed.

The dilution from this, clearly, we understand there is dilution. It is quite small overall. If you look at it, it's somewhere slightly over 1%, I believe. But the fact is that this partnership enables Nutanix to become a leader, right, in providing an agentic AI platform for enterprises and service providers. And together with NVIDIA, I think now we have a complete solution that we can take to market across both of the major players in AI.

And our next question will be coming from Matt Hedberg of RBC.

It's Dan Bergstrom for Matt Hedberg. To follow on with another bookings question, it sounds like Q3 bookings expectations are higher than previous, which is great. Now with the supply chain challenges, can you just help us think through your available to renew second half pipeline on a year-over-year basis? And then maybe how that's changed versus assumptions coming into the year?

Yes. So look, I think the available to renew pool is largely land and expand. It's driven by land and expand bookings that we've made in prior years. And so -- and then the other thing to note on renewals is that typically, those are not as tied to hardware requirements, as land and expand would be, right? So a lot of the dynamics we're talking about here with regard to supply chain are really more tied to land and expand rather than to renewals. And so yes, I think the available to renew pool again doesn't change based on these which are usually set largely based on land and expand bookings that we did in the past and are coming up for renewal in the second half. And so that's still the case for the second half in terms of just how that's factored into our forecast.

And our next question will be coming from Mike Cikos of Needham.

I just wanted to come back to this AMD partnership announcement real quickly. And I think it's probably for you, Rajiv. But if I think about how Nutanix has developed or evolved over the past couple of years, the entire product road map really ties to providing customer choice, right? And I know that you're highlighting the expanded AI opportunity here. But is that the #1 takeaway we should be thinking about with this Nutanix-powered agentic AI platform in concert with AMD? I guess what else should we be thinking about in light of this platform offering?

Yes. I think I covered some of this a bit earlier, Mike, but there's a couple of points that I want to make, right? One is there's an AI ecosystem being built, and it's really being built around 2 players right now, right? NVIDIA is the lead by far, right? And of course, therefore, for you to be successful, you got to work with the NVIDIA ecosystem on the one side, which we are already doing. The other big player is AMD, right? And so it's very important for us to be able to go work with that AMD ecosystem as well.

And at the end of the day, customers, like you said, we are all about offering customers choice, right? A choice of at every layer in the stack. And AMD is going to be an important player here, and they already are an important player here in this accelerated compute market. And so it's very important from a Nutanix perspective to be able to offer both choices to customers in a consistent way, right? So we provide an AI platform for agentic applications that underlying that could be a customer using NVIDIA-based servers or AMD-based servers, right? And they get similar capabilities at the top level using our software.

So that was the motivation for us to be able to provide the complete ecosystem. And again, it impacts sort of the whole picture, right? There's people who are certified -- if you look at third-party software, the ISV ecosystems, there's people who work with NVIDIA and there's people who work with AMD, right? And we want to be benefiting from both sides of that.

Excellent. And for the follow-up for Rukmini. I appreciate the shortages out there. Great to see the margin preservation. Can you just walk us through how -- I guess, the key investment initiatives this year and how you're actually managing against that, just given the reduced revenue profile? It would just be great to hear how you're operating against that.

Yes. Thanks, Mike. So in terms of investments, look, it's consistent with what we've laid out, I think, at the beginning of this fiscal year. We think of this as a huge opportunity ahead of us, how do we make sure we're investing in a way where we're directing investments to where we see a clear return. So on the go-to-market side, it's around making sure we have the appropriate coverage around the world where we see the opportunity. It might be in areas like portfolio specialists, for example, where we think there's an opportunity to sell more of our portfolio across our customer base. So it's areas like that, that we're investing in, Mike, in the go-to-market front.

And then there's also some investments in R&D as we continue to innovate across all the things we've talked about here, right, in terms of Kubernetes platform, our AI platform, supporting external storage, et cetera. So a lot of important innovation initiatives as well in R&D that we want to make sure we are continuing to fund. So if you look at the overall operating margin guidance that we've maintained here, we're getting a little more contra expense from partners than we had expected at the beginning of the year and some lower commissions as well, given the revenues are getting shifted out of the year. So we haven't really made any changes to our investment plans for fiscal year '26, but some ins and outs, and that makes us feel comfortable with our overall full year op margin guide of 21% to 22%.

And this concludes today's program. Thank you for participating. You may now disconnect.

All right. Thanks, everyone, for joining us today as [ part of ] Needham's Annual Growth Conference. My name is Mike Cikos, and I'm the lead analyst here covering infrastructure software and cybersecurity. I'm pleased to say that we have with us the team from Nutanix with the CFO, Rukmini Sivaraman as well as Head of IR, Rich Valera.

Over the next 40 minutes or so, I have a set of questions on my side for a fireside. But if at any point, you guys have questions in the audience, make sure that you send those in via the Q&A or you can e-mail me, I'll do my best to make sure we get to that while we have Rukmini and Rich here. Logistics out of the way Rukmini and Rich, thank you very much for making time for us. We really do appreciate it.

Thanks for having us Mike.

Absolutely. Just to level set, Rukmini, I guess, if you could walk through your background, for the audience as well as just dust off the Nutanix story for folks who may be newer revisiting the thesis here.

Great. Thank you for having us, Mike. It's great to be here with everyone. So quick background. I've been at Nutanix coming up on 9 years. In March, I have been the CFO for almost 4 years of that time, and I've had various different roles at Nutanix before that. And before I joined Nutanix, I was an investment banker at Goldman Sachs.

To your question, Mike, on maybe an introduction to the Nutanix story. So Nutanix is an infrastructure software company. Of course, Mike covers that world. And so think of us as a software layer that runs on actual hardware infrastructure and helps companies, IT departments manage that infrastructure more efficiently so they can focus on building applications on top of that, which is where most of -- we'd like for them to spend their time and energy.

So to give a simple example, like we're now running -- I'm sure many of you run applications within your own organizations, whether it be things like we're running zoom here or it might be a trading application, things like that. And if that's the application layer, those typically run on some infrastructure, meaning you need storage, you need computing, you might need networking, you might need a whole host of infrastructure underneath that.

And Nutanix is pioneering innovation, if you will, when we were founded, was to take these silos, if you will, of compute networking and storage and converge them into a new architecture called Hyperconverged Infrastructure.

And the benefits to that for customers was simplicity, more effective utilization of those resources and frankly, total cost of ownership savings in the 40% ballpark. And the total cost of ownership includes not just the software, but also the hardware where they could -- they didn't always need expensive large storage areas. They could run our software on fairly simple x86 servers and get all the benefits and allow us to do a lot of the work for them.

So think of it as a software-defined infrastructure layer. We got our start on premises, mostly in the data center and sort of created this market. There have been a few entrants over time. And that market continues to grow. And we think that there's still opportunity there in our core motion because the majority of on-prem infrastructure is still in sort of a legacy 3-tier kind of mode. So there's just opportunity for us to introduce, modernize with HCI in that core motion.

We also haven't sat still with that -- with the success of the HCI architecture. Over time, we broadened our portfolio to now run that the software innovation that we build anywhere. And by anywhere, we mean it can run on premises, like I said earlier, which was our start, it can today also run on public cloud bare metal, so AWS, Azure, all of those hyperscalers that we're building out.

So it can run on those as well. Just the substrate is different. So before, it was a server on data centers, now it can run there and on bare metal for a public cloud. It can also run at the edge locations. So we've broadened that. We've also, over time, broadened our portfolio to run boast virtual machine-based applications and containerized applications, containerized being the more modern way of building applications or workload and including the most modern, maybe have modern applications, which is around AI and so we've kind of broadened our portfolio, Mike, to be what we -- our aspiration, our vision is to be a place where organizations can run any of their applications anywhere and have it be done with great performance, security and with delight.

The other thing I'll say, which has differentiated us over time is our customer Net Promoter Score or NPS which has been consistently 90-plus for more than a decade. And I would tell you before I joined Nutanix, I don't know any company that had an NPS anywhere close to that. And it's something we, we really focused on, I think a lot of companies say that customer obsessed, were us, this is how we measure that and 1 way we measure that. And we've kept it at that high level even as we've scaled to now being in a $2.5 billion plus almost $3 billion revenue company.

So those are some of the things that I would say differentiate us, and I'm happy to go more, Mike, I'm sure you have questions around the market and competition and all of that.

Well, let's start and thank you for that. Let's start with just Pure HCI market. And obviously, the platform has expanded meaningfully. And you guys are also taking on new solutions. But if I think about underlying demand drivers, when you're engaging with the customer, where are they in their willingness to adopt. You talk about the compelling TCO savings, right? As well as, I guess, if a company says, no, or refutes the HCI, why would that be the case again, just given the demonstrated savings that you're talking to?

Yes. I would say I think a lot of folks where they're not ready, Mike, is often comes down to sort of inertia because it is a new architecture relative to what they might have been used to running for decades, right? Because this compute network storage sort of 3-tier architecture has been around forever. And you have large organizations that I think this audience here will be familiar with that have built out those markets. If you think of storage, you have Dell, you have Pure Storage, you have NetApp, you have all these sort of companies out there that are doing that, same on the compute side where they have big server providers and on the networking side.

And so there is some inertia. So sometimes it will be that, which is sort of them understanding and us doing, frankly, a good job of providing references and saying, look, these are all the folks who have now adopted and have seen success with our platform. Let us introduce you to them. So we find that our customers are the strongest marketing for us, if you will, because they can speak directly to why this is a better architecture and why there's little risk to moving to it.

So sometimes we'll encounter that where people say, look, I built my own career on fill in the blank, right, like building out these. And so it's a change. And so there's a little bit of that change management. Mike, the other thing we've talked about also is the need, and we've evolved this as well. But historically, we've had a need for a hardware refresh, which I know you know, Mike. But one of the things that I said earlier is that the total cost of ownership savings includes the replacement of sort of potentially a large storage array and more bespoke servers with a very simple x86 server.

And so depending on where the customer is in their depreciation cycle for that hardware, they may like the architecture, but they may say, look, not now, I just bought this big box last year, I need to depreciate it. And so sometimes that creates a timing question, which then we will, of course, come back at the time. And the asterisk on that, which is more recently, we've also evolved our approach to support some of those, which was a change for us, but there's been obviously lots of disruption in the market and demand for customers saying, can you support external storage, which we had never done until really last year when we introduced support for Dell PowerFlex first and more recently for Pure Storage.

So we're also, I think, working to eliminate that hardware limitation. And it's not an overnight thing, and we'll probably never cover every storage area. But now that we support Pure and we've done Dell PowerFlex, we can -- to a customer who's just purchased Dell PowerFlex, let's say, last year and hasn't appreciated it, we're able to tell them, Oh, we can partner with you today. Let's get going today because we do support that now. So those would be, I think, the few things that we hear when customers are not yet ready and how we are working to accelerate and mitigate that.

A couple of questions on that. But the first, just because we're already talking about the external storage. Can you talk about how those -- I guess, let's start with management's decision because if you guys have been dedicated HCI, why branch out into external storage. I know it's newer for you guys here, but what was the thought process?

How do we ensure we don't lose sight of still making sure we're active on that HCI front? And then secondly, what is the status of those partnerships that we have in place? How significant is that when we start thinking about the P&L?

Yes. So it was a significant decision for us, Mike, when we decided to support external storage because up until that point, our whole thesis, if you will, was, look, this is the better architecture. You don't need the 3-tier architecture here as HCI. We still believe that. And I'll tell you what changed in the market and why it made sense for us to go and adopt that.

I would say there were -- there was this -- the singular event was sort of Broadcom deciding to acquire VMware, which was announced, I want to say, in 2022, the deal closed in -- at the end of 2023. And what that meant for folks is that I think -- and many people on this call may know this, but Broadcom effectively said that they are not going to sell their stand-alone hypervisor which is what the majority of their customer base was using, just the hypervisor and instead we were sort of really forcing or acquiring people to buy the entire VMware Cloud Foundation stack, which includes HCI, by the way, right?

So while we pioneered HCI, VMware was really the only other large company out there in the market offering it. And so now they were out there saying, you cannot just buy the hypervisor, you've got to buy the full -- their VCF stack. Now what that meant for those customers was they were -- like I said, the majority of their customers were using just their hypervisor on a traditional sort of 3-tier environment. And for those folks, it made life quite challenging because that meant they had to go buy this bigger stack.

Broadcom also said no more perpetual and perpetual support that is all people were paying. You can now buy a subscription license. So that meant effectively price increases for those customers. And so they were looking for the closest alternative, which is us. And -- but we were also selling our full stack, right, which is sort of comparable to VCF.

And we have a hypervisor and had one for more than a decade now called AHV or Acropolis hypervisor, but we sold it as part of our full stack. And so one was that customer demand where folks were saying, look, we'd like to migrate to Nutanix sooner rather than later and not have to wait for this hardware refresh. For that, though, we need to make available AHV++, Think of it as not just AHV, but AHV plus a few other management components to support that.

So that was one. The demand environment changed quite meaningfully in terms of folks wanting a more immediate and a really easy solution for them to migrate. The second thing that happened was the -- was a response from the partner community, so these external storage vendors themselves. So you have a Dell PowerFlex, you have a Pure Storage now that we've announced with both where they were more interested, I would say, in partnering with us than in the old world because as you can imagine, in the prior world, we were saying you don't need those storage arrays. You come over to HCI, whereas now they would like to have an alternative where their customers can continue running on those storage arrays while still keeping the rest of their stack going.

So there was more motivation, I would say, from companies like that to partner with us. And so we did think long and hard about it, Mike, because we do want to make sure that we are using and giving the customers the right solution for the right situation, meaning that we still think, like I said, HCI is a great architecture. It's more modern. It allows people to port over to where they need to go in the future, whether it be containers or hybrid cloud, et cetera.

We also need to meet them where their need is today, right? So our intention with this offering that supports external storage is to gain entry sooner into a customer account than we might have if we didn't have it. But over time, as their hardware depreciates and it's time for -- to revisit the right architecture, our intention is to talk to them about what is that right architecture. Is it HCI? Could we then monetize the full stack for us relative to the smaller portion that we would do with just the external storage piece.

So yes, a big decision, but I do think we've also made sure we have those -- that clarity of message to our sellers on how they should think about these opportunities and where to drive the right solution. And look, over time, it will become just another substrate option, like I said earlier, right, where it's like, here's our software stack, whether you run it in a 3-tier or in a server environment, ultimately, we'll meet our customers where they are.

So that's the other way to think about it. To your question on impact on P&L, et cetera, I would say it's early days, Mike. So we've had the Dell Power Flex solution. I would say, maybe just over half a year now and Pure Storage, we just announced general availability of that in December. So pretty early days. And the Dell Power Flex platform, the one that we've had for several months now, is one that is fairly concentrated in the sense that it has a small number of large customers.

So that we always knew would be sort of take a little bit of time to develop because, again, large customers, small number. Pure's platform is a little more broader adoption than that. So -- and we're looking forward to seeing how that progresses. And then we've also announced another of Dell's platform that's not available yet, but will be soon, which is PowerStore, and that's coming later this year. So early days, but like I said, it does open up more of the market to be addressable by us in the near term.

Maybe just think about PowerFlex just because it has been in the market now for a handful of months here. Great to hear that the demand really seems to have come from both the partners that you're aligning with as well as the market itself. But what has customer feedback been on that front thus far?

Good, really good. We had some -- as part of the early access program, we had some customers who were kind of working with us on that. Some of them have since purchased the solution and are happy with it. So yes, I think it's been good feedback. I think what I want to be clear with PowerFlex, because it's a small number of large customers, it's not like the volume is super high yet, but we knew that.

That's -- we knew that going in. And frankly, we had some very specific asks from some of those large customers saying, look, if you had this, we'd be ready to make a purchase. So -- which is great. And that's what -- and we knew that going in. So we'll continue to drive that with more customers going forward.

And then the other thing, too, I know we were talking about a -- if an organization may not be ready to go from a 3-tier architecture to HCI, part of that hurdle might just be the inertia, another part might be the hardware depreciation cycles. And so on the hardware depreciation cycle, I'm sure this will be a common theme throughout the fireside here.

But if I think about AI, does that in any way cause organizations to take a broader view of how it's been historically architected or reevaluate what those depreciation cycles have been or not necessarily. That seems to be a little bit more of a stretch versus where we sit today.

Yes. I would say I don't think we've seen a meaningful change on that front, Mike. And I would say enterprise AI in general, I would say, is not kind of mainstream yet. I do think we were in sort of an experimentation phase. Now companies are looking to put more things in production. We have customers out there that are using our enterprise AI solution as well. I don't know if they're fundamentally changing their -- whether it's depreciation cycles, for example, right, to your point on like, Oh, I need GPUs versus whatever -- we haven't seen that happen in any kind of meaningful secular kind of way just yet in our customer base.

And I think that's partly because people are also thinking about build versus buy. And we saw in the second half of last year, calendar year alone, 2 sort of conflicting reports, with the MIT report, I think, was saying sort of like, oh, most of these deployments aren't that successful. And then Wharton came out and said, actually, enterprise are having success. So I think to me, that was emblematic of people are still figuring this out, which is what is sustainable here from what workloads, AI workloads do I want to run that will give me some form of ROI measurable or not or whatever it is, and then where do I want to invest.

So yes, I think short answer is we haven't seen that in any meaningful trend kind of way. Do we see it occasionally? Yes, but not in a meaningful trend.

Understood. And then I know that the company also has their product, GPT in a box, which has gone through, I think, 2 iterations at this point, at least formal. But with GPT in a box, again, still early days, but how has traction been? What's customer reception when you're going through POCs?

Yes, Rich do you want to -- may be jump in here.

Yeah sure. So the GPT the Box is sort of our full stack plus some incremental capability we added specifically for AI, and that piece is really Nutanix Enterprise AI, which is a piece of our platform that really automates the process of companies trying to sort of build their own agent internally first by downloading the LLM of their choice, fine-tuning it or wagging it on their data. Hooking it up to their application internally and then running inferencing.

So that NAI piece helps our customers do that very, very efficiently. And then they can run that on our cloud-native stack, Nutanix Kubernetes platform. So we really enable the customers to, one, transition to potentially cloud-native apps if they were exclusively running traditional VM-based apps before that, run them very efficiently, very -- with all the sort of same governance and data services they have for their VM-based apps and wherever their data resides importantly.

That's really one of the strengths of our platform, I think, there's a lot of data gravity typically associated with these enterprise AI applications where they're going to want to run it where the data is, whether that's behind the firewall on-prem, at the edge or in some cases, in the cloud.

And we can really let the customer run their AI app wherever that is. That said, in terms of where we are in terms of the take-up, I think Rukmini hit on it well. I think it's still pretty early days, but I think most of our customers, 30,000 or so customers, many of whom are historically just running on VM-based apps. But I think as they look to deploy AI, they're going to want to be able to run cloud-native apps, and we think we're in a great position to help them to do that, and that creates a really nice long-term opportunity for us.

And Rukmini, if I just come back to the most recent quarter, one of the more topical things or discussions we've had with investors is really focused on the dynamic around future start dates, deal sizes, revenue timing. Maybe to just recap how that transpired in the most recent quarter. How you guys took that into account when formulating guidance for the upcoming quarter and rest of the year as well?

Yes. So in our October quarter, which is our fiscal Q1, what we saw was bookings, which is sort of just -- think of it as activity and what our sellers get paid on, came in slightly above our expectations going into the quarter. However, our revenue performance was not what we would have liked. And the reason for that, as Mike, you alluded to, was we saw more of these orders come in with future start dates.

And what that means really is it's a noncancelable booking that we get from these customers in most cases. And so -- and they typically pay us multiple years of cash upfront as well. However, they are asking for some flexibility around when their licenses get provisioned. So what that means is, again, it's a noncancelable order. In most cases, we're getting the cash upfront, but the revenue -- timing of revenue around that gets moved from our fiscal Q1 into future periods.

So it was a timing of revenue that transpired. Now in terms of what happens, why does that -- why do customers even want this future start date? I would say a lot of it is when we think about customers migrating over from Broadcom onto the Nutanix platform, especially in some of the larger customers, that can take time, meaning it's not done over a quarter. We've given examples in the past where for a large financial institution that was based in the U.S., it took them a year to fully complete the migration.

And so in those instances, customers can say, can you give me these licenses not all at once that I purchased and I've committed to Nutanix to, give it to me over time. Think of it as sort of a basically ramped structure where they may say, give me a few right away, some maybe next quarter and maybe the rest a quarter from then, 2 quarters from now.

So that then means that our revenue is aligned with when we provision those licenses to the customer, because that's our revenue obligation. And that's what we mean by deals with future start dates. The other scenario we've seen sometimes is when the customer says, I'm ready to commit to Nutanix, I want to go with you all. My hardware isn't coming until whatever end months out. So I want to time the license to be in tune with that. So that's why we see some of these, Mike, like look, we want to do more Broadcom migrations.

We view that as a good transaction. It's a good deal that we should take off the street. And so like I said, it's a commitment that the customer is making. It's noncancelable, et cetera. So we want to do that kind of structure. And we saw more of that, I think, towards the tail end of our fiscal Q1 in October than we had previously expected. Now to the second part of your question on what that means for the current quarter, Q2 and the rest of the year, we did take down our full year guide, I think, as folks saw.

And the reason for that was, one, we expect this feature start date dynamic to continue because we are going to do more migrations, right? We want our sellers to be seeking out and doing those migrations. Two, we also said that we expect our mix from our OEM partners to grow. And that's, again, generally as a business trend, it's a good thing because they are selling on our behalf.

So these are the likes of your Cisco, Dell, Lenovo, et cetera. It does create an incremental, again, a revenue timing delay potentially because we recognize revenue when they've told us that they've shipped their server and then we provision licenses to the customer. So that was the second thing we called out for the full year, Mike. And then the third dynamic we called out for the full year was around supply chain, potential supply chain issues.

We hadn't seen that to be clear, in the October quarter, but we were hearing enough about it anecdotally that we -- and we were only -- we had just finished our Q1, we still had 3 more quarters to go. We thought it was important to factor in some of that risk into our full year guide as well. So those were the 3 things we factored in. The other thing I'll say on that last one on supply chain because we do get questions on that one as well is, of course, we're a software company. So we don't have direct visibility into hardware or server lead times and things like that.

But right now, I think folks widely understand this industry-wide tightness around memory, DRAM, NAND supply, I think, has been well documented. We've also heard some tightness with CPUs. It's still too early to draw conclusions about how the broader server lead time dynamic may evolve. And of course, we're monitoring that pretty quickly and pretty closely.

The other thing I will say is around -- the other dynamic here, if you will, is around server prices increasing as a result of the supply tightening, right? So we believe a lot of this is occurring because all of the folks building out massive infrastructure, the hyperscalers, of course, are sucking up a lot of the supply in the market. And so it's leading to 2 things really. One is tightening supply, which I just talked about.

And then two, the potential for higher server prices. And so we've heard about the sharp increases in memory price, and it sounds like most server vendors are planning to raise their prices on servers to pass through those price increases. And what we will say is in terms of what we can control, right, we've taken many actions to offer customers, for example, choice of server vendors, so they can run our software wherever they feel they can get the best price across servers.

We're now supporting external storage, which we talked about extensively earlier. We've also enabled our platform now to run public cloud to the extent that, that helps the customer mitigate the potential impact of these higher server prices. So all that said, I think it's too early on this for us to know how this might play out or how it might impact us. But I did want to qualify that last piece a little more given what we've seen in the last few months.

Thank you for calling it out. If I could just come back to the future start dates, element. It feels like that now we're talking about multiple pieces here, but it feels like that's probably the largest piece when thinking about impact on the revenue guide for the full year. And I just wanted to get a sense, one, it sounds like, Hey, what we saw in Q1 is expected to continue through the rest of the year, potentially become more of a factor through the rest of the year.

And like is that a fair assumption? And then secondly, is there any expectation for -- like do you have lost visibility because we don't necessarily know when these future start dates are? Like what are customers communicating to you if they do want a future start date, "Hey, we know not today, but maybe September is going to be go live versus -- we don't know, but sometime in the next 12 months".

It's a great question, and I'm glad you asked it, Mike, because when I said earlier that it's -- even orders with future start dates are noncancelable, et cetera, the vast majority of them are also coming with a schedule of the delivery dates, provisioning dates that are in the contract in most cases. So meaning it's contractually agreed upon. And so we do have visibility into that revenue schedule when the order gets booked.

There is a smaller portion where it's more like what you described, where they will say, look, I know I want to make a commitment, and I have a rough idea of when it's going to happen, and it might -- but it might change. Even then we get a schedule from customers. And more often than not, actually, they stick to it, right? Because we have now -- this phenomenon itself is not new. We have been -- we've seen future start dates in the past as well.

It was more the magnitude of it that was unexpected in October. So yes, the vast majority of the cases, we get the booking, it's noncancelable, and we also get the schedule of when the customer expects to get how many licenses provisioned. And so that is effectively becomes our revenue schedule over that period of time.

And from where we were in the fiscal Q1 is the expectation that the volume of these deals with future start dates, kind of builds throughout the rest of the year. So as like a ramping up a bit .

Sorry, I missed answering the question. So we did say it continues through the rest of the year, Mike. And I don't want to get too granular about does it grow as a proportion or not, but we think it will be more or less in that magnitude going forward, because, again, this is -- to the extent customers want to do migrations and things like that, we want to help them do those and do them in a way that's sustainable for them.

And if it's purely a timing thing for us, then we'll work with them on those. I will also say, of course, that the key here is that we offer or agree to this future start date structure where it's needed and not do it where it's not to sort of maybe state the obvious. And so we are also making sure that we have the appropriate sort of managerial controls and approvals and things like that to make sure that it's being offered where it's a qualified opportunity, where there's a real customer need for it, et cetera, right? So that is something we'll continue to do going forward as well so that we're balancing this customer need where it's needed, getting that order off the street while making sure we don't offer it where maybe it's not a structure that's relevant for that customer or not needed and that the reps understand that, that they know where to use it.

And can you help us think about or qualifying any capacity, these have future start dates. So how is that impacting your financials today from -- I think about like an ARR or RPO. Again, you talked about these being noncancelable billings, but where should we expect that to show up or when would it show up?

Yes. So ARR treatment is very similar to revenue, Mike, in that -- so in the example I gave, let's say, this customer has purchased, let's take some round numbers, 1,000 licenses and they say, look, I want only 250 today, give me 250 next quarter and the remaining 500, 2 quarters from now. So we would take revenue for the first 250 million today and so on, right, as those licenses get deployed.

ARR is similar and that it's the annualized value of those 250 licenses would show up in ARR in this quarter and then 250 gets added on and so on, right? So ARR and revenue have a similar timing in terms of when those licenses are deployed. And this will be an RPO. So whatever is not recognized in the current period, does go into RPO, because, again, it's a confirmed booking, and we know that it is going to convert into revenue in the future.

And then the CRPO portion will be depending on the schedule again, right? So like I said, in most cases, we have the schedule. So we know how much of that is going to be in the next 12 months, which, by the way, the vast majority of those bookings do convert into revenue in the next 12 months. Very rarely is there a tail beyond that. They can be if it's a really large migration or something like that. But generally, next 12 months, most of that converts to revenue.

And then another element to talk to here is the what you guys call available to a new pool, new logos is also a big focus for the firm here. So how is it your balancing resources to support that renewal effort, which is been absolutely great for you guys over the past couple of years now as far as building up the free cash flow profile of the business, while again ensuring that you are acquiring new logos at a healthy pace.

Right. So all of the above is important, Mike, is to your point. And I would say renewals is actually a separate team. So we have a separate renewals team that is inside sellers. So they're not out on the field. So they're inside executives, if you will, inside account executives who are working on the renewals.

Now not to say that the field sellers don't spend any time on the renewal because often, you want to make sure that the sales rep who covers the account and the renewals rep are actually closely aligned, because there might be an expansion opportunity that is ongoing, for example, or we might have not an expansion opportunity during the course of the conversation about the renewal.

So they are closely aligned, Mike, but it's -- there is a separate renewals team, which spends the bulk of their time -- all of their time really focused on renewals. And then for the field seller, they are primarily compensated on land and expand. so incremental dollars. They do -- they are -- they have some incentive on renewal because, again, we want to make sure they're coordinated and that they have an overall view, especially with existing accounts, right, because you want to be -- you want to present a unified face to existing customers.

So we have -- they have a little bit of focus on renewals, but the majority of their compensation and variable compensation is tied to land and expand. So pretty clear in terms of where we want each team to spend the bulk of their time. And to your point on new logos, so then for the reps, they usually have a mix of existing accounts that they're looking to nurture and grow, and they'll have some white space where they have to go and convert them into new logos.

So you're right. Look, adding new logos continues to be an important priority for us because we think there's a lot of market out there for us to go and tap into. So we do want to make sure that our sellers do, do that hard work. So they also get a little bit -- paid a little bit more if they convert a new logo, for example, because it is more work, right, to go and get a new logo in relative to getting an existing customer who hopefully is really happy with us to buy more, not to say that that's not work. They're both involved effort, but it's -- understandably, it's harder to go convert a new logo account. So they do get paid a little bit more on that front as well. So you're right. It is a -- we continue to sort of monitor how that's going, how people are spending their time. And if we need to -- every year, we look at sales compensation and see if any tweaks are needed. But that's -- you're right, those are the priorities, and we try to demarket between the field sellers and the renewals team, so they know where their primary focus is.

Great. And probably the last one we'll have time here before we have to wrap -- if I think about the -- well, first, congratulations, we obviously saw the announcement regarding the accelerated share repurchase. But you guys have a very healthy balance sheet here 2 quarter, but for the ASR, can you help us think through the why now? And then secondly, more generally, how you think about capital allocation just given that cash on the sheet?

Yes, for sure. So I would say, look, our October quarter, Mike, you addressed this, didn't go as we'd expect it to from a revenue perspective. And we -- I would like to think we've had a long history of sort of telling you what we're going to do and sort of beating that and then raising -- continuing to raise expectations going forward. And we did not beat in October, right? And so -- and we've sort of tried to articulate kind of what happened within the business and what it means going forward and so on.

But that led to sort of the dislocation, I think, in the stock price that we saw. We, of course, believe in the long-term future of the company and everything else. And we've had a nice share buyback program, which we've been repurchasing for many quarters now, and folks can see what that pace has been. But look, like you said, we do have a robust balance sheet, and we thought it was a good opportunity for us to be out there buying shares in the market.

And so that's what we did with the ASR back in December. Now to your broader question on capital allocation, I would say, look, there's a few things we can do, of course, with cash as any company. We can pay down debt. We can do things like we did here on continuing our share buyback program and return capital to investors or we can do acquisitions. And I would say that, look, we have, I think, 2 outstanding convertibles on our balance sheet, and we will look to continue to sort of retain optionality on those as it makes sense.

We have flexibility in how we pay those down at maturity. So the first of those matures in fall of 2027. And so we'll continue to monitor what makes sense there economically for us to do, but we have optionality to settle it in cash or shares or a mix thereof. And then look, we'll continue our buybacks, right? So we view the ASR as incremental to our existing program because we thought it was important for us to be able to buy shares in the market at those levels.

And so we'll continue the share buyback program, Mike. And then on the acquisition front, we continue to be on the lookout, as I think any company should for interesting assets in the market that can augment our existing sort of strategy and maybe help us accelerate our road map, things like that. So we had acquired this company called D2iQ maybe almost 2 years ago now that really allowed us, by the way, great technology.

It allowed us to accelerate our cloud-native efforts, right? So our Nutanix Kubernetes platform or NKP really has its seeds in that acquisition. And we had some capabilities. We were able to combine it with theirs and accelerate our road map and get that solution very quickly to market. So things like that will continue to be on the -- on the lookout for as ways for us to tuck in acquisitions that really are accretive to the overall road map and to the overall go-to-market.

All right. Awesome. Thank you so much. I know we're out of time with that, but thank you for the participation here and thank you to the audience for joining. Thank you.

Thank you so much, everybody. .

Thanks for having us Mike.

Thank you Mike.

Thank you, everybody, for joining. Tim Long here, Barclays IT hardware comm equipment analyst. Happy to have Nutanix's management team here with us, Rajiv and Rukmini. Thank you so much for coming. No safe harbor, we're good. Okay. Excellent.

So yes, we've got a bunch of stuff to discuss here, but maybe we'll start with some of the hotter topics. Obviously, last quarter with the rev rec dynamics, maybe you can kind of look at this in a few parts, the talk about greater flexibility from customers, the talk about some of the third-party OEMs. So maybe walk us through kind of the changing dynamics that you guys experienced in those aspects?

Yes. So why don't I start with that? Thank you for having us, Tim. It's good to be here. So in our October quarter, first thing to say is we saw bookings, which is sort of activity in the quarter come in slightly ahead of our expectations. And what we said was on the revenue side, to Tim's point, we had revenue come in towards the low end of our guided revenue range. And the primary reason for that was we saw late in the quarter, we just saw more orders that came in with start dates outside of the October quarter, which meant that there was a shift out of revenue from that Q1 October quarter into future periods.

Why did that happen? There were -- one primary reason why that happened was we saw more migrations that customers are seeking to do, which is good news for us. We want to be doing more of these transactions. And the customers are making commitments to us. They're giving us a committed order, a booking. And in most of these cases, we collect multiple years of cash upfront as well from the customer, and we saw good free cash flow performance in our October quarter.

What they're seeking though, is more flexibility in terms of when they would like the licenses that they're purchasing. And because these migrations can take a period of time, several months, maybe up to a year, in some cases, they are looking for flexibility to have those licenses provided to them in a phased way, so in a ramped way, if you will. And again, we believe that this is a good business. We want those customers. We want them to commit to us. In most cases, they're paying us cash upfront, and we're okay with giving them that flexibility to deploy those licenses.

And what that means for us from a revenue recognition standpoint is that, that revenue then comes over time. So what we said was -- and these deals are not new necessarily. We had some assumptions going into the quarter about -- that we would have some of these types of deals. What we saw late in the quarter was we had more of them than we had expected. And what we said was if those transactions had come in as we had expected, our revenue would have been above the high end of the range versus where it came in is towards the low end of the range.

One other thing I'll add there is that ARR as reported, would also have been higher by a smaller amount, but would also have been higher than what we reported because it has a similar dynamic, but to a lesser magnitude. Now I'll add maybe one other point here where I know some folks have been trying to do some calculations around implied TCV bookings, Tim. So we also provided an RPO metric, remaining performance obligations, which was up 26% year-over-year in the October quarter and current RPO or CRPO was up 17% year-over-year.

So these transactions, where I said the revenue gets shifted out, those would be sitting in RPO. Some folks have been trying to do, I think, an implied sort of TCV bookings calculation and getting a number, I think if you just look at what we put out, that number is in the maybe mid- to high single-digit percent. And what we would say is...

You're talking about sort of TCV growth year-over-year?

TCV bookings year-over-year, correct. And so the clarification I'd like to provide is RPO is a useful metric. There's a small component that's not included in RPO, which is cancelable backlog. Now it's a small portion. It's been coming down over time. And I'll also say this cancelable tends to be customers saying us, give me sort of a 15- to 30-day change my mind type of approach. By and large, these orders do go into revenue. So we treat them internally the same, even though they're officially cancelable and so cannot be in RPO.

So I think the additional clarification we'd like to provide is if you factor in that dynamic around cancelable as well, the TCV bookings growth year-over-year implied would have been more like in the mid-teens percentage, which is, I think, important for folks to know as you think about the underlying health of the business, which we believe growth, like we said, was slightly ahead of our expectations. It remains unchanged. And our bookings for the full year also remains unchanged relative to 90 days ago.

Okay. And then this kind of the scaling of the license purchases. Have you seen a dynamic like this in the past? And what do you think, is it macro, is it just -- what's different now with some of these bigger cohort of customers?

Yes. So I said earlier that we have seen this, and we've given examples, I think, in prior earnings calls about customers seeking the flexibility. So that phenomenon itself is not necessarily new. What we saw again in Q1 was the magnitude, the number of folks who were looking for that. And I would say that comes from the idea that our primary competitor is -- has changed some of the dynamics in the market where customers in the past used to say, look, we'll start with Nutanix on one workload and then expand over time.

Now increasingly, many of those conversations are turning into complete takeouts, right, where it's sort of they're forced to make a choice of one versus the other, which, again, we're happy to compete in those and win our fair share of that. And we're also willing to, again, give those customers some flexibility where they do need it to provide those licenses over time. So it was a magnitude that was maybe different, but the phenomenon itself is not new.

Okay. Great. And then maybe touch on the mix of third-party OEM and impacts there?

Yes. So we didn't -- that was not a meaningful factor in October quarter, to be clear. But when we thought about the full year, there was this dynamic around start dates, which we expect to continue. And there were 2 other factors, Tim, one of which you just called out around more of our business expected to come through our OEM partners. These are like the folks of Cisco or Dell or Lenovo, where, again, we have been transacting through them. So that itself is not new.

What we're seeing is they are growing nicely, which again is good news for us because they're bringing us into accounts that we may not have been a part of, and that mix is growing over time. And the dynamic there is that when it comes through an OEM partner, there's a small time lag in revenue. Now that, to be clear, is more in the order of months. It's not -- it's probably 1 quarter delta, not 12 months or thereabouts.

But so in that instance, typically, the motion is, let's say, Cisco -- let's take Cisco as an example, they book a deal, we get notification of the deal. The revenue recognition happens after they have shipped a server, a Cisco server, they notify us, at which point we provision the license to the customer. So there's a bit of a -- can be a bit of a time lag there, which given that growing mix, we thought it was important to factor into the full year guide.

And the third piece, which again did not impact October quarter, but we thought was important to factor in for the full year is we are starting to hear of some shortages around certain components in the supply chain. Again, this is one step removed from us. We are not directly in that supply chain as a software provider. We are hearing that from our partners. And given we are early in our fiscal year, we thought it was important to factor in some of that uncertainty into the full year guide.

Okay. Yes, I was going to ask that with the rising mix of OEM partner business, you're now subject to more, whether it's component availability or if they see demand issues because of rising component costs, nothing to do with your solution. So how does that mix moving higher change like the strategy or the structure of the business?

Well, I would just correct that a little bit, by the way. I don't think the supply chain issues are because we have more OEM partners now than before. It's because customers, when they buy our software, they have to run it on hardware, right? And it doesn't have to go through an OEM route. They may be buying -- in most cases, by the way, today, they buy servers separately, right, from there who are partners of choice.

So the fact that they have supply issues means that they may not have hardware available to run the software, right? So that's the connection. The OEM piece is relatively still a small portion of our mix, but growing nicely, and we like that as a sell-through portion. So I just want to correct that particular point.

Yes. Yes. I was just saying the bigger it gets, the more things that are out of your control somewhat...

Yes. So the question is what can we do about supply chain issues, right? So -- and if you recall, I think the last time we had this was just around the COVID time frame, right, where we had significant delays and so forth. And so what we've done since that time to us is we've continued to diversify the set of hardware that we can run on, right? Our customers can run our software on. So for example, we have Cisco as a partner now. We have them now. We didn't have them at that time.

We now support external storage, right? We support PowerFlex, we support Pure Storage as of yesterday. By the way, the Pure solution is now generally available. And we do plan to support Dell PowerStore over time as well. So what that means for customers is they can run our software on their existing hardware without having to go wait for new hardware to show up.

And the third piece is we also run on a much broader variety of server configurations that are out there. So that combination means that we are a little bit more diversified than in the past. Now of course, if there's fundamental disruptions in the supply market, I mean that will, of course, have an impact from a customer advantage point of view, right? So we have factored some of that in as we looked at our guide for the next year -- for the rest of the year.

Great. Great. Yes. Yes, a lot of activity, which is -- and the diversity is great. Maybe if we -- another topic that comes up is AI and kind of hybrid cloud. Maybe give us your sense. Obviously, a lot of the AI now has been big data centers, large language model type stuff, but we're starting to see more edge and hybrid. So give us your sense on the Nutanix play there?

Yes. And first of all, the bulk, as you said, of spending today has been in terms of these large clouds for training and also more recently, the Neocloud or the cloud providers, but their customers are not enterprises for the most part, they are the AI native companies as well, right? So the enterprise adoption of AI is still pretty early -- in the early stages.

But the opportunity for Nutanix for us is that we provide a turnkey AI infrastructure stack, right, for them to run their AI inferencing applications as well as their multi-agent applications in a very simple way, in a very secure way with very predictable cost because if you have your own GPU cluster, that we virtualize and we support and we enable, then you can actually run a lot of these applications, which are having to pay on a per token basis, right?

It's a predictable cost structure. You can also run them in a secure way. You can run them where your data is present and you talk about the edge, right? So in a lot of cases, data is not all in the cloud, right? Data can be in a hybrid scenario, it can be in your data centers, it can be in your edges. And you may not even have the time to actually shift the data from wherever it is to the cloud aside from security and governance and data locality concerns.

So for those reasons, we think actually AI is going to be very much a hybrid use case as well, just like every other application. And all these apps today -- again, we are in a hybrid world, even for regular apps, right? And all of these apps over time are going to incorporate more and more of AI. And there's going to be a new generation of AI apps and agent AI apps being built. And so as those get deployed in a broader fashion in the enterprise, I think we have a full stack offering that provides a very simple turnkey, secure, predictable cost experience.

Okay. Do you think that's a type of evolution that will kind of be accretive to growth rate? Or how does that kind of factor into growth?

I mean if you look at it in very simple terms, our growth is tied to workloads that we land on our platform. And we do think there's going to be a lot of workloads or applications that are multi-agent applications. And that's why we want to be the platform that those applications can be run on. And by the way, the other thing you should note for all those applications the underlying infrastructure is actually Kubernetes infrastructure. And so we have now a full-fledged Kubernetes platform, right?

So our customers have the choice now of running modern applications with AI on top of Kubernetes. They can mix and match those applications with legacy applications that are on VM platforms, and they can get the best of both worlds and in a very flexible manner with a very simple and secure solution.

Okay. Excellent. Maybe if we pivot a little bit to -- obviously, it's been a topic for 5 years, the VMware displacement and market share gains. So maybe just give us a sense of where you view we are in that continuum? And as time has gone on, has the strategy at all changed to try to do some displacements? Obviously, there's been pricing moves by VMware, there's been ignoring smaller -- there's a lot of things that they do. So just curious where you think we are and kind of what's the path forward from here?

Yes. I mean I think, I would say we are about 2 to 3 years into a 10-year cycle. This is a migration that will happen over many, many years. It's not going to happen overnight. And so we are probably past the first innings of a multi-inning game here and probably in the second innings at this point. And I think sort of the proof point I'll allude to here is that if you look at the number of customers, new customers that we are adding to Nutanix, right? Last quarter was around 640. The prior year, we added about 2,700 customers, including over 50 Global 2000.

And that's been growing very nicely year-over-year, right? And that's just emblematic of the fact that more customers are choosing us as a platform for their future needs, not just today's needs, but for tomorrow's needs. So we are -- I think we still have a lot of migrations to go. And I would say, again, what we've gotten good at is, of course, doing the migration itself, planning for those migrations, doing it, and we can do pretty large-scale ones.

For example, we've seen a Fortune 500 financial services provider being able to completely migrate out significant estate size, 100,000-plus [indiscernible] of applications away within a year. So -- and a lot of those migrations are automated. And now, of course, for the larger migrations, they tend to do get staged, right? In this particular customer, by the way, they staged that over multiple tranches in a year. And that's leading to some of the revenue dynamics that you see today with us.

But from a migration perspective, we are the simplest option because the applications do not have to be touched. They can be -- these migrations can be done by infrastructure teams without impacting the application owners without resulting in any significant downtime for the applications. They can be done on-prem to on-prem. They can also be done on-prem to the public cloud, which is the reason why companies partner with us like AWS, Google, by the way, our Google solution is now available as well and also Microsoft, right? So all 3 of the major cloud. The same exact solution that can be used as a -- to migrate VM workloads, both on-prem and into the public cloud.

Okay. And can you talk a little bit, I think you alluded to kind of like a learning curve, the more innings you get through this game, probably the more automation and the more seamless you can make these migrations. So is there a scenario where a year or 2 from now, it's easier or faster or more economical for you to have a larger displacement?

I think, first of all, we are already there from a tooling perspective. I don't think there's a technology aspect of this that's preventing anything at this point, right? We have the technology. The other aspect of it is, I would say, supporting all the applications and certification of applications, which again, we are pretty far along. The places where we can make it easier is not in that, but it's in being able to support a broader variety of hardware configurations.

If you look at the market, a big chunk of the [SKs] are sitting in external storage. About 80% of the TAM is servers connected to external storage. And the more external storage that we support now with PowerFlex, Pure coming on, and PowerStore coming on later, the easier it is for us to insert into those accounts because otherwise, they would need a hardware refresh. So trying to -- so not need a hardware refresh makes it easier for us to insert in those accounts. So the broadening of the portfolio is going to help capture more of those migrations faster as well.

Okay. And there was a lot of drama around pricing when this all happened. Have we gotten to the point where there's a little bit more stability and predictability in your competitor and just industry pricing overall?

I think there's still -- it's a very dynamic market on the pricing side. We are seeing quite different responses depending on the kind of customer. Larger customers, Broadcom is, of course, very focused on the larger customers at the very top of the pyramid, and they're not as focused on the smaller customers, both in terms of pricing and in terms of supporting them as well, right? So pricing continues to be an evolving thing.

From our perspective, I mean, when we look at landing new customers, I mean, our goal is not to be a price leader necessarily, but to be providing a much better TCO option compared to Broadcom, while also providing our customers with a future-proof path for them to run their containers, to run their AI, to be in the hybrid cloud versus Broadcom's super focused just on a private cloud. So a much broader aperture that helps customers in the future.

Okay. And it sounds like the larger enterprise, you mentioned the Fortune 500 financial institution. I imagine those are heavier lifts and a little bit more difficult to do a displacement because that's kind of in the wheelhouse of what Broadcom was...

So it's interesting, right? So this particular financial services provider was actually able to do most of the migrations in an automated way. They completed the migration in less than a year, and their IT teams were able to do this. And in fact, in this particular case, they were able to reuse a lot of the hardware that they had without requiring new hardware as well. So I think that's -- those kind of scales, I think we can handle. These are pretty significant migrations, right?

I think at the very top of the pyramid, you're looking at even bigger estates and millions, of course, not hundreds of thousands, right? So there, again, I think it's just a much longer duration thing, right? It's going to take them -- and plus they tend to have much more processes and they tend to be regulated industries. So it just takes longer, right, for those migrations. And those are a bit harder.

Okay. I wanted to touch on partnerships. You mentioned several of them. But if we think about maybe the AWS or that camp of companies and then maybe the storage server vendors as a separate set. How does the go-to-market work there? Obviously, it allows you a lot more at bats. So it's giving you a lot of chances. But curious how meaningful you view these partnerships and ramping. It sounds like there's several more in the pipeline on those?

Yes. Let me sort of break them into 3 categories perhaps. One is just OEMs, that OEM our software through these other companies. The second is public cloud. And the third, I would say, is external storage partnerships. So on the first one on the OEMs, today, we have Cisco, Dell and Lenovo reselling our product, HPE to a small extent, but really these 3. And Cisco is the one that's been actually the best aligned with us and continue to grow very nicely. We do expect them to continue there now in their third year, I guess, with us.

And that's continuing to ramp along very nicely, partly because Cisco has no conflicts, that we are entirely complementary to what Cisco does with us, right? They have their servers, they have their networking, and we provide the infrastructure software. So a very complementary relationship. And now with Dell, it's a more complex relationship. Of course, they are a very big player in the space, but they have their own storage arrays. So for them to resell a HCI solution from Nutanix is a bit at odds, right?

Now they do have it in their price book. Their sellers are paid on it, but on HCI, they're not going to be as active. Now when it comes to external storage, it's a different situation altogether. Maybe I'll get to that and then go to the public cloud. On the external storage side, it's very synergistic with the storage providers because they love the fact that now they have another option besides VMware that they can work with. And so that's why you see us growing our partnerships first with Dell PowerFlex, which is at the top end of their customer base, then with Pure, the solution is not generally available as of yesterday. And then with Dell PowerStore, which is coming on next, and we do hope to expand the repertoire over time.

In that scenario, again, we have 2 different motions from a go-to-market perspective. The first motion is, yes, we sell our stuff, they sell their stuff and we meet at the customer. That's the case, for example, with Pure Storage. And it also happens with the other ones. We also have an OEM route through Dell today, right, where Dell can actually resell our software. So those are the 2 routes to market. And I do believe this is a significant opening of the TAM for us, right? The fact that we support these storage arrays and we can go in there and get into these customer environments easier.

The third is the public cloud partnerships. And we have those with AWS, Microsoft as well as Google, which is the most recent one that just went GA. AWS is where we have, I would say, the tightest go-to-market alignment and relationship. We have joint programs to again help VMware customers migrate with migration credits being provided by AWS to migrate into AWS on top of Nutanix. And that applies for both cloud-to-cloud migration as well as on-prem to cloud migration.

So there's VMware offerings in the public cloud that are being deprecated, I should say, and customers are migrating from those into a Nutanix solution on top of AWS because, again, that's a very easy migration. And then also customers -- some customers are interested in migrating from their on-prem into the public cloud. And we make those very easy, and that's why AWS is very interested in continuing this relationship and working with us.

So of all of these, I think the fact of the matter is now we have a lot more friends in the market than we had before a few years ago. And the OEM partnerships are certainly ramping as we speak today. And the public cloud partnerships, I think, are a bit earlier -- I mean, a bit early in the go-to-market relationships that we have, but I think they're also looking promising.

Okay. Great. Shift a little, I do want to talk about kind of the renewals business and kind of the outlook there. Curious how you think that setup is into fiscal '26?

Yes. So I think I'll start by maybe saying when we think of the renewals business, it's simply transactions that we've done before to either land with new customers or expand with existing customers and when those transactions come up for renewal. And so in that sense, it's mostly stuff we've already done that shows up based on the contracts and the durations that folks have had. So we expect that renewals business for this fiscal year, I think we said that in the last earnings call to grow year-over-year, and it will continue to grow over time.

And so yes, in that sense, we continue to see that as a healthy foundation for us because we can say with a reasonable amount of certainty that those renewals are going to come through. And in terms of -- when you think of the top line metrics, Tim, I would say the renewals over time has continued to be a bigger base of the total on the renewals line, again, providing a nice foundation. And on ARR, of course, it's really important for us to retain as much of our customers as possible so we can, one, protect the ARR base and then grow it as well, right, over time. So yes, feeling good about that outlook on renewals for fiscal year '26.

Okay. Maybe still on the financials, can you talk about kind of the moving parts around the 21% to 22% operating margin target for the year, the revenue disruption, how did that play into it? And what are some of the moving parts there?

Yes. So I would say more generally, maybe, Tim, if you take sort of a broader view that we have had meaningful improvements in our non-GAAP operating margin over time here from several years ago. That said, we also think there is room for us to continue to improve operating margin. So I think we would say we are not yet at any kind of sustainable level on operating margin. So our intent is to continue to drive leverage in that time here -- in that line as we go forward.

Specifically to your question on fiscal year '26, we maintained our guide for the full year operating margin at 21%, 22%. We did take down the full year revenue despite having our business and bookings outlook kind of remain unchanged for all the reasons we talked about earlier. And the thought process there really is, I think there are a couple of factors that naturally mean our OpEx number is coming where it is, allowing us to keep that 21%, 22%. One is there's commissions expenses that do flow to the operating expense line that are aligned with the timing of revenue. And so as the timing revenue adjust, so does the commissions expense.

Some of that is getting timing-wise pushed -- shifted out of '26 into future periods. The other piece that we had mentioned was we have some payments that we get from some of the partners that Rajiv talked about that are a credit to the expense line, so contra expense, and those we expect to be slightly higher than what we had expected earlier. And so that's now an offset to the OpEx line. So OpEx coming in a bit lower, allowing us to maintain that 21% to 22%.

The last thing I'd say is one of our ongoing priorities is to continue to become more efficient as a company as I think it is something that we should be doing and that we are doing. So that's all -- that's how we thought about all of that as we thought about this 21%, 22% reiteration of the operating margin guide. It does imply year-over-year increase in OpEx. We have to obviously give raises to our people. We're making some selective investments in some areas on the go-to-market side and on the R&D side. On the go-to-market side, it's continue to make sure we have leverage, making sure we can sell our entire portfolio, making sure that we can make our customers who are deploying us be successful in adopting the solutions.

And then on the R&D side, in addition to some of the core -- strengthening of our core platform, it's in areas like the external storage piece that Rajiv mentioned earlier, where we are expanding our portfolio there and in newer areas like containerized applications and so on. So it's a balance of continuing to invest for growth because we do believe the big market opportunity while continuing to drive improvements on the margin line.

Okay. Great. Maybe the last one I probably should -- more high level should have started with, but HCI continues to grow and take share of the environment, but still a lot of room to go. So what do you think will keep that movement going? It sounds like a lot of these partnerships will help. But just high level, kind of how do you see just overall industry growth?

Yes. I would say, first of all, Tim, just to anchor us, our vision is much broader than HCI at this point. I mean we started out, of course, pioneering HCI. I would call ourselves as now a much broader platform, right? We are a cloud platform that can handle many different kinds of use cases, many different kinds of workloads, many different kinds of configurations. And the HCI component is just one option. You can do HCI or you can do external storage.

Now specifically in terms of the drivers there on HCI per se, HCI still provides a very compelling TCO for our customers compared to legacy architectures. And so there's typically 30% to 40% savings when you combine compute, storage, networking, all put them together, put them under one management, the degree of automation you get, you need far fewer people to run these infrastructures at massive scale. It provides essentially cloud-like economics and cloud-like automation for environments everywhere, right, whether it's in the data center or the edges or even on top of other public clouds.

So that's the benefit of HCI. And so therefore, there is still room for HCI to continue growing at this pace and displacing legacy architectures, right? That will continue for many years. Now on top of that, there is a Broadcom tailwind, right, that is creating customers to move away from the VMS stack onto some other stack. We are a beneficiary from that perspective. But our platform now is broader, right? For us, the storage element of it is now an option in the stack, right? You can either get our compute -- rest of the stack, which is compute, networking, security, operations management, automation, all of that with or without hyperconverged, right?

So you can do hyperconverged, if you like, or you can also support external storage, right, Pure, et cetera, right, Dell PowerFlex, et cetera. So we have a broader platform. And on top of that, you can run virtual machine applications or containerized applications and AI applications, right? So we think of our opportunity as being much broader than just HCI at this point and really representative of going after that entire landscape.

And the way I would look at it is what we've done over the past few years is the HCI TAM will continue to grow, right, serve that addressable market as we displace more and more legacy infrastructure. But on top of that, by broadening the platform, we now have access to more of the TAM by being able to insert into a broader chunk of the available TAM with less disruption.

Okay. Excellent. I think we finished just on time. So thank you so much, both of you. Thank you, everyone for joining.

Thank you, Tim, for having us.

Thank you.

Thank you very much.

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.

All right. I think we're about ready to get started here. Rajiv, Rukmini welcome to the GS Communacopia Technology Conference. Thank you both for being with us today.

Great to be here. Thank you.

Thank you.

Well, Rajiv, let's start with a big picture question. Where would you like to see Nutanix in the next 5 years?

Yes. I think it's -- for the last many years, since we were founded in a start-up way back 15 years ago, we've been a pioneer and innovator of HCI, but always been a challenger in the market, playing up against and winning our fair share against large incumbents whether they be the legacy storage vendors, whether they be companies like VMware and competing against public cloud.

And where we've come today and where we're going is that we've now built out what I call a full infrastructure platform. A platform that can run all kinds of applications, existing applications, the new modern applications, the AI applications being built in the future. And they can be run anywhere and the data associated with these applications can also be managed anywhere on-premises, edges, public clouds.

And the opportunity I see for Nutanix over the next 5 years is to become a de facto platform in this area, a leader in this area that companies of all shapes and sizes and organizations trust as a trusted innovation and long-term partners that they can run their businesses on and as a leader. So some of the proof points I'd just say that we are pretty happy about is, for example, over the last couple of years, we've been named as a leader in Gartner's distributed hybrid infrastructure Magic Quadrant.

And what gives me pride is the fact that we are the smallest company to be in that leadership quadrant up against people like AWS and Microsoft, big companies that are out there, and Oracle. So our vision, again, aspirations, I should say, really to become the de facto platform for companies for applications and data.

That's a great jumping off point. But before we dig into some of those pieces, I wanted to get -- talk a little bit about your background, right? You spent time at Cisco, Broadcom, VMware before landing on Nutanix. Can you tell us a little bit about what you took away from those experiences and how that's informed your leadership of Nutanix?

Yes. I've learned a fair amount that I think have proven to be quite helpful for my current job. I've learned the market dynamics in the space that we operate in quite a bit. I've learned what it takes to innovate in this market, what kind of products need to be built and how to look at what's happening in terms of the future and anticipate that.

Also, I think the businesses that I ran at many of those companies are much bigger than what I'm running today, right? And so I've learned out of scale. And a lot of these cases, we've had to go scale businesses that to multiple billions of dollars. And I think that notion of what it takes to scale these organizations and execute, I think, is what have brought to the table as well with Nutanix. So it's been a good journey. It's been 5 years now almost, and I'm looking forward for the next 5.

That's great. Now Rajiv, the debate between private and public cloud has been ongoing for years. So from your perspective, what are the enduring advantages of private cloud infrastructure? And why do you believe this remains a resilient and strategic opportunity in today's landscape?

Yes. And if anything, I would just say over the last 5 years, the pendulum has swung back and forth on this. It used to be 5 years ago, a lot of CIOs were talking about just going all in on the public cloud. And I think the ones that did go in realized that it's not for everything, right?

There's a play for the public cloud. Clearly, it's great for getting new workloads up and running quickly. New apps up and running quickly. It's like a drug. It's very easy to consume and get it done, but then it's very expensive. It's a very expensive habit. So what happens today is that everybody realizes that the private cloud, if it's properly engineered can be much more cost-effective. But beyond that, there's a lot of gravity on data. there's, for example, concerns on sovereignty, data locality, privacy, security and real-time actions.

And now we're getting into the AI world. And same thing happens with AI, it's all about the data. And so where is that data, where is the data being generated, where is it going to be consumed and you're going to need to run your workloads right there and a lot of data is being generated and consumed in data centers and the edges in manufacturing sites. And if you're an oil and gas company and exploration site. So there's a lot of action happening on-premises and at the edge as well.

So which is why I do believe that this is actually an enduring opportunity for what we call hybrid cloud, which is, it's not one or the other. It's really both. And it's about being able to manage these applications and data wherever they may be and create that infrastructure that can be flexible. And that's what we are aiming to do at Nutanix.

And why is it that you think that most of the AI workloads today are running on public cloud? Do you inevitably see a situation where some of that gets repatriated back to on-prem?

Well, actually, I don't think there's a huge amount of AI workloads. Right now, a lot of action has been on training and building these models. And that's naturally a place public cloud and large compute centers are where you build these models, you get them trained. And where I think it gets much more distributed when it comes to inferencing and a slew of new applications are being built that do AI inferencing.

Now if you look at the market, so far, it's been all about training. And then on top of that, there's been software companies that are using some of these AI models, these AI native companies to go starting to deliver services. And that also starts to happen in a public cloud. But then as enterprises and organizations start actually using AI to meet their needs on a daily basis, they're going to find again that -- and we're already seeing this, that they have to do this where the data is. And the data, again, is a lot of it is on-prem, a lot of it is the edges. That's why I think AI like every other application will also be a hybrid application.

Very interesting, and I want to come back to that as pertains to GPT-in-a-Box, but I want to pull Rukmini into the conversation.

Nutanix recently reported 4Q results. It sounds like there may have been a bit of confusion around how to interpret ARR, NRR given some of the larger, more complex transactions that you guys are now doing on top of the change in methodology that you guys introduced. So maybe you could clarify for the audience with the dynamics at play here?

Yes. So the change in methodology that you are referencing is we proactively decided to align our ARR recognition with when customers are provided with licenses. And so this is purely a timing adjustment. It's a proactive thing that we're doing. It's like a start of a new fiscal year seems like a good time to do it. And if you look, we also provided a schedule for investors at the back of our investor deck where you could see both the new and the old methodology, very clearly for the last 8 quarters, so that folks had all the information.

What we're also reminding folks is that going forward, all of our ARR and associated metrics, NRR, like you mentioned, are going to be based off of the new updated methodology. So starting point for Q1 that folks should think about is the ending ARR for the most recent quarter under the new methodology, right, although that this is a transition quarter, if you will.

And I would say that the reason we do this is because, again, it's aligned with when customers have provided the licenses and it's more reflective of just say how industry practice, but it's purely a matter of timing, right, in terms of the actual back itself.

Very good. And maybe moving on to kind of fiscal '26 guidance more broadly. Can you walk us through some of the puts and takes that inform the initial guide? How do you balance some of the long-term secular tailwinds versus some of the near-term dynamics you're contending with Fed uncertainty, duration headwinds, deal cycle elongation?

Correct. So I think a few things. Maybe I'll start first with what do we see as our long-term growth drivers. And that obviously also will continue in fiscal year '26. So the first one is our continued deployment of our HCI architecture, as Rajiv said, which was our pioneering architecture into legacy environment.

So the vast majority, we believe, of a private environments are still running a legacy, what they call a legacy 3-tier architecture, separate, compute, storage and networking. And so there's a big opportunity for us to go in there and displace that with our modern architecture. That's our bread and butter. We've been doing it for years. and we intend to continue to drive that.

One tailwind to that growth driver is what is happening in the market from a competitive perspective, which gives us an opportunity or a multiyear opportunity really to accelerate that move. So think of that as 1A and 1B of our growth drivers. Another one I would bring up here is what Rajiv said earlier in terms of the world becoming more hybrid, he talked about the distributor hybrid infrastructure that Gartner puts out and so on. And we think that's still in early innings, and we have more value to add there.

The third driver, I would say, is cloud native and modern applications. which is addressed by our Nutanix Kubernetes Platform, NKP, which is relatively small and newer for us, but it's a very mature product and platform that we acquired a company about 18 months or so ago that had been existence for a while. So the technology is quite mature and now we're able to take it to market. We've had a good year with NKP in fiscal year '25, and we expect that to grow going forward.

And that's a secular win because we can now bring to our platform the more modern and cloud-native workloads. And then the last growth driver, I'll say, is around our partnerships. So we've announced a slew of partnerships, and those should be driving more leverage and more incremental top line for us. So those are kind of all the things, the growth drivers.

As you said, there are things that also give us some caution in terms of overall uncertainty in the critical geopolitical environment. U.S. Fed uncertainty because of just how they're buying changes of personnel and so on, that we've also had to bake into the guide and then contract duration.

So our revenue, I think, as you know, is not fully ratable. There's an upfront component as well that is that is affected by contract duration, and we expect duration to blow down slightly year-on-year. And so that, those 2 will be a bit of an offsetting effect. But that's all baked into the guide that we gave for fiscal year '26, which is about 15% growth as a midpoint.

Very helpful color. And for Rajiv, one dynamic that's unique about the partnerships that Rukmini is referencing here is when you think about Dell and Pure Storage, right? Nutanix is now supporting external storage. You already announced 2 early wins with PowerFlex, pretty exciting, considering it's only been in the market for a couple of months. So can you talk about what informed this decision to really start supporting external storage? And what are the advantages to this approach?

Yes. I mean I think for the longest time, our whole approach was we were going to displace external storage with our HCI platform. And that still continues to be a big motion for us. Now if you look at the progress that we've achieved against that, in this enterprise market over the last 15 years, I think HCI has gotten to be maybe 20% to 25% of the overall market. The remaining 75% or 80% is still very much on traditional storage.

Now we will continue to eat into that over time, and that's still very much a core motion. And in the past, by the way, there was really no opportunity or no reason to support external storage because, first, the external storage folks viewed us as a competitive side. And second, there was really not much interest in customers wanting to displace a VMware hypervisor for somebody else.

So we didn't have this opportunity in the past. But what's changed now is the fact that VMware now has raised prices and therefore, customers are looking for an alternative. And they're also pushing HCI with their VMware Cloud Foundation. Which is putting the external storage folks also at risk and they need to partner with somebody else. And that's why we've seen this sort of interesting situation in the market where we have customers coming to us as well as the storage partners coming to us saying, please support, and let's work this, and that was the genesis of us starting out with Dell and then now Pure Storage. And I do expect that we'll do more of these over time.

So the rationale for us as we get into this market now is that we can now insert into the broader market with a subset of our offering in a much easier way, without requiring customers to make architectural changes. They can continue to deploy the same architecture that they were deploying, use the same hardware that they were working on. And just overlay out software instead of the current software that they have.

So it's a much easier migration path for the customer than requiring them to migrate to HCI. So I look at this and say, okay, now we can go up to that remaining 75% we can get in the door faster in some of those accounts than we could if we just only had it yet. So that's what drove the decision.

Right? So now you can wedge into the 3-tier environments. So it's kind of a 2-step motion, right?

Exactly. And over time, we'll try to earn our keep with the rest of HCI.

Yes. And what's your confidence rate that inevitably, when these come due for hardware refreshes that you can start to roll those over into full stack HCI deployments?

Well, not all of them will roll over. Some portions -- some subset of those, we would be able to roll over into a full stack. Others will continue on external storage. And now we have the ability to go figure out and manage across both of these environments.

And we also have the ability to tier our solution as well from a pricing perspective in terms of a full stack and maybe a subset of the full stack. And it just gives us a lot more weapons in our arsenal to go out there and compete.

Yes. And Rukmini, I think one question that's always on investors' minds is, now that you're supporting external storage, how do the economics compare relative to a full stack HCI?

Yes. So as Rajiv said, this is not the full stack in terms of the capability. At the same time, we are providing an option to customers who are looking for an alternative at an important time for them. And so if you think of sort of the bookends on one end is what our full stack offering is offered at. And then on the other end, is what the main competition, right, in this case, Broadcom's VMware used to have available, which they no longer do, by the way, in terms of the stand-alone hypervisor solution, which they used to have along with some other capabilities. So those are the 2 bookends, Matt.

And for us right now, I think we have room in terms of where we price around that. And so we are trying to balance in its early days, I should say, because it's just -- as you said, the solution has just been in the market for a couple of months here. So what we're trying to balance is where there is value for the customer to adopt this solution, but also giving us flexibility and making it a smaller hurdle for them to switch to the full stack when there is an opportunity like down the road when they are depreciating their hardware to switch to HCI. So we're balancing a few things there as we think about pricing and it's early days. So we're also discovering what the market will bear.

I just want to make 1 point on that, which is sometimes when people think about this compute offering, they think of it it's a hypervisor. It's actually much more than a hypervisor. Because if you look at our stack today, we have the compute virtualization. But then we have a network virtualization. We have the operations. We have Kubernetes. And yes, we also have our own storage.

Now effectively, the way you should think about the external storage offering is it's got everything in there except for the built in storage, right? So it is a full stack of compute, network operations, Kubernetes, all of that is in that stack. It's much more than a hypervisor. And then the customer has the choice of whether to use HCI storage or external storage, and as Rukmini pointed out, there's a big pricing umbrella that we can go work under to make...

Does that come all bundled? Or can they adopt NKP down the line and the...

Yes. We always want to provide our customers flexibility use what you need, not force it upon the customer, not for them to buy stuff they don't want. Because for us, it's all about the customer success and then adoption, they have to adopt it and they have to be happy with that, and then they have to renew and expand with that. So that's a motion that we try. So we are very focused on what they want and how they can adopt it and be successful.

Very helpful. And I want to drill in on the new customer momentum. It's been very strong for Nutanix for the last several quarters. You've been investing quite a bit in channel enablement. You've also announced several OEM partnerships. We touched on a few of them. How would you rank the drivers of this accelerated customer momentum? And how durable do you believe this is?

Yes. I think, first of all, I think for us, I would say the first part of it is the fact that we have, as an organization, focused on going and landing new customers. from a GTM motion, from a go-to-market motion in terms of customer programs, partner programs, our own sales force and incentives for our sellers. So we've done a lot of that work ourselves.

The second, I would say our channel has certainly contributed, right? We have a channel-first model. And we have incentives into the channel partners. Many of these channel partners have these as existing customers that may be new to the Nutanix family, and we welcome those customers coming in.

And the third, OEMs, especially Cisco, I would say, has been a good contributor of new logos for us over the past entire year as this is the second year of Cisco with us. So I think all 3 have contributed quite a bit. And of course, there's -- on top of all that is a general notion of many customers wanting to migrate away from Broadcom VMware. So that just provides an overall umbrella on which we are executing.

I'll add one thing there. As we said on the call that we expect to continue to add mid- to high 3-digit new logos on a quarterly basis. So more or less sustain the number of new logo additions. Now the growth has been really good in fiscal year '25.

That growth rate is going to be hard to sustain off of what is now a tougher compare. But as Rajiv said, there's lots of reasons why we want to continue to add customers on top...

I mean I'll just give you a perspective on that. I mean, so today, Nutanix has about 30,000 customers. The addressable universe out there is about 200,000 customers. So there's still a lot of companies that we can go try and land.

Great. Nutanix's product velocity has expanded the scope from infrastructure modernization to really hybrid multi-cloud enablement, like how are customers now embracing this broader portfolio in practice? And what are some of the most compelling ways they're adopting more of the platform?

Yes. I think the -- one of the main things we've seen is that the number of use cases within the customer environment has gone up substantially. So we used to just be, okay, on-prem HCI, and that was our motion. That's what -- that was the use case that we were selling.

Now today, we are selling a much broader platform, right? They can use that with external storage, they can run their modern applications with Kubernetes and I'm very happy with how that part of the business has grown over the last year. It's still small, but we're doing well there, and we expect to continue growing that portion of the business.

Where they can use this on-prem as well as on top of public clouds. And we've seen some initial -- I mean, we've had that in the market for quite a while with AWS and Azure. They're bringing Google to market. We've actually seen over the last year, some initial success in landing a customer first on the public cloud. And again, a lot of this is driven by the fact that these were VMware customers in the public cloud, and they're looking for an option. And migration from VMware to Nutanix in the public cloud can be done fairly easily very quickly.

And so we've actually seen a handful of customers, I can't call it a trend yet, but a good set of customers actually start their journey with Nutanix now in the public cloud. So you can see that this all this widens aperture of what we can go off for a customer in terms of meeting their needs and meeting their needs for applications and being able to run them in many different places.

You're starting to see more lands with NC2 as the anchor product. Is that on the back of some of these deals that you struck with AWS around the migration?

Yes, that's absolutely correct. Yes. In fact, that AWS expansion partnership is a very critical part of this...

And it's still ongoing?

Yes, ongoing. .

And then, Rukmini for you, how early are we in the multiproduct attach opportunity, right? You guys have a ton of new products to sell as a part of the broader platform. So when do you expect this to be a more meaningful contributor to NRR beyond kind of the workload expansion opportunity?

Yes. So to be clear, it does contribute today. I think we can do more. I think, is the -- and so you're right to ask the question. And so what we've done over the last, call it, 12 months or so is to higher more portfolio specialist sellers, those who are experts in areas like NDB or NKP, which are Kubernetes platform in order to assist our main core sellers to drive more of this portfolio attach, because our core sellers and the technical sellers who work with them, certainly understand the platform really well and what customers are looking for, but they're not as deep experts in this particular product area.

So the idea is to create really a partnership between the 2 teams that they can drive more portfolio attach. We think we can do more really across the portfolio, but we think NKPs showing some encouraging signs. Likes I said, fiscal '25 was a good year for NKP. Still small, to be clear, a very small portion of the overall base should be growing nicely. So as we think about '26, so there's some investments we've made now those portfolio sellers are ramping and should start to be productive here over time to help drive more expand with our customers.

And I'm curious, Rajiv, for you, like when you think about the NKP opportunity, is this more migrations of existing VMs on to containers? Or are you -- is this really positioned as more of, hey, we're going after net new apps because this is -- they're all being developed through in containerized environments. So can you peel back that onion for us a little bit?

It's a combination, but more oriented towards the latter, which is net new applications because there's a ton of new applications being built. And people, when they build new applications today, run them on Kubernetes typically. And every AI application that we're talking about is also going to be running on Kubernetes, some form or fashion.

Therefore, a lot of this is in front of other new applications are being built. And yes, at the same time, the new applications are being built, some portion of the existing application footprint will be refactored into containers. And so we don't distinguish necessarily between those 2, but our view is to provide customers with that flexibility, which is you can run your existing applications, but at the same time, you're going to have a mix of existing and new applications and we can run both of them on the same platform. And you don't have to choose a priority, do I do this or that? You can mix some match.

Very helpful. And maybe we move on to the big topic of conversation, which is VMware. You guys have been quite vocal about the opportunity around the VMware disruption, but also, I think, very deliberate in messaging this as a gradual sort of multiyear opportunity. So maybe remind us why this is the case? And how far along you think we are in this opportunity?

Yes, I think it's -- we've already said that this is a large, multiyear opportunity. And many analysts have pointed out that some subset of VMware customers will leave over a period of a few years. The numbers are very -- Gartner and others have said 30-plus percent of customers will leave. And clearly, we're seeing that. We're seeing newer customers migrate. We've added 2,700-plus customers over the last year. And we're seeing that increased base of customers, and almost all of them were using VMware before.

Now the reason this takes time is because infrastructure is fairly sticky to migrate infrastructure from one platform to the other, in many cases, first, there's the timing of the VMware licenses, number one. Number two, for HCI at least, you have to replace, in many cases, existing hardware. And so when a customer buys hardware, they typically depreciated over a period of 3 to 5 years. And so they have to -- you have a time that are precious with the depreciation cycles. So that's the second aspect.

Third is migration requires some work. Of course, we try to automate the actual process as much as we can, but it still requires the customer to have a focused project and migrate and put in some effort to go and migrate everything and learn a new platform. Whatever that may be.

And the fourth is just I would just say inertia. There's a lot of inertia in this business. Customers have a lot of priorities. And so all of these, I think, contributed to the fact that migration is surely happening, but it happens at a gradual pace. And to characterize where we are, I would say we are in our second innings of a baseball game.

Very, very early then. I think about the timing of renewals piece, like in '22, the deal was announced, in '23, it was closed, right? So you kind of look at '25, '26 like a lot of these customers are on 3-year ELA. So I mean how big is the kind of pool or addressable pool over the next kind of 12 to 18 months when you think about this opportunity?

Yes. I mean, look, the -- I think this is -- again, this gets changed out over time. By the way, some customers who renewed once. I've already renewed with Broadcom. In fact, what Broadcom said is vast majority of their target customer base is now on VCF subscription.

Okay. And the question is, again, as they come up for renewals and some of them will come up for renewals now. Some of them we renewed maybe last year. So there's kind of a continuously coming out pool of revenue. It's not -- I don't think there's like a peak event where everybody renews, but it's a gradual sort of renewal event.

Now again, they have to plan for these migrations in advance. So if there's a renewal event they have to give themselves time ahead of that to make sure they can plan and execute the migration. Depending on the size of the environment, for small customers, like we had a law office, for example, migrated a couple of data centers, maybe tens of servers, and they were able to do that within a matter of a couple of weeks.

For medium to -- medium-sized enterprises from anywhere from [ 25,000 cores to 100,000 cores ], we've done many of these migrations in under a year. For the very large customers with millions of cores of compute, that might take 2 to 3 years to migrate, and so they have to plan, start planning and start executing ahead of the migration time.

And some of them start. Some of them have completed. Some of them haven't started. In fact, many of them haven't started. And so that's still says that some of these guys are going to actually renew again for the second time, and then again, we might get in there as a second vendor. We've seen that in many cases where they bring us in as a second vendor, and then we win a portion of their estate and then we expand over time.

Right. Rukmini, from your side, I mean what have you seen from kind of a pricing perspective out there as it pertains to kind of VMware? I mean are you seeing Broadcom get more or less aggressive on kind of the pricing side as you guys go after some of these larger enterprise deals?

I would say things have generally played out more or less as we had expected it to be because I think Broadcom playbook with that acquisition is fairly well understood.

What is different about VMware if they have a much larger customer base than perhaps some of their earlier acquisitions. And to Rajiv's point, it can be quite sticky in general, they tend to acquire businesses that are sticky for a good reason. And as we know, they made some changes to their pricing to make it more expensive going from just using hypervisor to the full platform, which is what they have done.

Now for us, we have always been comparable in terms of pricing in our full stack compared to theirs, just to be clear. We're not here in the market to be some sort of discount offering. We add a lot of value to customers. Our TCO, total cost of ownership savings, are meaningful to customers. And so we want to price in a way that is commensurate with the value that we're adding to.

So that's always been our approach, and continues to be our approach. Now of course, do we have a view around volume-based pricing, right? It was a customer with like Rajiv said, on the largest of the large million-plus scores, we'll take that into account as we think about pricing and price it lower than someone who's maybe a much smaller deployment. So naturally, we'd make adjustments like that. But our intention is to be competitive in the market because of the value we bring.

And we'll also like pick our spots to we want to go and win here, right? And I think they've also Broadcom as for example, has also been quite clear even publicly about where they're focused in terms of which accounts they care about, which are the largest ones and so on. And so we are focused, as Rajiv said on making sure that our value proposition is more around -- we are a long-term partner.

Our Net Promoter Score has been 90 for over a decade. We are innovating in hybrid cloud. We're innovating in Kubernetes. We're innovating in AI. We are the partner you want for the long term. And then pricing is 1 of the components versus sort of trying to win purely on price. So it's really all of the above.

Understood. I want to shift the conversation to margins. Nutanix has done a commendable job growing into its cost base with free cash margins now in the high 20s. Your guide suggests OpEx will run a bit hotter in '26 versus the past couple of years. I guess what are the primary investment initiatives for this year? And how would you frame the drivers of leverage in the years ahead?

Right. So our margin -- operating margin on a non-GAAP basis for fiscal year '26, the guide at the midpoint was a touch higher than what we did in '25, which I believe is what you're referring to. And in terms of the investments that we're driving. For us, the #1 priority is driving growth because we see a large opportunity ahead of us, and we want to make sure that everything we're growing is in favor of getting that growth to be as high as it possibly can.

Also knowing that we have to drive leverage to the bottom line and drive improving operating margins because I will tell you that we're not at our long-term operating margin. We know that we can do a lot better than where we are.

So in terms of investments that we've talked about, like I said earlier, portfolio specialists, for example, like those are on the go-to-market side. A few other investments on the go-to-market that I'll call out. One is we've increased the number of reps that we have out there in the field because, again, large opportunity. It's not a huge increase, but there has been an increase in our reps as we enter the new fiscal year and then the people associated with those reps.

So they'll have sales engineers, they might have other kind of supporting functions to help provide the support for that rep. So those are some of the areas we go to market. Another 1 I would highlight is around marketing where we have had to dial up the volume on our presence in the market because we are smaller, as Rajiv said, like from a lot of other companies in that Magic Quadrant.

And so we have invested in branding, marketing, getting our -- getting awareness, higher awareness in the market about who we are and why we're the right partner for companies. There are some examples of investments on the go-to-market side, but also investing in R&D. So making our core platform continuing to build on the core platform. We're very proud of how long -- how far that core platform has come and it's how enterprise ready it is. So we'll keep investing there. Other areas of investment in the R&D side are Kubernetes that we've talked about a lot here on the AI side, external storage support has been another investment.

So we think these are all things that are directly linked to our growth drivers and where we can see a return. So when we look at '26, there is a bunch of OpEx that's coming in, that is run rate of people that we hired towards second half of fiscal year '25 that are all coming into '26. And then any incremental ones will be very prudent about where we choose to invest.

Now I think to finish off the answer here to your question, what are the overall drivers of leverage? I said we're not at our long-term margins. So the first one I'd say is our mix of renewals as a percent of revenue or billings will continue to grow over time. And as long as we can continue to transact those renewals more efficiently than we do land and expand, that should help drive leverage to the bottom line, and we've demonstrated that over the last few years, and we expect that to continue.

Another driver is the productivity of our sales reps. And so when I say productivity, I mean specifically land and expand productivity, so incremental business that they're bringing in. We've seen a nice improvement in that over the last few years. We're not yet at what we would characterize as industry benchmark levels of ACV productivity, so we intend to continue to drive that with our sellers.

And then the third piece is I'll call sort of good hygiene in terms of any incremental investment, it's really thought through. It has a real ROI, how we leverage AI across some of the things we're doing. So more around just disciplined execution is a third bucket of things that we believe will continue to drive margin expansion over time.

Fantastic. And with 2 minutes left, Rajiv, I want to close out with a question on AI. You've been in the market with GPT-in-a-Box for over 2 years now. There's a big debate around the ROI of use cases right now. especially around AI. So where are you seeing the most success today? And how close do you think we are to sort of enterprise AI maturity to the extent that it can start benefiting Nutanix's business?

Yes. I think it's still pretty early days for us. We've seen a good set of customers trying out the product, some of them are getting to production with smaller applications. These applications tend to be largely around things that we've already seen out in the market, right, optimizing support all kinds of document summarization initiatives or call summarization, for example, I mean, if you have salespeople talking to clients and delivering insights and chasing for compliance fraud detection for money laundering, for example, or in retail stores.

So these are the kind of, I think, use cases that are emerging. I think we've seen, like I said, the first set of use cases, I think customers starting to take a simple ones into production. These are relatively small clusters, well contained with reasonable ROI, support is the obvious one where they can get good ROI. And I think on these things, the key driver that we've seen is data. Where is the data are located? And do they need to secure the data and run it in a private base securely. That's where we see this.

I think we are in the very early stages of this. And I think over the next few years, we're going to see a much more of, I think, inference use case is starting to be deployed in volume. I think where people are still trying to figure out exactly the ROI that they can get as they optimize staff or optimize workflows -- entire workflows and I do think there's a lot of optimization to be done. And as those start coming into play, I think you're going to see inferencing applications to take off.

Excellent. Well, with that, we are almost exactly out of time. So thank you so much, Rajiv and Rukmini for joining us today, and appreciate it. Looking forward to having you next year.

Thank you very much, Matthew.

Thank you.

Good day, and thank you for standing by. Welcome to the Nutanix Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to Rich Valera, Nutanix's Vice President of Investor Relations. Please go ahead.

Good afternoon, and welcome to today's conference call to discuss Nutanix's fourth quarter and fiscal year 2025 financial results. Joining me today are Rajiv Ramaswami, Nutanix's President and CEO; and Rukmini Sivaraman, Nutanix' CFO. After the market closed today, Nutanix issued a press release announcing fourth quarter and fiscal year 2025 financial results. If 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 and our subsequent quarterly reports on Form 10-Q 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 Goldman Sachs Communacopia and Technology Conference in San Francisco on September 8 and the Piper Sandler Growth Frontiers Conference in Nashville on September 10. We hope to see you at these events. We're also happy to announce that Nutanix will be holding an Investor Day on April 7, 2026 in Chicago in conjunction with our annual .NEXT customer event. So please mark your calendars, if you're interested in attending. Finally, our first quarter fiscal 2026 quiet period will begin on Monday, October 20.

And with that, I'll turn the call over to Rajiv. Rajiv?

Thank you, Rich, and good afternoon, everyone. Our fourth quarter was a solid finish to our 2025 fiscal year. In the fourth quarter, we are happy to have exceeded all of our guided metrics. We delivered quarterly revenue of $653 million, up 19% year-over-year and saw another quarter of strong free cash flow generation.

Our full year fiscal 2025 results demonstrated good progress on a number of fronts. Financially, we delivered solid top line performance, including revenue of $2.54 billion, up 18% year-over-year and ARR of $2.22 billion, which increased 17% year-over-year. We also saw a strong new logo performance across all of our customer tiers, including the Global 2000, adding over 2,700 new customers, our highest in 4 years. And finally, we generated free cash flow of $750 million, an increase of 26% year-over-year, yielding a free cash flow margin of 30%. This drove a Rule of 40 score of 48 for the fiscal year, our second year in a row above 40.

In FY '25, we also saw tangible progress on the product and partnership fronts. We enhanced the genAI capabilities of our platform with the release of GPT-in-a-Box 2.0 and delivered an enhanced version of Nutanix Enterprise AI that includes a deeper integration with NVDIA AI Enterprise. We also extended the hybrid multi-cloud capabilities of our platform by adding support for Google Cloud, which is now in public preview.

Finally, we made progress on our strategic position to enable customers to utilize their existing external storage hardware. The Nutanix Cloud Platform now supports both HCI and external storage, and we delivered our first version of this new capability supporting Dell PowerFlex. We also announced a new partnership with Pure Storage to support their FlashArray. This offering recently entered early access and remains on track to be generally available by the end of this calendar year.

We achieved important industry recognition in the last year. including being named a Leader in the 2024 Gartner Magic Quadrant for Distributed Hybrid Infrastructure. Last month, we were recognized as a Challenger in the 2025 Gartner Magic Quadrant for Container Management, and as a Leader in the Forrester Wave: Multicloud Container Platforms, Q3 2025.

Our most significant wins in the quarter demonstrated the appeal of the Nutanix Cloud Platform to organizations that are looking for a trusted long-term partner in the wake of industry M&A and to those looking for a platform to seamlessly run both traditional and modern applications. We also saw some initial successes with our cloud platform that supports Dell PowerFlex.

One of our significant wins in Q4 was with Finanz Informatik or FI. The digitalization partner and central IT service provider for Germany's Savings Bank Finance Group, serving around 50 million customers in Germany. This is a great example of a win that was motivated by a customer's desire for a trusted long-term partner.

As part of our strategic collaboration, FI plans to migrate their Windows and Linux workloads to the Nutanix platform over the next 2 years. In our joint press release, FI noted that their decision-making criteria for choosing Nutanix included the security, availability and cost effectiveness of the solution as well as a partnership based on trust, intensive exchange and active participation on their part. We are grateful for FI's trust in us and look forward to a long and productive partnership.

Another one of our most significant deals in the quarter was a full stack expansion with a global provider of financial services. This customer was looking to make their private cloud more secure and cost-effective with increased automation, standardization and simplification, and wanted our platform to run their modern applications. They significantly increased their commitment to Nutanix, both expanding their footprint and adopting additional elements of our cloud platform including Nutanix Cloud Manager, Nutanix Kubernetes platform to run their modern applications, Nutanix Unified Storage for their unstructured data management needs, and our Data Lens security offering.

This quarter, we also saw our first wins for our cloud platform supporting Dell PowerFlex. This included deals with two North American-based Global 2000 companies. One, a financial services provider; and one, a medical equipment provider. In both cases, the customers were looking to modernize their private cloud infrastructure while managing potential risks associated with industry M&A, but wanted to preserve their existing investments in external storage. They both adopted the Nutanix Cloud Platform with support for Dell PowerFlex, enabling them to achieve these objectives. While it's still early days with this new offering, we are encouraged by these initial wins and the broader level of customer interest.

In closing, I am pleased with our solid Q4 and fiscal 2025 results and the progress we continue to make on multiple fronts, including our financial model, our partnerships and our ongoing innovation across our cloud platform, including modern applications and AI. We also remain focused on capitalizing on a multiyear opportunity to gain share in the face of recent industry disruption and are encouraged by our early success, including some of the wins I just highlighted. Finally, I would like to express my sincere gratitude to our investors, customers and partners for their trust in us and to our employees for their hard work that led to these results.

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 Q4 '25 results, followed by full fiscal year '25 results, Q1 '26 guidance and finally, our initial fiscal year '26 guidance.

Results in Q4 '25 were above the high end of our guidance range across all guided metrics. In Q4, we reported quarterly revenue of $653 million, higher than the guided range of $635 million to $645 million, representing a year-over-year growth rate of 19%.

ARR at the end of Q4 was $2.223 billion, representing year-over-year growth of 17%. NRR or net dollar-based retention rate at the end of Q4 was 108%. In Q4, average contract duration was 3.2 years slightly higher than our expectations and up slightly quarter-over-quarter due to a few transactions of longer than average duration.

Non-GAAP gross margin in Q4 was 88.3%. Non-GAAP operating margin in Q4 was 18%, higher than our guided range of 15.5% to 16.5% due to higher gross margins and lower operating expenses than expected. Non-GAAP net income in Q4 was $109 million or fully diluted EPS of $0.37 per share based on fully diluted weighted average shares outstanding of approximately 297 million shares. GAAP net income and fully diluted GAAP EPS in Q4 were $39 million and $0.13 per share, respectively.

Free cash flow in Q4 was $208 million, representing a free cash flow margin of 32%.

Moving to the balance sheet. We ended Q4 with cash, cash equivalents and short-term investments of $1.993 billion, up from $1.882 billion at the end of Q3.

Moving to capital allocation. In Q4, we repurchased $50 million worth of common stock under our existing share repurchase authorization and used about $44 million of cash to retire shares related to our employees' tax liability for their quarterly RSU vesting. Both of these helped to manage share dilution.

Moving to a summary of our results for the full fiscal year 2025. Fiscal year '25 revenue was $2.538 billion higher than the most recent guidance of $2.52 billion to $2.53 billion and representing a year-over-year growth rate of 18%. Fiscal year '25 ending ARR as mentioned earlier, was $2.223 billion, representing year-over-year growth of 17%.

We continue to see strength in landing new customers, and we are grateful for the over 2,700 customers who joined our platform this year. This included organizations of various sizes and across several industry verticals, and included over 50 Global 2000 accounts, a meaningful increase year-over-year.

In fiscal year '25, we saw a nice increase in the number of $1 million plus land-and-expand ACV transactions, more than a 60% increase in fiscal year '25 relative to fiscal year '24, while still remaining a minority of our overall land-and-expand ACV. For the full year, average contract duration was 3.1 years, higher than last year's average contract duration of 3 years and higher than our expectations.

Non-GAAP gross margin in fiscal year '25 was 88.1%, a year-over-year increase of 140 basis points and which is among industry-leading software gross margins. As mentioned in prior calls, gross margins could move around slightly depending on the mix of professional services revenue in a given period. Non-GAAP operating margin in fiscal year '25 was 21.1%, higher than our most recent guidance of approximately 20.5% and year-over-year increase of approximately 5 percentage points.

Non-GAAP net income in fiscal year '25 was $476 million, or fully diluted EPS of $0.162 per share based on fully diluted weighted average shares outstanding of approximately 294 million shares. GAAP net income and fully diluted GAAP EPS in fiscal year '25 were $188 million and $0.65 per share, respectively, representing our first full year of positive GAAP net income.

Free cash flow in fiscal year '25 was $750 million, representing a free cash flow margin of 30%.

In fiscal year '25, our Rule of 40 score, defined as revenue growth rate plus free cash flow margin, was a healthy 48%, reflecting our continued focus on sustainable profitable growth, driving durable top line growth with improving bottom line margins. In fiscal year '25, we strengthened our balance sheet with the net proceeds from the issuance of $862.5 million in convertible debt and enhanced our financial flexibility with our inaugural $500 million revolving credit facility.

Moving to guidance. Our Q1 '26 guidance is as follows: Revenue of $670 million to $680 million. Non-GAAP operating margin of 19.5% to 20.5%, fully diluted weighted average shares outstanding of approximately 296 million shares.

Moving to the full year. Our initial fiscal year '26 guidance is as follows: Revenue of $2.9 billion to $2.94 billion, representing a year-over-year growth rate of 15% at the midpoint of the range. Non-GAAP operating margin of 21% to 22%, an increase from fiscal year '25 at the midpoint. Free cash flow of $790 million to $830 million, representing a free cash flow margin of 27.7% at the midpoint.

I will now provide several points of commentary regarding our fiscal year '26 guidance. One, we expect to continue landing new customers onto our platform at a rate of approximately mid- to high 3 digits of new logos a quarter in fiscal year '26. We also expect some continued uncertainty in the overall macro environment, including in areas such as U.S. federal government spending and with regard to currency fluctuations.

Two, we expect the renewals ACV cohort or the available to renew pool in fiscal year '26 to grow year-over-year but at a slower pace than in fiscal year '25 as the overall renewal base gets larger over time.

Three, the guidance assumes a slight year-over-year decline in aggregate average contract duration because we saw some larger contracts with longer-than-average duration in fiscal year '25 that may not recur in fiscal year '26.

Four, as we have discussed previously, the vast majority of our customers have licenses provisioned upfront and also pay us multiple years of cash upfront upon purchase. In certain cases, typically larger transactions, we may provision licenses over a period of time rather than all upfront and/or collect cash over time rather than all upfront. Such situations may impact timing of revenue and cash collection and are factored into the guidance we provided.

Five, as Rajiv mentioned, in Q4, we saw our first customer transactions for our cloud platform supporting Dell PowerFlex. We expect this solution to have a small but growing contribution to fiscal year '26 revenue. We also expect the land-and-expand ACV contributions from our partners such as Cisco and Dell to grow year-over-year into fiscal year '26.

Six, with regard to operating expenses, in addition to the annualized run rate of employees we hired during the course of fiscal year '25 that we have discussed in prior calls, we have some delayed hiring from fiscal year '25, which we expect to be approximately $25 million in expenses in fiscal year '26. Additionally, in prior earnings calls, we have also referenced some nonrecurring partner payments, which are accounted for as contra expense in the R&D line. These payments are expected to start to taper off in fiscal year '26 and we expect this to cause an approximately $10 million to $15 million headwind to operating expenses in fiscal year '26.

A couple of other notes as we start a new fiscal year. Starting next quarter, that is Q1 '26, we are proactively updating our methodology for calculating ARR on a prospective basis to align it more closely with the timing of when licenses are made available to customers. NRR will also align with this updated methodology going forward. While this change will take effect next quarter, we have provided an illustrative historical table in the appendix of our earnings presentation that shows what ARR and NRR would have been under the new methodology for the relevant historical periods for comparison purposes. The table shows that ARR in any given period would have deferred by no more than 2% under the new methodology. We believe it was important to make this change at the start of a new fiscal year and as it is possible, we see more large customers looking for deferred license provisioning over time.

And finally, from a capital allocation perspective, we announced today that our Board of Directors has approved a $350 million increase to our existing share repurchase authorization, which is in addition to the $111 million remaining under the prior authorization as of July 31, 2025. There is no expiration date for these authorizations, and we intend to continue repurchasing shares over time to manage share count dilution.

In closing, we are pleased with our performance in fiscal year '25, exceeding the high end of the guidance across all guided metrics. We look forward to continued progress in fiscal year '26.

With that, operator, please open the line for questions.

[Operator Instructions] And the first question today is coming from the line of Jason Ader of William Blair.

Can you talk about the FI win and just the size of the deal? And I don't know, any other kind of opportunities like that out there? Is this kind of a one-off? Or do you feel like there's others that you have in the hopper that you'll be able to talk about over the next year or so?

Yes. Jason, Rajiv here. So FI, if you look at the dynamics in Germany, the German population is about 80 million and about 15 -- FI had about 50 million customers, right, who bank with the German Savings Banks and FI provides the IT infrastructure for all those banks in a central manner. And so for us, this was quite a significant win, a fairly large sized win as they're looking to migrate from their existing infrastructure on to Nutanix, and it's a very long-term partnership. It's an example of a significant deal. We haven't quantified the size of the deal, but you can imagine that it's a significant multiyear deal.

Now at any point in time, I mean, Rukmini talked about the fact that over the last year, we added 50 new Global 2000 customers. So those are the larger end of the customer base. And at any point in time, we have deals like these in the pipeline, but larger deals tend to be a bit more unpredictable in terms of when and how they're going to turn out. So certainly, I mean, we have interest from all ends of the spectrum. And there are other customers with larger deals. But again, it's hard to predict how and when these will come out. But FI was a very good example of what we would consider to be a very marquee win for us in Germany.

Okay. Great. And then one quick one for Rukmini. NRR was down a couple of points sequentially. And just maybe you can give us some explanation for that.

Sure. So on the NRR question, we remain focused on driving our expansion business with incremental investments in customer success to help drive retention and expansion in addition to the continued focus that we've had on our expansion vectors, namely portfolio attach and workload expansion.

One other point to make on this is that our NRR and net new ARR actually, I know your question was on NRR, Jason, but both NRR and net new ARR in any given quarter can be affected by the net impact of ARR contributions from deals that are booked in prior quarters and are credited in the current quarter and ARR that's booked in the current quarter, but deferred to future periods. And so there's a net effect there. And in Q4, this dynamic was a net headwind to both our NRR and to net new ARR. And so we expect that such variations could continue going forward.

Two other points I'll make. One is that we've seen the average deal size of our new logos increasing over the last few years, which can also potentially be a headwind for the growth rate of expansion within those customers because their initial deal size has been larger than it has been historically for us. And then the last point is around more of a numerical kind of law of large numbers point, which is that as ARR has grown every quarter for us, the ACV dollars required to offset 1 point of churn increases even at the same churn percentage, which could make it increasingly challenging to achieve the same NRR over time.

So a few different dynamics there and because of those NRR could still move around somewhat from quarter-to-quarter, Jason.

And our next question will be coming from the line of Meta Marshall of Morgan Stanley.

Congrats on the quarter. I guess just as you have -- start seeing some of these Dell PowerFlex deals, if you could just give a sense of how we should think of those customers kind of in relation to kind of the more traditional Nutanix customers? And just as we could kind of get any visibility into what the customer is looking at Pure Storage as early access are like versus maybe the Dell PowerFlex customers.

And maybe just as a second question, understanding you were kind of talking about more conservatism on the public sector within the guide, but just any kind of more updated commentary on what you're seeing with the federal government.

Yes. Maybe I'll take -- give you some color on this, Meta. Dell PowerFlex is what I would consider to be a solution for the top end of the pyramid. Their customers tend to be relatively small customer base but at the very top of the pyramid in terms of big companies. And if you saw that the first two wins that we had were both Global 2000 customers, very large customers.

And so the customer base tends to be concentrated. These tend to be large customers, and they have significant deployments in their state. And so for us, it's an opportunity for us to land in these accounts and then expand over time. And I was quite happy that we were able to land in two of these fairly quickly after we actually got the product out in the last quarter. So I do expect as the PowerFlex business will continue, we will get more wins over the year.

With Pure, of course, the footprint is a bit broader than PowerFlex out there. It's still early days for us because the solution is not out there. We are an early access now. What that means is that there'll be a handful of customers who will have access and they'll be testing our beta code. And we expect to be -- the solution to be available at the end of the calendar year. So we could potentially see some small amount of revenue from that over the next back half of the year. And so both solutions, I think, will be relatively small this year, but having a growing contribution over time to our FY '26, '27 and beyond.

And I take the question on the U.S. Fed. So Meta, with respect to the U.S. Fed business, while we had a good fourth quarter for U.S. Fed, some of the personnel changes and additional reviews that we've seen in the U.S. Fed seem to continue and have resulted in longer deal cycles and some increased variability overall in that particular vertical for us. However, as we've said before, we remain optimistic on the opportunity for that business to benefit from our platform's focus on modernization and lowering TCO overall.

And as a reminder, we don't report U.S. federal as a percent of our business, but we've said previously that over the last few fiscal years, Fed has been -- the U.S. Fed specifically has been 10% or less of our annual revenue, with seasonal strength in fiscal Q1, which, of course, is the Fed's fiscal year-end. And we have factored in all of this and some of the overall uncertainty into our Q1 and overall fiscal year '26 guidance.

Our next question will be coming from the line of Matt Martino of Goldman Sachs.

Two for me, if I could. Rajiv, for you, GPT-in-a-Box has been in the market for about 2 years now. You introduced some new capabilities at. NEXT '25. I'm curious where you think we are in terms of enterprise AI maturity and whether we're getting closer to an inflection point that can start to benefit Nutanix.

And then, Rukmini, for you, it sounds like there are some revenue timing dynamics associated with some of these larger deals that Nutanix is landing. Can you help us understand how you may be derisking the multiyear deal activation piece and how much visibility you have into this dynamic heading into '26?

Yes. And Matt, welcome to our conference call here. I believe this is your first one with us. And so on GPT-in-a-Box 2.0, so the 2.0 version became generally available this year and it also included a component called Nutanix Enterprise AI, NAI, this can be deployed with GPT-in-a-Box or just stand-alone as well on top of cloud -- native cloud substrates. I would say enterprise maturity is still pretty early. A lot of people, I think, trying it now. But I think -- and we have a few initial set of customers going into production with good use cases.

So it's still early days. Having this notion of turnkey inference end point is what's driving the interest right now. But then that over time will move to more agentic use cases. So we've seen some good use cases in the market. People are looking at this for fraud detection, for money laundering pattern detection, for, of course, the classic use cases of support and summarization of documents and content. Those types of use cases are what we see, wherever private data is needed, where they want to run on data that needs to be secured in a private way.

So I would say we are in the early innings of AI inferencing adoption in the enterprise. And so I think a lot more to come now. Are we at an inflection point? I think it's moving pretty quickly, I would say. But I would say, over the next couple of years, I think we certainly would expect to be seeing some inflection point. But I would say, at this point, it's still early days.

And Matt, to your question on revenue timing and visibility, I think was part of your question, Matt. So I'd say we do see customers who want us to give them licenses over a period of time versus all upfront. These tend to be larger transactions because the customer has made a large commitment in many cases and is looking to deploy it over time. And we are, of course, very happy to make that available to them in that fashion.

And I think to your question, so we, of course, going into any fiscal year -- so going into fiscal year '26 now, we have visibility into the transactions that we've done that are scheduled to go out or where we believe customer is going to be looking for those licenses in '26. And we've made some assumptions, Matt, about the bookings that we will commit -- the customers will commit in '26 but may have future deployment dates. So we have some assumptions built into that, and we feel comfortable that all of that is embedded into the guidance that we provided you today.

And our next question will be coming from the line of Jim Fish of Piper Sandler.

On the guide, Rukmini, it seems to imply an acceleration beyond the quarter, beyond fiscal Q1 here. Can you just give us some of the puts and takes on the fiscal '26 guidance as we think more about new ACV growth versus that available to renew with the installed base or essentially how you're thinking about net retention rate? And obviously, we've always talked about ARR as kind of the metric you guys want to point us to. As we think about the annual year, is there a way -- how should we think about the sort of ARR exiting this year?

Thank you, Jim. So a few things there. I'll try to address. So first, on renewal cohort, as we -- as I said in the prepared remarks, it is growing year-over-year but at a slower pace relative to what we saw in fiscal year '25, for example, right? So it is growing year-over-year. The reason we called it out was because it is at a slower pace it does impact revenue.

And as you know, Jim, ARR is more of a stock metric, whereas revenue is flow, right? So while that impacts revenue, ARR only gets credit when that ARR actually grows, right? The renewal is almost sort of in the base of the ARR. So ARR can only grow either when we have more land and expand or price increases on renewals and things like that, right? So there's sort of a flow versus a stock metric difference there between revenue and ARR.

We don't guide to ARR, Jim. So I'm not going to be able to give you sort of a specific answer on how to think about ARR expectations for the year other than kind of the things we've alluded to here where some of these timing of deals and so on can move ARR around from period to period as we go through the year.

And then similarly for NRR, right, some similar dynamics there in terms of timing, but also the new logo point I made, where we have seen that we're landing the new logos at a larger deal size than before, which could mean that potential future expansion for those particular customers can be lower. So yes, a few puts and takes there, Jim, and I'll leave it there because we are not quantifying a particular ARR expectation for the full year.

Yes. So maybe then on the larger transactions because it seems like we're all trying to figure this out. You're commenting about larger transactions looking for deferrals, you've told us that you'd consider the strategy of more annual billings, let's say, as opposed to multiyear billings. Is it that you're seeing large 8-figure type deals like you did last year now in the pipeline more and more? Or is it going to be more of the kind of strength of the 7-figure type deals and the onset you're getting from sort of that competitive disruption?

Thank you, Jim. I think we would just leave it as large deals, Jim. Are there deals in both of those categories that you mentioned? Yes. And our intention is to continue to do more of those over time. What I would not want to do is get too granular on is it 7-figure or 8 figure, right? I think we're referring to look, they have been we've continued to close more of these large deals over time. I gave one statistic around $1 million-plus land and expand ACV deal that has increased nicely in the number of those that we closed in '25 relative to '24. And so our intention is to continue to do more of those, and the pipeline there continues to be good as we enter fiscal year '26.

And the next question will be coming from the line of Matt Hedberg.

This is [ Simran ] on for Matt Hedberg. Just thinking more on a macro level for a second, could you dig a bit deeper into the demand trends that you're seeing and what you're incorporating into guidance?

Yes. I'll give you a high level view, and Rukmini can talk about the guidance here, [ Simran ]. So the overall macro is fairly still dynamic. It's evolving. I mean there's also recent potential actions with the new administration.

And then another part of the macro is the commentary that Rukmini gave on the federal -- U.S. federal business, right? So we had a good fourth quarter there. But still, lots of changes there and some additional revenues, of course, means longer deal cycles and some variability. But again, I think I would say, we feel optimistic about the longer-term view of like the fact that we have a platform that can be very helpful for modernization of the IT infrastructure and a lot of these government organizations.

Now in terms of the macro itself, I mean, we have factored in some macro uncertainty into our updated outlook, but we are seeing pretty solid demand for our solutions as well. Rukmini, do you want to talk about our guide?

I think you covered it, Rajiv. We factored all of that into the guidance we provided.

Okay. Great. And then just one more. So realizing the VMware replacement opportunity continues to be a multiyear journey. Can you walk us through how much of the opportunity remains and what you're assuming for share shift throughout fiscal year '26?

Yes. So [ Simran, ] I think the vast majority of the opportunity is still in front of us. And if you were to characterize this as a multi-inning baseball game, I'd probably say we're in the second inning at this point. And there's still a lot of customers out there with VMware and it's going to take time in terms of these migrations. We are seeing -- I mean, the fact that we've added 2,700 customers over the last year is a good sign that there are people moving. But there's 200,000 customers out there for VMware.

So there's still a lot to go through here, and it's going to take time. And for the bigger customers, it's going to take even longer. So we've done a fair number of migrations and completed them for customers ranging anywhere, if you were to look at the sizing of their environment, say, from [ 20,000 cohorts ] to maybe even [ 60,000, 70,000 cohorts, ] those types of customers, which I would call, they can be medium to large enterprises. Those types of migrations, we've actually done some. Now the real big ones out there, I think, will take a long time to migrate.

And so the smaller you are, the faster it is to migrate. The longer you are -- the bigger you are, the longer it's going to take. So I would still say we've got a lot of runway still in front of us, and it's going to be a gradual multiyear journey.

And the next question will be coming from the line of Mike Cikos of Needham.

And I know PowerFlex is getting a decent amount of attention, so I'll tap into that for a second. But great to hear on these two initial wins with these large Global 2000 customers. Quite frankly, it's earlier than I had expected on my side, but I wanted to temperature check it. What were you guys anticipating as far as wins with PowerFlex? And can you give us some more granularity as far as how these deals came together? Were they led by Nutanix? Were they led by Dell? Was it a co-marketing effort? Anything on that front would be incremental? And then I have a follow-up.

Yes. I would say, Mike, we were actually pleasantly surprised at how quickly we were able to land these customers. You should also assume that these customers also were interested early on. They participated in our early access program. So they've been kicking the tires on this for a bit. But it is usually -- these types of customers are also fairly conservative, and they typically tend to wait. They don't go all in on the first release, they wait for the next release and a couple of releases down before they go. So we were very happy to have secured these deals in Q4.

So to your point, I think it came in a bit earlier than we had anticipated. And then the PowerFlex base, like I said, it's concentrated at the top of the pyramid. These are large customers. With all of these, I think there's a very collaborative relationship with Dell. So we are very directly engaged in these accounts with these customers, that they need solid support that we provide directly. And Dell has been a very collaborative partner in these accounts. And I expect that to continue as we look at these other big customers.

And I guess my follow-up for Rukmini. I know that there's a couple of different moving pieces here on the average contract duration in addition to -- and thank you for all the assumptions on the guide. But if I look at the average contract duration specifically, Q4 was slightly higher than what you guys had anticipated. We're talking about this upcoming year where average contract duration is expected to see a slight decline. Is there any way you can help us conceptualize what that impact to revenue is as a result of these movements around the average contract duration?

Yes. So on contract duration, in the short term, our average contract duration can vary based on the mix of business in a given quarter, and for example, could be elevated by a few larger and longer-than-average duration contract. And so you're seeing some of that, Mike.

And the reason we called it out is because what's assumed going forward for fiscal year '26 is that we expect the duration year-on-year to be down slightly, which as you know, does impact our revenue because the license portion of revenue we do take upfront, and that is impacted by or affected by contract duration. We're not quantifying that because there's a lot of moving [indiscernible], Mike, but that's one of the things we did want to call out in terms of thinking about '26 revenue versus '25.

The one other dynamics that we've also discussed in prior calls is that over time, we could see some compression of duration as renewals continue to increase as a percentage of billings because renewals tend to have lower average contract duration relative to land and expand. So a couple of moving pieces there. One on the sort of maybe we have a few larger contracts that are longer than average versus this impact of renewals given -- we put all that and factored all of that in, in kind of conveying that for '26, we expect the total average contract duration to be down slightly, which does have somewhat of an impact on that revenue line.

And the next question will be coming from the line of Samik Chatterjee of JPMorgan.

Maybe just on a couple of fronts. I believe you expanded your platform on Google Cloud in the summer. So if you can just give us an update on how the customer engagement has been on that front?

And on the Pure Storage partnership, I think the last sort of update you gave was we would see something available in the -- by the end of the year. Anything more specific that you can share in terms of timing on that front? And then I have a quick follow-up for Rukmini, please.

Yes. Samik, also welcome. I know this is your first call as well. And let me start with Pure and then Google Cloud. So Pure, again, I think we have an early access. Customer starting to kick the tires on a beta version. And then I think we are on track. We said end of calendar year for the GA release -- generally available release and we are on track to deliver that.

And for Pure, there is a broad base of customers that Pure has. And many of them, I think, are interested over time in terms of exploring alternative platforms, which our offering provides. So I expect that, again, as we get into the second half of this fiscal year is when we will be able to tell you more about how that offering is coming along.

On Google Cloud, we had a fair amount of initial interest from customers who have chosen Google as their cloud provider. I mean, typically, the larger ones tend to pick one or two main cloud providers. And certainly, Google has been on that list after AWS and Azure for us for a while. So now that we are in what we call public preview, what that means is that early customers can have access to this offering.

And we do have people kicking the tires. And again, I think once it's generally available, again, we hope that towards the end of the year, and it's also dependent on Google's Bare Metal being available in the regions that we need to be offering our software on top of then I think we should be able to give you some more color in terms of the actual adoption and how things are going.