Nutanix, Inc.

Good afternoon, and thank you for attending today's Nutanix fourth quarter for fiscal year 2022 conference call. My name is Amber, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad at any time. I now have the pleasure of handing the conference over to our host, Rich Valera, Vice President of Investor Relations. Rich, please proceed.

Good afternoon, and welcome to today's conference call to discuss the results of our fiscal fourth quarter and full year 2022. Joining me today are Rajiv Ramaswamy, Nutanix's President and CEO, and Rukmini Sivaraman, Nutanix's CFO. After the market closed today, Nutanix issued a press release announcing financial results for its fiscal fourth quarter and full year 2022. 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 statements regarding our business plans, strategies, initiatives, vision, objectives, and outlook, including our financial guidance, as well as our ability to execute their run successfully and in a timely manner, and the benefits and impact thereof on our business operation and financial results, our financial performance, and targets in use of new or different performance metrics in future periods, expectations regarding profitability, our competitive position, and market opportunity, the timing and impact of our current and future business model transitions, the factors driving our growth, macroeconomic, geopolitical, and industry trends, including global supply chain challenges, and the current and anticipated impact of the COVID-19 pandemic and its effects. These forward-looking statements about risks and uncertainties some of which are beyond our control, which could cause actual results different 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 annual report on Form 10-K, the fiscal year ended July 31st, 2021, 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 representing our views in the future. 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. Lastly, Nutanix Management will be participating in the Goldman Sachs Communicopia and Technology Conference on September 12th and the Piper Sandler Growth Frontiers Conference on September 14th. And we hope to see many of you at these events. And with that, I'll turn the call over to Rajiv. Rajiv?

Thank you, Rich, and good afternoon, everyone. Against a volatile macro backdrop, we delivered a good fourth quarter relative to the updated outlook we had provided on our third quarter call. We exceeded all our guided metrics and saw continued strong performance in our renewals business. Supply chain constraints with our server partners, while remaining a significant challenge in the quarter, were better than we had expected. While we are aware that the macro backdrop has grown incrementally more challenging for many businesses, in our fourth quarter, we continue to see solid demand for our Nutanix cloud platform, with businesses continuing to spend on digital transformation, modernizing their data centers, and adopting hybrid multi-cloud operating models. During the fourth quarter, I spent a lot of time on the road meeting with customers in person. I was energized by the face-to-face engagement and struck by their enthusiasm for their overall experience on Nutanix products and the strong customer support they have received. These conversations reinforced my view that our unwavering focus on reducing the complexity and cost of IT environments as well as our obsession with customer delight is resonating with our customers. Taking a closer look at the fourth quarter, we delivered bookings well above our expectations, aided by a number of large expansion deals and the continued strong performance of our renewals business. This drove billings and revenue outperformance relative to our guidance. Top line outperformance, diligent expense management, and better than expected linearity helped us achieve positive free cash flow in the quarter, which was substantially better than our expectations. Given the largely supply chain driven headwinds that affected our fourth quarter, I believe looking at F522 in its entirety provides a better picture of the progress we made on our subscription business model transition. Specifically, we saw ACV billings growth accelerate to 27% year-over-year, up from 18% in FY21. We also saw non-GAAP operating margin improved by 15 percentage points year-over-year to minus 5%. Finally, for the first time since 2018, we achieved positive free cash flow for the entire fiscal year. Beyond these financial accomplishments, we had other important achievements, including launching our simplified product portfolio, enhancing our leadership team, making progress with our partners, and continuing to delight our customers as reflected in our high NPS scores and strong renewal performance. Overall, I am pleased with our progress and financial performance in FY22. As I noted, our fourth quarter was bolstered by a number of large expansion deals, including customers both increasing their use of our Nutanix Cloud Platform and broadening their adoption of adjacent solutions in areas such as storage, database as a service, and cloud management. A good example was an expansion deal with an existing customer who is a global Fortune 100 financial services firm that placed a double-digit million-dollar order to broaden their usage of our core Nutanix cloud platform while standardizing on Nutanix database service for managing and deploying their databases throughout their organization. This customer also plans to utilize NC2 on AWS to enable bursting into the public cloud with their Nutanix-based workloads. We see this customer as a great example of how we are able to land and expand with some of the largest enterprises in the world. Our largest new customer win in the quarter was with an NER-based financial services provider that was looking to modernize their three-tier infrastructure with the aim of improving scalability, performance, and management resources required to support future growth objectives, while also providing a path for seamless access to the public cloud. They chose our Nutanix Cloud Platform full-stack offering as well as Nutanix Cloud Management due to its simplicity and built-in automation for infrastructure as a service. They also added Nutanix Unified Storage and Nutanix Database Service for their storage and database automation needs, respectively. This WIM is a great example of customers seeing the benefits of adopting our full stack. On the product front, we were excited to announce that NC2 on Azure progressed to public preview during the quarter, which will significantly broaden the pool of customers for our cloud offerings. One of our first customers onboarded to NC2 on Azure is a leading global brewer, based in EMEA that is standardized on Nutanix Cloud Platform for all of its business critical applications and SQL Server workloads. This customer chose Nutanix due to its simplicity, performance, ease of management, and ability to seamlessly burst into the public cloud of their choice. Another exciting product development was the recent release of AOS 6.5, a comprehensive and feature-packed release which reflects our continued investment and innovation in our platform. Release 6.5 has features focused on improving performance, security, and integrated data services required for demanding database workloads and business-critical applications. Go-to-market leverage with partners is one of my top priorities, and we continue to see progress on this front during the fourth quarter. Our partnership with Red Hat, with whom we have a growing number of joint wins for both OpenShift and Red Hat Enterprise Linux workloads running on Nutanix Cloud Platform, continues to show good momentum. One example of a joint win in Q4 is a central bank of a country in the EMEA region. that shifted their business-critical applications running on Red Hat OpenShift from a competing three-tier solution to Nutanix Cloud Platform, including our AHP hypervisor, due to the resiliency, scalability, and reduced total cost of ownership offered by our solution. We are excited about the growing opportunity pipeline we see with Red Hat. Also on the partner front, we were pleased to be named 2022 HPE GreenLake Ecosystem Partner of the Year. We view this award as a testament to our growing partnership with HPE. Now I'd like to comment on our recent sales leadership transition. Following Dom Delfino's decision to pursue an opportunity with another technology company, on August 1st, we appointed Andrew Brendan, as our new chief revenue officer. Andrew has been with us as a sales leader for over five years, most recently as a senior vice president and worldwide sales chief operating officer, and has developed a deep understanding of our business model, go-to-market strategies, and sales operations. Our sales organization is in excellent hands under Andrew's leadership. and I look forward to working closely with him in his new role. More broadly, I feel confident that we've got the team in place to take Nutanix to its next stage of profitable growth. In closing, I'd like to provide some thoughts on our priorities and outlook. First, our overarching priority remains driving towards sustainable, profitable, growth. To enable this, we will continue to judiciously invest in the growth of the business, execute on our growing base of renewables, and diligently manage expense levels. Towards this end, as part of our comprehensive review of our business and operating model, and along with a number of other expense reduction actions, we made the difficult decision to reduce our headcount by approximately 4%. This was not a decision we made lightly, but it was important to ensuring that we could continue to drive towards profitable growth in a variety of macroeconomic scenarios. However, we are also seeing businesses continuing to prioritize digital transformation and believe the challenging macro backdrop is providing further incentive for them to optimize their IT and cloud spend. We see these dynamics as playing to the strength of our hybrid multi-cloud platform, which enables companies to reduce the complexity and cost of their IT environments. Finally, we see the business achieving positive non-gap operating income and continuing to be free cash flow positive in FY23. We plan to do this through a combination of strong, continued top-line growth and diligent expense management. We remain confident about the opportunity ahead of us and enter FY23 with a sense of excitement and cautious optimism. And with that, I'll hand it over to Rukmini Sivaram. Rukmini?