Nutanix, Inc.

Good day, and thank you for standing by. Welcome to Nutanix fiscal first quarter 2023 conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1-1 on your telephone. I would now like to hand the conference over to your speaker for today. Rich Valara, you may begin.

Good afternoon, and welcome to today's conference call to discuss the results of our fiscal first quarter of 2023. Joining me today are Rajiv Ramaswamy, Nutanix's president and CEO, and Rukmini Subraman, Nutanix's CFO. After the market closed today, Nutanix issued a press release announcing financial results for its fiscal first quarter of 2023. 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 Neuron successfully and in a timely manner, and the benefits and impact thereof on our business, operations, and financial results, our financial performance and targets, and 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 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 FCC filings, including our annual report on Form 10-K, the fiscal year ended July 31st, 2022, 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, We should not rely on them as representing our 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 Raymond James Technology Investors Conference in New York on December 6th and the Barclays Global PMP Conference in San Francisco on December 7th. Nutanix will also be holding an Investor Day in New York City on Tuesday, April 4th, 2023. So please save the date. We'll be following up with more details in the coming weeks. 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 first quarter. We exceeded all of our guided metrics and saw continued strong performance in our renewals business. Supply chain constraints with our server partners, while remaining a headwind, improved somewhat compared with the prior quarter. With respect to the macro backdrop, in our first quarter, we continue to see businesses prioritizing their digital transformation and data center modernization initiatives enabled by our platform. We have seen anecdotal evidence of increased inspection of deals by customers, which we believe is likely related to the more uncertain macro backdrop. We continue to factor this uncertainty into our outlook for the remainder of the fiscal year. Taking a closer look at the first quarter, we delivered ACB billings and revenue above our guidance, driven by strong, continued performance of our renewals business. We again demonstrated good expense management, coming in slightly below our OPEX targets. Top line outperformance combined with diligent expense management, enabled us to achieve positive non-GAAP operating income for the first time, another milestone in our drive towards sustainable, profitable growth. Finally, strong billings linearity and collections contributed to generation of $46 million of free cash flow, meaningfully exceeding our breakeven target and continuing our strong recent free cash flow performance. Overall, I'm pleased with our financial performance in the first quarter. Our first quarter is typically a stronger one for our federal business, and this one was no exception. Our largest customer in the quarter was a federal civilian agency that was already a significant user of Nutanix's cloud platform, including our unified storage and database automation solutions, as well as Nutanix Cloud Clusters or NC2 on AWS for bursting additional resource capacity into the public cloud. This customer added additional cybersecurity workloads to the Nutanix Cloud Platform, reflecting their confidence in the ability of our platform to handle their most business-critical applications and resulting in a substantial expansion order for us. We see this customer as a great example of how we are able to land and expand with some of the largest organizations in the world. On the product and partnership front, we achieved an important milestone in realizing our hybrid multi-cloud vision with the general availability of NC2 on Microsoft Azure. Now, with support of AWS, Azure, and service provider cloud environments, we continue to deliver on a hybrid multi-cloud vision. Our customers have the ability to rapidly and seamlessly shift their workloads between their private clouds and the largest public cloud providers with a consistent management, governance, and data services provided by the Nutanix cloud platform, all without the time and expense of refactoring their workloads. One of our early customers for NC2 on Azure is Unum Group, a Fortune 500 financial services provider. who was part of our customer preview program. Unum chose NC2 and Azure because they were looking to leverage our seamless hybrid multi-cloud platform for disaster recovery, as well as to migrate and run their workloads in Azure without having to refactor their applications. They're also looking to take advantage of the ability to expand their Nutanix Cloud Platform to different Azure regions on demand. Another exciting development on the product front is the recent enhancements we made to our platform to accelerate adoption of Kubernetes-based applications in the enterprise. In keeping with our philosophy of offering customers choice throughout the stack, we added Amazon's Kubernetes service to an already long list of supported Kubernetes container platforms, including Red Hat OpenChip, Suze Rancher, Google Anthos, Azure Arc, and our own native Nutanix Kubernetes engine. We also added built-in infrastructure as core capabilities and advanced cloud-native data services for modern applications, both of which will enhance the Nutanix Cloud Platform's ability to efficiently run Kubernetes applications at scale. Go-to-market leverage is one of my top priorities, and we saw progress across a number of partner categories in the first quarter. In the public cloud category, our customers are now able to get on-demand consumption of Nutanix software through Azure Marketplace, facilitating frictionless license procurement and movement of workloads between private clouds and Azure. For our TAN partners, we updated our Elevate Partner Program ecosystem with enhanced incentives to encourage and enable these partners to sell Nutanix into net new accounts and to drive opportunities through the entire sales cycle autonomously. In addition, we rolled out training designed to enable partners to speed up sales cycles through rapid capacity planning, quoting, and order fulfillment, thereby generating more leverage for our sales reps. Finally, our two largest new customer wins in the quarter were in partnership with a global leader in data center co-location and interconnection services and part of our service provider program. We are encouraged by the early progress we are seeing with service providers and see good growth potential in our service provider related businesses as we add additional partners and enhancements to our platform, supporting service provider business models. One of these service provider wins was from an EMEA-based publishing and education company that was looking to modernize and consolidate their data center footprint while having disaster recovery capability in AWS. They chose our Nutanix Cloud Platform, including Nutanix Cloud Management, to run their business critical applications, leveraging its simplicity and built-in automation for infrastructure as a service. They also added Nutanix unified storage to service their unstructured data needs. We see this as a great example of a customer adopting our full stack offering to consolidate and modernize their IT infrastructure. And now I'd like to talk about the industry recognition we continue to receive for our solutions. For the second year in a row, Nutanix was named a visionary in Gartner's magic quadrant for distributed file systems and object storage. We believe our improved position within the visionary quadrant this year reflects advances in customer traction, go-to-market efforts, enhanced product capabilities, and an expanded ecosystem for our Nutanix Unified Storage solution. With customers needing a simple and secure way to manage and protect their data, this recognition highlights the advantages of Nutanix Unified Storage. In closing, I'd like to provide some thoughts on our priorities and outlook. First, our overarching priority remains driving towards sustainable profitable growth through judicious investment in the business execution on a growing base of renewals and diligent expense management our achievement of positive non-gap operating income in the first quarter represents tangible progress towards this goal the strength of our business model is underpinned by a growing base of renewals and the strong value proposition of our platform in an uncertain macro landscape. I remain confident in our ability to continue to capitalize on the vast opportunity in front of us while driving towards sustainable, profitable growth. And with that, I'll hand it over to Rukmini Sivaraman. Rukmini?