Ladies and gentlemen, please welcome Chief Communications Officer and Senior Vice President, Corporate Marketing and Investor Relations, Tonya Chin.
Welcome to the Nutanix Investor Day. We're so glad that you could join us. I'm Tonya Chin, Chief Communications Officer and Senior Vice President of Investor Relations. And I'll also be the moderator of today's event. We're coming to you from sunny California, where vaccinations have made it safe for us all to be together.
We have 3 exciting hours planned for you. But first, I'd love to cover A little bit about the forward looking statements we'll be making in today's presentation. During today's presentations, management will make forward looking statements, Including but not limited to statements regarding our business plans, goals, strategies and outlook, Including our go to market strategy, our competitive position, market opportunity and projections about the size of our total addressable market, the factors driving our growth, Our financial performance in future periods, expected results and targets of our financial and operating model, The timing and impact of our current and future business model transitions, our plans to use new or different metrics to supplement our financial reporting, Our ability to maintain and expand upon our customer and partner bases and the benefits and capabilities of our platform, solutions, products, Services and Technology, our plans regarding our new solutions, products, services and product features and technology, including those that are still under development. 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 detailed description of these factors, please refer to our SEC filings, including our most Recent Annual Report on Form 10 ks and quarterly reports on Form 10 Q.
These forward looking statements apply as of today and we undertake no obligation to revise these statements after today's presentation. As a result, you should not rely on them as representing our views in the future. Please note, all financial measures we use in today's presentation, except 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 In the appendix of the applicable presentation. During our event, we have 4 presentations.
In between, we have a few short videos so you can hear directly from our On the agenda today, our CEO, Rajiv Ramaswami, will be going through his strategy And priorities as well as an overview of the markets that we serve. Next, Rajiv Mourani will be going through our products and solutions. Chris Caderas will then come and discuss his go to market strategy. And we'll wrap up with Justin Williams, Who will be giving a financial overview, including a midterm model. A copy of each of the slide decks will be available After each presenter speaks.
You can find it by clicking on the Presentations tab within this platform or on our Investor Relations website. You'll have two opportunities to ask questions during today's event. First, after Rajiv Ramaswami speaks, we'll do a short Q and A And we'll ask you to keep your questions just to the content that he covered strategy and his priorities. You'll have a much longer session available at the end after Dustin goes that will include Tarkan Maynard, our Chief Commercial Officer. To ask a question, Please type your question into the Ask box and an event moderator will help you.
We'll get to as many questions as we can during the session. And if we aren't able to get to your questions, We'll get back to you. And with that, I'll turn it over to Rajeev Ramaswamy. Rajeev?
Hello, and welcome to our Investor Day. I'm here to talk to you today about our company strategy, our product portfolio, our go to market and our expectations for growth and Profitability. So to get started here, Nutanix pioneered the hyperconverged infrastructure market. We continue to be the market leader with a growing base of 19,000 plus customers who trust us with their critical infrastructure. We're addressing a very large market opportunity of greater than $30,000,000,000 In addition to our core markets, We see substantial growth opportunity in adjacent markets, another $30,000,000,000 As we look forward, we are going from being a hyperconverged infrastructure company to a hybrid multi cloud company.
We're building a single platform for hybrid multi cloud with unparalleled simplicity. From a go to market perspective, as we move forward and complete our journey to subscription, we expect to see substantial go to market leverage Through our renewals business coming in as well as our move to solution selling and leverage of partnerships. Finally, over the next few years here through FY 'twenty five, we expect to grow our top line at 25%. We expect to be cash flow positive in 18 months by the end of next fiscal calendar year, which would be the first half of fiscal 'twenty three. And we expect to be operating income positive in FY 'twenty three as well.
So against that backdrop, let's get started. Now I've been here for about 6 months, and I want to start by giving you my initial impressions of what's going well. Customers love Nutanix. I've spoken to hundreds of customers who uniformly say that they love to partner with us. They like The product experience, they like the simplicity.
They like working with us overall. And that comes from a true culture of customer obsession at Nutanix. Every employee from our engineer to our frontline salesperson to our support folks are committed to customer success and that Ultimately translates into customer loyalty and long term partnerships with our customers. We have an exceptional talent base and a strong culture of innovation. All in all, a solid foundation that we are building upon for the future.
Now let's talk about what is really changing with the company going forward. Historically, we've been focused as an on prem company, Focusing on our customers' data centers. Going forward, we're front and squarely focused on the cloud, focused on hybrid multi cloud and building this hybrid multi cloud platform. We've always had great products and a tradition of innovation. As we scale our business, we are looking at going from products to at scale solutions.
Now historically, as Nutanix started, we were a start up. We had to build everything ourselves. We had to go to market ourselves. And there was a culture where we had to do everything ourselves. Again, as we scale our business going forward for the next 5 to 10 years, We are leveraging our partnerships.
We are leveraging our partnerships across our OEM partners, our cloud partners, our ecosystem partners And last but not the least, our channel partners. As we move to a subscription company, We're moving from just landing and expanding at our customers to focusing on customer adoption, customer consumption and renewals. As COVID has taught us, in the past, we were very much physical event oriented. Our marketing efforts All very much physical. We've learned how to be very efficient at digital marketing.
And those learnings will stay with us as we come out of COVID Into this new world and they're helping drive significant efficiency at the same time maintaining great pipeline. Now in the past, we were focused largely on growth and we would spend whatever it took to drive the growth we needed. Going forward, we're going to be very disciplined in our investments. We're going to focus on growth first for sure, But also profitability. And finally, in the past, growing up as a startup, We had a good culture of diversity, but it was opportunistic.
Going forward, I look at diversity as a competitive advantage and a competitive differentiator for us. We want Nutanix to be a place where everybody can bring their true selves to work and be part of the mission. So we're going to dive into details here Next, let's talk about the market. Ever since analysts starting the market and started tracking the market, we've been the market leader in HCI. After all, this is a category that we pioneer and we continue to be the leader here today with north of 50% in market share.
And this is true in terms of whether it's Gartner or Forrester, all the analysts tracking the market acknowledge this. Now as we look at the addressable market opportunity here, it's very large. It's the entire 3 tier market For virtualization software as well as storage software. And it's a large market. It was $21,000,000,000 in 2020 and it's growing to $30,000,000,000 plus By FY by 2025.
Now if you look at this large market, HCI, hyperconverged infrastructure, continues to eat away into this market And take on more and more of this market. In 2020, HCI was a $3,000,000,000 market. In 2025, HCI is expected to grow to $7,000,000,000 and that still leaves plenty of room to continue to eat into this market. And the reason this has happened It's because today HCI is a platform for all workloads. HCI can handle pretty much any application that enterprise customers have.
We started out with virtual desktop infrastructure, VDI. But today, we've expanded with HCI to handle any workload that's available in the enterprise. We can handle all of the core business apps. We can handle IT infrastructure and we can handle a set of web apps and others. Essentially, anything that can be virtualized on an X86 Today can be run well on a HCI platform.
And that leaves plenty of opportunity for additional growth. But we're not stopping there. As we go forward, we are focused on how we can continue to expand the addressable markets that we play in. Here's the core HCI market as we discussed in the previous slide. Now we see an opportunity to expand HCI and make HCI the platform for hybrid multi cloud.
So as we do that, we are focused on what we call hybrid cloud infrastructure, Which is a superset of HCI and expands our market to be able to capture workloads running in public cloud as well In addition to those running on premises. On top of the hybrid cloud infrastructure, which we're going to talk a lot more about, We also have significant adjacent opportunities with our emerging products in areas like disaster recovery, cloud management, Files and Object Storage, database automation and database as a service, which is one of our hardest products and desktop as a service. Together, this represents over a $60,000,000,000 market opportunity for us. We are fundamentally not limited by market opportunity. It's all about execution and capturing our fair share of this huge market in front of us.
So let's talk about cloud. Here's a recent survey from Morgan Stanley That talks about where applications or workloads are landing. Now the one thing that's very clear here is even by 2023, Enterprise workloads are going to be everywhere. They're going to be in the data centers. They're going to be in edge locations.
They're going to be in public clouds and some of them are going to be in colos and managed hosted providers. This is driven by a number of factors, Including data governance, data privacy, security, compliance, Edge use cases where you need low latency and you need to run your workloads right at the edge and as well as public cloud costs. Now public cloud costs are an important factor here. Some of you may have read about a recent article from my friend, Martin Casado and Andreessen Horowitz. And what he said is very simple.
If you're operating at scale, the cost of cloud can at least double your infrastructure bill. And fundamentally, what this says is, if you build out your infrastructure yourself and manage it well, you can be super cost efficient. Anyway, this combination of factors will mean that application workloads in the enterprise are going to be running everywhere, Not just only in the public cloud or not just only in on prem. And that said, we all agree that public clouds are going to be an integral part of enterprise going forward. Now let's talk about how companies are using the public cloud.
So here's data from another survey talking about the mode of deployment. And what this says really is that hybrid cloud is the preferred multi cloud deployment. If you look at the survey data, very few companies Are only using a non prem data center or only using a single public cloud. About 10% of the company surveyed and only 10% were exclusively using multiple public clouds without an on prem presence. The vast majority of companies surveyed, 82% operate in a true multi cloud hybrid world, Where they have both their private on prem data centers and 1 or more public clouds.
That is the world we're going to live in for the next many, many years. And in this world, Nutanix sees A significant opportunity to provide a cloud platform. So we got our start by busting IT silos across compute, storage and networking. We put those together and drove dramatic TCO, total cost of ownership reductions for our customers, provided simplicity in operations. We essentially consolidated data centers and built what we call a one click private cloud.
Going forward, We see the exact same opportunities in the multi cloud world. Today, each cloud is a silo by itself. Each cloud has a unique set of services, a unique set of capabilities and APIs. And IT staff needs to be trained specifically to each for each of these clouds. We see an opportunity to bust these cloud silos by providing a single hybrid multi cloud platform That hides all these underlying complexities.
And that is a true opportunity and a big one in front of Nutanix. So as we look at our company vision going forward, this is what we say, Make clouds invisible, hide the underlying complexities of all these clubs. Why? So that our customers Can focus on running their businesses and focus on their business outcomes without having to worry about how to manage and operate across all of these cloud silos. That's our vision.
How are we going to deliver to that vision? Here's our mission. We want to maintain our tradition of delighting our customers. And every word here, by the way, is chosen very carefully. We want to delight our customers With a simple maintain our hallmark simplicity, open, we want to be open.
We want to provide Flexibility and choice for our customers across choice of hardware, choice of hypervisors, choice of clouds going forward. Hybrid multi cloud platform, software platform and our tradition of being really good at how we manage and store data. So by providing a rich set of data services with the goal of helping our customers build, run and manage any application. This is really what we are about going forward as a company. So how are we doing that?
What is our product portfolio? Now in the past, you heard about many of our product names and we had a great history of innovating and building many products, Including our core AOS product and a number of new products along with that. As we move forward, we are bringing those products together And simplifying how those get delivered to our customers. So this one platform for hybrid multi cloud starts out with Hybrid cloud infrastructure as the foundation, where we bring our compute storage network virtualization all together into this cloud infrastructure platform. We complement that with cloud management, which includes application automation, it includes AI powered operations, It includes governance and it includes self-service capabilities for our customers to operate these slots.
And on top of this, we provide a set of very specific services around unified storage, files and objects, Around database automation, database as a service and desktops as a service. This is how we are going to be bringing our products together into solutions that our customers can easily buy, easily consume, easily deploy. So this product portfolio, you're going to hear more about this from Rajiv Mirani and how we're going to roll this out over the next several quarters. With this product portfolio, we can address any application, traditional applications, modern cloud native applications, The emerging AI, ML workloads, these new edge workloads, pretty much any applications that companies run. And we can run any of those applications anywhere they want to in these private clouds as well as in the public clouds of their choice Or if they want to go partner with a managed service provider or a telco, we can enable that to happen as well.
So this is the Nutanix Hybrid Multi Cloud Platform. Let's talk about how all of this comes to life in a real world customer example. STS is a full service freight transportation provider. They're the nation's largest privately owned freight shipping company. STS's new CIO brought in a cloud first mandate.
Their disaster recovery solution was nearing their refresh cycle. And their IT teams were looking to explore using the public cloud for their Doctor workloads as the first step in their hybrid cloud journey. Estes was already a Nutanix customer using Nutanix's private cloud platform for their VDI workloads. They love the performance, scalability and ease of use and wanted to leverage this in the public cloud for Doctor. Our cluster solution helped them quickly move their Doctor to AWS, reducing their Doctor costs, While continuing to use the same familiar easy to use management interface to manage private and public clouds.
Clusters showed quick time to value and has now become the preferred technology for their hybrid cloud deployment. We are seeing an increasing number of customers using our hybrid multi cloud solution for disaster recovery, data center consolidation and elasticity. Now with our hybrid multi cloud platform, we also see a huge opportunity to get leverage through strategic partners who can both Create add ons and extensions to the platform itself, but also help us from a go to market perspective. We start out with our global OEM partners, especially HPE and Lenovo. You've seen how, for example, Lenovo announced Their TrueScale offering, which takes our platform, combines it with their PCs and servers and delivers a complete solution for virtual desktops as a service in a subscription model.
We see the same kind of collaboration happening with HPE and we're also seeing Strong interworking at the account level between our sales teams partnering to win deals together. We also have a growing set of cloud partnerships. Our first public cloud offering was on AWS Using AWS' bare metal offerings. We now have a deep partnership with collaboration with Azure. We are among the first to be using Azure's bare metal service to go deploy our cluster solution.
We also talked about how Azure Arc is can be used to manage Kubernetes clusters on top of Nutanix running on prem. Finally, we are also building out a growing base of managed service providers Who can take the Nutanix hybrid multi cloud platform and deliver that as a service to their customers. As you look at our ecosystem, Our customers can confidently put together solutions from best of breed providers. Our hybrid multi cloud stack, Together with security solutions from Palo Alto, together with virtual desktop solutions from Citrix and get solutions that meet their entire business needs. So this is critically important for us and helps us scale as we grow our next several billion.
So I'll give you an example here of how these partnerships come to play in a real world customer example. This is with a large global bulge bracket bank. They were looking to modernize their global virtual desktop deployment, serving about 100,000 users, very large scale deployment. They wanted to improve the performance. They wanted to improve the resiliency of the platform and quickly scale based on their business needs.
Now they looked at obviously every vendor that is out there and Nutanix partnerships with Key providers, Citrix and HPE were critical to allow them to select Nutanix as their partner. So Citrix was an incumbent VDI solution. They did a proof of concept and then they picked Nutanix. Also, our tight integration with HPE helped make this easy and seamless for them. Now at the same time, we also worked with all the global systems integrators that This particular bank was working with and every one of them ultimately bid Nutanix into the solution that they were proposing.
The customer ultimately chose to go with Atos. And again, this relationship during this process of how our field teams work together across Our teams working with HPE sales teams, with the Citrix sales teams and partnering with the GSI Atos was critical in us being able to win A large deal like this. So this freedom of choice that we provide to our customers, along with the focus on partnerships, helps deliver a well integrated solution to our customers who are looking to put together best of breed providers and build world class infrastructure solutions. So let's move forward now and focus on our go to market transformation. We've talked about our journey to subscription, and a lot of this is about building out this efficient subscription go to market engine.
Over the last several quarters, Chris and the team have done a great job with sales execution. We've been very consistent in terms of being able to predict and overachieve. We have moved our entire sales team to be compensated on ACV, annual contract value, away from total contract value. This provides great flexibility to customers. They can pick shorter terms If they choose to, it helps us get better deal economics and it helps us attach more emerging products to upsize our deals.
We're also very focused on helping our sellers be more productive and driving new ACV productivity. Things like solution selling, partner leverage, all of these help us. We are front and center focused on building our renewals engine. So the subscription renewals can be done at much lower cost than new ACV. 80% lower acquisition cost for subscriptions, comparable to other industry Industry Benchmarks.
And our high customer satisfaction Also leads to great retention rates for us. Last but not the least, we're also focused on marketing efficiency. We've talked a lot about how we are going to be a much more digitally focused marketing team here going forward. It helps us build our pipelines much more efficiently and also over the last several quarters develop a much higher quality pipeline. Chris and the team are doing a great job here along with Ben.
Chris will be covering this in more detail. The net effect of all of this is that our sales and marketing costs going forward are going to come down. They're going to come down from being 79% of revenue in FY 2020 to about 43% to 47% of revenue in FY 2025 Through a combination of all of these productivity gains, efficiencies and building up of this renewal stream at a much lower cost, Together are going to drive us to much more efficient go to market. Now let's talk about the financials and what we can expect here as all of this starts coming together, our product portfolio, Our go to market subscription transformation as they all come together. We've talked about this growing base of renewals that we've been building over the last few years.
As those renewals come and mature, they're going to continue to grow. We see over the next few years here, Renewal is growing at 50% CAGR for us through FY 'twenty five. And as we've talked about, we are very much Engaged in terms of driving that efficiently, driving that with high retention rates and doing so cost effectively as well. So that's a great underlying base that we did not have until now and is just starting to build up. So 50% CAGR,
Driving a
big chunk of our growth. And then on top of that, you layer in new ACV. This is new business that Our sellers, our reps are going out there and getting. And you've seen the market sizes there that we have and you've seen that the core market itself, HCI market, if you ask Gartner, is growing at 15%, 16% CAGR. And we certainly can grow at that pace, if not faster, because we also have Not just being leaders in the core, but also all these emerging products that get on top.
So 15% CAGR For new business is, I think, very, very doable. And all we need to do is 15% to drive a total growth here of 25% CAGR Over the next few years as a company. And we are again focused on things like higher rep productivity, continuing to focus on managing our rep count and increasing reps wherever we need to, as well as driving both core and emerging products to get to this total picture. So again, you can expect us to drive 25 percent top line growth over the next several years. At the same time, we're driving top line growth.
We are also focused on profitability. We have a clear path to profitability. If you look at free cash flow, we expect to be free cash flow positive by the end of next calendar year, 18 months from now, Which is the first half of our fiscal twenty twenty three. And going forward beyond that, continuing to generate good free cash flow. Not just there, we also expect to get to profitability for operating income.
So operating profit, we expect to be profitable by the second half of fiscal twenty twenty three or the first half of fiscal twenty twenty four. And then beyond that, again, continuing to drive steady operating profit. Dustin is going to cover this in more detail. But again, profitability is driven by our growth in renewals. These renewals happen at much lower cost As well as the go to market efficiencies that we are driving across the company.
So as we move forward, The one thing that does not change for us is our obsession with customers. If we make our customers successful, everything else will fall in place. Today, we have a base of over 19,000 customers, and we're adding about 700 new customers every quarter. Our retention rates are north of 90%. Our customers love doing business with us.
Our net promoter score over the last four quarters is at 93. We've been able to maintain that even as we've scaled our customer base. Our customers like to do more with us over time. Among our larger customer base, Which is the Global 2000, a typical customer after their initial purchase spends 16 times as much with us Over the next several years after the initial purchase. I want to leave you with our key takeaways.
We are the clear leader in this fast growing hyperconverged infrastructure market, addressing a market of more than $30,000,000,000 We are building on that by extending our hyperconverged infrastructure platform to a true hybrid multi cloud platform, growing our addressable market to include public clouds. And on top of that, building a set of emerging solutions that lead to our ability to address an additional $30,000,000,000 We're doing that by creating a single platform, one platform for hybrid multi cloud That has great simplicity and allows our customers to seamlessly operate in a multi cloud world. We're getting significant go to market leverage through our focus on renewals, driving that Efficiently, our focus on solutions selling and our focus on leveraging partnerships. From a financials perspective, we expect to grow our top line at 25% CAGR through FY 'twenty five. At the same time, as we're driving our top line growth, we're also focused on profitability.
We expect to be cash flow positive by the second half of calendar twenty twenty two, which is only 18 months from now or the first half of our fiscal 'twenty three. And we expect to be operating profit positive soon thereafter. With that, I'll hand it over to Tanya to lead us through Q and A. Tanya?
Hi, everybody. Welcome to the first portion of Q and A for our session today. Rajeev, great presentation. Thanks so much for that.
Thank you.
As a reminder, if you want to ask a question, please click ask at the lower right hand part of your screen. And with that, We'll get started. Our first question comes from Katy Huberty from Morgan Stanley. Go ahead, Katy. Rajiv, after 6 months in the CEO role, talk to us about what has surprised you both on the upside as well as Where do you feel like there's the most work to do, particularly as it relates to the path to profitability that you just rolled out?
Yes. Thank you, Katie. So I talked about some of this in the presentation. But as I came in from the outside, I had a good view that Nutanix had Solid platform with a lot of customer loyalty. And the more time I spent with both the team and our customer base, that actually got reinforced in spades.
The customers love working with us. The product works. It's simple. It's resilient. It's high performance.
And so that is a good pleasant surprise, even more so on the upside than I had anticipated coming in from the outside. So the foundation was there very much so. Now on the other side of the question, I think you also talked about what were some of the other on the downside piece. I think I saw a lot of innovation in the company, which was a big positive. But I also saw a lot of individual local optimization rather than a set of global priorities that The company we're executing to.
So we've set those priorities now. And now it's all about executing to those priorities.
Great. Thanks so much, Rajeev. Our next question comes from the audience. And it's, could you characterize the customer feedback on Clusters and how they perceive it versus other Hybrid Multi Cloud Offerings.
Sure. So Clusters is fairly early. We've had it in the market for about 9 months now. The initial traction is quite good with several customers adopting it for some very specific use cases, which are data center consolidation, Elastic capacity expansion into the public cloud, a disaster recovery. We have as we talked about in the examples, we have several customers now getting into production with it.
The traction is quite strong. They allow the fact that it's simple to use, like as with all our products, simple from a license They can buy a license from us and use it anywhere they want. And so competitively, it's proving to be a good differentiator for us And allowing our customers to extend their operations into the public cloud quite seamlessly.
Great. Our next Question is coming from Ittai Kidron from Oppenheimer. Go ahead, Ittai.
Thanks. Hi, Tanya and hi, Rajeev. Thanks for the Presentation today, great targets you've laid out there. I had a question about the adjacent market opportunities that you laid out. Help me understand what is it about your CI core that makes it a good place, natural place to consolidate such adjacent opportunities.
How critical is it for you to Execute on them to deliver on these new great targets that you laid out and what is it about the go to market motion that needs to change in order for you to be able to capitalize on them?
Okay. Good set of questions there, Ida. Let me try to make sure I answer all of them. If I don't, Tanya, you can put
it. Yes.
So first of all, I think Many of these adjacent market opportunities are really attached to the core. So our core is our cloud infrastructure, Hybrid cloud infrastructure that we talked about. If you look at cloud management, operations, automation, a lot of that is an attached sale on top of Our cloud infrastructure platform and can extend into the public cloud. So that's a natural attached motion to what we have. When you look at the other adjacencies, Unified Storage that we talked about, so that again is very much built on top of our HCI platform.
It uses the underlying capabilities of the HCI platform to deliver objects, to deliver files, for example. When you look at database automation, database as a service, that has a potential to be a big standalone market opportunity for us. But in its version 1 that we have out there right now, we are leveraging the underlying HCI platform to do a lot of database functions very efficiently. So for example, things like copying data, snapshots, being able to restore instantly, create a time machine, these are all critical capabilities for databases For which we leverage the underlying HCI platform. So when you run a database on Nutanix HCI platform, you get a lot of simplicity and benefits in terms of how So that's the attach on the database side.
End user computing has always been a workload, one of our historically, one of the workloads that landed on HCI. And so from that perspective, that continues to be a healthy market for us. So that's the connection between these adjacent markets in the core. Now when you look at the go to market motion that you talked about, so a lot of the GTM here is really an add on on top of the core and Some of this is going to be packaged that way as well as we talked about in the product portfolio packaging. Now some of these will require us to go build more specialist Teams, which we have done.
For example, when you look at databases, we are selling into database admins, not traditionally our infrastructure folks. And so where needed, we will augment and we have augmented by adding some specialists, especially in our technical presales engineering team. So largely, I think these adjacent markets are so tied to our core markets that we feel we can expand and we can actually drive the growth that we're talking about. And to your last question there in terms of, are these an important component of our overall growth? Absolutely, yes.
I mean, we've factored that into the financial model that we've talked to you about, Which is a combination of both core growth as well as growth in all these adjacent markets.
Great. Thank you, Rajeev. Our next Question is coming from Jason Ader from William Blair. Go ahead, Jason.
Thanks, Tanya. Hi, Rajeev. I guess my question is on competition and what you see as the biggest long term competitive threat for the company, Your old company or the cloud guys, Amazon, Microsoft, Google?
Yes. Look, Jason, we compete against both, right? We compete and we partner, right? It's an interesting ecosystem here. So as workloads go natively to the public cloud, that those are workloads that go away from our platform.
And of course, VMware is always a competitor. Now in terms of how we differentiate and how we create room for ourselves and unique value proposition, compared to the public cloud folks, What we deliver is a cloud platform that enables our customers to seamlessly run their workloads across any place they want, any of the public clouds they want. We talk about our customers living in a multi cloud world and we provide a platform that allows them to Hide the underlying complexities and really run their workloads where they want to. And that includes both their existing workloads as well as new workloads. Even as the cloud guys themselves, the public cloud providers are adopting a hybrid strategy.
They may come on prem as well, but it's really either in their cloud on and on prem. And largely, the public cloud has been used for net new applications. And so existing applications running in a public cloud hybrid scenario Would likely need to be re platformed or refactored. So that's the differentiation compared to the public cloud folks. When you look at The other player that we talked about, VMware, what we do is, I mean, we've talked about how our platform is really simple.
It's robust. It's high performance for all workloads. We provide a unique set of database data services. We allow our customers To manage all forms of data, structured, unstructured data and manage that really well. And so that combined with the Freedom and flexibility of choice that we provide, choice of hardware, choice of hypervisors, choice of public clouds and Choice of Cloud Native Stacks.
We are not tied to any single cloud native stack. We work with every cloud native stack that's out there. You've seen our announcements with Azure Arc, for example, Google Anthos, etcetera, right? So OpenShift, if customers want to run, All of these can be run on top of a Nutanix step.
Great. Thank you, Rajeev. Our next question comes from Jack Andrews from Needham and Company. And Jack asked, What's the hardest problem you're trying to solve right now?
Well, that is a good question. When I came in, I think The challenge here was actually to align our companies around a set of priorities, which we have now done so. Now the hard work ahead It's actually about executing on all the priorities. We talked about what we're going to do. We've said that, now we're going to go off and do it.
And it's that execution that's The hard problem that we have to go tackle across all the priorities that we've laid out.
Right. Thanks, Rajiv. This is our last question for this segment. This comes from Matt Hedberg from RBC. Go ahead, Matt.
Hey, good morning guys. Thanks for taking the time and Rajeev, this has been great so far. Your ACV billings targets look great, especially when considering this growing renewal portfolio. But also I think the path to profitability is something that we all appreciate. My question is when thinking about the path to fiscal 'twenty five ACV Billings targets, what does that mix of SaaS look like out there versus today?
Just sort of, I mean, just Qualitatively, how should we think about that growing SaaS mix over time?
Yes, Matt. As you know, we are Continuing to increase the SaaS portion of our product base and over time, more of our products will get SaaSified. So today, for example, our desktop as a service is delivered as SaaS. Our disaster recovery solution is delivered as a SaaS service. And so pure SaaS For us, it's still a small component of our overall revenue mix.
But over time, we expect to take more and more of our product portfolio and offer that as a service. Some of it will be done directly by us, some of it will be done through partners. For example, we've recently announced some partnerships with MSSPs They are going to be delivering managed service providers and they're going to be delivering it as a SaaS service themselves. But This will be a gradual growth. I don't expect the SaaS offerings to dramatically change our revenue profile in any during the course of what we've outlined here.
I would expect us to be delivering more capabilities as SaaS over time, and that'll be a gradual uptick in the component of revenue that we see.
Great. Thank you, Rajeev. And thanks everybody for the great questions. Next up is Rajeev Mourani. But first, we have a customer video from R&L.
Please welcome Chief Technology Officer, Rajiv Mourani.
Thanks, Sonya. Wow, that was a great customer video. Hi, and welcome to the product section of Nutanix's Investor Day. Over the next few minutes, we're going to cover a couple of topics. The first is our streamlined product portfolio, While we continue to extend our lead on our core HCI and management offerings, we've also taken many of our products and consolidated them down to fewer Bigger Bets.
These are more closely aligned with customer use cases and solutions and represent a significant opportunity for us in terms of our addressable market. The second area we will cover is our hybrid multi cloud strategy. The hybrid multi cloud approach takes the best of public and private computing and wraps it with a consistent user experience and unified operations. We feel it's the ideal approach for organizations that are dealing with the complexity of multiple clouds, Public, Private and Managed Clouds. Last year, we introduced our Clusters offering.
Clusters takes our entire software stack and makes it available on public cloud bare metal. To complement clusters, we have added support for cloud native applications. Between clusters and cloud native support, customers can run any application modern or traditional on Nutanix infrastructure and the location of their choice. Let's start by taking a look at why Nutanix wins in the marketplace with our current offerings. The first is the power of simplicity.
We make it truly simple for customers to build and operate in a cloud like manner with capabilities like self-service, Built in automation, built in security, but most importantly, 0 downtime, one click operations. Our platform also has the scale and resiliency to run any application. We started with relatively simple applications like VDI, But over time have built in the scale to run mission critical business applications and now cloud native and AI ML workloads as well. We also have best of breed data services. This starts with a complete offering of files, objects, database automation, And then we layer in capabilities like data protection, mobility, security, disaster recovery and so on.
Finally, we offer customers the most choice in terms of consuming all our parts of our product portfolio. As an example, we have our own Hypervisor AHV, but customers are free to bring their own. This degree of flexibility extends beyond our product to things like licensing. Customers can use their Nutanix entitlements freely between private data centers and public cloud. These core strengths are at the center of everything we do and shape our thinking as we expand our product portfolio and strategy.
Let's take a look at the product portfolio. If you're familiar with our existing portfolio, you may remember that we have a lot of products with a lot of interesting names. What we're doing is we're taking these products and combining them into fewer tiered offerings and bundles. The idea is to align these closer with customer Solutions and Use Cases, so that a single use case can be addressed by one product or Atmos 2. We also take the opportunity to simplify metering, So that our solutions will be available on single metric, something like cores or terabytes of storage.
We also wanted the optionality to provide for a variety of delivery options to our customers on the private data center, on the public cloud Increasingly as a service. Finally, we're aligning our R and D investments around fewer bigger bets and really focusing on a consistent user experience and interoperability between our products. So let's take a look at the new product portfolio. We are building the portfolio around 5 offerings: hybrid cloud infrastructure, cloud management and 3 products with independent go to market motions, unified storage with files and objects, database automation and as a service and desktops as a service. Double clicking into hybrid cloud infrastructure, this offering contains everything you need to build public cloud like infrastructure.
So it has our core HCI stack. It has our AHV hypervisor, But also adds in support for virtual networking, containers, security and disaster recovery. In terms of our existing portfolio, hybrid cloud infrastructure folds in AOS, AHV, but also flow and carbon. Cloud Management is our multi cloud operations, governance and automation product. It contains everything you need to operate in a cloud like manner with capabilities like self-service, show back, charge back and so on.
Cloud management truly is multi cloud. You can use cloud management against our hybrid cloud infrastructure offering, but you can also use it against other on premises stacks As well as against public cloud applications. In terms of our current offerings, it folds in Beam, Calm and Prism Pro. As I said, we have 3 product offerings on that are layered on top of this with TestOps as a Service, database automation and as a service and Unified Storage. We'll cover a couple of those a little bit later.
Underpinning all of this, we have a unified control plane, unified APIs, Built in Security and Lifecycle Management. And to reiterate, the platform runs all applications from VDI to enterprise business critical applications to cloud native. Now this entire stack is also available on a variety of substrates. This includes private cloud, Increasing the public cloud, MSPs and telcos and going forward as a service as well. So let's turn to our core stack and just start by talking about the AHV hypervisor.
AHV adoption is Strategic for us since it drives adoption of the rest of our portfolio. You've seen this in customer after customer that customers who use AHV tend to use more of our emerging products. AHV is also central to our hybrid multi cloud strategy since our clusters offering runs AHV. You've added major new capabilities to AHV and one of the ones we're most excited about is virtual networking. Virtual networking lets us create Multi tenant overlay networks for a customer on premises and we make it really simple for them to do so simply by choosing the right license tier.
No professional service is required. Virtual networking also enables customers to extend their networks into the public cloud So that they can move workloads back and forth without having to redesign their network or EIP ing their workloads. Besides virtual networking, we've added more capabilities And data protection and trusted computing. And in fact, AHV today has all the capabilities our enterprise customers want. As a result, AHV adoption has been ticking up so that more than half our nodes today ship with AHV installed on a trailing 4 quarter basis.
This sets us up well for our hybrid multi cloud strategy. Another thing that is central to hybrid multi cloud is security. Security is cited as a top consideration by our customers in their journey to hybrid multi cloud. Customers want to have consistent Security postures and operations across all their locations. But this is a hard problem because security in the public cloud tends to be very different from security in the Private Data Centers.
We want to make it as simple for customers to move their security postures with them as we do moving their applications. And to do that, we've added a bunch of capabilities around the full spectrum of prevention, detection and response, with a particular focus on data security, which we consider a core strength. As an example, consider ransomware protection. We can automatically detect ransomware attacks in progress, Lock them from succeeding by preventing rights to storage. And if they were to succeed, recover from such attacks by restoring to an immutable snapshot.
We can also prevent lateral spread with our micro segmentation technology by taking compromised workloads and isolating them from the rest of the network. Now while we cover prevention, detection and response, security detection is a problem which we feel we can particularly shine in because it's a data analytics and Machine Learning Problem. It's a workflow that's ideally suited for the Nutanix platform. In addition to the capabilities we are building on our own, we also have an ecosystem of partners around security, Including vendors like Palo Alto Networks, Qualys and Splunk. As with everything else we do, we stay true to our philosophy of customer choice by letting them pick the best security solutions for themselves.
Turning now to our emerging products.
One of the areas we
are most excited about is our unified storage offering with files and objects. This represents a large market for us. We estimate it to be more than $3,500,000,000 and It's been growing rapidly, almost doubling in the last 12 months as we take market share from NetApp, Isilon and others. Customers choose our storage offerings for several reasons. First of all, we offer them the most flexibility.
They can buy storage from us And carve it up as they like. They can use traditional file up protocols like NFS and S3 or use object storage with full AWS S3 compatibility. We've also invested in rich data analytics. Customers can get insights on how their storage is being used, But we also use these analytics to drive some pretty powerful capabilities. For example, placement optimization and cloud tiering.
We can automatically detect when data is not being used very often and move it off to cheaper on premises storage or to public cloud. For customers, this means that without any manual intervention, they can significantly bring down the cost of storage. And we've already talked about ransomware protection as a key differentiator for our files and objects offerings. As a result, we are seeing increasing number of use cases with Unified Storage. It's part of VDI solutions often with home directories and department shares, but we're also seeing and Shares, but we're also seeing increasing adoption in big data workloads, AIML workloads and cloud native applications.
Let's take a look at a customer example. Assurant is a leading provider of insurance services. They have over 300,000,000 consumers And provide services like mobile device lifecycle management, multifamily housing, vehicle protection services and a lot more. Their 14,000 employees and an annual revenue of over $9,000,000,000 Technology partner that could help them address the growing demands of the business. Economics of capital expenditure of traditional CapEx did not work for them Because of the diverse business portfolio, which drives an unpredictability in demand.
Nutanix's flexible consumption model allowed Assurant to start small And grow as per the needs of the business. Over the years, they've expanded their deployment on Nutanix with scalable cost efficient, predictable performing and simple to use Cloud Platform, Asurion was able to start small with select workloads and add capacity as they needed to. More recently, they've also started using more of our emerging products, specifically Prism Pro and File Storage. Of course, Nutanix support was a big factor in giving Assurant to Assurant, Pressing that three times fast, that Nutanix was the right partner for them. Other area that we're very excited about is our database automation and as a service product, Era.
Era also has a large market opportunity over $5,000,000,000 according to our estimates Has been one of our fastest growing products to date. Era brings a number of unique capabilities to database management, Automatically provisioning databases, patching them, providing for copy data management and backup and restore from a time machine. And so we're taking all this innovation that's happening in the public cloud and making it available for traditional enterprise customers in their private data centers. Era supports a variety of databases, both proprietary, Oracle and SQL Server and open source, Postgres and MongoDB. In fact, we are adding end to end support for Postgres so that customers will have a complete database solution from Nutanix.
Now Era can run both in the private data center and in the public cloud via our clusters offering. Going forward though, we are investing in decoupling Era from the Nutanix cloud platform so that it can run natively against Public cloud instances, for example, against AWS EC2. What this means is that customers will be to run era and get the same consistency of operations and policies, no matter whether their workloads running on the Nutanix cloud platform or natively in public cloud. Turning now to our cloud strategy. Last year, we introduced Clusters.
Clusters takes our entire software stack and makes it available on AWS Bare Metal. We are also working on a port to Azure and expect to have a public preview in the second half of this year. Clusters is unique in that it actually is deployed directly in customers' cloud accounts. This means customers can take advantage of their cloud credits And also provides for easy interoperability with their native cloud workloads. Customers have flexibility in how they license clusters.
They can use their existing Nutanix licenses, port them to public cloud or they can use more cloud like featuring based on consumption. Now we have the same software stack available on premises and in the cloud, which means that customers can move workloads with no refactoring whatsoever. They get similar levels of performance, similar SLAs, unified management, unified operations. And in fact, the same teams with same skill sets can manage all their At the same time, we have made it easy for them to take advantage of the elasticity of public cloud, so they can very easily expand clusters, shrink them back down as needed. In fact, these two factors, the ease of lift and shift and the elasticity of public cloud have driven a cluster's adoption over the last few months since we've gone GA.
Some of our customers are going through a data center consolidation exercise. They're terminating data center leases and want to move quickly to public cloud. Pluses lets them do so without refactoring And should they choose to do so, they can do refactoring at a later stage. Elasticity also has driven a bunch of use cases, Things around cloud bursting, test and dev and most importantly around disaster recovery. Disaster recovery is actually an ideal use case for clusters.
Customers can start with a very small footprint in the public cloud, just enough for replication. And only in the event of a failover when they actually need more capacity, They can quickly expand their clusters, run their workloads in the public cloud and then shrink back down once they have failed back. There's no need now to build a second data center that's mostly lying idle, simply waiting for a disaster to happen. Clusters makes it easy for customers to take a traditional applications, applications who were born in the private data center and move them to public cloud. There's a second half to this equation though.
Customers who started in the public cloud, who built cloud native applications Should also be able to move them back into their on premises data centers when they need to. And these applications tend to be built on technologies like containers and Kubernetes, which Which makes some of this easy, things like compute and networking can be moved back and forth relatively easy. But storage remains a problem. In fact, cloud native applications tend to use more forms of storage than traditional applications, files, blocks, objects, databases and so on. Nutanix is unique that we are one of the very few vendors who can actually provide support for all these data formats.
Layered on this, we also provide rich services for containers around data mobility, security, data protection and disaster recovery. In addition, with our Carbon offering, we make it easy for customers to Create and provision Kubernetes clusters. You can automatically deploy them, patch them, scale them as necessary. Essentially between Carbon and our storage services, we make it easy for IT to provide a full cloud native platform for their customers, usually developers. For developers on the other hand, we wanted to give them the maximum choice In terms of being able to bring their own favorite platform as a service runtime.
So while Carbon does have some past capabilities, We also offer developers a choice to bring their favorite runtime. They can bring a Google Anthos deployment, Azure Arc Data Services deployment, Red Hat, OpenShift and so on. Essentially, we want to make all of these platforms as easy to deploy on Nutanix as Carbon One more thing, the data services that we talked about are just as important in public cloud as they are on premises. Things like data protection, mobility, security and disaster recovery are just as relevant for workloads that are natively in public cloud Advanced Threat Run on premises. So directionally going forward, what we're doing is we're taking these services and decoupling them from the Nutanix cloud platform.
So customers will be able to take advantage of these offerings even when they're not adopting the rest of the Nutanix cloud platform. Stay tuned for more on that. We cover 2 major areas today. The first one is our simplified product portfolio, where we're extending our lead on our core HCI and management offerings And also consolidating around fewer emerging products. We're especially excited about Era and Unified Storage going forward.
We also covered our hybrid multi cloud strategy with the twin pillars of clusters and cloud native support. Between the two of these offerings, we can enable customers to run any application in the location of their choice. Thanks for your time today. We'll take questions later. But now over to Chris.
Before that though, let's take a look at the NERA video.
Enterprises everywhere face a common challenge, how to manage, protect and monetize their ever growing data. Now databases harness this data, Powering your mission critical applications that set your business apart. Every company today leverages a variety of database software from many different vendors, both on Premises and in the cloud. However, siloed database operations are complex, expensive, slow and less secure. In fact, Many of the major data breaches you read about in the news stem from database security lapses.
Now enter Nutanix Conduct vital database operations such as provisioning, patching and cloning with a single click, even for thousands of databases, Slashing administration tasks by 90% and senior staff to focus on innovation and business strategy. Built in automation virtually eliminates unplanned downtime, which according to industry research prevents cost of $35,000 of downtime per hour in database outages. And Era lets you scale databases instantly to meet the growing demand. So for example, your developers get access to resources when they needed to build new products and services quickly. Era also provides fully integrated disaster recovery across the entire database estate, ensuring 0 data loss With no impact on performance.
For many of our customers, this unmatched operational simplicity has led to 8 times faster time to market, all while improving database performance by 6 times. Thanks to these efficiencies, Many customers have achieved over 2 90 percent return on investments and Era has paid for itself in under 6 months. Hundreds of organizations today, including JetBlue and RBL Bank, are already using Nutanix Era to simplify their database operations. Now data is one of the most valuable assets for any company. It fuels the enterprise and Nutanix Era provides That simple and secure hybrid and multi cloud database operations that companies need to monetize data and make better business decisions.
Now, I'm excited to introduce you to Tilden Conister. He's a Senior Infrastructure Architect at OptumCare. OptumCare is an ambulatory care company That gives customers access to a complete view of their health with personalized insights to improving care. Children ensures that OptumCare's database solutions powered by Nutanix Era support the remote workforce, telemedicine solutions And the growing patient population.
Yeah, hi. My name is Tilden Knancer. I'm a Senior Infrastructure Architect for OptumCare. OptumCare is an ambulatory care company. 1 of the big challenges is consolidation.
We've got 18 Plus Care Delivery Organizations. Databases are extremely important. Pretty much every system that houses Patient information is stored on a database. We have a lot of EMR systems, analytics, data analytics team. They've got Close to 30 terabytes worth of Oracle and SQL.
In IT, you have to do your due diligence. You have to look at what's available, you know, like Pure Storage NetApp. They can do similar things, but we found that Era was just a complete package. Era allows us to do quite a few things Today that we were not able to do. They needed a dev environment, as well as a report environment that would have cost About $40,000 Tier 1 storage, it's expensive, the memory compute to run it.
What we ended up doing solving for that is using Era To create clones, mount them to a test dev server and then refresh that To give them a new environment, basically ended up using most days 800 gigabytes of space. So a really big win on Cost savings as well as efficiencies because they were having to work on production. They were limited to 4 to 6 people developing and running reports at one time. After the change, we're able to get 18 users working simultaneously. So probably over 60% productivity increase.
One of the other awesome features is deployment of SQL. So instead of a server, maybe a database server taking several days to get out there, we'll have it in minutes. I've been working with Nutanix for almost 10 years now. It's always been a great experience compared to other vendors that I work with, I definitely give them an A. Free time due to efficiencies, unfortunately, always ends up doing the same thing.
You get to do more work In the same amount of time.
And now please welcome Chief Revenue Officer, Chris Kedaris.
Good morning, good afternoon and good evening, and thank you for joining me for this go to market session. I want to thank Rajeev and Rajeev, great presentation on the company strategy and what a great video on database management. Thank you, Monica, for that. It was a great example of how we help customers Solve problems every day. So let's jump into it.
I'm going to talk to you today about go to market, and I'm going to cover 5 key things. The first one is sales execution and how the sales team is doing a much better job of executing from years past. And we think we have a lot of headroom moving forward as well. So great job done by the team. The second part is move to ACV.
So how ACV And that move to compensation on ACV, as some of you may know, we moved at the beginning of this year, has really helped us align to customers and it helped our sales reps position The 3rd piece is our market opportunity. And I'm going to cover How we see more market opportunity within the HCI segment, that's hyperconverged infrastructure, as well as hybrid cloud, And how we're going to accelerate productivity in the market, specifically around solution selling and the road to solution selling and partner leverage in the marketplace. And then I'm going to finish up with go to market and how we're driving go to market efficiencies by driving lower costs Based upon our renewals business as well as digital marketing and some other things within the sales organization. So let's jump in. First part, Sales execution.
So we measure a lot of KPIs on our sales organization and how we execute to make sure that we're executing well. Some of the 3 most important KPIs are 1, how we do against goal 2, linearity, that's how we book business within the quarter To show our pace and how well our pace is during the quarter. And the 3rd piece is how we actually do solution selling in the marketplace and how we And how we attach some of our emerging products, which are differentiators in the market. And I'll tell you, the sales team has done a great job this year. So This year, all of our sales teams based upon every theater, every major theater is at 100% of goal for Q1 through Q3.
Now this is a marked improvement from previous years, and I'm really happy with the work that the sales team has done. The other piece is linearity. And the way that we measure linearity is how we book our business in the quarter. So, I would say world class linearity for any sales organization is if you get above 50 And I'm proud to say the sales team has done a great job here. They've been at 50% of their goal Q1, Q2 And Q3 at the end of month 2.
So this shows the pace and really the attention to detail of the sales organization. So I'm really happy with the foundation we've built there. And then as I mentioned to you, the 3rd piece is how well we attach some of our differentiated products. And this year, We're at 39% attach rate. That's of our HCI core product, we attach an emerging product 39% of the time.
So this is our road to solution selling. When we do this, we position better at our customers, we solve more problems and we win more. So it's a great step for the sales team in regards to how we're executing in the marketplace. Now, how have we done that? I talked to you a few years ago and I'll talk about it a little bit later in the presentation about establishing a sales leadership framework and a sales management framework in the organization.
And I feel that we've done a really good job here. I want to commend all of our sales leadership worldwide. We've really built up the pace to the organization, and I'm happy with that framework that's been put in place. That framework has really helped us build a pipeline culture, so that we're doing a much better job of building more pipeline At a higher quality than we've ever done in the sales organization previously. So great job done by our sales team.
And then we've also helped this with channel incentives and Sales Incentives to try to drive the right behavior in the marketplace. So moving on from this, I want to talk to you a little bit about ACV. Now as I mentioned earlier, at the beginning of this year, we moved to an ACV comp plan. And this is paying our sales reps on annual contract value versus total contract value. This has been a huge win in the marketplace for us.
Now earlier in these presentations, you heard Rajeev and Rajeev talk about our key differentiator in the marketplace is choice. So choice on technology, hypervisor, hardware and cloud, customers can choose. Rajeev also talked about Choice on subscription, where a customer's license portability can move from compute architecture to compute architecture, on prem, off prem, Allowing the customer to make more choice about how they build their architectures in the marketplace. And this has also been a huge differentiator competitively in the marketplace. But one thing that we haven't talked about, it's choice specifically to term.
Now, what I'll tell you is, This has really unshackled our sales organization in the marketplace. It's allowed them to position what a customer requires in a cloud consumption model. So where customers may want 1 year, 2 year or 3 year terms, they can choose what they need. A sales rep is not looking to maximize TCV or total contract value. A few other things that this has done, not only provide the customer with choice, but also it provides better economics for Nutanix.
A shorter term deal is a better margin deal from a software perspective for Nutanix and it's renewable sooner in the lifecycle. So it's a win win for our customers on choice and for our Nutanix sales teams and for Nutanix overall. A great example of this is Total Gas and Power, The leading B2B energy supplier in the U. K, a subsidiary of Total Energy's Group. Now like a lot of the customers that we work with, Total Gas and Power was looking to modernize 3 tier legacy infrastructure and also simplify database management, But they did not want a multiyear CapEx spend.
We were able to give Total Gas and Power a single management platform to drive Great operating efficiencies. It was also the end of a budget year for Total. And they were looking for something that could address their infrastructure, But do it within the current budget requirements. We were able to provide them with a 1 year license duration, both for their HCI infrastructure And for their database management software to hit what Total was looking for and give them the requirements that they needed. So great win by the team, great win win for us to be able to position ACV in the marketplace.
Moving on to the market opportunity. So as you've seen in Rajeev's presentation, we see a great market opportunity within HCI today, within hyperconverged infrastructure. Today, that market is around $21,000,000,000 market going to $30,000,000,000 in the future. We see some key workloads and some key use cases driving this in the marketplace. The first one is around security.
A lot of customers have initiatives around securing their environment today. Those initiatives are driving a tremendous amount of data In the environment and a lot of analytics around that data. Nutanix is a highly secure platform and scales very well for data analytics for security environments. We're seeing a lot of The other area is around performance of current applications. As you know, hyperconverged infrastructure is one of the most Highly performant infrastructures in the data center today.
So we see customers moving a lot of their high performance data requirements to HCI and therefore we're taking a lot more workloads in the HCI space today. And then the other one is around expansion of other workloads. So Things like Splunk in the environment, so data analytics, things like database in most customer environments. So typically, When we've entered into a customer scenario, we enter on one workload. And typically, in most of our accounts, we're in 1 to 2 workloads, I would say.
There's probably 4 or 5 that we can expand to today and the team is doing a great job of helping customers expand to those workloads. I would actually commend our engineering teams Because they've actually brought HCI to a point where HCI or hyperconverged infrastructure can really run any workload in the data center. So it's a great win for us And a great win for our customers. Now building on top of this market opportunity, we see hybrid cloud infrastructure as the next big opportunity in the marketplace. And we're seeing a lot of wins, and I'll go over some.
You've heard some already previously from Rajeev, but I'll go over some in today's presentation. We see that there's really 2 use cases that are driving this in the market. The first one is around disaster recovery, where customers Do not want to really build out a secondary data center for Doctor. So they'd rather use the public cloud in some instances to do Doctor. So with our Clusters product, we give them the ability to do this in a hybrid cloud manner.
The other place is in elasticity. So a lot of customers have to burst to the cloud. They may have cyclical needs based upon their data requirements, right? It could be retail that needs to burst to the cloud on a yearly basis based upon the retail cycle. It could be based upon pandemic conditions where they want to burst to the cloud because they need more bandwidth and they need more data requirements for end user computer for people working from home.
So this is another great requirement. We're seeing customers consume hybrid cloud offerings from Nutanix And other vendors, honestly. And this is a marketplace that we think we can win and we can continue to do well in. Now I would tell you The 3rd area of market opportunity for us, I've mentioned earlier, is emerging products. And you could see we've built on a huge market opportunity here.
We think this market Completes our total market opportunity by 2025,000,000,000 to 61,000,000,000 in the marketplace. And a few of the key use cases that we see Is around data. Our ability to expand beyond just managing VMs with hyperconverged and manage files And objects is strategic. It's big. We're seeing this in the market all day, specifically around files and objects, because a lot of customers are building out object Instances within their environment today.
The other area is around management and automation. So management, a good example here is The video that we saw before my presentation around managing databases. And we're seeing a huge uptick in that product. Our product is Era. And our customers are looking for more and more database management in the marketplace.
That's resonating very well. The other area is around automation. So automation could be around private cloud. So how do I automate my environment to take as much of the inefficiencies out And provide scalability within a private cloud environment, but also how do I automate private to public or hybrid multi cloud environments. And we're seeing a lot of customers engage with Nutanix on how to automate that process.
So we see that there's a significant market opportunity to continue to evolve from Nutanix in the market. Now a great example of this, and I'm going to go through 3. So I'll go through one example on HCI, and then I'll go through another example on hybrid cloud. And then the 3rd example will be on emerging products. So the first great customer example is with CarMax.
So CarMax is a long time Nutanix customer. And there's a few workloads that CarMax looked at Nutanix for. The first one was how can they service their 2 20 locations that are in 41 states. So as a lot of you know that are in the U. S, CarMax is the largest retailer of used autos in the U.
S. And operates more than 2 20 locations, as I mentioned. And they were looking for an An infrastructure that was easy to manage and that could be easy to deploy within these 2 20 locations. So we were able to deliver CarMax this remote office branch office solution. And then our expansion opportunity was to look at how do we actually help CarMax in the data center.
And CarMax was looking for specifically an end user compute or VDI solution that they could deploy For their end users. And Nutanix was able to expand the HCI footprint within their data center to help CarMax. So great win in the market. The next example is a multi cloud example. And in this case, I'm going to use an American Multinational Bank that's a customer of ours.
They're a financial services company that also has operations overseas. And they were looking to modernize their data center to improve performance, but also Private cloud and public cloud leverage for elasticity in their environment. And one of the key use cases they were looking for was Doctor. They did not want to establish a data center specifically for Doctor that they had to own. So they decided that this was a great use case to look at Nutanix for.
And what they decided to do is build a hybrid cloud with Nutanix to address their Doctor use case. So another great win in the marketplace. Okay. And our last example is an emerging products example and it's for USPTO. So the United States Patent and Trademark Office is a U.
S. Department of Commerce agency that grants patents and registers trademarks. The USPTO CTO and CIO had a cloud first mandate. And they had a requirement and a need to deliver end user compute or VDI to their clients and their end users. Now they're also a regulated environment.
We were able to provide them with a SaaS based solution For end user compute, our product frame to help them deliver this solution in the marketplace, A great win by the team and a great customer for Nutanix. And then the last opportunity in regards to market expansion and market opportunity I want to talk to you about is within the G2K, our Global 2000 Market segment. Now Nutanix is lucky enough to be on the data center floor for 50% of the G2K accounts, which is a great opportunity to expand. As I mentioned to you previously, we have, 1, an opportunity to expand around HCI, Just from one workload to the other, whether that's VDI, database, general server virtualization, security analytics. So we're doing a lot of work to make sure we can expand within those existing accounts.
The other place is within hybrid cloud and multi cloud. And And a lot of these customers are looking for answers. And we are seeing a lot of pipeline build around this subject. And then the 3rd place is around our emerging products. So our ability to help those customers with some of our differentiated emerging products is palpable.
It's there. And our sales teams are doing a great job of going after those opportunities in Now, I will tell you, we've also set up for this, right? And this is something that's relatively new in the last 2 or 3 years with Nutanix. And I'd say It has gained a lot of steam in the last year where we've segmented our market. Within our key markets, we have enterprise sales teams Focused on working with these customers to bring value and to expand within that market.
Now, I will tell you that these customers are also great customers. So After they buy Nutanix the first time, 90% of the time they come back and they want to buy again. And then typically, we see about a 16 times multiple on what they bought from their initial purchase. So this is a great opportunity. We've set up for this opportunity and I think this will be a real generator for productivity moving forward for Nutanix.
Let's talk about a customer here that's a great example. So Markel, now Markel is a holding company for insurance, Reinsurance and Investment Operations around the world. As I mentioned to you, there are G2Ks. They entered into the Nutanix family in the typical way, which is effectively they wanted to modernize their legacy 3 tier infrastructure for performance. They also though wanted to enable an infrastructure as a service offering and to optimize their database operations.
So we were able to help Markel with an HCI foundational platform and also provide them automation on how they provision within their infrastructure and provide them with database management. So great expansion in a G2K account. Now let's talk about productivity. And I want to talk to you about the way that we're seeing enhancing productivity. Now some of this is already happening and then some of this will continue to happen.
The first way is around multi product attach. Now I've talked to you about our emerging products and they're highly differentiated. And our sales teams are doing a great job of attaching Multi Products Within Accounts. Now when we do that, we get higher ASPs, higher deal prices. And when we get higher ASPs, we also get better unit economics, Right.
That drives up sales productivity and it drives up top line and inherently drives our cost of sale down line. So this is working in the marketplace. This is a key foundational indicative point to the sales organization. When you go from a single product company to a multi product company, you need to be able to leverage that. And our sales teams are doing a great job here.
Now building on this, we can build this to be a solution oriented sales team. So the next iteration of how we actually build productivity Is around how we position solutions to customers. And when you position solutions, you get value. And for that value, you get margin, you get return, right? And I think it's a win win for our customers because we can organize and give them a better solution that they've gotten before.
And then Nutanix gets more value with the transaction. So I would tell you the way we're going to do this is we're already starting to build reference architectures. We're building validated designs, so our customers can really understand How this is going to bring value to their business and then we're going to package in this way. So customers well, first, our sales reps can position better for our customers. Our customers can understand the value And it makes it a lot less friction in the sales campaign for our customers to consume our product.
Now we see further boosting productivity By obtaining more partner leverage in the marketplace. And I'll talk to you about 3 areas that I think we can do this. So The first one is around channel leverage in the marketplace. And we've built a great program in Elevate. Now Elevate was released about a year ago, And we're getting great feedback from our partners.
They're really invested in our program. But it's a strong foundation that we can build on. And we think We can allow our channel partners, we know we can actually, right. We can really enable them to do more autonomous selling in the marketplace. And how are we going to do that?
So one way is we're going to provide them with more pricing, more packaging, more training and more resources to help them be successful in the marketplace. So this is something that we think that our partners can do a great job in areas where we may not be. Okay, this could be a segment that we decide not to invest. It could be a geography that we decide to invest. So this is an area that we've just started to roll out our solution in the U.
S. We'll see more of that happening starting in August worldwide as well. Now I'll move to the right part of this slide, and I'll talk about public cloud. And as you know, we've released some of our products and offerings around hybrid and multi cloud. And we've released and we've been in operations with AWS For now about 9 months.
And we've seen great uptick in the marketplace. There's a lot of pipeline being built, and we've actually gone through some examples where customers are using that in the market today. Now we also see that Azure is going to be released soon, as you heard from Rajeev. And Azure is substantial in a lot of our accounts. So we're thinking that this will add a lot of productivity to our sales teams and provide us with benefit in the marketplace.
Now I'll talk about The 3rd area with partner leverage with which is we're really in our ecosystem of partners. And we've built a great ecosystem with HPE, with Lenovo and with Dell. And We've had great traditional, let's call them OEM relationships in the marketplace. And they've done a great job of bringing our solutions to customers around the world. We can continually build on this, especially with embedded solutions.
So an embedded solution is where these Partners bring some of their expertise and actually embed that with Nutanix technology. Now we've had a few releases recently. The first one is with Lenovo. So Lenovo has released an as a service product around managing desktops in the marketplace and providing customers with something A consumption model that will help them deploy desktops and do this in a cloud like way. And they're bringing things like client desktops We don't have our expertise around this environment where Nutanix may not be able to bring this.
They're also bringing some of these embedded solutions to markets where we may not be resident. The other one that we've just released is with HPE. And HPE has released a cloud like model with GreenLake, so a consumption model where customers are looking for. And this is around database and database management. Just recently released and we're already seeing a lot of interest from our customer base.
So great solutions and we think that this will provide us more leverage and more productivity in the marketplace. Okay. So let's talk about go to market efficiencies. Now as a sales organization, we're hyper focused on growth. But at the same time, we need to be balanced on spend.
And about a year ago, I sat down with my sales leadership team and And we decided we really needed to come up with a plan, a more rigorous plan around spend. So, nobody will ever confuse me As a Chief Marketing Officer, we came up with a plan, we named it ABCD, real innovative title. But what this gave us was the ability to sit down and understand How do we actually look at our segments in the business, our geographies and our functions? And let's put some value And let's understand where our opportunity is. And my sales leadership team did a great job of assessing their current environment and understanding where do we needed to spend our resource.
And in some cases, we decided to not put boots on the ground in certain countries or to exit some regions or some geographies and some functions. And we decided to reallocate a lot of those resources to more productive regions. Now in these places, we still do business. We have great partners on the ground, and we just came up with new programs for those partners to make sure we can continue to service customers in those marketplace. So it sounds simple, but now is ingrained in the DNA with how we act as a sales organization.
Additionally, we see that the low cost of renewals will drive go to market efficiencies for us. So we think we can obtain an 80% reduction in cost for renewals compared to new and upsell ACV. As you'll hear from Dustin, we need to increase our sales and marketing leverage and make sure that the sales and marketing cost is at a much lower rate of total revenue for the company. And by doing this, we think that renewals will significantly help us get there. We've already had a year under our belt with renewals and the team shown great progress towards obtaining these goals.
Additionally to that, We have a goal, which is industry best in class of obtaining a 90% GRR rate. And as we've had a year under our belt, we've seen great progress here as well. So why are we confident on Renewals execution? Number 1 is, we built a great team. So the first thing that I did over a year ago is take one of my top Global sales leaders and put them in charge of our customer success renewals operations.
And they've done a great job of building a great team. We spent some time when we went out to the industry and we hired some great talent, both in sales operations and in sales leadership. So really excited about the team that this work is doing. Now, we've also enabled them with some great tool sets around adoption, consumption and renewals for our customers And this is industry best. Our next closest competitor is probably half this rate.
So our customers love working with Nutanix. So I think with these components in place, we'll have a great performance on the renewals business. Now let's also talk about good market efficiencies with marketing. The sales teams and the marketing teams have done a great job. We've given them a tough task this year.
How do you bring the total cost of marketing down, the spend down, At the same time, hit all of your pipeline goals, increase pipeline quality, right, and drive a higher conversion rate. And I'm here to tell you that we've done a great job here and I think we've built some really good muscle memory around this as an organization and I'm excited around the work that The team is doing today and the work the team is going to do in the future here. A great example of this is our IT unplugged initiative. So this is where we go to the market and we source Great talent that people want to see and they want to hear from. This is musical talent, comedic talent.
And this had a great response in the marketplace, especially during these times. So a lot of people bring their family, to see that talent, whether their talent is singing or telling jokes. And at the same time, we're able to Bring examples of where we've helped other customers within their environment. So this has been a great way that we've gone from physical to virtual And driven digital marketing and driven our pipeline goals. Now, when we met 2 years ago, We talked about a sales management framework around talent, coverage and quality of sale.
And I'm proud to say the sales Leadership team has done a great job of responding here. And I think we have a strong talent coverage and quality of sales strategy here. What does that mean? So talent, How do we hire great people? How do we train great people?
How do we make sure we have the right people for our journey and our mission? And we've done a great job of transforming the team and doing that. Coverage, it's how do we set up? How do we actually build our territories? How do we segment?
What part of the markets actually give us the best return? We've done a great job of segmenting our market, and I think we'll get great returns from that. And then how do we partner in the market? And then quality of sale is when we show up, How do we present our solutions? What type of tool sets do we use to make sure customers can understand the solutions and the benefits they're getting?
And the team's done a great job So I'm really proud of the work that the team has been doing. Now building on top of this, I think it's the right time to build our solutions go to market. So we have a strong Sales Management and Sales Leadership Framework, and we're ready to build a strong solutions go to market. Our top focus areas Moving forward are to make sure we continue growth, optimize our renewal engine, also make sure that we can take advantage of new customer growth. So the team has done a great job on new customer growth during these macro pandemic conditions.
We're ready once these Conditions start to lift, which we see in certain markets, they are. The team is ready to kind of accelerate that new customer growth. So that's going Pretty well and I'm looking forward to that happening moving forward. And then how do we do all of this by balancing top line growth with bottom line improvements. So let's recap some of our key takeaways.
The first one is around go to market execution. I feel we have the right plan at the right time with the right resources. So I'm really excited about How we can execute in the marketplace. The next piece is around move to ACV, how we're much closer aligned to our customers and our customer buying patterns. And it is a key differentiator in the marketplace.
And then I talked about market opportunity, how I feel we have a significant market opportunity within the HCI space moving forward, As well within the hybrid and multi cloud space. And then on top of that, with our emerging products and in the G2K space. So great opportunities around. Now then I talked about making sure we could accelerate productivity in the marketplace. And 2 key areas that I think we can accelerate Around our channel go to market and how we allow them to be more autonomous in the marketplace for us.
And then around our embedded products with some of our ecosystem And we've already made some significant announcements there with HPE and with Lenovo, and we see great traction in the marketplace. And then to finish off our go to market efficiencies, how we make sure we balance top line growth with bottom line improvements. So we're going to take a break for 10 minutes and then we're going to move on to Dustin. Thank you very much.
One person donates their organs and up to 7 people's lives are able to be changed just by that one Gift of life. And to be in the middle of that, there's nothing in the world like it. Eidos is A private non profit. We manage the National Organ Donation and Transplantation List System. I often like in our job as Replacing the tires on the car while the car is in motion.
We can't stop the train. We transplanted almost 40,000 people last year and there are yet Still over 100,000 people that are still waiting. We're doing all that we can to ensure that those who are waiting Don't have to continue to wait. We want to provide those organs to those who are in need. At the moment that an organ is donated, We then run the match and determine what the candidate list is going to be.
And so that runs on demand multiple times a day. 10 years ago, That process is running maybe a 1000 times a month. So here now, We are approaching twice that much. Instead of talking minutes, we're talking seconds in our match run times. I think that it would be very difficult to do what we do without modern technology.
We made a decision to go to a company like Nutanix Because it allows us to process more data here in the mothership, right, more quickly. And that's where the performance boost, not just from the APIs themselves, but the submission of more information that's coming to you. Nutanix is enabling us to take advantage of both the public cloud infrastructure As well as our private cloud and do it in a seamless manner. Most administrative tasks can be performed with 1 or just a few clicks. We can free up Our resources, our people to spend more time doing the value added activities to more directly impact our Transpac community.
COVID has changed everything for us as well as everybody else. And with working remotely, the easier the administrative Burden is the less you're impacted when you do have to go to a remote work situation.
Please welcome Chief Financial Officer, Dustin Williams.
Wow, that was a great customer We're excited today to wrap up our event with the final presentation of the day and that being the finance overview. It's been well over 2 years actually since we've been in front of the investment community talking about a long range model in the business in general. And so we're excited today to get to do this now after over a 2 year lull. So we have a presentation today that's probably a little more Lengthy than you might expect in a normal finance presentation during Investor Day, but we have so much to cover. And so because we do have so much to cover, there's a couple of key points and themes that I want to make sure that you think about as I go through this next 35 minutes or so of presentation.
Because one way or another, these two themes are weaved through the entire presentation. The first point is that through inception up through effectively today, our business has been fueled by new and upsell business. And there's 2 things that we know about new and upsell business. New and upsell business is costly to transact and it's less predictable business. The second point To think about as we go through the presentation today is that the renewal flow is on the way.
We spent the last 3 years building up a subscription business, hard work, 3 years building up a subscription business. And we had average terms of 3 and 3, 3 and a half years. So naturally, a lot of those renewals have not occurred yet. But we know that renewal flow is coming. And we know that renewal flow will start changing the mix of new and upsell and renewals.
So what do we know about renewals? What we know about renewals is exactly opposite of what we know about new and upsell. That renewals should be very efficient to transact And they should be much more predictable. And again, as we see this mix changing from new and upsell to more renewals naturally, that transforms So today, for the first time, and we're happy to finally to show the story in this transition that we've been through in a Quantitative, man, what you're going to see is how these two factors that I just talked about play through the long term business model and the impact on the long term business model. So today, for the first time, you'll see us separating out ACV billings into new and upsell into renewals for the first time.
We'll start talking about the renewals and the flow of renewals and how much of renewals that you should expect to see in what periods. We're going to talk about the retention rates of the renewals. We're going to talk about how expensive those renewals we believe are to transact. And ultimately, we're going to show you how we think renewals actually adds leverage to the S and M Cost structure as we go forward and ultimately leading to what we think is a very credible and clear path To not only positive free cash flow, but again, operating profit in the near future. So that's what we have in store for you today.
We're excited to go through this. So let's just get right into the presentation. So as Rajeev showed you, we expect compounded annual growth for ACV billings of 25%, and that's through FY 'twenty five. And we believe because of the renewal flow here that renewals will actually carry a big burden of this growth, if you will, shifting from So when you look at it from a compounded annual growth, renewals will actually grow through this period 50%, while new and upsell will grow at about a 15% CAGR. 2nd takeaway here is that naturally as terms stop compressing and ACV continues to accelerate, The revenue growth will quickly follow.
And we've shown here a 20% CAGR for revenue growth through FY 'twenty five. And probably the most important takeaway here is that the renewals will naturally transform the business model as we go forward. And we know that renewals are going to add to top line growth. We know that renewals will end up adding operating leverage And ultimately, a lot more predictability. That's what we've been talking about from the renewal flow, and that's going to come over the next several years.
We have also we've been looking at the top line to make sure we've got a really good growth on the top line. But what we've also done is also focused on the bottom line. And you see here what we're projecting through FY 'twenty three is a compounded annual growth rate for expenses of about 7%. And then lastly, most importantly, we believe what you'll see today here is a clear incredible path To not only positive free cash flow in the second half of calendar 'twenty two or the first half of our fiscal 23%, but more importantly, a clear incredible path to operating profit in the near future. Again, strong ACV billings at 25%, cash flow turning positive in FY 'twenty three And operating profit positive at the second half of FY 'twenty three or the first half of FY 'twenty four, somewhere in that range, And then ultimately, going up and growing from there.
So right now, we'll take the top line and we'll start splitting the top line And talking about the different growth metrics and how we see that play out over the next several years. So again, here you can see the top line growth at 25% Through FY 'twenty five. And really, there's 3 key components of growth for this ACV growth of 25%. First, It's rep productivity and then just playing the number of reps. And I really view this as the engine and it's the engine that gets fed by a very strong portfolio Products and that being core and emerging products.
And then ultimately, as I've already alluded to, the renewals will play a major part in this growth going forward. So let's look at a couple of these things here as we go through. So rep productivity, this has been a major focus of Chris and his team over the last several quarters. And in Q3 of 'twenty one, we saw a nice increase in productivity. In Q4, we expect another nice increase in productivity.
And that's really the main focus through FY 'twenty three is increasing rep productivity. So you can see here today, we've got a 10% compounded annual growth rate Productivity and not as much in FY 'twenty three is a little bit in there. But really the main focus here on 'twenty two and 'twenty three Clearly is rep productivity gains. And those gains will come from various levers. There's lots of different levers here, and Chris has Alluded to a lot of those already is channel efficiency, solution selling.
Clearly, the emerging products have really done a nice job for us. That will continue to help productivity Along with an enhancement of partnerships going forward. Now because we're focusing on productivity, What that means is there isn't a huge requirement for the number of increased number of reps through FY 'twenty three. So we've got a compounded growth from 'twenty one 23 year, only about 4% or 5% increase in reps, as you would expect, as we really work The productivity. And then in 'twenty four and 'twenty four, really the second half of 'twenty three and then 'twenty four and 'twenty five, We really start adding some more reps there to make sure that we keep the growth going well into the future.
And we think we've Obtained a nice balance here as far as top line growth and obviously bottom line leverage here. We're able to do this and grow the top line at 25% through this period and offer up positive free cash flow in the second half of 'twenty calendar 'twenty two and the first half of our fiscal year. So we believe we struck A reasonably nice balance from that perspective. Now here again, here's the ACV billings in total. Once again, You can see the different growth rates.
These are 2 year compounded growth rates, 25% in 'twenty three percent. And then actually unusually, it actually Increases from 23 to 25, and that's once again because of the renewal flow, which we'll show you here in a minute. So if you look at this, it's above market in general. It's going to be driven by heavily driven by renewals. Of course, emerging products are going to play a key role here growing above market.
And then core products we've assumed continues to grow at market. So here for the very first time, we're We're going to start now breaking out new and upsell from renewals. So this is the first really time that we've started to show this detail Either historically or now, certainly, we've never projected this level of detail out. So you can see here in FY 'twenty one, we're projecting the new and upsell business to grow about 25 I'm sorry, about 15% in this period. And then we have it coming up a little bit in FY 'twenty 3.
Now, of course, FY 'twenty one was a year or is a year that we've been impacted by COVID. New logos took a little bit of a hit. So we've got a little bit of increase going from 'twenty one to 23. And then actually, we have it declining in 2025 because the renewals take over so much reliance of that growth That the new and the upsell isn't relied on as much. So we've actually modeled a slight decline from 23 to 25% from a compounded growth rate from 17% to 22% to 12%.
Now here's the renewals. This has been a major ask from the investment community, quite honestly. And here for the first time, we're starting to show you the renewals breakout. So in FY 'twenty one, we're projecting about $160,000,000 of renewals, but it's important for this $160,000,000 vast majority of that's still life of device Renewals. It's not the true term subscription renewals.
So I'd say by the end of the year, I'd say of that 160, probably 100 and 10, 120 will be life of device support renewals. But what's interesting now is what's going to happen over the next 2 years through FY 'twenty three, The life of device renewals will start to decline naturally, the support renewals. And what's going to happen is the subscription renewals will start to come into the flow Because we've already transacted these, we're simply waiting for those renewals to occur. So really FY 'twenty three time frame is the first Really serious tranche of 3 year deals that come up for renewal. And then you can see the growth rate, the compounded growth rate actually going from 46% to 54% here Now on renewals, because now you've got more 3 year and plus you've got some first time 5 year renewals coming in.
And what this offers up is a 50% Compounded annual growth from 'twenty one to 'twenty five. So the renewals are going to carry a big burden of this growth going forward. Now why are we comfortable with this? Well, I think if you look back into history, certainly with our customer retention rates On the life of device portion of the business have been very high over the last several years. And our net promoter score of 90 Over the last average of the last 7 years.
So that gives us a pretty good comfort level. In fact, the net promoter score is actually higher than 90 as we speak today. So this gives us reasonable comfort From what we're projecting here for the renewal flow. Now the interesting thing about the renewals also, which Sometimes we forget about and I talked about earlier is that renewals will naturally add to the level of predictability of the business going forward. And what this graph shows here is it's a plus 1 year from any point in time, plus 2, plus 3.
And so we know what we've modeled in, in our model over an extended period of time. In a 1 year period, plus 1 year, we know that 100% of what we're projecting for renewals has already been transacted. We're just waiting for the renewal to come in. And if you go plus 2 years, what you see here is 70% to 80% of what we're putting in our long Term model for renewals has already been transacted netted down for churn and we have to go find the remaining 20% or 30%. And then we go plus 3 years, plus 3 years, 60% to 70% of the renewals that we put in our 3 year long term plan have already been transacted as business, Again, just waiting for renewals and we've netted it down for churn.
And of course, we need to go find 30% 40%. So naturally, these renewals are going to add a Tremendous amount of predictability that we haven't been afforded quite honestly within our model up until now. Now this is our view of terms. We've been going through, as you well know, a period of term compression. FY FY 'nineteen, about 4.1 percent.
It was actually peaked out, I think, about 4.3% or 4.2%. This is average for the year, so 4.1 And what we believe average FY 'twenty one be around 3.3 to 3.5. And then going forward, this has been a consistent view for the most part. We see about 2.8 or 3.0 years from an average term perspective as we go into FY 'twenty three, A little bit more compression in 'twenty two, maybe a little bit in 'twenty three. But as we go through up through 'twenty five, we believe that that now stabilizes And puts us in a much more predictable environment here going forward.
This is our best look at terms. We've done a pretty good job projecting how terms will play over the last year. So this is and Again, it's been pretty consistent in what we've shown in the past. Now as we all know, one of the short term To midterm negative impacts, obviously, from term compression is revenue compression and revenue growth. And so you can see here, revenue has only grew 7%.
We started our subscription transition in Q1 of 'nineteen. Revenue only grew 7% in 'nineteen. We don't have 'twenty. It was actually 5% in 'twenty one and 'twenty is only 6%. So we've had 3 years Effectively through the subscription transition of single digit revenue growth as terms compressed.
Now As expected, as terms stop compressing and start to stabilize a little bit, what you're naturally going to see is increased revenue. Because they hear FY 'twenty three at 19% and FY 'twenty five at 25%. And even FY 'twenty two, we don't have on this graph here, But that's even a substantial growth from FY 'twenty one. Now the interesting thing about the 25% growth in FY 'twenty five, as you might expect, as things stabilize, All everything kind of comes into play and you'll see revenue growth, ARR growth, ACV billings growth, All pretty much mirroring each other as we get into a more stable term environment. Now that was The short term negative impact of term compression and this is one of the positive aspects of term compression and its uplift ACV per core.
We've talked a lot about this. We've never shown anything from a quantitative perspective. This is the first time that we've shown something Externally here, this won't be a frequent disclosure going forward, but we thought it was really important to get this out and show you what we've been talking about how this materializes over time. So on the left hand part of the graph, this just shows you the uplift we get based on the recent history we've had From a 5 year to a 3 year. So if we do a 3 year deal as opposed to a 5 year deal, we get a 40% uplift.
And we get another 40% uplift if we do a 1 year versus It's a 3 year deal. And if you want to take it all away from 5 to 1, we get about 100% uplift. So naturally, it's just math to a certain degree that is terms compress Deal economics and ACV per core naturally gets better. Now that's one piece of the ACV per core improvement By term compression. The second piece of improvement is because of pricing and better discounting.
So on the left on the right side of the graph here, You'll see 2 components of ACV per core uplift. You see the term, just the term compression in the orange Piece of the graph there on the right. And then you see a green portion. And the green portion is just from improved pricing and better discounting. Now why might that be?
As you recall, in Q1, it was our Q1 that we changed our sales comp from Paying on TCV to now on ACV. And our thought there and our theory there was that we would now have reps not trying to maximize TCV, Which usually comes with maximizing discounts also. And now they focus on maximizing ACV And better discounting. So you can see here the amount of the 9%. So we've had a 9% uplift And ACV per core from Q4 'twenty to Q1 Q3 'twenty one.
And the green portion of that 9% is about 40% of that 9%. And we believe it's directly attributable to this change in sales comp with better discounting behavior, so a 9% uplift. Now even more interesting thing, and we've talked about the power of the emerging products, but if you add the emerging products into this equation, what happens? The 9% goes to 20%. So the power of those, we've always said that those are really high value added products.
And this shows you that in this graph here, up to 20%. So the revenue compression was a negative part early on. We've been talking about why term compression is good From an ACV per core. And hopefully today, this kind of explains how we're looking at that. Now, quite honestly, Renewals are only as interesting as the retention rate is.
And here, we can see that we're projecting through FY 'twenty five A 90% or greater retention rate. And by the way, this is just the subscription business. There's no LOD in here. So it's a clean view here. And so why do we feel good about the 90%?
I will tell you, we haven't had an enormous amount of true subscription renewals through FY 'twenty one, but From Q1 to Q3, so year to date, FY 'twenty one, we've had about $30,000,000 of renewal, true subscription renewals come available to renew. And I will tell you, with that $30,000,000 of available to renew sample size, We're clearly above this 90%. So we're not assuming anything greater than what we've first established here in FY 'twenty one. Now if you look at how well we're doing on upsell business and how well we're retaining customers, obviously, it turns into A net dollar retention rate. And here, we've separated out for all business, including LOD and then just again the subscription business.
So you can see we estimate we'll end FY 'twenty one all in with life of device expansion I'm sorry, retention rate here of about 125%. Now this comes down. We show it coming down in FY 'twenty three and FY 'twenty five To about 115%, 115%. We've talked about the complexities with LOD. And as you may recall, From an LOD perspective, we're forced to assign a term to the license, although the license really lasts for the life of the device or the life of the server.
Many times a customer may run that server for 6 years or quite honestly 7 years, but we have to assume in this calculation That it's at a 5 year period. So there's clearly some mismatches there that distorts this calculation a bit. So that's why we like to look at just The subscription piece, which is on the right, which excludes LOD. And you can see here now in FY 'twenty five, it's building in FY 'twenty one, I'm sorry, it's building up a little bit of a base. So that's why it's higher there, but then it comes down 23% to, I think, what we think is a very attractive rate in 'twenty three percent of estimated 125% and then 120% In FY 'twenty five.
If you take how well you're doing on new logos and how well you're doing on upsell and how well you're doing retaining customers, It all adds up and equals a book of business. And historically, we've been talking about our book of business in terms of run rate ACV. And we established the run rate ACV. As you may recall, before we had a lot of the subscription transactions happening. So this was our best Way to really depict our book of business as you might recall.
But again, just like the expansion and the retention rate, This has its complexities also because again, we must assume a 5 year term on the license and we've Seeing a lot of times that the customer will just run 6 or 7 years. So you have a formulaic runoff of churn, But the renewal opportunity hasn't happened yet. So it makes it a somewhat complex transaction or methodology. Now If you take out some of that messiness from the run rate ACV, and that's this here, this is just the run rate ACV portion For LOD. And this includes, by the way, LOD licenses and LOD support.
So it's everything associated with LOD. And you can see here, as you might expect, the LOD run rate from an ACV perspective falls off rapidly Because we don't sell much LOD anymore. But this is the portion of the run rate ACV that's Life of device run rate. Now what happens when you take that out, what do you end up with? Well, you end up naturally with ARR Because you're taking out all the complexity, all the messiness, and now you're coming up with a metric that's very recognizable.
Everybody understands it. Everybody understands the definition. It's clear, it's clean. A term is a term, churn is churn. So there's no complexity whatsoever here.
That's why we now favor Looking at it from an ARR, not only internally, but clearly from an external perspective to clarify things and reduce complexity from our business model perspective. So what you'll see here over the next couple of quarters, we'll still disclose the run rate ACV, But what you will for a few quarters. But what you will see is us now quickly moving just to Looking at it from an ARR perspective, we just think it's cleaner. We think it's much more understandable from an external metric perspective. Now we've talked a lot about top line, a lot about new and upsell and renewals, retention rates and expansion rates and book of business.
Now we'll spend a few minutes here before we wrap up talking about the cost side of the all important cost side of the equation. So again, here, again, once again, free cash flow, operating profit, same slide we've shown you before. Again, 3 real levers here, lower cost of renewals, not only the lower Cost of renewals, but more growth, the renewals will continue to grow here. And then just plain sales and marketing efficiency. We've done a lot of work on productivity, a lot of work on demand gen efficiency.
So those things will continue, obviously, in the background here, Driving both these metrics to positive. Now we've talked also in the past about our thoughts on What a renewal cost to transact. So here today, we break out what we've included in our long range model here. There's ranges here because of the extended time frames back and forth. But you can see what we're saying is for new and upsell, It's going to cost about $0.60 to $0.80 of sales and marketing dollar per each dollar of new and upsell business that we transact.
Now if you take that and you go to just renewals, what happens here is that we've modeled in and this is where we're running today In this range of 10% to 20%. So again, dollars 0.10 to $0.20 So $0.10 to $0.20 of sales and marketing per dollar of renewal business that we transact. And here's the 80%, which you probably recognize that we've been talking about. It should be in the ballpark Of about an 80% reduction, and that's what we show here today. So naturally, as the renewal mix goes up and the new and upsell mix goes down, It leads to sales and marketing leverage.
And here is a depiction of what we have in the model for sales and marketing. Now you can see it was very high in FY 'twenty, obviously too high. It's come down a little bit in FY 'twenty one. COVID has helped a little bit obviously with But we've done a lot of work, Chris and team and Ben and team have done a lot of work in the background here from an efficiency perspective. You saw we just A few weeks ago, reduced our headcount in sales and marketing by 150 or so.
So that work's been going on. But that's really been driving those efficiencies there. But then when you get to FY 'twenty three, you see a very big decrease And then more decreases as you go forward. So you say, well, why such a big decrease from FY 'twenty one to FY 'twenty five? Well, you just have to look at the renewal line, Quite honestly.
So if you back up to our FY 'twenty one, today, FY 'twenty one, only 13% of our business will be renewal business. Again, renewal business that is low cost and very predictable, only 13%. And 87% of our business is that high cost, less predictable business. Now if we go all the way over to the right of this graph, What we have in here is at scale SaaS Companies. And we believe, when you're at scale, They have about a 70%.
So 70% of their billings are renewal related as opposed to our 13%. So if you agree with that renewals are 80% more efficient than new and upsell business. There is no way that we can compete At an S and M structure of 35% when we're only at 13%. The math just doesn't work, Simply doesn't work. Now the good news is, is that we know the renewal flow is coming.
And here is our renewal flow as a percent of total billings over the next several years, Goes from 13% to 25% to 40%. Ultimately, over an extended period of time, it will get right up to 70% just like any other subscription company At maturity. Now why aren't we there today? Well, clearly, we started Our subscription transition at over $1,000,000,000 in revenue, well over $1,000,000,000 Most subscription companies quite honestly start day 1. So of course, they've had that Compounding of renewal for years now.
And we know the renewal flow is coming. We just we do an average of 3 to 3.5 year terms. So naturally, it's going to take time for the renewals, but they're already stacking up. We see it coming. And ultimately, we will get our S and M cost structure Down to where a competitive level in the what we're showing here, 35% to 38%.
Now you step back, that was the S and M cost structure. Let's look at the total expenses. I've mentioned the 7% growth from 'twenty one percent to 'twenty three From 'twenty to 'twenty one, we're actually going to decrease expenses. Now again, COVID has helped here clearly with travel and a few things like that, but only about a 7% Compounded growth from 'twenty one to 'twenty three, mostly non sales and marketing as we continue to work on efficiencies within the sales and marketing team. And then as we go out to 'twenty five, we don't have it here, but we start adding reps in 'twenty four and 'twenty five.
So that brings the expenses up a bit. And that probably will then start to increase basically in line with any company that's growing at top line of 25% or so. So that's it from a total expense perspective. Now I covered a lot of information. We talked a lot about our subscription transition.
So we thought that this graph here really is the best depiction of the subscription transition before, during and what we think happened after. So what we have here is really 3 pieces. And one of it is the first piece, which is before the subscription transition occurred in FY 'nineteen. And that was an environment of stable terms because there wasn't any reason for term compression. So what happened in FY 'eighteen, we had growth of Revenue growth of 37%.
We actually had positive cash flow of 3%. We had operating margins that were getting better and better, and this was at a negative 8%. And our rule of 40 was 40%. And even in this period, by the way, we were still eliminating nonprofitable hardware business from our business model. So the revenue growth is actually higher if you just look at it on a TCV basis and the rule of 40% would have been about 50%.
So that's it, pre subscription transition. And then we get into the last 3 years of messiness, Purposely declining terms, thoughtfully declining terms based on our business model. But this is the derivative of Going through a subscription transition, you can see the impact on revenue here growth, about 7% in FY 'nineteen, 6% in 'twenty and it will probably grow about 5% in FY 'twenty one. So naturally, what happens there is you start using more cash, that gets worse, you start Losing more money and the role of 40 doesn't even make sense to put on the table now with the compression and revenues. So the final phase, which we're just about to, we believe get into now over the next several years is the post Subscription transition phase, and that's a phase of stable terms and a lot of renewals falling into the business.
So what happens naturally? Revenue starts to increase substantially. Cash flow comes, turns positive, operating profit neutralizes And then ultimately turns positive. And now once again, the rule of 40 makes sense to put back on the table because we're in a stable environment. Why wouldn't you talk about rule of 40?
And here in FY 'twenty three, we've got 20% to 30% estimate and then in FY 'twenty five at about 35% to 40%. So we thought that was probably the best way to kind of summarize everything that we've been through before, the subscription transition during. And again, this during Description transition phase is in my mind, it's the investment phase because it's been really all investment. We haven't had much return on that investment yet. And the orange, the post phase, that's the return.
And we've always said, we believe it has a very the investment in this subscription trends, it has a very high return. And this is how we've modeled it and what we believe will happen over the next several years. So I'll summarize again, just some summary target operating model Numbers, these are all numbers we basically just showed you. Again, ARR, ACV billings and revenue growth, how that transitions and flows over the next Now the interesting thing here, if you look at the FY 'twenty five numbers for growth, what I mentioned previously, is that Ultimately, again, when things stabilize, there's no reason why these growth numbers won't come within a reasonable range of each other, Just naturally again should occur and then all these things should basically mirror the same growth rate. And then of course you've got OpEx coming down and Operating margin going up and positive free cash flow.
So there's a lot to unpack in a relatively short period of time. But again, good revenue good ACV billings growth, 25%. The burden of growth is now going to shift from just new and upsell historically. Now it's going to be shared by renewals, which again will come at a very low cost And more predictable. Revenue will start to accelerate and get it to a 20% CAGR growth.
We've talked about What renewals will naturally transform the business. And the important thing here is we don't have to do anything massively different to the business model now. That hard work has been done, Right. These renewals will start flowing. Now, there's a lot of back office work to make sure the retention rates are high for renewals and the cost structure is right.
But the model itself has largely been done from that perspective. We're focusing on expenses, of course. And clearly, we think we've laid out a clear and incredible path, not only to positive free cash flow, but also, obviously, operating profit. Now, just before we leave, a couple of thoughts here. In the appendix, there's a couple of important slides.
One is helping you with your FY 'twenty two modeling. We want to make sure you got have that right. So there's a slide in there on that. There's also a slide in there on disclosures. We have a lot of new disclosures in here.
You shouldn't expect them all the time or maybe not at all going forward. So what we thought, we'd set the expectations upfront here, what will get disclosed, what won't get disclosed, when it gets disclosed and how often it gets So that's in there for you to review. There's a couple interesting TCV based metrics on mix of business and source of growth. You might want to take a look at that for your modeling courses, the GAAP, non GAAP reconciliations. And I think this is really important too.
We put definitions. So every term that you have in the presentation We've attached a definition to it. So the metrics there, the definition and why it matters. So I think it's important that you also Reference that is roughly 4 pages or so. So that's what we have for you today.
There's a lot of information. Thanks for paying attention. We're excited about the future. We've been talking about this so much. It's nice now To shift the qualitative story to a quantitative story also and for the first time to be able to share some of these important metrics with you.
So We're very excited. Now I'm going to hand it off to Tanya to kick off our live Q and A session. So thank you.
Thanks, Dustin. Great presentation. And I'd also like to welcome Tarkin Maynard, who's our Chief Commercial Officer to the panel. Welcome, Tarkin.
All right.
We're going to get ready for our next session. There's 35 minutes approximately. If you'd like to ask a question, you can hit the ask button in the lower right hand of your screen. Our first question comes from Ben Bollin from Cleveland Research. And Ben's question is, can you discuss what the sales cycle was like for Estes and the bulge bracket financial?
How long was the process? When did it start? Where are you in the rollout? And how did COVID influence the process? Chris, I'll Give that one to you.
Yes.
Thank you, Taryn. And thank you for the question, Ben. I appreciate it. So actually, it was very different timelines to both these wins. The large Tier 1 Financial or bulge bracket bank took about 3 years.
These accounts typically take a while to work through Their process, they're actually taking part in a large transformation. And this purchase was recent. It was this year. And they're in the middle of the kind of the beginning stages of their rollout as we speak now. On Estes, this kind of followed our classical sales cycle, which is around 9 months, I'd say for the most part 6 to 9 months is typically what a sales cycle is for most of our customers.
And ATSYS also is a relatively new customer for this particular hybrid cloud Solutions set. And they are also at the beginning of their cycle and they're deploying as we speak now. So 2 great wins, following a little different path, Different size accounts. But for the most part, things are going well there and the sales cycles move pretty quickly for the most part for that sector, and we see the solutions working really well.
Great. Thank you, Chris. Our next question comes from Pindjalim Bora from JPMorgan. Go ahead, Pindjalim.
Hey, everyone. Great presentation. Great to see some of these numbers finally come through. I have 2 part questions, one for Rajiv. Rajiv, do you think that over time we'll see Nutanix kind of create a multi cloud orchestration layer, Abstracting not only from private to public, but between public cloud.
Is that a pipe dream or is that coming? And second part on to Dustin, the contract duration stabilization is great to see. But just to play labels of advocate, Could it take it further down if emerging products accelerate beyond your expectation? I mean, is there a possibility That it actually fluctuates in the fiscal 'twenty three or fiscal 'twenty five. Thank you.
All right, great.
There are 2, Rajiv, so I'll take this first one and Pinjalim. So in terms of your question around multi cloud orchestration, Our goal is to develop and get this cloud platform that we talked about working across every cloud. As you know, we're an AWS and we're an Azure coming soon. And once we have that, if you're running on that Nutanix cloud platform and as long as you're not using a whole set of specific cloud specific services, we will be able to migrate workloads from 1 cloud to the other, provided they're running on this platform. Now, of course, the story gets complicated if you look at using all these native cloud services, then it becomes a lot more advanced.
But in general, Subject to some constraints if the app is developed properly, then we can migrate.
And Justin, on the terms?
Yes, sure. And relative to the terms, which we've pegged at, as you saw, 2.8 to roughly 3 years, And I think, Pancho, your question is on the emerging products. Could that actually potentially compress that a little bit more with more traction in emerging products? I think a couple of things there. I think we've taken a pretty good shot at what we think the emerging products growth will be in that number also.
And I think also potentially as the emerging products become a little bit more mainstream, we may see some of those terms actually lengthen a little bit because at some point Early on in these products, customers will try the product out and they're probably more comfortable with the year. But again, as they get a little bit more mature, we may see that philosophy maybe moving To some more 3 year deals as again as they become mainstream. So the 2.8 to 3.0, we feel pretty good about and we've had pretty good success projecting The renewal stream over the last several quarters. So we think that's a pretty reasonable rate, especially within the infrastructure environment itself. That kind of plays out to some of the average terms that you see.
Great. Thank you, Dustin. Our next question comes from Rod Hall from Goldman Sachs. And Rod's question is, how do you see your hybrid cloud offering versus competitors like VMware and Red Hat? Could you also comment on your view of hybrid cloud providers moving on prem like Rajeev, you want to take a stab at that?
Okay, sure. Happy to do that. So if you look at our hybrid cloud platform is also again based on the same simplicity that we have It's our on prem offering. It's one license. The customer can choose to deploy the license wherever they want to.
2nd, It operates in the customer's native public cloud account rather than having to go with a separate account and allows them to natively use all their cloud services. So again, it's just the simplicity and the ease of use as to how this all works is a key differentiator for our customers in terms of using our hybrid cloud. With respect to the native public cloud providers having their own hybrid strategies, yes, indeed, you've seen Outposts from AWS, Etcetera, right? And I think those public cloud providers are largely focused on operating in their cloud as well as on prem. The 2 differentiators for us there are 1, we are delivering a cloud platform that operates across every cloud, right, and allows our customers to go multi cloud.
The second is the cloud providers are coming cloud in, right? They're coming from the public cloud on prem. The apps that run-in the public cloud are largely net new apps. So if you want to run your existing apps, say in a hybrid mode, those apps likely have to be re platformed or refactored. In our case, we run both existing apps as well as new cloud native apps assets.
Great. Thank you, Rajeev. Our next question comes from Wamsi Mohan from Bank of America Securities. Go ahead, Wamsi.
Yes. Thanks everyone and appreciate all the details you shared today. That's super helpful. I had a question for Rajiv Mirani, I'll clarify. So, Rajiv, you mentioned taking share from Isilon and NetApp.
Can you talk about what the key factors there were? Were these greenfield opportunities or are you actually penetrating their installed base? Thank you.
Yes. If you look at our unified storage offering, essentially, there's 2 Sort of 2 parts to market today. 1, it doesn't attach to our HCI business, so this often happens with use cases like VDI. You're going into VDI deal and people want home directories and department shares. So they'll buy some unified storage with the HCI offering.
But increasingly, we are just seeing standalone sales for unified storage. So essentially, these are Customers who are just looking for storage. They are not looking for running their applications necessarily on us and we have some multi petabyte accounts like that today. And the reason for that, we covered in some of the prepared remarks, the simplicity of For scaling and buying what you need today and expanding as you need is a big factor in it. Being able to carve up your storage into different ways using either files or objects protocols on the same hardware.
That's a big part of it. But the data analytics really that we have today is driving a lot of And using that today to do more optimal placement of where storage should be, being able to tier things into cheaper storage. Just Overall, driving down total cost of ownership plays a big part in winning against some of the competition there.
I'd like to add to that, if it's okay. So To answer your question as well is, I would say that most of the opportunities are displacement opportunities. They're not particularly greenfield. A lot of customers have well established environments, what we call classic 3 tier environments around file systems. And we do see a tremendous amount of displacement of competitive.
I'll just say that, right? We talked specifically about competitors here today. That's typically what we're seeing because of the simplicity of what we provide for an architecture. So that's really where we see the market going today.
Thanks, Chris. Our next question comes from Eric Stuebiger of JMP Securities. And his question is, what efficiencies can you achieve across R and D? Rajiv, do you want to take that one first?
Yes, essentially by combining all our different products into unified offerings as we talked about, we're bringing a lot of teams together. So there's Several things that were overlapping between teams and there's different ways to do for example cloud governance and automation and so on. By combining all of that together, we're Building around common platforms, common APIs, common user experience. And that really has helped us focus on more on customer problems and customer solutions than on individual products. And that's where most of where the efficiency comes from.
If I may add to that, just one point to make. Those efficiencies are not just across R and D, but they cut across Into the GTM as well, right? Because now your GTM can be much more focused, aligned to a few specific sales place rather than trying to be focused Selling every individual product to the portfolio separately.
Good point, Rajeev. Okay. Our next question comes from Jim Fish from Piper Sandler. Go ahead, Jim.
Hey, guys. Thanks for the
day and insights. Nice to see the numbers as well. 2 part question. So 7% OpEx growth, but your sales and marketing chart, They're left sales and marketing relatively flat in order to kind of get to that target as well. First, you referenced packaging changes and talking about bundles.
Any early indications of what those bundles could actually look like and how that changes the economics for Nutanix in terms of the model? And then secondly, how are you guys thinking about the impact of renewals versus fixed costs for the sales and marketing overall in terms of that leverage? And why does it look like R and D going off of Eric's question actually goes up pretty significantly in that fiscal 'twenty five timeframe or we just leaving a little bit of wiggle room there?
Rajiv, would you like to start?
Yes. So let me start. First of all, as we bring the products together, Right. You are going to drive overall upsell. We haven't quantified that, but it is built into the model that we shared Already, right.
And we will be getting through that and releasing that in phases, right. These new products and bundles are going to come together over the next year, right. We'll be bringing them into market Now I'll also answer the last part of the question and then Dustin can answer the middle, which is really look, we intend to continue innovating And R and D, that's such a core part of what we do and we need to continue innovating. So we will continue to modestly grow R and D over the next few years and then we're leaving some room In future, right, if things go well, we have the ability to expand into additional adjacent markets. And so we've left some room here For us to be able to go do more in R and D down the road.
For now, we are very focused in R and D on bringing the portfolio together, continue to drive the innovations that we've talked about already and scaling The products that we have today in the market.
Yes, Jim, I think maybe it's a good time to talk about the expenses in general, just as we go Forward here and I really look at it in 2 separate buckets now through 'twenty three or the first half of 'twenty three and then after 'twenty three. And As you noted, in this timeframe, what we've said here is that expenses through 'twenty three will grow at a compound of 7%. Most of that is in R and D, as you highlighted also there. But on the sales and marketing piece, It's been several quarters now that Chris does not want any more sales reps. He's happy with the targeted amount that we're going to end the year Ad for FY 'twenty one, he wants to now focus on what he's been doing over the last several quarters on the efficiency part of the equation.
So there's no big desire to add more reps. We've said we're shooting for a 10% compounded Productivity increased through FY 'twenty three. We've had a pretty good track record so far. Q3 was good. Q4 should be very good on productivity.
So that's that piece. But as we get into the second half of FY 'twenty three, we back off a little bit of that productivity gains And then we start adding some more heads, some more sales reps as we focus on that growth from 'twenty four to 'twenty five in the future there. So when you look at it then from really the second half 'twenty three or really 'twenty three to 'twenty five, what you see there Is a much bigger overall compounded annual growth rate for expenses. And then if you do the math, it's probably high teens On an annual basis for 2024 and 2025, R and D growing reasonably well there to fund new efforts. And then again, focusing on the top line going forward, bottom line too, but adding those sales reps to continue the growth into the future.
If I may add to that, Dustin, one point to add to that is just, in factored into the OpEx is the fact that, again, we can prosecute the renewal stream that's coming at a lower cost point, You don't need to add as many sales reps to go prosecute renewals. You can get a lot of scale with
that. Great. This next question is for Dustin as well. It comes from Nehal Chokshi from Northland Capital. And his question is, what gives you confidence to guide new ACV CAGR at 15% and what has that been growing over the past 2 years?
Sure. Yes. So the 15% which you saw there, we had roughly will grow 15% in FY 'twenty one. We've pegged it that 17% in FY 'twenty three. Now again, FY 'twenty and FY 'twenty one was some COVID impact, new logos got impacted there.
So we show Slight increase, and then we back off in FY 'twenty five down to 12% growth, but still grow the total top line because of the renewal flow At 29% for that period. And again, if you back up a couple of years, FY 2020 was probably in that 14 percentage range or so there. And that was some COVID year there also. And then I think 'nineteen, it was quite a bit higher than that. So We have a pretty good track record there.
Again, the two pieces to that new ACV growth is both core And Emerging Products. And Emerging Products will also do a fair amount of heavy lifting for that 15% growth rate when you look at the combination between core and Emerging Products.
All right. Our next question comes from Aaron Rakers from Wells Fargo. Aaron, go ahead.
Yes. Thanks for taking the questions and great amount of detail today on the presentations. I really appreciate it. I guess two quick questions for me. I wanted to learn or hear a little bit more about the relationship with Hewlett Packard Enterprise.
How meaningful has that become to the business? And how do we think about the progression of that relationship going forward, especially as you kind of consolidate to a deeper Platform story, how much more deep can that go?
And on the heels
of that question, just around the idea of convergence of a platform story, How do we think about the time line of that evolving through the product portfolio? Thank you very much.
Great. Tarkan, do you want to take that?
Sure. Aaron, great question. Good to see you. So look, HPE partnership is going really well for us. It's a new partnership, And we just made an announcement with them just recently over the past couple of weeks around the HPE GreenLake delivery model, consumption model with our Data business service portfolio, and we're going to move other technologies onto GreenLake as well.
But this is not just GreenLake. Overall, the HPE partnership, despite the fact that Snio is going real well. But let me give you also a bit of context. HPE is not the only partner, as you know. We just made an announcement with Lenovo in the last couple of months around the end to end end user company as a service with Lenovo systems in the back end and front end Using TrueScale as a consumption model, we partnered with CITEX and few other VDI vendors to deliver an end to end story.
That is a nice constellation partnership ecosystem announcement. As Rajeev and Chris talked about earlier, cloud partners, Hyperscaler partners like AWS relationship, Azure partnership. We haven't talked about much, but also with GCP, with Google, we're delivering a desktop as a service solution. So this is an ecosystem. It takes a village.
It's not one single partner. It's multidimensional. As you know, cloud is not a destination, it's an operating model. And that operating model Basically requires simplicity, choice, flexibility and that's why we need to have a multidimensional partner ecosystem. There's also tons of work.
We made official announcements with Bipro, with HCL to deliver some of these solutions as a service, as a consumption model. And lastly, on the cloud front, again, triaging this with HPE and other platform partners, the latest XST, Cloud Service Provider Partner Program, gives us also a lot of leverage regionally, not only in the U. S, but in Japan with NTT, with 6 They are in U. S. With OVH in France and other locations.
So we are super psyched about the overall platform story with our hybrid multi cloud strategy And the partner ecosystem around that, also with end user computing partners like Citrix, in security space with Palo Alto Networks, with ServiceNow, With Splunk, we have a lot of these ecosystem partners coming all together and deliver that value and scale For our customers, as Rajiv talked about earlier, some of the leverage we're getting is through our channel partners. In addition to overall channel ecosystem and 2 d distribution with our resellers as well as with our distributors that Chris talked about with this Elevate program around. And we have a phenomenal talented team with Christian Alvarez, with Sachin Chetta, Prasadar Rawale, Amazing team executing these things against the plan that we put forward.
Now on the product portfolio rollout, I'll just say that we expect to be doing this in phases Starting early in fiscal 2022.
Great. Our next question comes from Julia Karl from Shelter Haven Capital. Julia's question is on rep productivity. I know about 75% of your reps are ramped. But when I look at the increase of productivity from fiscal 2021 to 2023, How much of that increase is coming from reps ramping versus how much is from added efficiencies from the channel solutions and partnerships?
Dustin, you
want to take that and you
guys can add?
Yes. I can
chime in too. The fact is without us adding many more reps for the next 12 to 18 months here. The ramped percentage won't really increase all that much. So a majority What you see there is some of the things that Chris talked about specifically around channel leverage and channel economy and partnerships and Emerging products and things like that, that's what's really going to drive that productivity as we look to the next few years.
Yes, I'd say just adding to that effectively that I think that we've done a good job this year of driving productivity gains. We've built that muscle So yes, it will be good to get a benefit from additional ramping reps into the model. And as Dustin said, we're not going to be adding a tremendous amount of reps in the near term. But our teams have built that memory and I think that we'll see a lot of productivity from the work that I mentioned to you earlier in the presentation.
Great. Thanks, guys. Our next question comes from Jack Andrews from Needham and Company. Jack's question is, how should we be thinking about how your product strategy changes over time To address the hybrid cloud problem. Given that you have a large portion of HCI and SaaS capabilities already, are there any other areas that are important to make regarding facilitating workloads between on premise, private cloud and public
cloud. Rajiv?
Yes. Look, I think we have a very good solution today for taking traditional applications from private cloud to public So these are applications that are born in traditional data center and with our clusters offering, we make it really, really simple to move them to public cloud. We started work on the reverse on, as we talked about, in the cloud native applications, we were born in the public cloud, using containers, using Kubernetes, Building a good platform for that. I mean, that's an area of investment for us. Security, as we talked about, is an area of investment as well because of the, as you said, the hybrid cloud world.
That is something that is a cause of great concern to many customers today, right, maintaining the security profile as they move workloads from private to public and back. And then finally, I think there's more work to be done on pure public cloud. That's going to be an active area of investment going forward
Can I add one more point? I'm doing all this in an agnostic way. Hardware agnostic, hypervisor agnostic, App agnostic, database agnostic and also including supporting some of the open source technologies, which customers are caring about. So that's a key differentiator.
And Executive.
Thanks, Tarpen. Thanks, Rajeev. Our next question comes from Wamsi Mohan from Bank of America Securities. Wamsi, go ahead.
Yeah, thanks for taking my follow-up. Justin, I was wondering for the 45% ACV growth or maybe even if you look at it in ARR terms, can you talk about The seasonality in the business, especially as renewals start to ramp, how we should think about seasonality both at revenue line and cost? Thank you.
Yes. At this point, and if you're just talking FY 'twenty two, Wamsi, there shouldn't be A whole lot of change, I wouldn't suspect, within our quarterly, if you will, seasonality. We've always typically Q1 and Q3 are usually a bit weaker. Q2 and Q4 are stronger because again there's several factors there. Commissions, We have 6 month commission plan, so 2 and 4 time out in those 6 month pieces.
Q1, although we have federal business in Q1, EMEA gets a little weak in Q1. So I would suspect in 'twenty two, not much change there because, again, There's not a huge increase in the renewal stream in 2022, 2023, yes, and beyond. And then maybe you start changing some of those dynamics Because of the renewals flow and the consistency of those renewals. But in 'twenty two, at this point, we wouldn't expect much change in that past pattern.
Thanks, Dustin. Our next question comes from Rod Hall from Goldman Sachs. And Chris, this one's for you. Will you focus primarily on large enterprises Or SMB or both. How will you compete against your larger competitors offering bundled solutions with significant discounting?
Yes. No, good question, Rod. Thank you very much. So we're going to continue to work the whole body, right? We have a go to market that's evolving and maturing.
We've done a really good job within the mid market space or the commercial space as well as the enterprise space, and we have a lot of room to grow there. We'll figure out where we're going to put our resources based upon the return that we'll get. So we have a plan to go after the SMB space, right. We're going to do that hopefully in a Relatively low cost way, that's our plan. There's a lot of partners that want to do business with us there and a lot of distributors that want to enable us there.
We're going to place our more expensive resources on the more productive areas, right, whether that's a geography or a segment. So we do have a plan to work the whole body, but to make sure that we put our resources in the right place. The second part of your question, which was just around, if I remember correctly, it was around how we're going to compete with our packages, right? I think the good news is our engineering team has done such a great job of building a differentiated solution that we in the field, we've had to in the near term, had to do some of our own packaging and positioning to make sure that we could be competitive. Now we're going to get something that's pre built for us.
It's a lot easier for us to position with customers. We can sell in a solution oriented way And actually build reference architectures around that. So when you build a package that is Shaded by a reference architecture, validated designs, that customers can really understand how to roll this out to take risk out of their environment. You get value for that. It's not just a package, it's actually a solution.
So, we see that when we change the way we go to market here, which is happening at real time, that we will be highly competitive in the marketplace with our solution offering.
Now can I add to that a little bit, Chris? On these very large customers, Look, our approach here as we get into them is to insert with one use case at a time. So we get in on a single use case. We talked about this Buzzspracker Bank as an example. Our first win there, right, was with virtual desktops, right, enabling remote users.
Now that we are in there, right, I mean, there's a whole set of other opportunities that open up again, one workload at a time. We go in there and say, okay, Now you can use the same platform for your mission critical workloads. And so we build one workload at a time or one use case at a time with these larger accounts and grow over time within those accounts.
One quick add on to this, to Rudi's point, and Chris you talked about this in your presentation, big Tier 1 bank. From a sales motion perspective, this is critical. Multiple systems integrators, they all did Nutanix, not one, more than 3. And Athos won at the end and a great partner to us. Multiple hardware vendors We broke with Nutanix and bit Nutanix.
And at the end of the day, we broke with HPE as a key partner. Citrix is our partner there. So it takes a village. Is a complete solution sell with partners and some cases also sometimes work with our competitors because our competitors also in plain topology and we support their hypervisor, Work with them as well on some of these accounts to support all these workloads, a key definition of a global solution play.
Thanks, Tarrghan. Our next question comes from Nehal Chokshi. This is his second question. How does the 90% GRR disaggregate between customer retention and down
Okay. So that's a subscription based, 2 term based metric there, Nahal. And we've only had, as I say, we'll have about $30,000,000 $40,000,000 plus maybe a little bit more of those renewals in In FY 'twenty one, so we don't have a massive sample size, but I will say to date, there's what we've seen, we have very little down sell, if any, to that To those amounts there. And then don't forget, if a customer was for some reason awfully new workload or Whatever, these licenses are also portable. So if there's another piece of their business that they're focusing on instead of the one that was originally used case, Those licenses are portable to move over to their next application or workload there.
So far anyway, we haven't experienced any real down sell in that number.
Our next question comes from Matt Hedberg from RBC. Matt, go ahead.
Thanks, Tanya. This is again, this
has been
great. I guess this question could be for really almost anybody up on stage. But in a post COVID world, could you talk a little bit more about The urgency that CIOs are talking about migrating to certainly public cloud, but hybrid cloud. And I guess secondarily, From early stages, you were largely a VDI. You had a lot of VDI support.
Can you talk about what VDI is percentage of your overall Any sense for just the rough magnitude of what VDI represents? And then I have a quick follow-up for Dustin.
Okay. Rajiv, do you want to take the first step?
Sure thing. VDI is somewhere between 20% 25% of our overall workloads. We moved well past VDI at this point. That was the initial workload. But today, yes, we're capturing all workloads in the enterprise.
Anything that can be virtualized on our Next eighty 6 can be run on an HCI platform largely, Right. So that's where we are. Now in terms of your question around post pandemic CIO priorities, I think, look, the hybrid cloud is a journey for most of our customers And there are different stages in the journey. Most of our customers today are starting to, of course, look at multiple public clouds. They're looking at specific use cases Where they can use the public cloud.
It's not broad based, right? It's got very specific cases. And what we're seeing clearly is They're seeing where it actually can give them good benefits, like the data center consolidation when they have to get out of a data center, that's a trigger event for them. Disaster recovery where they could actually cost efficiently run disaster recovery in the public cloud. That's actually better than them having another data center And keeping capacity idle all the time.
So where these use cases are delivering clear TCOs, we see our customers journey to the hybrid cloud. At the same time, we're also starting to see interest in edge deployments, right? People are starting to look at these newer applications, deploying them in these edge locations. That's pushing more workloads on prem. So as we outlined earlier, I think the world is going to be this hybrid world and there's going to be new applications deployed both on prem as well as in the public cloud.
All right. Back to Matt for the second part of his question.
Yes. Thanks. And then just, Dustin, I think we all really appreciate your commentary on cash flow scaling here. You sort of sometimes you reference back between cash flow and free cash flow. I'm just wondering maybe if you could be a little bit more clear on what your CapEx assumptions are when we think about the model through kind of fiscal 'twenty five?
Yes. What we've put in the model is roughly 4% to 5% of revenue for CapEx. It's Hovering around there lately, previous it was a little higher, but what we've assumed for the next several years is that 4% to 5% of revenue.
Okay. Thank you, Dustin. Our next question comes from Jack Andrews from Needham and Company. Jack's question is, Can you talk about some of the advantages you have versus your cloud native competitors who are talking or sorry, who are taking workloads on premise through various partnerships? What are some of the advantages you have in tackling hybrid versus the hyperscalers given your on premise head start?
Rajeev, you want to start? Rajeev Marani?
Yes. Look, as I think Rajiv also talked about a little bit earlier, the big difference between us and the hyperscalers is that We start with applications that run-in the private data center. We know how to run those well and we can move those to public cloud Without refactoring, without having to rewrite anything. So that gives us a big, big legs up in just being able to onboard existing applications into a hybrid framework. For the public cloud vendors, they're all moving into the hybrid cloud world, but they still require you to refactor your applications before you can truly operate in a hybrid world.
And then the second part, of course, is that all the hyperscalers, while they're coming on premises, they're focused on a single cloud, they're focused on a hybrid model between their cloud and on premises, While we truly operate in a multi cloud world. So essentially, you will have the choice of which public cloud you want to use in addition to your private clouds.
Great. Thank you. Our next question comes from Pindjalim Bora from JPMorgan. And his question is Nutanix is primarily known As an infrastructure player, but some of your newer capabilities around adjacent areas like Calm, Carbon, Era and Files Align more with the DevOps world. So at this point, how mature would you say your developer engagement efforts are And the sales playbooks that are associated with them and what is in place and what needs to be done.
Chris?
No, I think this is a really good question. I think we are now coming to a real maturity level with some of our products around the space. And we are developing sales playbooks for our teams. We've rolled out the first substantiation of that playbook in the last 6 months. And then we have our SKO coming up soon.
So we're going to one of our plays is to go after this workload. Obviously, we had to wait until our products matured to a point where we felt that they were really ready for the entire marketplace and we feel they're ready now. So I think we're in a good spot moving forward, and I'll leave it to the others to talk about kind of our strategy on product.
I can just add to one more thing here, right? Part of this is, one is, of course, going directly to the developer, which we're very early on in that fire. We mostly sell to the infrastructure players. But Within the infrastructure team, one of our goals is to enable those infrastructure teams to be able to offer services to their developers. So when it comes to cloud native, For example, we provide a platform that can do cloud native storage really well and developers can make use of the platform to land their workloads.
We also partner with providers of cloud native stacks. In fact, last quarter, for example, we talked about Azure Arc managing Kubernetes clusters on prem, Right, as an example of our ongoing partnership with Azure. So that combination is what helps us to get some of these newer capabilities into the market.
So just to add also, I'm sure Rajiv you have some points to this too. Look, as a technology vendor, as a software vendor, we use also these DevOps tools ourselves. And a big open source community is behind us as well. We do tons of work with Jenkins. We do tons of work with other open source platforms.
Look, as a platform vendor, we want to make sure we are the platform where application developers and DBAs come to develop around manage applications So from that perspective to Rajiv's point, you're kind of new in this, but you're building those partnerships. As we talked about around Era For DBAs and app developers, we're giving them access now to if they're using MariaDB, Mongo, HANA and some of the other open source technologies like Postgres. And including, obviously, some of the work we're doing with SQL Server and Oracle. So there's going to be a lot of upside as we move forward in this space.
Great. Thank you. Our last question comes from Katy Huberty of Morgan Stanley. And Katy's question is the large Downtick from 67.5 percent to 50 percent sales and marketing as a percentage of revenue from fiscal 2021 to 2023 is material. Can you talk about why, 1, productivity gains will be so much greater during this period?
And 2, whether there are any areas that you're actually cutting cost of fund compensating a sales force that is executing better. Dustin, you want to start with that one?
Yes, I'll start and I'm sure Chris will want to add in there. Again, on the downtick of S and M, you've got various phases of that from 'twenty to 'twenty one. Obviously, we got Helped a little bit by COVID with travel, although there's been a ton of efficiency work being done by Chris' team and Ben's team, demand gen, we talked a little bit about they are getting much more efficient. So that's helping out from 'twenty one. 'twenty two, there's some productivity help there, a little bit more with renewals.
And then 'twenty three and beyond, it's Heavily based on renewals in that one slide that I showed there, specifically in the presentation, showing the impact as the renewal Percentage of our business continues to accelerate, that being transacted at 80% more efficiency. Naturally, The sales and marketing as a percent of revenue will start to decline throughout that period and ultimately getting to what We believe is a very competitive percent of revenue, maybe a little bit on productivity if you want to talk to us.
Yes, yes, sure. I think I can talk about productivity and a bit of efficiency as well, right? So, I did talk about it in my presentation, but what I will tell you is that we've done a great job this year as a team. So we've got substantial productivity gains versus Previous years. So we've developed that ability as a sales organization.
Now we've also gone out and benchmarked ourselves externally. And I know we have more room to grow, right? So there's a lot of things that we can do around the programs that I rolled out in my presentation, which is how we align with our ecosystem partners, our channel partners, How we're driving sales management and leadership framework around pace, around pipeline. So there's a lot of great work being done, and I'm confident that we can drive these productivity gains, Especially with the great product set that we have. Also, the kind of repackaging of our solution sets is going to allow us a lot less friction in the marketplace And our ability to really drive more opportunity in the marketplace.
So that is another thing that will help. On the efficiency side, As I mentioned in my presentation, we sat down and we did some soul searching. We looked at ourselves and took a look at where were we being inefficient in certain markets, segments and functions. And as a lot of you know, we did some restructuring in the sales and marketing organization. So from a people perspective, we took down our costs by 2.5%.
And that was a significant cost takeout of the business, but it was needed to make sure we were going to build on a strong foundation moving forward. So we're really confident in now accelerating that into our business. Additional to that, we looked at how we shift Money in the marketing area from physical to virtual, right? And I mentioned in my presentation as to how the team has Really responded well, hitting all of our pipeline goals, while taking down our marketing spend, pretty good level. So there are spend takeouts in the business and efficiencies that we've driven in, and we'll continue to drive those efficiencies moving forward.
Mike, can I add one more thing on the team? You talked about it, Chris, And I think Rajeev has his first slide. I just want to also do a shout out to the teams. I've been the new to the team, I'll tell you, we have the best talent in the industry, Not only in the go to market and engineering, product marketing, corporate marketing across the board. So that makes it making a huge difference for us.
Thanks, Tarkan. All right. First, I'd like to thank all the presenters and Tarkan, thank you guys so much for your time. But most importantly, thanks to all of you for joining us. We do have a survey.
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Thank you all. Thank you.