Ladies and gentlemen, thank you for standing by, and welcome to the Nutanix Q4 fiscal 2020 earnings conference call. At this time would now like to turn the call over to your speaker today, Tanya Chin, Senior Vice President of Corporate Communications And Investor Relations. Please go ahead.
Good afternoon, and welcome to today's conference call to discuss the results of our fourth quarter full year of fiscal 2020. This call is also being broadcast over the web and can be accessed in the Investor Relations section of the Nutanix website. Joining me today are Garrett Pandey, Nutanix's CEO, and Dustin Williams. Mutanix's CFO. After the market closed today, Nutanix issued a press release announcing financial results for its fourth quarter fiscal year 2020.
If you would like to reasonably, please visit the press releases section of the Nutanix website. During today's call, management will make forward looking statements, including statements regarding our business plans and financial targets, and performance metrics in future periods, the timing and impact of our transition to a subscription business model The factors driving our growth, the timing and impact of our announced CEO transition plan, the investment by Bain Capital including the company's plans for the use of proceeds and the timing thereof, as well as any expected benefits thereof on the company's leadership and governance structure. And the current and anticipated impact of the COVID 19 pandemic. These forward looking statements involve risks and uncertainties some of which are beyond dark and full, 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 quarterly report on Form 10 q, as well as our earnings and other press releases issued today.
These forward looking statements apply as of today, and we undertake no obligation to update these statements after this call. As a result, you should not rely on them as representing our views in the future. Please note unless otherwise specifically referenced, all financial measures we use on today's call are expressed on a non GAAP basis, and has 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 Investor Relations section of our website and in our earnings press release. Lastly, Buchanan Management will attend the Deutsche Bank 2020 Technology Virtual Conference on Monday, September 14th, and we hope to connect with many of you there.
And with that, I'll turn the call over to Dhears. Dhears?
Thank you, Tania, and good afternoon, everyone. I hope that you and your loved ones are safe and healthy. I appreciate you joining us today on such short notice I realized that we had a scheduled call next week, but with all the news we have to share, we thought it best to connect with you as soon as possible. As I speak with you today, I'm filled with a deep sense of gratitude and fulfillment about the year and the decade at large. Earlier this afternoon, in addition to our earnings release, we issued a press release announcing a succession plan around my role.
Along with news of a significant investment in our business by Bain Capital Private Equity. Before we talk in detail about our results, I'd like to offer some perspective on these announcements. 2020 has been for lack of better word and extraordinary year. From Nutanix, this has been a year marked by continued progress in our journey to become a pioneer in hybrid cloud infrastructure. A self fulfilling prophecy for our market category, best known as HCI.
We've also shown deep resilience in our business and in standard value that our services provide to customers in a rapidly changing uncertain world. With a focus on innovation and collaboration, We've expanded our customer base, launched a solution, bare metal with AWS and successfully continued towards our transformation to a subscription based business model. Well, our progress this year has not always come in a straight line due to the global pandemic, We're extremely humbled by the execution and effort put forth by our more than 6000 employees around the world to deliver a strong performance in our fiscal fourth quarter. At the end of our fiscal year approach, I also had the opportunity to step back and consider all that we've achieved. When my co founder and I started this company 11 years ago, Apple IOS, virtualization beyond test and development workloads and webscale infrastructure using commodity hardware were novel concepts in the enterprise.
Thanks to the hard work of so many, both inside and outside the company, that vision to bring an Apple like simplicity and consumer cloud like scale to enterprise computing has become a reality. Intanix has grown from a scrappy startup to a company with $1,600,000,000 in annual software and support billings. With our strong 4th quarter financial results, a future proof business model and subscription and a meaningful feeding of our hybrid cloud strategy. Nutanix is well positioned as a cloud software company in the era of invisible computing. In addition, the recent $750,000,000 investment by Bain Capital ensures a strong financial foundation to capitalize on the significant growth opportunity ahead.
I'm confident therefore that there's no better time for a CEO succession plan than now to really shepherd this company for its next decade of growth and success. I'm proud of all that you've accomplished at Nutanix. It's really been a labor of love. At the same time, getting to this point has meant putting everything else in life on the back burner. In recent months through the lockdown that we've all experienced.
I've had the time to reflect and had many conversations with my wife as well as my fellow board members. And what I have come to conclude is that I need to spend more time with my family. And allow myself to space and flexibility to read and write and learn new domains. It simply hasn't been possible while I had been devoted 110% to this company. That being said, I will continue to lead Nutanix while the board conducts to search for our next CEO.
We'll take the time to find the right leader with a strategic vision, a track record of customer success, and all the personal quality will be valued at Nutanix. Given our robust people foundation and a very loyal customer base, we expect the succession plan to be a natural process of the company's evolution and therefore, seamless for both Main Street And Wall Street. Among other things, a strong balance sheet also ensures that you can asked a wide enough net to search for a CEO who can maximize long term value. That is why I'm so excited to announce a meaningfully large $750,000,000 investment from Bain Capital. This investment will provide us robustness to support and even accelerate our subscription transition, help us compete better and help us remain at the forefront of design and innovation in our industry.
As part of this investment, David Humphrey and Max Tigrone Managing Director of Bain will join the Nutanix Board upon closing. And we look forward to this newly forged partnership. Found in Nutanix and being subservient to our customers from day 1, has been my passion and the highlight of my professional career. And I wanna thank all the employees past and present for helping me bring this idea to life this decade. I'd like to express my deepest gratitude to my wife and my fellow cofounders are giving me the courage to imagine and help create something out of nothing.
As many of you know, Nutanix is coming second only to my family And I'm extremely proud of what we've built with this mono maniacal focus on commodity powered innovation. From consolidating proprietary hardware with 1 click HCI to consolidating data centers with 1 click private cloud. To now consolidating a myriad cloud with One Click Hybrid Cloud. As we're selling Max and Dave from Bain Capital these last several weeks of her financing the russians. We have a tremendous payload to deliver in the next 1 to 3 years.
Owing to build the subscription transition with its efficiency payoff and our product portfolio transition with its platform payoff. That payload in the next 1 to 3 years and Bain's extensive market due diligence is what drove their conviction for such a large investment. The new capital will give Nutanix sustained power to build on our success of hyperconverged infrastructure and extend it to build a new HCI category. Hybrid cloud infrastructure. As we reflect back on the year, our narrative has 3 distinct and recurring pillars: growth, scale and cash.
First, the global pandemic reaffirms our premise that are lift and shift to cloud, both private and public, is more strategic than ever to businesses around the world. And this in turn will continue to drive growth for as long as we keep adding new customers to our flywheel. 2nd, our subscription transition has failed with a loyal customer base. As proven by your industry leading customer retention is helping us grow meaningfully as evidenced in our run rate or book of business ACD. And finally, our execution on OpEx during COVID, both in marketing, sales, and in overall expenses, has helped us with both operating margins and free cash flow.
Between Get OpEx discipline and the Bain investment, we feel very comfortable about cash for the future. Speaking of the quarter, Q4 ACD billings grew 13% year over year to 140,000,000, Non GAAP gross margin reached an all time high at 83 percent, up three points from a year ago. For fiscal 2020, on a year over year basis, ACV billings grew 18 percent to 505,000,000. Run rate ACV or book of business grew 29 percent to 1,220,000,000. And deferred revenue grew 30 percent to $1,200,000,000.
This is a humbling and gratifying end to the fiscal year in a very difficult macro environment. In Q4, we also closed a record higher 68 deals worth over a $1,000,000 of TCV, up 19% year over year. 13 of these customers also spent at least $1,000,000 with us last quarter. We now have a total number of 17,360 customers worldwide. 9 20 of which are global 2000 customers.
For Global 2000 customers who have been with us for at least 18 months, their repeat purchase multiple has expanded to nearly 14 times. Also have 1207 customers with a lifetime spend of at least $1,000,000, up from 9.21 a year ago. A highlight of the quarter, our largest deal with the subscription contract worth nearly $8,000,000 with a Global Financial Services organization, headquartered in Australia. This organization selected mechanics over the competition in their data driven modernization journey off of legacy 3 tier hardware several years ago. They're now running all of their critical and client facing apps on Nutanix HCI.
They love us because of our reliability and ease of use. And because our software helps them ensure that theatory compliance around disaster recovery. Another great example for company selecting Nutanix's strategic IT initiative is an existing public sector customer in EMEA. This local government district authority in the UK and long time customer purchased nearly $2,000,000 of our software and services in Q4 to run all of your core applications and use our disaster recovery as a service, Xi Leap, to power their hybrid cloud infrastructure. Speaking of software and services, let me underscore our product portfolio and the role that continues to play in the infrastructure market.
This month. Forrester, once again, recognized us as being a leader in the hyper converged infrastructure wave, notably ahead of other players in the industrial segment. Our customers vouch for us in such analyst research because we work the whole body of delivery. Reliable core product that is simply to use a phenomenal customer service and an innovation engine that they can subscribe to as they consume a well integrated platform. Because of this platform driven solution focused approach, we continue to see momentum behind adoption of our entire product portfolio in Q4.
Specifically, Doctor as a service, LEAP, desktop as a service, screening, and databases of service, error products all have record quarters. In fact, our attach rate for data center, dev ops, and desktop services I. E. Products beyond the HCI core increased to 33% in q 4 from 26% a year ago. And now account for 15% of mini CV, up from 12% a year ago.
A great example of a customer who purchased new solutions on top of our core software this quarter is a safe local government organization in the United States, that selected $1,500,000 for software in q 4 in a deal that included our core software our invisible hypervisor HD as well as frame files, flow, and error. This customer is a lifetime spend with us of $12,500,000 and has grown their mechanics footprint from 3 nodes in 2014 to over 400 nodes. This quarter, we also reached significant milestones with our solutions, including our Xi, government cloud solution, achieving FedRAMP authorization, providing our customers with the uniform approach to risk based security management. We announced new capabilities for Xifeng providing strength and security, increased flexibility, and broader region availability for our multi cloud desktop service. We also launched new solutions that allow IT teams to deploy, upgrade, and troubleshoot the cloud infrastructure while working from anywhere.
Whether at home or from a central office location, something that is even more important now. And finally, we announced a milestone for our file solution, having reached 2500 customers globally. During the quarter, we also reached a significant milestone or journey to morph HCI from hyperconverged infrastructure to hybrid cloud infrastructure. A few weeks ago, we announced the general availability of Nutanix clusters on AWS which extends the simplicity and ease of use of our software to the public cloud. This is a significant step in realizing vision to make computing invisible anywhere, like delivering a singular experience across multiple clouds.
Public or private. This portability eliminates the complexity of multicloud environments with unified operations in CBS app mobility across locations, addressing the key technical and operation challenges of Hydro 12 concluded. Nutanix Clusters ease views license portability, and networking and data locality Architecture. It's called key differentiators. It allows organizations to build a hybrid cloud in under an hour, including disaster recovery sites, bursty applications, and data intensive workloads.
This architecture and design simplicity make lift and shift of the enterprise most mission critical workloads for example, databases, latency sensitive applications, and Doctor sites imminently in one click. Nutanix class will provide customers with flexibility to deploy any application in any cloud with the added benefit of license portability across public and private locations. Which meaningfully protects our customer's investment and software infrastructure. Our subscription journey at scale is another important area that I'd like to highlight. In Q4, 88% of our billings were from term based subscription contracts.
Starting Q1, this new fiscal, We began to align our sales forces incentives to ACV goals, similar to what we had done with TCV goals when we moved from hardware appliances to software. I'm very excited about the possibilities. This new phase of our transition brings to our business model and our go to market efficiency. More or less from Dustin later. Another factor that drove our results for the quarter and throughout the year was continued focus on all things digital to help OpEx.
Like many technology companies, a global employee base is still largely sheltered in place due to dependent. As I mentioned last quarter, we have moved the marketing and sales efforts to be predominantly digital. We've doubled down an S5 a similar digital initiative within the company to enable our prospects to experience our entire solution portfolio with a 0 touch self-service, Google cloud powered platform, the same low to multi digital experience is showing in our ability to prospect and sell with virtual meetings throughout the world. The ability to pull off an entirely virtual mega marketing event will you put the test between September 8th through 11th, when you have the biggest customer event in the year, our doc next event. I encourage all of you to join us remotely.
A link to register for free can be found in our earnings press release. Not next has been completely reinvented to provide an online interactive experience that includes the visionary keynotes, our customers and partners of company expect, as well as hands on technology sessions and the ability for attendees to interact and learn with us. Before I turn over to Dustin, I'd like to say that it's been an honor to lead this insurgent company over the past decade. Our people have built a unique company that has obsessed our customers and demonstrated that operating system software can be built from scratch, even in the presence of large, well funded incumbents. You've come to be known as one of the most customer centric design oriented empathy driven cloud software companies in the water.
I know that my legacy will continue as I pass the baton in the coming quarters. This is a mark of pride I feel in having led the team from 0 to 1.5 plus 1,000,000,000 in annual billings in 10 plus euros. And I'm very confident that we continue to build on the success this coming decade. Is an NDS customer loyalty scorecard, a delightful platform that will make hybrid clouds elegant, and a strong balance sheet to fund our transition and navigate this upcoming economic recovery. Nutanix is the company to watch for this decade.
Now I'd like to turn this over to Dustin for him to elaborate on how we plan to cautiously navigate this ACD transition. During a highly uncertain macro environment, albeit as a fully capitalized company for the future. Justin?
Thank you, Deric. Despite Q4 being another quarter that was impacted by significant macro uncertainties, the Nutanix team delivered a very solid quarter that included all time highs for ACV billings, gross margin, the number of $1,000,000 deals, along with improved free cash flow usage related to a continued focus on operating expense controls. Although we did not provide guidance for Q4, all operating metrics significantly exceeded the current street consensus. Based on 18 sell side analyst estimates. Almost all the business is now subscription based.
Subscription billings now account to 88% of total billings, up from 84% in Q3, and subscription revenue now accounts to 87% of total revenue, up from 82% in Q3. On a billings basis, the average dollar weighted term length in Q420 including renewals was 3.8 years, same as in Q3 'twenty and down from 3.9 years in the same quarter a year ago. Now a few things on our ACV based focus going forward. As we enter our new fiscal year, as we have previously communicated, we will fully shift our goals and objectives from a TCV based focus an ATV based focus in order to reduce average contract durations across our book of business. Our experience over the last few years has clearly shown that reduced contract durations enable us to achieve more attractive customer economics and reduce discounting without materially harmful effects in terms of churn.
As I'll discuss in more detail, There are some short term trade offs that we are going to have to make in order to achieve this ACV based focus, but ultimately, we believe these will be justified in the long term in terms of growth and operating leverage. A few of the biggest changes associated with this ACV based focus will be changing our top line guidance metrics from TCV to ACV billings, a renewed focus on run rate ACV, representing our total book of business and moving to an ACV based sales comp plan, reducing the incentive for our salespeople to sell long term contracts that oftentimes come at the expense of higher discounts. We have spoken for quite some time that ACV billings as a metric is not impacted by change in turn durations, and therefore, along with run rate ACV, are the 2 most appropriate growth metrics to use to analyze the fundamental health of the business. Starting in Q1, We will only provide top line guidance based on ACV build in the quarter. At some point in the future, It may be more appropriate to shift the focus of the guide to run rate ACV.
For definitional purposes, run rate ACV, which would be analogous to ARR or annual recurring revenue metric if we were a completely ratable business, projects the book of business that would be realized in any upcoming 12 month period, assuming no new business, no upsell and no churn. In a subscription business with low churn like ours, run rate ACV is a book of business that grows with additional new business and compounds over time with strong upsell. Now that our subscription related billings have become almost all of our billings, we will renew our focus on run rate ACV. The shift to ACV billings guidance is very analogous to when we shifted from guiding to total billings and total revenue, to guiding to TCV billings and TCV revenue. Total revenue and billings lost significant and became excessively volatile as we were eliminating hardware from our revenue stream.
Similarly, now TTV billings and PCV revenue have lost significance and become excessively volatile as we intentionally look to reduce term duration across our book of business. TCV is impacted by term compression. ACV is not. Therefore, ACV billings is the appropriate guidance going forward. And lastly, we are very excited about our move to ACV based sales compensation.
On August 1st, the start of our new fiscal year, we officially moved to an ACV versus TCV based sales compensation plan. Where sales commissions are now tied to ACV amounts regardless of the length of the initial deal. We believe this is a very important milestone for the company based on the following factors. ACV based comp will enable the sales reps and the company to share similar objectives, maximizing ACV billings and minimizing discounts with no regard for contract duration. Under the prior TCV based compensation plan, which was appropriate for our previous non subscription business model, the company wanted to minimize discounting while the reps will focus on maximizing TCV billings.
Often through longer term contract durations achieved through higher discounting, and lower ACV billings. Going forward under the ACV card model, the reps will be incentivized to maximize ACV billings and minimize discounts exactly what the company wants accounting as a result of better deal terms on shorter term lengths, all which maximizes ACV billings going forward. In addition, The gradual shift to shorter term 1 and 3 year deals will also put us in a better position to reap the efficiency benefits from the lower sales cost associated with renewals since we pay a lower commission rate on renewals versus new ACV billings. We should benefit as a percentage of business coming from renewals increases significantly over time. And lastly, We believe the move to ACV based sales comp will put a renewed focus on the sales of our new products.
Many of our new products have shorter term lengths and were naturally disadvantaged in an environment that favored maximizing TCV. In an ACV world, new products should become a sales rep's new best friend. There are clearly significant benefits associated with the shift to ACV based compliance and with our overall ACV focus. We believe that ACV billings growth will accelerate. Discounting will improve, and the efficiencies of renewals will happen sooner and more often.
All eventually lead to increased sales and marketing leverage in the future. This is clearly the right business decision for the company. Now as I've previously communicated, this focus on ACV will compress deal turns over time. During the period of term compression, investors should expect and model 4 negative impacts to billings and revenue, operating profit and free cash flow in the short term, with the benefit being maximizing ACV billings and strengthen the operating model in the future. From a modeling perspective, for every 1 10th the year decrease in average term duration, You should expect about a 40,000,000 annual decrease in billings and free cash flow in the year that follows.
To help fund our move to an ACV first based focus as well as significantly bolstering our overall liquidity position, We are thrilled to welcome Bain Capital as a significant new investor. We have discussed this model shift to ACV with Bain in great detail. And they are fully supportive of this approach and are excited to help support us in this transition. Now a few specific Q4 financial highlights. ACV build in the quarter was $140,000,000, up 13% from the year ago quarter.
Run rate ACV as of July 31st, 2020 was $1,220,000,000, up 29% from the year ago quarter. TCV revenue for the 4th quarter came in at 3 20 $1,000,000, up 14% from the year ago quarter, and TCV billings were $387,000,000, up 8% from the year ago quarter. We added to backlog during the quarter. New customer bookings, which continue to be impacted by COVID 19 restrictions, represented 19% of TCV bookings in the quarter versus a similar amount in Q3 20. TCB bookings from our international regions represented 48% of total bookings versus 45% in q 4 19.
It is important to note that the America's region is now experiencing more negative impacts from COVID than our other regions. APAC and EMEA will hit hard by COVID earlier on and have progressed through the pandemic a bit quicker as of the end of July than what we're currently experiencing in the Americas region. Our non GAAP gross margin for Q4 was 83%. Operating expenses were 346,000,000. The downward trend in expenses are a result of an ongoing hiring cost reduced travel, 1 week of furlough, as well as overall expense management.
Our non GAAP net loss of 79,000,000 for quarter or a loss of $0.39 per share. For fiscal 2020, on a year over year basis, ACV billings were 505,000,000, up 18%. TCV billings were 1.56000000000, up 10%. And PCV revenue was 1,280,000,000, up 14%. A few balance sheet highlights, We closed the quarter with cash and short term investments of $720,000,000 versus $732,000,000 in Q320.
BSOs in Q4 were 67 days versus 67 days in q3 20. And free cash flow during the quarter was negative 14,000,000 This performance is positively impacted by 10,000,000 of ESPP inflow in the quarter. Now turning to our q 1 21 guidance. It is important to note that our Q1 guidance, like many companies, is clearly impacted by the uncertain macro environment due to the ongoing pandemic. Additionally, this is our first quarter operating under ACV based sales compensation and ACV based sales quarters.
It is also first quarter that our sales personnel have provided their outlook on an ACV basis versus a TCV basis. Which are 2 fundamentally different processes. Therefore, there are some sources of conservativeness built into our ACV billings guidance for the quarter. The specific guidance for Q1 is as follows. ACB billings to be between a 118,121,000,000 Gross margin of approximately 81 percent, operating expenses between $350,000,000 $360,000,000 and weighted average shares outstanding of approximately 204,000,000.
The ACV billings guidance shown above when converted to total billings and combined with the gross margin and operating expense guidance should result in an operating loss which is meaningfully lower, I. E. Better than the current street consensus estimates of 125,000,000. Additionally, as mentioned previously, the run rate ACV grew 29% year over year in q420. We would expect run rate ACV to grow in excess of 20% year over year in Q 121.
Due to
the uncertain macro environment, we will not provide any guidance at this time. And lastly, to help you with your modeling efforts included in our earnings presentation on our IR website, historical trends for ACV build in the quarter, run rate ACV, billings term length, and a bridge on how to model and convert our current and future ACV billings guidance to total billings. With that, operator, you can now open the call up for questions.
And your first question comes from the line of Jack Andrews with Needham. Your line is open.
Great. Thanks for taking the question and congratulations on all the news today. I wanted to zero in on the opportunity around ZIA Clusters on AWS, if I could. Maybe a 2 part question around that. First, Is this a move towards more of a, elastic consumption model perhaps for more of your offerings over time?
And secondly, could you discuss what types of workloads, you're targeting with this? Would this be tier 1 workloads or perhaps things that are more ephemeral in nature?
Thank you, Jack. Great question. Yes, so on the first one, you know, the, the idea is to really make our licenses portable. Just like we did on prem, you know, we said we could move licenses from one server to another, one hypervisor to another, so it could be cross platform. And we're trying to apply the same concepts between on prem and off prem.
So people can build, like, Doctor sites in less than an hour, can spill over the desktops, burst over the desktops, and then, you know, to the other side. And it's not a separate silo of a spend. If they have on prem licenses that are, let's say, a year or 2 or 3 years, and they still have some terms left in that. They can just take that over to the public cloud as well. So that's very unique about, the concept of portable licensing, which we think is one of one of the biggest differentiators of what we think hybrid cloud should be.
And, to your second question, we are really focused on enterprise grade workloads, in a low latency, IO intensive, things that, you know, IT ops built over time in the last 15, 20 years that shouldn't really be refactored or rewritten you know, go back 15 years, the very value of virtualization was no change to the app, no change to the operating system. And that's what really made virtualization so successful. We want to be able to do the exact sensing. No change to the app, no change to the operating system. And many of these where we, low latency, very high, higher intensive workloads.
Great. Really appreciate the, the clarity around that. Just as a quick follow-up, can I ask if there's any update you could share regarding, the progression of your partnership with the HP?
Yes, quite a bit. I mean, last year, year and a half, I think you've done a really good job with them. There is a lot of progress that we've made in terms of the spying art platform, not just, Supermicro and Bell and Lenovo, but also HPE. And, I think in the last 3 months, we've been really going deeper on the Green Lake side. Where we would use the GreenLake offering for our disaster recovery with service, as well, which is our, lead offering.
I think all in all, everything looking really good with them quality with them. And equally with Delta, actually, you know, I think what we're doing with them on the OEM side has been really future proof and future looking. And finally, Lenovo, you know, has done a tremendous job with VDI and and a desktop offering as well.
Great. Thanks and congratulations again. Thanks.
Your next question comes from the line of Mehdi Hosseini with SFG. Your line is open.
Hi. Thank you for taking the question. This is Nick on for Mehdi. So just looking at the industry over the last quarter, I'm curious to hear about how conversations with customers focused in terms of thinking about business continuity issues versus the long term digital transformation. I assume that business continuity continues to be a much more urgent topic of conversation, but also curious to see whether communications has shifted to more long term transition, and I have a follow-up.
Yeah. If I would understand your question correctly, business continuity is the end. Digital transformation is the means to that end. Like, disaster recovery. You know, if you can quickly spin it up and let's say AWS, now you don't need to really own, site on the other side, which is hardware, facilities, floor, all the stuff, you know, that people used to have, which was underutilized.
Matt, if you wanna just spin up a DR site, you can do this, you know, in AWS, and it's highly unpredictable workload. So why would you actually own that if you could rent it? So there's some great use cases to emerge from what we're doing with hybrid cloud infrastructure, the new HCI. And business continuity of, end users around desktop. So desktop of your service is a huge, promise over the next 3 to 5 years.
And, you know, enterprises woke up. They were not well compared for business continuity of the digital worker. There's business continuity issues in the factory side too. I mean, there's a ton of work that you're doing with so many companies at the edge with SAP Hana and, you know, Rockwell, Honeywell, all sorts of Siemens, many different kinds of, application and without there at the edge as well. We're really trying to make a cloud in a box possible with 0 intervention, hands free IT, everything being done centrally.
And most importantly, if there's, I think, a stream to a public cloud, like, for example, disaster recovery sites, you can do that as well.
Sorry. Maybe just to to rephrase the question or or or it just shifted a little bit. Last quarter, VDI solutions made up about 27% of bookings and, obviously, due to the pandemic and everyone shifting to work from home, New York City of Solutions catering to work from home, has become a lot more, necessary for for a business continuity, maybe an update on VDI and and what business continuity looks like in the con in the, in terms of work from home and and COVID.
Yeah. Absolutely. I think as I mentioned in the latter half of my answer, desktop as a service is a big deal, virtual desktop infrastructure, what we're doing with Citrix as well. I think it's become very important because people just wanna plug and play and bought out their existing seats. I mean, the enterprise is only 30% penetrated before COVID when it came to virtual desktops.
Virtual desktop before COVID used to be 18, 19 percent of our business between last quarter and the it's between 23% 27% of our business. So it's definitely grown, and we feel like, that's a great workload to go after especially with new customers, even in the commercial space who are looking for business continuity as a competitive advantage.
For the just to clarify, that's 23% of bookings in the quarter.
Justin, can you please confirm?
Yes. Yeah. 23%. Historically, it's run 18 to 22 last quarter of 27. So, you know, I've come down a little bit, but within, you know, kind of historical ranges.
Perfect. Thank you so much and congrats again.
Your next question comes from the line of Rob Hall with Goldman Sachs.
Broad. Thank you for taking my question. Nice job and results. And Village, congrats on delivering the company to holidays over the years. I wanted to ask about the deemed capital investment.
Could you talk about why now and why structure it in this particular way?
Yeah. First of all, a great question. The way we look at it is that this ATM transition is, is, a pretty big deal for the company in the next 3 years. And, we, definitely need to look at what does it mean to not, you know, borrow money from the customer, which is what long term contracts of collecting all that. So from the customers upfront would mean and also at the same time, see if, we could switch the renewals sooner because renewals cost of sales is much, much lower.
So we weren't going after basically transition. We were going after shortening term lengths. We would have collected less from our customers, and, we needed to raise capital just for that alone. So with that, I would also like Dustin to probably add some more to this and may come back to the question of why structured like this?
Yeah. So, you know, I've been very vocal, over the last, in a couple of months as far as the power of this ACV focus and, you know, what it's gonna do to cash and things like that and that we highly likely go do some type of financing, vehicle, in the next, you know, several months or or or somewhere around there. So that's exactly what we've done. And, you know, we had effectively 2 choices here. You know, the the conventional route would have been a, you know, convertible, public convertible in the market today.
And We could have, done that very quickly and, you know, raised a lot of money. But, you know, from from our perspective, that would have been, a bunch of effectively faceless investors that, you know, bought an instrument that we really didn't have any, contact or interaction with. And going through this type of transition, I just think you know, having somebody like Bain Capital involved in this that obviously has been through an immense amount of detail of our business model. They understand the power of the model, what we've done for subscription, the $2,200,000,000 that we've sold in subscription over the last 2 years that basically hasn't renewed yet and what that business model looks like and the power of the efficiencies. And, and things like that.
And so now we have a partner, that's gonna help us through this transition and help us think through the transition. And, play that role. And I think we're, very fortunate to have somebody step up was 750,000,000, putting, putting their name down and, believing in, you know, what we've done from a product perspective and what the business model, can do. Now, you know, one of the obvious questions is, oh, this is so expensive. Right.
Why didn't you just, you know, do the public convert? I mean, the reality is as the 27.75 conversion rate, you know, compared to a competitive, public convertible, with a 100% call spread. So, you know, double the premium. This transaction at 2775 is roughly 3 a half, 4% more dilutive. And I think what we're getting with this investment, the folks at Bank Capital, which have come up on our model very quickly They understand it inside now.
I think, when it's all done, we'll be happy, very happy to take that additional dilution. And don't forget, they don't make money unless the stock goes up. And so we're all in this together. And, I think again, we're just fortunate to have the partnership.
Thank you, Doug. And I think the only last thing I'll add to this is that it also provides a great platform for searching for a great talent, great CEO, great leader for this company going forward.
That's very helpful color. And, as a follow-up, Dustin, I wanted to, you know, activate ACV, and it makes a lot of sense that you're now switching your pocket to ACV. But just from a guidance point of view, could you could you give us some color on the term length so that we could use that to get into, you know, revenues for our models And then along with that, could you also talk about, you know, give us an update on what's the difference in margin structure for new new sale versus an upsell or renewal contract?
Yes. So, on the modeling question, I would I think it's, actually slide 11, in our earnings, investor deck. I would highly, suggest that you go take a look at that. All investors take a look at that. We've done kind of a one time example that we've kinda opened it up exactly, with the terms, and we bucketed by, TCV dollars and how do you go from TCV to ACV?
All the turns are there 1 year or less through 7 years. The conversion ratio So it gives you a great starting point now that you can not only understand the current quarter, but now you can kind of play with those buckets of terms and say, geez, how how you know, what do I think terms you gotta go down? What's gonna be the impact to TCV? And things like that. So I think, that will be, very, very helpful.
So it's, yeah, I think it's page 11. It's 11 and 12 or something. On the, on the cost, you know, I think the real question is, what's the cost of a renewal? And, again, today, we don't have mice because we've averaged, you know, 4 year terms. As you'll see in that slide deck, we do do 1 year terms.
But the 2,200,000,000 that we've sold over the last 2 years, has essentially not renewed. And so The question there is what does that renew at? What's the cost factor that we use at? And, you know, we've you know, believe, and we need to work through this a little bit. Chris is, you know, setting up a small structure of internal folks to go help sales reps and whatever.
Look at this, but it should be, 85, 90% more efficient certainly than than new business. And don't forget today. So vast majority of our business since day 1 has always been new and upsell. And do an upsell, it's high cost and it's high risk. And over time, as these renewals start flowing in, the the dependency on growth goes from that high risk, high cost, new, and upsell.
To low risk, low cost renewals. And that's the whole thesis here that we've been talking about. And, those should come in at a, a pretty good efficiency factor.
Great. Thanks, guys.
Your next question comes from the line of Simon Leopold with Raymond James. Your line is open.
Great. Thank you. Appreciate you taking the question.
You talked a
little bit about the Bing, deal so far, but I wanted to see if maybe you could dig into some of the history of this arrangement, did you approach them, or did they approach you, and maybe some of the background or back story of what led up to this particular arrangement other than your respect for them as a private equity firm.
Yeah. I I can take this and definitely, you should please take it from from me as well. So Dustin talked about this, started talking about this publicly, probably a quarter or 2 ago about how we go and raise some money. And, we need to do this because we have to fund the transition. We have kind of 2 thirds of the way, but we still have another 3rd to go with your sales comp change itself.
And, shortening terms is an important piece of that. So as part of that, you know, our and we know people in the valley have been in capital too, because they're a full service organization from venture capital and CVA to all the private equity. And, we felt comfortable when they reached out there, hey, they understand growth just as much as maximum day, well, it's a nominal people. The more we got to know them, the more we, gain that respect, that they're gonna look at this thesis, and they embrace this quickly that we're gonna take this from hyperconverged infrastructure to hybrid cloud infrastructure. I think there was, meeting of the minds that happened over a matter of, 2 months such as back and forth in Zoom.
And, obviously, we never shook hands ever. We haven't met in person, but what has come about, virtually, and we've students. It's just been phenomenal. So we look forward to them as as they look at their own, spectrum of, investment volume from CUS investments in the valley. In weekdays, somebody that I've known for a while.
So I've had some of the respect for in weekdays, but meeting Max and Dave, recently, I've just given you another level of respect for that, form as well. And just as a
follow-up, perhaps, if you could talk to how the the Salesforce compensation, I understand it's changed. But as a salesperson, are they now making more money, making less money, try getting appreciation for how your sales force is reacting to this change. Thank you.
Yeah. I think, you know, there was sorry. Go ahead. Yeah. Please.
Go ahead.
Yeah. You can chime in to, circle you know, effectively, it makes the thing even more. They'll they'll make more if they sell more, obviously. But, I mean, right out of the chute, we just converted you know, as far as, what they've been doing on TCV terms, and converting that to ACV. So the objective there was to keep everybody whole, with this, conversion from TCV to ACV.
Now, again, on the renewal flow, those will be comped, you know, at 90% more efficient than the initial transaction from a commission perspective, but, it was set up. So there'd be no penalty from a from a comp perspective just because of this change. And, you know, I think, there's probably, more upside, certainly than there is downside because now they've got more tools to play with. And again, a rep should be completely indifferent from selling a 1 year deal now as opposed to what they were trying to do to sell Mac them on TTV and turn lengths. So now, you know, they can, focus on 1 year deals that they want.
They got a good 3 year deal, etcetera. So I think there's a bunch, bunch more flexibility there from a selling approach. Deerich, maybe you wanna add something.
Yeah. Yeah. I mean, and plus, we've gone through this when we hardware to software almost two and a half, three years ago when the sales comp changed. And, if anything, the other thing is that, the market forces upon us. You know, people have stopped doing 5 year cloud deals.
Most good cloud deals are 3 year deals. So they're seeing this from their customers as well. So, I think we couldn't have this artificial thing about go sell TCV for 5 years or 7 years, if the market is moving to 3 years.
And just one one follow-up, because I'm on the, baying question, stuff like that. I just wanna make sure there's a clear understanding here. This is not a cost cutting exercise. This is, you know, how do we partner up, and scale the business in an efficient manner? That's what it is.
It's not a cost cutting. We'll keep the same focus on products and customers and partners and things like that.
Your next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is open.
Yeah. Thanks for taking our question. This is Dan Bergstrom in for Matt Hedberg. You touched a little bit on this in the prepared remarks with the Happy America's lagging But anything to note from, you know, geography, customer size, vertical perspective, as as states and countries go through their various stages of lock down and re openings here.
Yeah. So, you know, America's is just, you know, as you, as we all know here, it's a tough environment. And, you know, APAC was kind of 1st to to go through this and and, you know, things have gotten, certainly better there. There's, you know, some interesting, you know, potential deals brewing in in APAC. We'll have to see how that goes.
EMEA had a good quarter for us. You know, America is doing fine, but again, it's it's mostly, certainly around new customers. It's very difficult because, again, on existing customers, they know the product. I usually love the product. You've got established relationships.
So that a virtual environment much easier than trying to establish relationships and and, and knocking down new business. So and probably, you know, some of the, you know, bigger deals, you know, maybe they get cut down a little bit and things like that. But, you know, America is still still a little tough. I think, you know, from what we see now, it looks like, you know, cases are starting to come down and like that and people are getting a little smarter. So I think that opens up eventually here, but it's, you know, it's 60, 65% of our business in any given quarter.
So that puts a little constraint on things, but the product's doing well. It's not a product thing. It's not a sales execution thing, at all.
Great, helpful. Thanks.
Your next question comes from the line of Jason Ader with William Blair. Your line is open.
Yeah. Thank you. And, dear, as I'm sure, this is a bit of sweet for you. I know you've always said you'd walk away at the right time. So who does to you for keeping your word and you should be proud of what you've built.
Thank you. Thank you, Jason. I remember this question coming from you, almost a year ago, and I've I've given you some answers here. Thank you. Thank you so much, sir.
Yeah. You kept your word. Dustin, some fun guidance questions for you. Number 1, will you be will you be providing revenue guidance or just ACV billings?
Just ACV billings. Because
Okay.
You know, again, you know, revenue, you'll call it billings, revenue, whatever you want to call it, it depends on terms. Right? And ACV, again, doesn't care about terms. That, you know, we can go figure out easily but I I can't, you know, put in your remarks there. I just can't tell you, if terms are gonna come down you know, two tenths, this quarter.
They're gonna go up, you know, one tenth or whatever. They're gonna go down over time. I guarantee you that But I can't give you an exact precision. I think at some point, what we owe investors is a little bit longer term view of what we believe terms will do mud not flushes. And when it comes back and then the renewal flows and things like that, because it's a very powerful story.
It really is. So we we need to, we need to think through that at some point in time, but No. We're just gonna stick. And and, again, I've I've shown you on that, in the earnings deck there, you know, how it works and I think you guys can put a model together pretty easily.
So the 3.8 is where it is today. Do you think that gets down to, like, what, 3? I mean,
we're we're, like, by the end
of fiscal 2021, can you give us something ballpark?
Personally, we'll see because we're only, you know, 1 month into, into the comp here. But I think the important thing to understand here, and around maybe by 10th or so. But, but effectively, new customers and existing customers in aggregate have about the same term structure. Okay? So that's one data point.
And the other data point is, as you know, existing customers make up call it 80% of the total business. New customers make up 20% of the total business. So I can see, and we've done this in a matrix I can see the new than the 80% of an existing customer. Because, again, from an existing customer perspective, we can't go to an existing customer and say, hey. You know, would you like to do a 3 year term for the same price?
It doesn't work that way. So, you know, we have to go and have a discussion with the reps. Geez. You know, maybe you wanted to do 3 years. Maybe you'd wanna commit to 5 years.
Maybe you only wanted to you know, pay for 3 years instead of 5 years and make that commitment. But, oh, by the way, would that 3 year turn comes an uplift or, you know, uplifting your price as reduced discounting. So I don't I think there's some natural, governor there because of that structure. But, again, you know, we're 1 month into this. I do think, and, we'll just have to see how this plays out.
You know, newer products, you know, whether it's error, flow, carbon, whatever files, tendency to have shorter terms. So, you know, can that drag terms down a little bit with new product I don't know. But I'd I I would be personally very surprised if it ended at, at at, at 3 by the end of the year.
Yeah. I just wanted to say that Yeah. Sorry, Josh. Absolutely. Yeah.
I think, you know, definitely, it's not gonna come to 3 years in just the same. There's enough, push and pull from the market forces too. I mean, there's large customers who have a CapEx, appetite. You know, they wanna flushed their budgets at the end of the year. Or infrastructure is probably the first layer of software about hardware.
They want to swap it out a little bit. So I think there's gonna be a yin yang here. Where, we believe that it won't really just go rock bottomed the tree or something right away. Gradually, this is gonna happen. I think this what is true for hard hardware, the software is gonna be true for going from 5 years to 3 years ago.
And none of our sales people wanna just go do negotiation every year with a 1 year contract. It's just horrible for them. I think they need, a lot more of that trust commitment from our customer, which is why the cloud has landed at feely commits as opposed to monthly billing and money account stuff here.
Got you.
All right. Thank you.
Your last question comes from the line of Alex Kurtz with KeyBanc Capital. Your line is open.
Yeah. Thanks. Thanks for taking
the question. And likewise to what Jason just said, Dodge, it's been quite a run. I remember when it first met with you in your original office and and biffle busted into into the room. It's been it's been quite an accomplishment in that with sure we'll talk more as the months go on here. Dustin.
Thank you. Yeah. Dustin, just just on the
dollar based net expansion rate that we see, in the slide deck here. How much is that the 133 to the 125 move have to do with, you know, the current macro? Are there other factors here we should be thinking about? And then I have another follow-up question.
No. I mean, it's it's, I don't think many companies are even at 125. That's the first first thing. So 125 is really, really good. And there's no really other factors in there.
You know, our churn, the way we calculate churn now with a kind of a hybrid LOB subscription thing. It's, you know, 96% or so and things like that. So there's nothing else significantly going on in there.
Okay. So just the prior years, which is a little bit, I mean, yeah, 125 is a great number. So the the prior years, which
is elevated for whatever reason.
Yeah. Yeah. You mentioned the the point one to $40,000,000
conversion, right, on on the billing set from the reduction in duration. Is that, can I patch into that somewhere in the deck that you provided, or are the underlying assumptions on that?
This is a little more detailed.
Yeah. It's pretty easy. It's just in the following year. So that would be the full year impact. I can bring you through the math.
It's, it's relatively simple. From that perspective, you got a top if you got a top line and just play with the terms and things like that. So I think once you set up that model based on our structure, it it becomes pretty easy, but I'll be glad to spend some more time with it.
Okay.
Alright. Thank you.
Manage, we would like to thank you for your participation. This concludes today's conference call, and you may now disconnect.