Good afternoon. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone's to the Nutanix First Quarter Fiscal 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. Tonya Chin, Vice President of Investor Relations And Corporate Communications. You may begin your conference.
Thank you. Welcome to today's conference call to discuss the results of our first quarter of fiscal 2019 live from London. 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 Deer Sande, Nutanix's CEO and Justin Williams, Nutanix's CFO. After the market closed today, Bucanix issued a press release announcing the financial results for its first quarter of fiscal 2019.
If you'd like a copy of the release, you can find it in press releases section of the company's website. I'd like to remind you that during today's call, management will make forward looking statements within the meaning of the Safe Harbor provision of federal securities laws regarding the company's anticipated future revenue, billing, Gross margin, operating expenses, net loss, loss per share, free cash flow, business plans and objectives, product sales, plans and timing for and the impact of our transition to focus more on software only sales and our transition to subscription based, business model, expectations regarding products, services, product features, and technology that are under development or were recently acquired, competitive and industry dynamics, expectations regarding increasing software sales, Our plans regarding how we will report the software content and subscription portion of our business, potentials market opportunities and other financial business related information. These forward looking statements involve a number of 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. These forward looking statements apply as of today, and you should not rely on them as representing our views in the future.
We undertake no obligation to update these statements after this call. For a more detailed description of these risks and uncertainties, please refer to our Form 10 K for the fiscal 2018 filed with the SEC on September 24 2018, as well as our earnings release posted a few minutes ago to our website. Copies of these documents may be obtained from the SEC or by visiting the IR section of our website. Also, please note that otherwise, unless otherwise specifically referenced, all financial measures we use in the call today are expressed on a non GAAP basis and have been adjusted to exclude certain charges. We provided reconciliations to these non GAAP financial measures to the GAAP measures in our Investor Relations section, of our website and in our earnings press release.
Lastly, Nutanix will be at the Wells Fargo tax summit in Deer Valley on December 4th. The Raymond James Conference also on December 4th in New York City. The Barclays PNC conference in San Francisco on December 6th, and the Needham Technology Conference in New York City on January 15th, and we hope to see many of you there. Please mark your calendars for the new tank's Investor Day New York City on Wednesday, March 20th. Now I'll turn the call over to Dheeraj.
Dheeraj?
Thank you, Tania. Good afternoon, everyone. I'm excited to be joining you today from London. We'll be hosting our 3rd dotnextEurope, Middle East and Africa use the conference this week. We're excited to share our latest updates with more than 3500 customers, honor than prospects we expect to show.
All attendees will get to see firsthand as we announced the general availability of Xi Leap here at dotnext. LEAP is a disaster recovery of the service offering I have mentioned to you in the past. This launch is a watershed moment for our company, delivering our services across the entire customer journey from infrastructure modernization to the multi cloud, which I'll provide more detail on shortly. Now on to our Q1 results. We had a great start to fiscal 2019, delivering another strong quarter, growing software and support billings by 50% year over year to $351,000,000 and software and support revenue by 44 percent to $281,000,000.
Notably, subscription revenue increased 104 percent year over year as we shift our business to an increasingly subscription based consumption. The combination of higher than guided revenue, better gross margins and lower operating expenses drove our net loss per share to $0.13 per share significantly better than our guidance of a loss between $0.26.28. Duston will share more on our financial metrics and outlook later in the call. As we head into dotnet,
I found
myself taking a step back to reflect on how far we have come as a company, since we were founded 9 years ago. In less than 10 years, we have done nearly $4,000,000,000 in lifetime sales, transformed from a hardware to a software business model, while being publicly traded, surpassed $1,000,000,000 in annual software and support revenue run rate and surpassed the 10,000 customer mark while keeping our Net Promoter Score above 90. In this quarter alone, we closed 63 deals worth more than $1,000,000 and 3 deals worth more than $5,000,000. And we now have 15 most of lifetime spend of more than $15,000,000 and more than 700 customers, the lifetime spend of more than $1,000,000. In fact, When you look at our customer base, we have seen 83 percent year over year growth in customers with a lifetime spend of $3,000,000 to $5,000,000 and 111% year over year growth in customers' lifetime spend of more than $5,000,000.
To put our achievements into context, We reached a $1,000,000,000 in annual revenue faster than any other software company founded in the past 20 years. Salesforce, Palo Alto workday included. This success was built on the foundation of strong products, an amazing customer service that has propelled us from creating hyper converged industry, to our sustained leadership position within it. Just this past quarter, we recognized as a leader in the Forrester Way for HCI, and by Gartner for our 10 point lead in market share versus our nearest competitor in their most recently reported quarter. From everything I mentioned above, you might think that we are a very optimistic company.
On the contrary, we are an intrinsically paranoid company that happens to be optimistic. In my favorite book, only the paranoid survive, Andy Groel talks about this paradox in chapters 78. Let chaos ring ring with a g and ringing chaos without a g. Building is inherently chaotic. And we saw a bit of this in the last 12 months of our new product development and complimentary acquisitions.
These announcements created confusion in the minds of many who or in simultaneously balancing, building and scaling in the day to day. Questions such as
what is the core of
your business? Will you need more than your core to get to your stated goal of $3,000,000,000 in FY 'twenty one? Are the new applications even remotely related to the core We'll be leveraged the existing core. Such questions emerged. In this earnings call, I'd like to rein in some of the messaging chaos with a customer journey that will traverse Nutanix core essential to enterprise.
The core of Nutanix's business is infrastructure. We call it the Nutanix Core with a capital C. It's comprised of our software defined storage stack, AOS, and infrastructure control play, prism, and increasingly what optional for the initial leg of our customer journey, our hypervisor, PHV. People say infrastructure is a commodity as it becomes good enough, and all the value will move higher up. They're soon mistaken.
They don't know how hard infrastructure is to execute and make a reliable business out of. There's a reason why hardware incumbents struggle to monetize OpenText in response to Amazon. Ask Oracle and they'll tell you about all the teams of building an IEL stack.
Look at how Azure stack has been
a non starter for Microsoft. As Azure continues to bleed in multiple infrastructure stacks of their various workloads. Google itself has been trying to make their own homegrown or become useful for enterprises since 2012. Of course, Virmware is hedging its best bets between 3 infrastructure wars: their traditional 3 tiered comfort zone, their software defined struggle zone, and the new AWS cannibal zone. Only Amazon AWS is a true grasp of infrastructure, and even they will have to think hard about how to make truly unifies work already, and also miniaturize themselves.
That is shipped close to tens of thousands of sites to dispose clothes. In fact, our dominance in the core is why VMware avoids doing POCs in accounts when we operate a head to head fight. A case in point was a new customer in EMEA in Q1, a major international airport that is one of the busiest in the world. Remember how in the last decade Mike saw hyperlink wasn't good enough, despite being bundled with windows for many virtual VMware customers who have profound enterprise grade needs. With this customer, VMware is good enough, wasn't good enough to create dynamic cloud grade platform for the majority of their core airport applications.
Unlike humans who can work around weaknesses in good, good enough business software, applications cannot work around good enough infrastructure software thereonam. Goodmark's infrastructure is an oxymoron period. This is why we've been so successful at adding Nutanix core customers These customers deploy AOS and Prism platform and A3 virtualization to modernize and deliver a cloud like experience within the walls of their own data center. Mechanic score customers represent the foundation of our business in the near term and are what will enable us to deliver on our goal of at least $3,000,000,000 in software support volumes in 2021. In Q1, A3 adoption increased to 38% on a going forward basis.
HV was a decision factor for 1 of America's leading operators of General Acute Care Hospitals, our 2nd largest deal of the quarter, which is more than $5,000,000. This healthcare provider will expand deployment of our platform to support its 3 facilities, all using HV virtualization. Once company has experienced the simplicity our platform brings to their core infrastructure, they often quickly and enthusiastically want to graduate and standardize and mechanics across their IT infrastructure, developing pure play software defined cloud platforms for their business critical workloads. These companies are Nutanix Essentials customers, Essentials with the Capital E, who build on our core offering to deliver on security, automation, data management and operation efficiencies. Reducer with Calm for app centric orchestration, flow for application security, files for storage consolidation and Prism Pro for large scale operations management.
What might not be obvious is that Essentials runs on top of core. That is Essentials pulled core with it in all deployments. Case and point on this leverage and call before you walk philosophy is one of our U. S. Federal customers, a department within the U.
S. Navy. They more than $2,000,000 in lifetime bookings with Nutanix and made their first purchase with us in 2016 for VDI. Well, the following few quarters, they expanded the server workloads in the data center and started replacement of legacy 3 tier and remote offices all with AHV as the hypervisor. Late in the journey, the purchase licenses for Calm, and in Q1, the expanded the mechanics deployment even further leveraging our platform across even more remote offices with the addition of both Flow and PrismPro.
Other example of this customer journey is a $1,500,000 deal with the U. S. Government agency that provides fact based non partisan information to Congress. This customer, which has lifetime bookings of more than $4,000,000, first experienced Nutanix core almost 4 years ago. Since then, this materially expanded the use of our platform, utilizing AHV, managing their unstructured data needs with files, Running all their enterprise applications, utilizing their exchange environment.
And finally, in this quarter, expanding their media endowment to 4000 users. Finally, Nutanix Enterprise Enterprise with the Capital E customers advance into hybrid and multi cloud deployments with carved in the decay, era, buckets, volumes, and Xi Cloud Services, our new suite of SaaS based services. This new suite includes Xi Leap for the a recovery of the service, XIA IoT for Edge Cloud Computing, Frame for cloud native desktop in the service, being for multi cloud governance and epoch for multi cloud application observability and monitoring. Most Zai services use Nutanix core and essentials. Yet others make them better by being multicloud, thus making our stack compete better with other clouds.
There's no zai without core and essentials. I repeat there's no zai without core and essentials or all core and essential products currently running on prem will become part of the Zai catalog. And that is what every computing company in the face of this planet covers. A catalog that can run both on prem and off prem. This leverage in the customer journey of Qualcomm is evident by how our end users adopted solutions.
In Q1, 19% of all our deals were 1 or more for Essentials or Enterprise Solutions in addition to our core offering. Calculated on a rolling 4th quarter basis. We're confident that customers realize the simplicity of reliability of our core We'll continue to recognize the value for extended platform and continue the journey with us seamlessly. We've talked a lot about Zai over the past few quarters. And as I mentioned earlier, I'm pleased to say that Zaihi is now generally available with future geography rolling out over time.
Moving beyond that, Xi IoT, our Edge computing solution is also generally available, and we've made significant updates to our frame desktop and service offering, adding role based access control in the cloud. Our customers have already validated this, that there is demand for this set of services in the market. In the last couple of weeks, we closed the game of the public school district serving more 5000 students to use Zaid, the name Doctor invisible for them. They do not see a backup and recovery box on prem. VR is a huge adjacency for us and will also become a highly automated way for us to migrate workloads off prem with one click.
In this quarter, we worked with Google cloud team to win a deal with an American worldwide consumer products company in the Google 50. Our first with this customer to deliver free virtual desktops to their workforce, The customer has invested in Frame alongside G Suite, a natural partnership for Walker Productivity in the cloud first world. I'd like to highlight another win worth more than a $1,000,000 with a life insurance company in India. We have decided to move forward not only as a core with Aytu Utilization that will rapidly graduate to both essentials and enterprises prison pro, Calm, Flow and Zai EPOC. Our message this week dot next is clear.
Zeicloud services from mechanics are now open for business. As many of you know, we made a very successful transition to software over the past year. Recently, we have evolved our business model towards an increasingly subscription model designed to deliver more recurring and predictable revenue. This quarter, we saw 51% of billings from subscriptions. Up 20 points from 31% just a year ago.
We are in a very good trajectory with the transition. Dustin will get into our petitions for how this will play out in just a minute. To summarize over the past year and even today, we have significantly added to the breadth of our platform broadening our capabilities to address the challenges our customers tackle as they modernize their ID infrastructure and expand into multi cloud operations. This product velocity stands as a critical advantage for mechanics. Today, we introduced a simple way to understand our product points based on how our end users adopt Nutanix.
This is about a customer journey, a buyer journey, a seller journey, a learner's journey from the infrastructure modernization of Nutanix Core to a customer cloud platform with Nutanix Essentials all the way to the user multiple cloud platforms with Nutanix Enterprise. In the journey to at least a $3,000,000,000 billings in FY 2021, 3 large workloads of markets will lay on top of mechanics core. Unstructured data, which is files and objects, structured data, just databases and desktops, apart from virtualization in containers. To conclude in Q1, we had a strong core with notable progress in our evolution towards subscription software, strong product innovation with many new introductions, including Xi Cloud Services, and continuing strong growth in our business. Now, I'll turn it over to Duston to review the financial highlights of the quarter.
Duston?
Thank you, Dheeraj. Before we get into the review of our Q1 fiscal 2019 results, which for revenue, operating loss, earnings per share and earnings per share exceeded both our guidance and consensus estimates, I'd like to provide some historical background on how we started to monetize our software and how we built and will continue to build on this foundation to ultimately move to a fully and the initiation of our recurring subscription business actually began when we first started shipping appliances in late 2011, early 2012. With customers engaging in subscription based software and support, software and support entitlement contracts, basically recognizing the value of receiving continued software enhancements on an ongoing basis. In 2014 2015, we began selling standalone software, including software and support entitlements to our OEM partners. Dell and Lenovo and have since added Fujitsu and IBM.
Dean, we started to separately sell software upsells or additions on top of our base operating system, such as pro, ultimate, and later PrismPro. It was also in late 2016 2017 when we first offered our software through a subscription offering to run an HP and Cisco servers. During 2017, we began software only subscription sales of our operating system. Which afforded customers the ability to run team that we started another monopolization vehicle for our software. Software based sales of our software a subscription based sales of our software on Dell XC core and Lenovo XC core products.
Upon the way, we also began selling subscription based sales of additional software offerings such as Calm, Flow, Files, and more recently SaaS based offerings such as Beam, Frame, and now Xi Leap.
So as you
can see, our move to software has been planned and executed from day 1 and has progressed significantly over a several year period. And our move to a fully recurring subscription business model will take a similar path thoughtfully planned and executed over an extended period of time. As we discussed in our last earnings call, the move to a fully recurring business model will involve changes to how our software solutions will be packaged for our historically non portable software sales We stated that we would begin a phased in approach that will transition our non portable software sales to recurring subscription licensing model. We further stated that this would replace today's licensing structure, which is based ability around their software procurement strategies and provide portability of the software. We also discussed that we would implement this change beginning in Q3 2019 and ramping through the second half of fiscal year.
I'm pleased to announce that we had a bit of an early start with this transition. And in Q1, we transacted over 110 customers on this new licensing methodology. These transactions included enterprise, commercial, SMB customers, new and existing customers, as well as a good mix of customers from all geographies. Although we're off to a promising start with our shift to a fully recurring software business model, like our shift away from hardware, were not naive regarding the work that still needs to be done with both back office systems and front office education. To make this a complete this transaction transition a complete success.
As you might expect, we have both plans for this shift to a fully recurring software model. In FY 2017, our subscription business accounted for 31% of our billing in FY18, our subscription business accounted for 41 percent of billings. And in Q1 twenty nineteen, the subscription business accounted for 51 percent of billings. In Q1 alone, our new term based licensing accounted for $20,000,000 in bookings. We believe that in the next 4 to 6 quarters, our recurring subscription business will reach 70 to 75% of total billings.
And by FY 2021, we expect a large majority of the business should be recurring in nature, either on prem or cloud based. In our view, this continued shift to recurring subscription business model, combined with retention rates, averaging 90% and an average contract duration period of 3.6 years demonstrates increased visibility and predictability into our model as the company moves away from life of device licenses. We will provide further thoughts on how we envision addressing of our recurring subscription business model during our Investor Day, which would take place March 20th in New York. Now moving on to a few Q1 highlights. Revenue for the first quarter was $313,000,000, growing 14% from a year ago, and up 3% from the previous quarter ahead of our guidance of $295,000,000 to $310,000,000.
This performance excludes approximately $104,000,000 in pass through hardware eliminated in the quarter. Software and support revenue was 2 $81,000,000 in Q1, up 44% from the year ago quarter and up 5% from the prior quarter. Total billings were $384,000,000 in quarter representing a 22% increase from the year ago quarter and a 3% decrease from Q4. Software and support billings were $351,000,000, growing 50% from the year ago quarter and decreasing 2% from the prior quarter. On a billings basis, pass through hardware represented 8% of total billings.
This is slightly higher than what we expected, and is mostly related to geographic mix and timing of orders. The bill of revenue ratio in Q1 was 1.22 slightly lower than the projected 1.26, reflecting a small change in product mix. Our Q1 deferred revenue increased by $71,000,000 in 5 $71,000,000 from Q4, up 72% from a year ago, and up 11% from the previous 24% of total bookings in the quarter, down from 29% in Q1 twenty eighteen. We had a record number of customers booking deals greater than $1,000,000 in the quarter. Customers with bookings greater than $500,000 represented almost 50% of bookings in the quarter.
We had a strong global 2000 performance in Q1 with G2K software and support bookings equaling 31 of the company's total software and support bookings in Q1, up from 28% in Q4 2018 and 26% in Q1 2018. In Q1, our software and support bookings from our international regions were 40% of the company's total software and support bookings, up from 36% in Q1 twenty eighteen. Our non GAAP gross margins grew in Q1 to 78 point 6%, up from 61.9% in the year ago quarter and 77.7% in the prior quarter. Operating expenses of $272,000,000 versus our guidance range of $280,000,000 to $290,000,000 fewer headcount additions accounted for most of the shortfall. On a non GAAP basis, on a non GAAP net loss of $24,000,000 for the quarter or a loss of $0.13 per share, A few balance sheet highlights.
We closed the quarter with cash and short term investments of $965,000,000, was up from $934,000,000 in Q4. DSOs on a straight average was 69 days, an improvement of 9 days from last quarter. The weighted average DSO was 24 days in Q1. We generated $50,000,000 of cash flow from operations in Q1, which was negatively impacted by $13,000,000 of ESPP outflow, and we generated positive $20,000,000 in free cash flow during the quarter. This performance was also negatively impacted by the $13,000,000 of ESPP output in the quarter.
Now turning to guidance for the 2nd quarter on a non GAAP basis, we expect the following for Q2. Billings between $410,000,000 420,000,000 revenue between $325,000,000 $335,000,000, gross margin between 78% 79%, operating expenses between $300,000,000 $310,000,000 and a per share loss of approximately $0.25 using average shares outstanding of $180,000,000. I'll just wrap up with a few final comments now. We are now at a point where the billings hardware pass through mix will bounce around in any given quarter at a somewhat immaterial rate. Between a low of 5% or less and a high of 10%.
Again, with most of this variability related to geographic mix, and timing of orders. Actual rate in any given quarter, we would still expect gross margins to remain in the high 70s. And we will of course continue to provide the actual hardware percentage each quarter. Additionally, as I mentioned before, we have bought percentage of pass through hardware that we experienced in any given quarter. Therefore, beginning in Q2, the quarterly decline in year over year growth in total billings and total revenue that we've experienced during our transition away from pass through hardware is expected to moderate and growth will eventually reaccelerate as we go forward.
And with that, operator, if you could please open a call up for questions, that'd be great. Thank you.
The first question comes from the line of Matt Hedberg of RBC Capital Markets. Please go ahead. Your line is open.
Hey guys, thanks for taking my question. Congrats on the strong results here. Dheeraj, I'm wondering, can you give us a little bit more color on the crawl walk run message for core Essentials And Enterprise? And Is the right way to think about this as a software bundle, or is it still sort of like a la carte within these different tiers?
Yes, thank you, Matt, and thanks for the question. So we, as I mentioned, we look at this as a journey for the customer, a journey for our seller, a journey for our channel seller, and a journey for anybody who's getting enabled on selling and, and really, furthering our products. So in that sense, we're not using this as a price bundle. We're not using this as a way to say, look, you will go and buy something, based on a certain, price book or SKUs assigned to core Essentials Enterprise What's really important is people to, realize that Essentials uses core and enterprise users, essentials, and core. So there is a progressive utilization of the products and these are not disparate for they're not like completely misaligned with each other.
Even Frame, for example, which is a SaaS based service, very soon in the next couple of quarters, we'll go and use on prem mechanics, including off prem size. So if you think about it, a lot of these service offerings will actually start to use both on prem core and essentials and off prem core and essentials running in Xi as well. So I think the idea here was to basically go and and educate and enable our customers and our sellers to realize that there's a progressive way to get to what these new offerings in the SaaS world are.
That's helpful. And then maybe a follow-up for Dustin, you eliminated $104,000,000 of pass through hardware revenue. I think you said that was about 8%. I'm curious going into the quarter, what were the expectations for Q1. I just wanted to give a sense for the Delta, in that mix.
Yes, I think it's,
don't have the exact calculation, 5% or 5,000,000 differential, somewhere around there, maybe a little bit more, but somewhere in that ballpark.
Your next question comes from the line of Aaron Rakers of Wells Fargo. Please go ahead. Your line is open.
Yes, thanks for taking the questions and also congratulations on the quarter. Just as we kind of think about the transition that you guys are now executing through, I'm curious if there's a way for us to frame how much of your subscription revenue growth is at this point being driven by the transition of your existing customer base from the portable or I'm sorry, the non portable software revenue relative to the monetization effects of some of the additional offerings, be it flow, beam, you know, etcetera? I'm just kinda curious of how we think about the mix within that subscription revenue between those items?
I think line share of this transition is going to come from the core and how people consume the core, because we were on node based licensing. If you remember, for the last five 6, 7 years. And now we are moving to a capacity based method, which, is basically term based. And the fact that it's portable is what makes us, you know, use it for subscription as opposed to life of device. So I would say that, it's early to say that, mean, anything that's, the enterprise SaaS or Xi Cloud Services adding to the mix, most of it's really coming from core and essentials.
Okay. And then as a real quick follow-up, I'm
just curious as you guys make this kind of pivot in the strategy, you know, how do you think about the competitive landscape? And I think importantly, the competitive landscape evolving, you know, looking out over the next 12 to 24 months has there been any change currently? And who do you view as actually your most formidable competitors going forward?
Yes. So, in terms of, the competitive landscape, nothing had changed, in the last quarter or so, It's still a lot of on prem, three tier hardware vendors who used to sell late chassis and fiber channel switches and storage arrays. So we go and collapse all that with this software infrastructure. And, you know, we see enough of VMware, what we don't see enough of VMware in about 70% of the transactions or POCs are not seeing VMware VMware And we're going after very high end workloads as well. And the other accounts where we do see we have, I think we are going for head to head pipes.
We are going with, I mentioned this in my script as well. We really want to go after POC's proof of concepts, with VM there. We've made some highly automated testing tools And, we really believe that customers are looking for the same high quality that they're expecting from these 3 tier hardware deployments to come from a software defined infrastructure. As I mentioned, I think, nothing has changed in that respect from the last year itself. Now, Dell EMC definitely is closer to VMware than it was, let's say, a year or 2 ago.
But even there, we have navigated the, you know, coopetition waters really well. You know, we've moved to Dell XC core products, and XC core is basically beating the channel where we actually use a certified, Dell hardware. So In many which ways, we're driving our own brand and our own pool from the customers. And many of these things are coming directly from the customers that they won't transform themselves. They are looking at subscription based pricing, because OpEx is good for them, and they'll look towards cloud, consumption and stuff.
So I think in that sense, the next 18, 24 months is going to be a lot of VMware, a lot of 3 tier. Maybe you see a little bit of Azure stack at all, if we see any Azure stack and over the course of the next six quarters, maybe some Azure as well.
Very good. Thank you.
Your next question comes from the line of Alex Kurt of KeyBanc. Please go ahead. Your line is open.
Thanks guys. A question and then a clarification. So, Droraj, on the transition to subscription, can you just remind us how the sales organization as well as the channel, will be sort of the the quotas and the compensation models will will change if at all. As we go through this over the next 24 months. What should we expect and see from the outside when we when we hear about this transition and what it means to quarterly execution?
Sure. Yeah. So I'm going to chime in and Dustin if you also add to this. So right now, in terms of what we're collecting and what we are even seeing from the customer, they do want to see 3 year deals and 5 year deals and such. So, I, in that some of this will be driven by the market forces.
Right now, our comp has not changed because, the 3 year sort of subscription collection is pretty similar to what we do in this life of device. Now as we go and really look at the lower in the mid market, where there might be some price pressure. We might start to do a few more 1 year deals, but it's very early to say anything regarding that. And maybe that market will be driven more by inside sales. There could be a new compensation strategy for inside sales and the territory managers, the commercial account managers who don't deal with enterprise or global accounts themselves.
And did you have a second question, a second part of the question?
Well, that just, that's helpful. Thank you. And then just a clarification around one of your supply one of your hardware partners been in the news in the last couple of months, and I was just wondering if you guys could take a chance to explain what you've seen from your side any potential disruption around that hardware partner? And if it really matters at all as you look into, the rest of the quarter and the fiscal year.
Yes. Dustin, and then I'll let David chime in as needed here. We've been pretty upfront about this that we were notified back, I think, in March, of this through the same reporter actually. And we, at that time, did a thorough investigation, found nothing took it very seriously. And then this latest round, we did the same thing, worked with Supermicro.
Again, took it seriously, found nothing. And relative to the quarter, there were some questions and things like that, but there was no impact to the quarter. Really at all from this issue. And I think the important thing to remember here is that, you know, our software runs on 7 different server platforms. So if anybody did have an issue, they've got, effectively 6 other choices, seamless choices, if you will, to go run this, our software on.
So no impact for the quarter, and we found no issues whatsoever with with those allegations. Yeah.
Your next question comes from the line of Wamsi Mohan of Bank of America Merrill Lynch. Please go ahead. Your line is open.
Just thank you. David, I was wondering if you can just comment on how you view the potential opportunity for multi cloud management in view of sort of IBM Red Hat email announcement. And I have a follow-up for Dustin.
Sure. Thanks, Wamsi. So it's early days. The multi cloud world is a buzzword. Just like cloud was a buzzword, maybe 3 years ago, continues to be a buzzword today.
The way at least we look at it is that there will be need for a new, and I'm going to use a metaphor, a hypervisor a virtualization stack on top of multiple clouds, just like there was a need for virtualization or a hypervisor across multiple servers and across multiple storage boxes on prem. So we put a layer of software that virtualized servers and storage equipment and we gotta do the same across multiple, cloud stacks themselves. And in that, we have built a few mechanisms In fact, we'll announce a few of them tomorrow around migration and drag and drop from one cloud to another on prem to off prem. Disaster recovery seamlessly with one click. So migration becomes a killer app for multicloud.
Just like it was a killer app for within the on prem world, the killer app for VMware was B Motion and storage B Motion and DRS and HA and all these were just about moving the app when it failed when it was hotly contented in a high load environment and when it needed to move from an old box to new box, We became a very large company because of building seamless mobility across its hardware boxes. And that's what's required across multiple clouds itself. And that's how you commoditize anything. You know, you commoditize anything by virtualizing it, you virtualize something like bringing portability of applications in a one click seamless fashion. So if you think of this portfolio of products that we have in the multi cloud world, There are either a policy engine that tells you what is wrong, like maybe because of cost or because of governance or security or compliance reasons.
And then how do you correct and rectify it, which is where you need to invoke our mechanism for migrating it from one cloud to another. So both the mechanisms and the policies will form the new quote and quote hypervisor in a multi cloud world. So it's a very early days to say exactly what will happen, but I can tell you is that, what is needed in that is a lot of, migration mechanisms around storage and networking and security and identity, well, you have to move an entire app from one cloud stack to another, and it, takes a lot of doing. So as a company, we've done a really good job data, data migration, whether it's replication or disaster recovery and runbook automation and things of that nature. But now I think the bar will be raised with security and firewalls and networks and things like that.
So how IBM Red Hat navigate that? It's it's early. I mean, at some level, I think as IBM puts its ons around the open stack stack, I think, clarity will actually merge.
Okay. Thanks. And Dustin, just a quick one for you. Appreciate the incremental revenue breakdown that you guys gave as wondering if in just some qualitative terms, you could talk about how much of that subscription mix is currently term based versus SaaS versus SaaS for the government, any any directional color there, would be helpful. Thank you.
Well, of course, right now, there's very little task in there as you would expect that will build up over time. And, I don't have the exact we can get it for. I don't have the exact, list there on the subscription pieces there. You know, there's multiple pieces there with support. So we can get that.
So you've got it almost from the prior breakouts that we've done there. But we'll we'll get that too.
Okay. Thanks, Wilson.
Your next question comes from the line of Katy Huberty of Morgan Stanley. Please go ahead. Your line is open. Thank
you. Question for Dheeraj. First, you mentioned that that hybrid multi cloud is is becoming a buzzword, and we've certainly heard it from just about every infrastructure, hardware, software company this quarter. So curious how you think it impacts your business? Are you seeing your pipeline growing customers coming to you because competitors are affirming your strategy.
Do your sales people have to spend more time you know, explaining the difference between your strategy and and some of the others, just how this evolves as as more players follow your lead.
Yes, thanks Katy. Yes, I think we definitely go and talk from the position of our strength as opposed to a position of someone else's strength. And many of the customers, we go and talk about their adjacency and our adjacency, their adjacency is on prem right now and our adjacencies on prem, which is software defined infrastructure. And then we go talk about disaster recovery as a service like, Hey, how about the first, crawl piece of this multi cloud journey where we can do one click failover and testing and failback and things like that. And all of a sudden, the app is mobile because we did all the hard work with, runbook automation and shipping data and things like that.
So we basically start with our adjacencies. And then, foundry multi cloud services that are very adjacent to Nutanix like desktops is very adjacent to what we have really understood and embraced in the last 7 years. We probably are one of the strongest, companies to understand end user computing experiences across tricks in VMware and now with, frame itself. And now people are asking about frame, to be extremely multi cloud, you know, use my AWS credits, use my Azure credits. I talked about one of our experiences with, co selling with Google G Suite itself.
So I think we are going and navigating this multi cloud buzzword around our adjacencies. So we don't talk fluff I think, because most of the money is still coming from computer storage and networking and security. And some of the workloads around that like files like databases, like desktop. So I think we ask our sellers and to actually go and focus on workloads because workloads and applications is where most journeys actually begin.
Understood. And Dustin software and support billings came down a bit this quarter. Is that just new seasonality as the business scales or was there some impact of the subscription transition in the quarter? If so, how much?
Yes. No, there really wasn't any impact to say on the subscription piece. Actually, when you look at the length of, these new licenses, $20,000,000. It's a slightly higher than the 3.6 average. So there really wasn't any any tilt to 1 year or anything like that in that.
But, you know, we had just looking and dressing billings in total, We had, guided billings down. Actually, in Q1, we came off a really strong Q3, a really strong Q4. Into a seasonally soft Q1 so that we had guided $370,000,000 to $390,000,000 of of total billings and obviously we came in at roughly 3.84 or so close to the top end of that range. So it was kind of expected there and the pieces kind of fell out as they did.
Okay. Thank you. Congrats on the quarter.
Your next question comes from the line of Jack Andrews of Needham. Please go ahead. Your line is open.
Good afternoon. Thanks for taking my question. Neuraj, it looks like to me, you're achieving the highest growth rates with customers that are spending the most dollars with you? You've talked about the 111% year over year growth in customer spending more than $5,000,000 So I was wondering if you could drill down on what's what's happening with these larger dollar amounts in particular. I mean, what's what's really driving that?
And do you view kind of these large what these larger dollar amount activities as a leading indicators for the rest of your customer base?
Thank you. Yeah. I think what you're seeing is the 1st phase of what we talked about as segmentation almost 18 months ago. In around February of 2018, 2017. We talked about segmentation.
So in that first case, the segmentation of our sales force, we moved up market. And, that creates a lot of opportunity for cross sells upsells, more workloads, expanding workloads, and that And in fact, we have shown that through our repeat business numbers that have actually grown across our customer base itself. Now the next phase little bit on inside sales and how do we really go about these mid market customers, low end mid market customers themselves. And you will see that happen in the next 12 months itself. I think we, we've settled down on the upper half of the pyramid.
Now we're going across the middle of the pyramid, in some sense with channel investments and inside sales investments and such. So, I think it's a barbell strategy for us. 1 into the barbell is large most of the other end of the barbell is a frictionless transaction, transactional business. And, we expect to actually go and, figure that out in the coming quarters and beyond.
And then just as a follow-up could you maybe frame what your customer base looks like today in terms of mapping it to the core essentials and enterprise layout that you, introduced, you know, what it looks like today and and how you see that trending over time?
Yes, we started we introduced a new KPI in our infographic and I spoke about it as well. In fact, it's going to be in the investor deck too. 19% of all our deals that have 1 or more products beyond Nutanix core. Obviously, everybody has Nutanix score, except for maybe 1 or 2 customers that are not using Nutanix score because they're frame customers that are using desktop as
a service in AWS or Azure.
But other than that, it's all mechanics core customers. And we'll start reporting this on a quarterly rolling 4 quarter basis going forward. And maybe it's some way we'll actually even say how many of our customers are both core and essentials many for customers of core sessions and enterprises as well as these numbers start to really come together.
Great. Well, thanks and congratulations on the results.
Thank you.
Your next question comes from the line of Eric Suppiger of JMP. Please go ahead. Your line is open.
Yeah. Thanks for taking the question. Couple of things. 1, on the enterprise in the centers, ratio, what kind of, contribution? If the 19% of deals include, products from those, those, product categories.
How are revenues gonna try to that, longer term. Do you envision that customers that are buying multiple products with the core product would be, would be, core, would be essentials and enterprise products eventually, it kicks the core component of those customers. Or how can that how can that revenue contribution look if you look out a few years?
Yes. One good thing about the nomenclature is that it's timeless. Over time, more things will actually fall into essentials and some things will fall from essentials to core itself, because, you know, as technology matures, you know, some things become essentials and then other things that were essentials now become core itself. So We expect that, we'll start to bolster more of the core. I mean, some things might even fall off the core because everybody knows that that's really needed anyway.
So might not even talk about For example, let's say Prism being part of the core because Prism is assumed to be part of the core. Similarly, HB might become part of the core and then time, if we really start doing 80 percent of everything with HP, you might say, look, why even talk about it actually? So I think the whole idea of this nomenclature is that over time things will move from an enterprise to essentials and from essentials to core, but the customers start to experience the journey from core, especially the new customers will never sort of mechanics before and there's quite a few out there. I mean, today, when you look at just America's Global 12,000, you know, we've barely scratched the surface. The only 15% penetration in America is delivered 12 1000.
So even under 85% of the customers who need to go through the experience of mechanics core, then the essentially then the enterprise
On the AhV piece, it's been, it's been on a pretty good trajectory. I think it increased about 3 sent over the past quarter. When does that start to reach a maturing level? What are we going to see that contribution of AhV customers basically stabilize? You
know, you just saw me talk about the Global 12000 Americas alone, and we only 15% penetrated there. So there's a lot of new customers. And, I think there's basically a 3 year gate there, which is you know, the Global 500 and the Global 2000, the Global 5000. And they all have different kinds of, needs. I mean, many folks in the Global 5000.
They're looking at VMware as
a new Oracle. Like, you
know, there's a lot of editorial practices around licensing and auditing and things of that nature happening. The people are saying, look, I really want to look at virtualization as a commodity it doesn't really belong in like multimillion dollar sort of, in expense and things like that. And then there are other customers who love the Embraer, and then yet other customers who are actually, completely would say neutral to what the virtualization stack itself looks like. So we are going to see a lot of progression in this over the coming 2, 3 years. I don't expect this to actually, you know, materially stabilize at least for the next 2 years.
And obviously all of XIA is HV, so think about our cloud offering, what we're using in size all HD. And the best part is that without being too self righteous, we're saying, look, will actually support a mix mode customers where the on prem that they're running is VMware. And the off prem could be AHP, and that's what customers really like about us, that we don't go and shove A3 down their throat. We're saying, look, if you're happy with the number, stay with it because you can still go and sell a lot of data services and network services and compute services on top of it actually. Very good.
Thank you.
Your next question comes from Jason Ader of William Blair.
And it's first question just on macro environment. If you could, provide some commentary on what you're seeing out there, whether you've seen any changes given some of the, kind of political fluctuations. And then the second question, kind of on this multi cloud hypervisor vision for your UDRaj. As you think about what you need, the pieces that you need to get there. I I would think Kubernetes is is pretty critical just because it's being seen as a lot of ways, you know, on the team kind of common denominator across clouds.
So any common, would be appreciated on what your plans are for, for Kubernetes development.
Yeah. Just on the the macro Jason. Yeah, we, always looking at it and, making sure that we're not missing anything, but clearly, we haven't seen any slowdown in our business anyway. We're not a $20,000,000,000 company that would have insights into everything, but certainly within our realm anyway. We're seeing really no signs of that.
Obviously, we look at it all the time. I know a lot of companies are having issues one way or another with currency. We're fortunate to be selling, obviously, in U. S. Dollars and things like that.
So we've got that recently covered from that perspective. But we continue to look at it and continue to monitor and be aware of it, but there's nothing right now that we see that's impacting the business
Yes, I mean, we have levers to make adjustments as needed in people versus programs, things of that nature. And, obviously, nobody crystal ball around this. This is going to be a black swan event, whether we like it or not. And, I think the people versus program's levers piece is an important piece of our strategy involved. As we see anything really dampening with the macro, I think we'll have reason means to go adjust accordingly.
And, talking about your Kubernetes comment, definitely Kubernetes makes, compute very mobile and portable. But then there's everything else around it that really needs to be made portable as well, which is storage and networks and identity and security. And there's a ton of pieces around the net second and storage that need to be portable as well. And I think it's, one of the core advantages of Nutanix is that we really understand data, data migration, replication, you know, backups, things of that nature. Plus, we understand networks now.
For the last couple of years, we've focused so much on networks. Networks and security of inside would not have been possible without really digging deeper into multitenant networks, like What does it mean to really move an entire, primary site from on prem to off prem without changing even a single IP address? Is a very hard problem that we'll have to go solve for. So a lot of the network optimization pieces that have come together inside make us really competitive in the space of portability of applications, but Kubernetes alone doesn't make an application because there's a lot more to an application state than just sitting on the server itself, which is basically just software. That software needs storage that soft connects other services like objects storage clusters and files to file storage clusters and you know, active directory and VLAN settings and load balance servers and firewall settings.
All those things have to move around before you call Kubernetes to be the landlord below the vibration.
And just on that to the, and on the compute side for you guys, is that something that you support today?
Oh, absolutely. In fact, we have gotten really deep into Kubernetes over the last 12 to 18 months. This is one of the biggest advantages of our architecture that all our code now runs as containers, all our code And that has been a big issue with many of the companies that actually run inside the kernel, inside the hypervisor. You can go and really infuse the value of containers inside the kernel of the high quality, but it's actually was written 15, 18 years ago, they didn't think about services. They didn't think about, patch upgrades, hot upgrades, remove less upgrades, many of the things that Kubernetes actually makes possible, we've been able to do in our own software.
And now people can run Kubernetes containers on top of Nutanix. So one thing that we actually really went on the backup saying, look, no change to the open APIs and CLI of Kubernetes, unlike pivotal and Red Hat who actually added wrapper stuff around it. We're going and saying whatever open source is is what we're actually going to support. So things like cube cutter and all the APIs are exactly the same. And in fact, even on Calm, which is, the orchestration here that we have, we're saying the app specification of Kubernetes is a subset of Calm's app specification.
So if you take and a very well formed Kubernetes back and put it inside Calm. And now you have a hybrid app, which is both a combination of containers and virtual machines, actually, which is probably going to be one of the hardest things that I think would struggle with is now My entire app is not containerized. I have things that are running as containers within an app and have other things like database tiers. That are running an opportunity. So how do you really go and make a hybrid application possible?
How do you make it auto scalable? How do you upgrade it? How do you migrate it? And all these verbs of an app, which is backup, replicate, scale out, upgrade, migrate all these verbs in the app are now profitable with Nutanix in a very hybrid set of digital combination of containers and VMs. And that's where the money will be.
We have to go and talk to IT ops in a way that is mundane, but it is still pragmatic and realistic about the transition to containers because overnight or not, especially every, piece of the app to become consumer wise.
This concludes today's conference call as we've completed the allotted time slots questions. Thank you for your participation.