Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Nutanix Fourth Quarter Fiscal 2018 Financial Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer I will now turn the call over to Tanya Chin, Vice President, Investor Relations And Corporate Communications.
You may begin your conference.
Thanks. Good afternoon, and welcome to today's conference call to discuss the results of our fourth quarter fiscal 2018. This call is also being broadcast live over the web and can be accessed in the Investor Relations section of the Nutanix website. Joining me today are Deerej Pandey, Nutanix's CEO and Dustin Williams, Nutanix's CFO. After the market closed today, Nutanix issued a press release announcing the financial results for its fourth quarter fiscal 2018.
If you'd like a copy of the release, you can find it in the press releases section of the company's website. We would 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, billings, gross margin, operating expenses, net loss, loss per share, free cash flow, business plans and objectives, product sales, plans and timing or and the impact of our transition to focus more on software only sales and our transition to a subscription based business model. Expectations regarding products, services, product features and technology that are under development or were recently acquired, competitive and industry dynamics, new strategic partnerships and acquisitions, our intention to acquire new technology, changes in sales productivity, expectations regarding increasing software sales, changes in the segmentation of our sales organization and the impacts of such changes our plans regarding how we will report the software content of our business, potential market opportunities, and other financial and business related information. These forward looking statements involve a number of risks and uncertainties, 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 2018, filed with the SEC on June 12, 2018, as well as our earnings release posted a few minutes ago on our website. Copies of these documents may be obtained with the SEC or by visiting the Investor Relations section of our website. Also, please note that unless otherwise specifically referenced, all financial measures we use on this call today are expressed on a non GAAP basis.
And have been adjusted to exclude certain charges. We have provided 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. As a reminder, all results included in today's call and press release are using the ASC 606 revenue standard. Lastly, Nutanix will be at the Piper Jaffray Conference in Dana Point, on September 5th and also at the Deutsche Bank Technology Conference in Las Vegas on September 12th. We hope to see many of you there.
Now I'll turn over the call to Dheeraj. Dheeraj?
Thank you, Tania. Good afternoon, everyone. Q4 was another a fantastic quarter and a great bookend to our fiscal 2018. We grew our software and subscription business steadily throughout the year with Q4 year over year billings growth of 66% and Q4 year over year revenue growth of 49%. We delivered record performance in several areas, including delivering non GAAP gross margins of nearly 78%, and growing our deferred revenue balance by 71% over the from the prior year.
Duston will dive deeper into these results shortly. But before he and I delve into Q4, let me spend a few moments focusing on our fiscal 2018 to highlight how we have acted like a big company. I. E. Celebrating leverage at scale and also like a small startup I.
E. Building things that people like at the same time. In fiscal 2018, we delivered close to $1,200,000,000 in software and support billings, growing 54% year over year, and added over 3600 new customers. In fact, our year over year growth accelerated over the from the previous year despite a much larger base and having generated a higher free cash flow than the year before. Last year, we achieved tremendous leverage in our go to market Customer productivity or multiples for the 1st dollar after 18 months is at an all time high across all segments in the market.
Our existing customers provide us massive leverage because of the quality of our product and our obsession with customer success. As well as the size of the total addressable market of computing in the global 10,000. This leverage from existing customers is also a result of our sales segmentation, and our continued replatforming of the large enterprise with a broad operating system software value proposition. Over the next 18 months, we'll work even harder on commercial segmentation as we build a world class feeder program for our mid market business with the help of out of school undergrads, inside account executives, and a highly leveraged SE to rep ratio specific to this market segment. This will allow our enterprise account managers to have continued focus on the Global 5000, emphasizing an enterprise cloud sales motion and delivering on larger software deals.
We have also continued to streamline our marketing efforts by getting more surgical in our targeting by region, by product, by customer, and by leveraging our digital assets. The next natural milestone and the journey of leverage and software is subscription, I. E. Term licenses in cloud. Well, we've talked about how we'll be streaming our technology over the internet via Xi, spelled XI.
We also have an immense opportunity to convert our on prem software entitlements, which were typically termed over the life of the device, to explicit 1, 3 or 5 year term licenses. This is yet another driver of leverage as shorter term smaller deals in the mid market can be fulfilled by inside sales and digital delivery of software licenses. This also means that renewals of shorter term deals can be done by our inside renewals team. This shift enables our field sales teams to increasingly focus on larger customers and longer term contracts. More on this in Dustin's narrative.
Another area of leverage we have achieved in the last couple of years is around our software operating system. Like the consumer cloud companies, we derive immense technology leverage from Linux, Apache, and increasingly Cloud Native Computing Foundation, CNCF Projects. While both Red Hat and Nutanix leverage open source, At our current pace, we expect to achieve Red Hat like sales by fiscal 2021 and about half the time it took them because of our emphasis on last mile problems of enterprise grade reliability, consumer grade design, and our innovation in data and orchestration services. We're also seeing substantial leverage in having a distributed development team around the world, including in the United States, India, Germany, and now Belgrade. This leverage is now starting to show in the way our new apps are coming together.
AFS or Acropolis file services now renamed Nutanix files will have been done in almost 1 10th the time it took to build that within NetApp and with less than 1 10th the number of engineers approximately. Our hypervisor AHV similarly took 110, the number of engineers in VMware, almost 15 years less time. Era, our new organic database virtualization product, Calm, our multi cloud automation and orchestration service, and buckets, our new object storage service, are equivalent to startups out there that are roughly 10 times larger in employee size, have taken about 10 times more dollars to build and almost 5 to 10 times more time. Flow, our network security product enjoys a similar competitive advantage of small developer teams that have used Linux and technology from our recent acquisition, NetSol, now called EPOC. ITCOVID B, our multi cloud cost covenant SaaS service, and our organic IoT platform named Sherlock.
These are some services across IAS and PAS that we've added to a portfolio over the last 18 months that will enjoy the APIs their usability for enterprise cloud platform, including our billing identity and support services that we've invested over the last 8 years. Such R and D leverage notwithstanding, we need to invest in the go to market machinery of these apps in the coming 24 to 36 months. Simply spiffing the current sales force will only take money out of one pocket and put it into the other. The revenue from these newer product won't be accretive until we have thought about their P and Ls explicitly. This is why we are using an approximate 70, 2010 rule of thumb around capital allocation.
That is 70% in our core business, 20% in the transformation of the business into cloud and subscription, and 10% on new products or services that will be accretive to the platform. While we are maniacally focused on the success of each, we will feel fast if a product doesn't work. And we'll hawkishly avoid waste, which at scale can become a problem. Our attention to detail has enamored us to our customers in that customer love fuels our mission to act like a startup again. In essence, we'll continue to build new products that delight people.
One such example of a new product that delights people is Frame. A recent acquisition of a startup founded by Nicola Forsinovich. Nicholas's passion within video optimizations and GPU processing, and he used that passion to build a multi cloud desktop virtualization product. Fundamentally believes that just like high quality video that can be streamed over the internet to any browser, desktops can be streamed to a browser following the standard principles of movie and image processing. Frame currently operates in a $3,000,000,000 market and we think we can grow this market with our focus on instant delivery and end user delight.
Frame is a rethink of the digital desktop market. And its empty canvas approach to multi cloud and cloud native architecture makes it 10x simpler than traditional software. That has historically taken 10x more people and time to build. All these new services are getting ready for Zai. As Zai itself is now available through its early access program, but the general availability still planned for the end of the year for the disaster recovery of the service product.
Which we are calling LEAP LEAP redefines cloud seeding with one click failover and failback what if parallel universe testing and hybrid cloud migration. We hope to truly blur the line between on prem and off prem clouds between owning and renting, creating a new category around hyperconverged clouds. As you work platform, own platform, we continue to broaden our ties across the industry to provide our customers with more validation that they can rely on our platform for the most critical applications. Just yesterday, it became the 1st HCI software to become certified to run SAP HANA workloads. Hana is an extremely demanding strategic workload and we're delighted to work with SAP to build a strong joint customer base.
Coming to some color in Q4, this quarter, we added approximately 1000 new customers, bringing our total number to 10,610. In this last fiscal year, we added nearly as many customers as we had when we IPOed 2 years ago. Customers adding approximately 40 in Q4 2018140 overall in fiscal 2018. Q4 also brought continued momentum in large deals with 46 deals worth more than $3,000,000 and 2 of which were worth more than $5,000,000. We closed 201 deals worth more than $1,000,000 in fiscal 2018, from 144 in fiscal 2017 and now have 26 customers with a lifetime spend of more than $10,000,000, up from $11,000,000 in fiscal 2017.
And we continue to see depth across vertical markets with customers like co location providers, Xterra, motorsports Raceway Management company, International Speedway Corporation, telecom provider Netcom BB and law firm Aiken Gum, Strauss, Howard, and Feld. Quarter, we closed 23 deals worth more than $1,000,000 with customers with a lifetime spend of more than $5,000,000. Our total number of accounts with a lifetime spend of more than $1,000,000 increased by 2.40 year over year. And our total lifetime bookings for the same group grew by more than 75% year over year. One of these customers, our Global 2000 Chain Electronics Retailer, continues to expand its use of our platform within its enterprise cloud.
This customer relies on our platform for its mission critical workloads, including a high end and very large database environment. This customer also runs containerized applications on our soft and continues to purchase for planned robotics and automation project for its distribution centers. Another of these customers and American Multinational bio pharmaceutical company within the Global 2000 has a lifetime spend of more than $10,000,000 and uses our platform to support a number of use cases within its environment including VDI and remote offices. A large American healthcare company was another one of these customers after initially selecting our platform forage robosites remote office branch office sites. This global 2000 customer decided to want to take a full data center modernization project on our platform and now has a lifetime spend of more than $10,000,000.
This was another strong quarter for our U. S. Federal business, contributed 5 deals worth more than $1,000,000. Our top deal of the quarter in the largest in the company's history worth more than $20,000,000 was with a DOD agency looking for a simple and resilient solution to power its combat edge clouds across the world. This customer will use our enterprise cloud platform to power 15 remote sites running 2 different networks.
Another one of these deals with a different entity within the DOD continue to expand its use of our platform with a repeat buy in the quarter, which included the purchase of licenses for our Calm application lifecycle management offering. Our 2nd largest deal of the quarter worth more than $5,000,000 was one of the oldest American Financial Services firms in continuous operation that is one of the top 5 largest passive fund managers in the U. S. They selected our software as the infrastructure of choice for global BDI deployment and completed an initial order for the 1st phase of its deployment in the U. S.
We also have had a noteworthy win with an EMEA based banking customer. Repeat customer decided to expand the use of our platform to include our file services, AFS, now called Nutanix Files, and also our hypervisor AHV. 1 of our earliest AHV customers, NetComm BB and APAC based telecom company, also purchased this quarter as part of its cloud migration. This customer had moved some workloads to public cloud and is now shifting them back to its Nutanix based on prem cloud. HV was also a significant factor for an American Luxury Jewelry And Specialty Retailer headquartered in New York City.
After exhaustive head to head testing against another hypervisor, this global 2000 customer chose AhV as its hypervisor of choice for its robo deployment. In a multimillion dollar deal this quarter, Aiken Gum, Strauss, Howard and Feld, LLP, a U. S. Headquartered international law firm, will use a software to power its North American cloud, which powers the entirety of its US operations in approximately 90% of its services worldwide. This customer invested in our ultimate license in part because of our software based data at rest encryption and the plan to take advantage of AHV to run internal IT management systems as well as SQL database workloads.
They also intend to roll out 14 remote sites globally in early 2019. We secured 21 deals worth more than $2,000,000 this quarter. And in 1, a French Multinational Financial Services organization continues to extend our platform throughout its global cloud. This global 2000 customer now runs more than 20,000 VMs on Nutanix software and is a lifetime spend of more than 10,000,000. Global 2000 repeat customer, a French multinational hospitality company that owns Managers and franchises, hotels, resorts and vacation properties, purchased our comm offer for an automation project to deploy over the next several months.
This customer has a lifetime spend of more than 3,000,000 and uses our software for a variety of workloads including SQL database in Splunk. Our business was built on the foundation of talented and driven employees. Innovative technology and an aggressive go to market strategy. In fiscal 2018, we strengthened each of these, adding new board members and senior leadership in key areas. We've grown to more than 4000 employees in the last 8 plus years, and we have to be watchful of complexity, complexity in products, in the organization and the overall business, keeping them simple and continuing to be employee and customer obsessed have to be our core competitive advantage.
We recently quantified and launched the core principles in which this company has operated. To ensure that we both document and communicate the true north to both our employees and our broader mechanics community. Overall, Q4 was a great bookend to a tremendous fiscal year. Our journey is ambitious and there's still much work to be done. We believe the hard work and dedication of our team and our design focus have put us on a steady path towards our goal of being a true enterprise cloud company that blurs the lines between owning and renting computing.
Now let me turn the call over to Duston.
Duston? Thank you, George. Before we get into, the review of our strong Q4 and, fiscal 2018 results, I thought it would be helpful for me to summarize where we are in our overall software transition and more importantly, where we're headed in FY19. In fiscal 2018, we embarked on a business and consumption model transition, the likes of which few, if any, companies have accomplished. Focusing on the elimination of the pass through hardware revenue associated with the sales of our turnkey and X appliances.
During our Q1 earnings call, just 9 Q1 2018 earnings call just 9 months ago, we committed to a bold plan to eliminate a majority of our pass through hardware revenue. Today, I'm extremely pleased to say that we have eliminated our hardware pass through revenue exactly according to this plan. It's important to note that all of our non portable software transactions associated with the past applying sales were not perpetual licenses but rather licenses valid for the life of the device. Therefore, to year, we will make changes to how our software solutions will be packaged for our non portable software sales directly associated with the Nutanix clients or NX. For instance, we will begin a phased in approach for software license in connection with a new Nutanix NX sale that will transition the business to a term based subscription licensing model.
This will replace today's licensing structure which is based on the life of the hardware, giving customers greater choice and flexibility around their software procurement strategies and provide portability subscription software associated with our current offerings, in other words, deals without any associated hardware. These term based subscription software deals typically 1, 3 or 5 year terms have not only been increasing in number, but also in deal size. And finally, our recent introduction of Beam Frame and Soonsai, as well as other future offerings, allow us to begin selling cloud based subscription software. In association with these changes beginning Q1 fiscal 2019, we will disclose our soft ware and entitlement details in a manner that is consistent with many other software companies. We will go from providing breakouts for pass through hardware software entitlements in support as we have done this year to providing the following 4 category breakouts.
One pass through hardware. This category will affect the cost of any hardware remaining that we transact on our books, and this will reflect no change to how we currently report hardware 2, non portable software. Non portable software will represent sale of our software operating system when delivered on an appliance by us, one of our contract manufacturers, or one of our OEM partners. The software licenses associated with these sales are typically non portable and tied to the life of the appliance it is delivered on. 3, subscription.
The category of subscription sales will be generated from the sales of renewable software such as term based licenses in cloud based software as a service or SaaS offerings, as well as include renewable software entitlement and support subscriptions. And finally, professional services, the professional services sales category will include sales of professional services relating to our products. We believe this new breakout will give greater transparency into as it relates to the details around the true recurring nature of our business. In beginning next quarter, like the approach we took with providing our estimated hardware total business. Now we'll move on to an overview of fiscal 2018 fourth quarter performance.
I'll first touch on a few key fiscal 'eighteen highlights. As you heard in fiscal 'eighteen, software and support revenue increased 47%, while software and support billing grew 54%. Our build to revenue ratio increased to 1.23 in fiscal 2018 versus 1.1 7 in fiscal 2017, driving the deferral of an incremental $55,000,000 of high margin revenue during the quarter. The increase in this revenue is directly correlated to a surge in non portable software and subscriptions sold during the year. Gross margins improved to 68% in fiscal 2018 versus 63% in fiscal 2017.
And we are also pleased that we self funded our rapid at scale growth this year, while generating $30,000,000 in free cash flow. And our Rule of 40 score in fiscal 2018 was 51, a level very few companies achieve. Now a few of the Q4 highlights. Revenue for the fourth quarter was $304,000,000, growing 20% from the year ago and up 5% from the previous quarter ahead of our guidance of 2.95 through hardware revenue and the growth of our business was $268,000,000 in Q4, up 49% from the year ago quarter and up 18% from the prior quarter. Total billings were $395,000,000 in the quarter, representing a 37% increase from the year ago quarter and a 12% increase from Q3.
Once again, inconsistent with last quarter, this billings performance far exceeded our implied guidance in the current street estimates, of $372,000,000. Software and support billings were $359,000,000, growing 66% from the year ago quarter and up 23% from the prior quarter. At the start of fiscal 2018, we committed to have our pass through hardware revenue represent only 9% of our total billings by On a billings basis, our product mix for Q4 was 91% software and support and 9% pass through hardware. Although our forecasts are always comprised of a mix of small deals and large deals and various associated probabilities, The reference greater than $20,000,000 deal did result in the U. S.
Public sector of our business exceeding its plan to some degree, which partially contributed to the Q4 billings outperformance. The builder revenue ratio in Q4 was 1.3 exceeding our previous estimate of 1.25 and driving the deferral of an additional 12,000,000 more in revenue that would have been reflected in both revenue and gross profit. It's important to note that at a build to revenue ratio of 1.25 a 1.3. Nutanix is on a net basis, deferring a greater percentage of billings than most SaaS companies, including Salesforce, Workday, ServiceNow, VMware, Splunk and Tableau. Our Q4 deferred revenue increased by 91,000,000 from Q3, up 71% from a year ago and up 17% from the previous quarter, ending the quarter at 631,000,000 New customer bookings represented 30% of total bookings in the quarter, up from 26% in Q3.
In Q4, our software and support related bookings from our international regions were 40% of total software and support bookings. Versus 38% in Q4 2017. Our non GAAP gross margin grew strongly in Q4 to 77 point 7%, up from 62.6% in the year ago quarter, 68.4% in the prior quarter, and better than our guidance of 73 to 74%. Operating expenses were $256,000,000 and within our guidance range of $250,000,000 to $260,000,000. On a non GAAP basis, net loss was $19,000,000 for the quarter, a loss of $0.11 per basic share.
Now a few balance sheet highlights here and some other metrics. We closed the quarter with cash and short term investments of $934,000,000 and that was up from $923,000,000 in Q3. CSO is on a straight average with 78 days compared to 60 days last quarter. Month 3 represented less than 50% of our total bookings, However, billings were a bit more backend loaded. The weighted average DSO was 23 days in Q4.
Generated $23,000,000 of cash from operations in the quarter, which was positively impacted by $14,000,000 of ESPP inflow and we generated positive $6,000,000 in free cash flow during the quarter. This performance was also positively impacted by the same $14,000,000 of ESPP. Now I'll turn to the guidance for the first quarter. On a non GAAP basis, we expect the following for Q1. Billings between $370,000,000 $390,000,000 versus current consensus of $374,000,000.
A bill to revenue ratio of approximately 1.26, revenue between $295,000,000 $310,000,000 Gross margin between 78 percent 79 percent, operating expenses between $280,000,000 $290,000,000 and a per share loss of between $26.28 using weighted average shares outstanding of $176,000,000. Now, let me just share a little bit more color regarding the Q1 guidance. Our billings guidance assumes pass through hardware to be 5 to 6 percent of total billings versus our previous estimate of 7%. This 1 to 2 percentage point reduction negatively impacts total billings and revenue by $48,000,000 to $8,000,000 that otherwise would have been reflected as additional pass through hardware billings and revenue. The offset to the slightly reduced billings and revenue expectation is that we now expect a higher higher gross margins which will continue to run significantly ahead of to accommodate some potential fluctuation in the ultimate pass through hardware percentage.
And it's also very important to note that the difference in the estimated builder revenue ratio of one point 26 versus the current street consensus of 1.21 results in upwards of 12,000,000 more deferred revenue than otherwise. Which would have been reflected in both revenue and gross profit. 50% 55% from Q1 'eighteen. And one final comment on our Q1 guidance Q4 was another strong quarter, which provided us with further conviction that our Q2s, the January quarter, in our Q4 as the July quarter continue to get stronger, while our Q1s, the October quarter and our Q3s, the April quarter, are exhibiting a bit softer seasonal trend. We expect this pattern to continue into fiscal 2019 and this is reflected in our Q1 guidance.
And before we open up the call for questions, I'd like to touch on a few additional thoughts around fiscal 2019. First, there will be another exciting year of transition for Nutanix as we continue our business model and consumption model transition. With a focus on expanding our current market leading position, while at the same time remaining within our rule of 40 commitment, We expect to significantly increase spending in fiscal 2019. This spending will continue to be directed towards our core products, as well as a substantial increased allocation to our growing new product portfolio, including, but not limited to Xi, Beam, epoch, Era, Flow, Sherlock, and our newest offering frame, many of which are cloud based subscription offerings. We believe these investments will provide strong leverage based on their ability to drive significantly increased shareholder value over time.
As a point of reference, one very recent analyst report estimated that our Beam acquisition could be worth incremental $1,200,000,000 of enterprise value in 4 years. As Dheeridge mentioned in his narrative, we are clearly not taking a meopic approach with our investments. And although these new investments are not yet generating any significant revenue, they will certainly play a major role in driving superior growth through fiscal 2021 and beyond. At our next Investor Day, we will provide some clarity into our projections for our new product portfolio. When we sit back and analyze our spending pints, we take note of the following.
Our strong growth in spending will be completely self funded by our free cash flow. Our ramped rep sales productivity has increased sequentially for the last 3 6 month periods ending Q4 'seventeen, Q2 'eighteen and Q44 2018. And our customer repeat purchase multiples continue to increase. Based on what we believe to be a very compelling ROI, on our investments, fiscal 2019 will clearly be a year that we trade off free cash flow and profitability in favor of extending our market leading position in superior growth at scale. Under the rule of 40 framework, our guiding principle has been and will continue to be to deliver self funding superior growth.
Even with our planned increase in spending, we expect to remain within our committed rule of 40 score of 40% with most and more likely all of this score coming from annual software and support revenue growth. These incremental investments in our core offerings as well as our growing new product portfolio strengthens And with that, operator, if you could open up the call for questions, that'd be great.
Your first question comes from Andrew Nowinski from Piper Jaffray.
Great, thank you. Maybe just a question on the new subscription based licenses you're talking about. Can you just give us an idea on what the breakeven point might be as to when a customer purchasing a perpetual license, or the revenue from the subscription based license would surpass what was spent from a customer purchasing a perpetual license? And then whether you think they'll spend more over a 3 year period with the new subscription licenses you're offering?
Yes. Thanks for the question. So obviously, our current licenses are not perpetual. They were the life of device. That's the most important thing that when they would have gone for new hardware, and remember, this is server side hardware.
It is not any kind of proprietary hardware, it's commodity off the shelf servers. So people are probably refreshing them every 4 years. And with the new model, we're going for 1, 3 5 year term licenses. And we expect that most often people buy 3 year licenses, which is what our average support term has also been. And I think the big goal here is that when we look at the mid market, transactions, the conversations that are mid market sellers are having in the mid market.
We expect to really go and have another leverage point in terms of discounting behavior and whether they can actually go and sell them 1 year licenses. In many cases, this is the cloud like consumption model of saying, why don't you just try with 1 year term? And in that, we don't have to discount as much. And over time that 1 year could look like 6 months 1 quarter. So we really have a continuum in which we can go and negotiate with the market.
At scale, especially in the mid market transactions.
Okay. And then when you started the transition model, or the transition to software only. I mean, I think you talked about how the deal sizes were actually going up. Can you just give us any color in terms of how that's played out since you started the transition and maybe just a brief explanation as to why the deal sizes are going higher. Is that just, is that just from customers doing bigger ELAs?
I think there's multiple factors. One of them is obviously our Salesforce has been segmented. So it's looking after larger enterprise customers. And definitely not ELAs. We're not doing any ELAs at all.
All our deals in software, I mean, except for 1 or 2 of them have all been term licenses, including for support as well. So, yeah, as a company, we really stayed away from scorching the earth and going after large deals and pulling from the future.
Great. Thanks. Your next question comes from Matt Hedberg from RBC Capital Markets.
Hey, thanks for taking my questions guys. Strong results this quarter. Your end markets are clearly growing rapidly. You guys are benefiting from a shift in spend away from legacy solutions. I guess, Deeridge, from a competitive perspective, fundamentally, how do you differentiate yourself from VMware, which I think be the biggest competitor there.
And just how is your fundamental approach different?
Yes, thanks for the question, Matt. I think, so we definitely sell similar products. We are relatively close in the rule of 40. There 47. We are at 51 last, fiscal, but they're also managing a growth of 12% and we have to manage much higher growth.
So in some sense, the similarities end there, and now you start to see how the company is so different. And they have an installed base of, I don't know, maybe $40,000,000,000 plus. We have an installed base of all $4,000,000,000, they were really created in the Microsoft era of right click, while we were really born in the era of Apple And Machine Learning, which is 1 or 0 clicks. So there's a huge emphasis on design as well. A lot of VMware's technologies inside the kernel, which is the hyper well, we do a lot of work in the user space.
And therefore, we end up leveraging a lot more open source, which VMberry is trying to do via the Amazon partnership, actually. They have a lot of perpetual licenses. We are aggressively going to move towards subscription, in the imminent future. And they're very they're very competitor obsessed we're very customer obsessed. And I think for us, the focus has always been about the customer.
We had to focus so much on design. We didn't get it easy. They sold themselves to EMC to build an operating systems company. We had to do it one customer at a time, you know, inching our gross margins from low 40s to high 70s one NPS point at a time. And it's been hard and it's been worth every penny.
They tried V Cloud Air, put that in last long. And if you think of us, we were born with hardware and ops and experience of full stack customer support, for the last several years. We never gave our support away to OEMs, especially L3 support. So when you're operating a cloud, you need to know ops really well. Customers don't really care about the cloud.
They care about cloud. As long as it runs their apps seamlessly. Even when it comes to PaaS, platform as a service, our approach is a lot more are different than VMware's. They, will have to deal with pivotal and Amazon at the same time, and there's going to be swim lanes in flowcharts. If there is an account with Amazon, but not pivotal, not Dell EMC, then do this.
Otherwise, if it's pivotal and Dell, but not Amazon, then you see. So you see the point, there's this complexity of EMC back in the day. Too many swim lanes, too much strategy in the field, too much friction to reduce. It becomes less about the customer and more about protecting the routes to market. It's really important to have a clarity of purpose in product design.
And also, I think the way we are doing it in terms of building our own journey for digital delivery. If you think about Target and Toys R Us, they start figuring out how to build the muscle around digital delivery. But digital delivery is the new oxygen for any tech company. That's what Hollywood left for Netflix to solve. And we all know the rest, same with Toys R Us.
Digital is the new oil. Digital is the only way to connect to the end user in real time. And computing is about e commerce now. Content alone won't cut it as Hollywood realizes. So I think digital delivery will matter, which is what and many things around the eye that we're building.
And also, we can't lean too much to one side in this multi cloud world as I mentioned, customers are looking for a cloud, not the cloud. There's a reason why VMware didn't want to be part of Dell. They had to be the Switzerland of servers. But what about looking at cloud as a new server? Doesn't someone need to play the Switzerland of clouds and make money like VMware did a decade ago?
That's our strategy and that's how we're differentiated against VMware.
Super helpful. And maybe just a quick one for Dustin. Appreciate your commentary on expense growth this year. I think for your guide, I think you're looking for about $30,000,000 of sequential OpEx growth from Q4 to Q1. Can you kind of help us how we should think about OpEx growth through the year?
I mean, 10,000,000 dollars, $15,000,000 sequentially. Just any sort of help there I think would be helpful from a modeling perspective?
Yes, I think the, it's probably obviously more than that now with the new product focus here that and obviously a lot going to the core as derichement into earlier products, but clearly we'll up our spend on new products, which we should. And I think the easiest thing from a model perspective kind of go back to my comments of, the rule of 40 and staying within that 40% commitment, but highly likely all of that comes from on the revenue side. So I think when you look at your model and adjust some of that, it will give you a feel for probably what you should do on the expense side.
Got it. Thanks guys.
The next question comes from Rod Hall from Goldman Sachs.
Hi guys. Thanks for the question. I guess I wanted to start off. I get the 1, 3, 5 year term license I wonder, are there any other, variations within those licenses? I know in the past, you guys have talked about maybe varying the price by a number of cores or size of the machine that the license is running on.
So just wanted to see if there are other nuances within that model. And then I've got a follow-up as well.
Yes, definitely. Thanks, Rod, for the call, for the question. So we are looking at 2 different axis. One is term, the other one is capacity, which is kind of T shirt sizes people want to buy is could be higher in CPU and higher in Flash or higher in CPU and lower in Flash. And these are the 2 sort of, vectors we're looking at.
1 is term. The other one is capacity, which includes both compute and flash storage.
Okay. Thanks, Jairaj. That's really helpful. And then I also wanted to get a feel. I know you said you're going to phase it in and you're going to start reporting this in the first quarter.
Can you give us any idea how fast it's going to phase in? Are you going to just are you out of the shoots now starting to sell it across the board or how does this progress through the business, I guess?
Yes, I mean, we've been doing enough of third party hardware selling for the last 18 months now. So many of those are already there in our business. It's not like a new muscle that we have to build. The new one is going to be around really going and homogenizing and harmonizing the way we've been doing it for the super micro hardware and the rest of the hardware others have been buying directly. But I think all in all, I think you'll see a projection come out a quarter from now.
We'll talk about what subscription looks like.
So it's still it's not fully available, Dheeraj, just to be clear, it will become available sometime this year depending on what type of license you might want to buy. Is that right?
No, I think the third party stuff, as I said, you know, already we've done almost 15% of that just this last quarter. So there's enough that we've been doing for the last 18 months on other party hardware. And that was all always subscription. It was never a perpetual license. And now we'll add all our customers who are saying, you know what, I would rather buy a white box, which is super micro and then the software on top of it.
That software will now be portable. So that's the big change we're making in terms of entitlement saying, you can take this software and put on any other hardware over time.
Okay. All right. Thank you very much.
And then, Rod, that's what we mentioned that we'd give you some further insight into Q1, how we think that progresses. Through the fiscal year.
Great. Okay. Thanks, Dustin.
Your next question comes from Mark Murphy from JPMorgan.
Thank you, Giridge. I'm interested in how you view the hybrid cloud strategies of the major public cloud providers. For instance, Amazon with VMware and they're extending on premise with RDS on VMware now, Microsoft with Azure Stack Google is now offering GKE on premise. So there it just seems like there's so many vectors of change there in literally in the last month. And I'm just curious what do you think is the net effect?
Is it helping to validate the overall Nutanix vision or does it kind of up the ante on your Google partnership or, is there any possibility it would cause customers to pause and sort of evaluate the path forward at some point?
Yes, thanks for the question, Mark, and thank you for the upgrade today as well. So, you know, we, if you go back 7 years, when we really started the company, There was a lot of froth about converged infrastructure, you know, large companies coming together and saying, you know, whether it's Cisco and EMC and VMware and NetApp, There's all sorts of consortiums that were coming together and saying this is the next cloud in some sense in a box. And it did have revenue. It had a buzz for a while. And then the question is, what eventually survived?
I mean, nobody talks about VBLOC and Flexpot anymore. The real question is who's going to build the best operating system for the multi cloud. And it's very, very early in that marathon. I think we are trying to stay like the way VMware stated out of the server or saying, look, we just need to be the Switzerland of servers. Design will win and as will customer love, I think, For example, think of Xi Leap, which is our DR as a service service.
We spent 2 plus years building something that really will hyper converge on prem with off prem. Think of CALM, how it's painfully building migration between clouds and melding Kubernetes with VMs. Same thing with RDS equivalent error, as we call it, we'll use so much for computing storage functionality. And the battle will be back to data services and performance. So it's really early in the hybrid wars.
The one thing that we've at least come to appreciate from these announcements is the public cloud folks are now at least being pragmatic in saying that look not everything can be rented. There's enough laws of the land and laws of physics and laws of economics around owning and renting that will dictate this idea of a hybrid cloud. And we have been saying this for the last 2, 3 years now and I think innovation eventually will win. And that's what happened to converged infrastructure today. Nobody talks about the word converged infrastructure.
Thank you for that, Dheeraj. And Dustin, if I may, I had a follow-up the billings result in the billings guidance are obviously quite robust. And I was just wondering if you could you just clarify, whether all of that large USDAD deal win is reflected in the result this quarter. And then when you look at the pipeline competition, does it seem fairly diversified and predictable or would you say that there are more of these large discrete deals along the lines of the DOD win that might be a little harder to predict the timing?
Yes. So on the, the big deal that we referenced greater than $20,000,000, it was all billed in, in Q4. Although, that's one of the reasons our builder revenue ratio went up a little bit, is that just the nature of the recognized in revenue in the quarter. The rest will be over the support period. So that's the first piece there.
And on the On the second piece, I think just the business in general, as Dheeraj talked about extensively earlier, is that we're seeing bigger deals and we will continue to get and larger deals. Now, Q1 has the additional variable of federal, of course, with the year end. We've always had a pretty good Q1 for federal, we're assuming it's going to be okay this quarter also, a decent performance there. And anytime you're talking federal, you have some lumpiness in there. So, we'll have some some bigger deals that will appear in the quarter.
We've assumed some will, some won't. So we've taken, I hope, a pretty good balanced approach from a federal perspective. Understood. Thank you.
Your next question comes from Jason Ader from William Blair.
Yes, thanks guys. Dustin, could you comment on backlog and visibility at quarter end? I know that was sort of you just talked a little bit about that on the fed side, but, how are you feeling about, just the Q1 seasonality and having that confidence, in that billings guide that you gave?
Yes. I
mean, we wouldn't have guided if we didn't feel reasonably confident in the numbers. So that's the first point, there. I'm sorry, the first. Backlog. Oh, backlog.
On backlog, it always bounces around it bounced around a little this quarter, but not substantially up or down from prior quarter. The composition has changed. We used to have more hardware, 0 margin hardware embedded in that. Now it's pretty much vast majority of our backlog is software and support as you might expect. So, it's a better profile of backlog also.
Okay, great. And then, for Dheeraj, it's hard to keep up with all the new products, honestly. You have a laundry list right now. But what which products? I mean, can you kind of hone us in on a couple of products that you feel very strongly about, let's say over the next 12 to 18 months that will start to become more meaningful.
Thanks Jason for the question. Yes, I mean, if you go back to like the introduction of the Iphone, there had to be some native apps, you know, that Apple itself had to build because if you don't build those, you don't get the experience of what does it mean to build a platform. So it is upon us to really go and test every little facet of the underlying operating system, the platform, the cloud services, the APIs. There's many things that all these 6 to 8 apps are really doing. And without building your own, there's no viable platform per se.
And that's what we're really doing with the 6 to 8 of these. A couple of these are really good in terms of the promise of, what they really drag in terms of computing storage. They will go and, like, for example, frame and error, error being the database virtualization product, which is an equivalent of RDS and frame, which is our digital desktop product, both of these will really go and drag a lot of our core services, that we've been selling for the last 7, 8 years. And, I feel like these 2 could be very, very large in some sense. Obviously, Calm makes a lot of things sticky.
We have even told the CALM developers to go and cannibalize Nutanix if that's where means actually, because if they build with such a mission, then they'll actually go and make money with our customers. It's not supposed to pay the strategy tax of Nutanix. It's supposed to pay, the debt of multi cloud, actually. So they're doing a lot of work in orchestration and automation a multi cloud world that lets us look like a Switzerland in this multi cloud world going forward itself. I think net net, I would say that, these two products frame and error will go drive a lot of our core services.
And then these others including Beam and Calm and Sherlock and EPOC, many of these will really take us to developers. That's the big goal of the company right now is let's really go to the developers builders as opposed to just IT operators. That's the quest for this company in the coming 3 years is we go and relate to them? Can we bring a lot of open source stuff to them? Because at the end of the day, that's what Amazon passes all about.
Amazon didn't build anything new. They just took a lot of open source Apache and CNCF stuff and made them into commercial services. So there is a huge effort in really saying, let's bring all of that with the kind of experience of hybrid that people have not yet seen.
Does that pitch you against Citrix, a historical partner a little bit on the frame side?
You know, it's, it's, I would say yes and no because they definitely have a very loyal customer base, especially in the Global 2000. And, Frame is going with a very different mindset of that's delivered through a browser. And there's a lot of very large enterprises, which will take a long time to really even think of digitally delivering a window experience browser itself. I think in the mid market, we'll definitely go and really work with Citrix to figure out what does it mean to simplify our experience and their experience of Citrix Cloud. There's a lot of work ahead between them and us, meeting their CEO soon a couple of times next month.
And the whole goal is to not think of it as a 0 sum game. I mean, one thing, Jason, that we really thought hard about is If you have a growth mindset, it's never a 0 sum game actually. And there's a way to really grow this market. I mean, 65,000,000 pieces a quarter 1,000,000,000 pieces around the world. I mean, it's crying out loud for digitization and nobody has done a good job of it.
So I think there's a massive opportunity both for Citrix and for Nutanix everyone grow this market.
Thank you.
Your next question comes from Aaron Rakers from Wells Fargo.
Yeah, thanks for taking the question. I do have a follow-up as well. Just building on the last kind of thoughts there, when I think about your $3,000,000,000 of billings target looking out to fiscal 2021, or I even think about your outline of investment or capital allocation around 70, 2010. And you think about that 10% of new products and services that should be accretive to the platform. What is the goalpost for you guys in terms of the contribution from them?
If I think about that $3,000,000,000, how much of that business do you think could be driven by that new set of product or services?
Maybe I'll take a stab in Dustin. You should say the same actually. You know, there's a part of me as an entrepreneur that says, to pay for the worst, be paranoid, these new products will help you get to $3,000,000,000 at least. And the side of me that's optimistic that says then, if things are going well, then these new products will go and be accretive on top of the 3,000,000,000 So I think it's very early right now. I would rather play the conservative game and say that we have to assume that in a more noisy landscape the market.
These things actually going to help us get to at least $3,000,000,000 with a good amount of effort.
Yes, I think just to follow on there a little bit. It's a completely fair question. It might just be a little bit early, an early fair question. That, and I think we mentioned in the script there that, our next Investor Day sometime in calendar 2019, we'll start to give you a feel for how we view our billings path for some of these products going forward.
Also, I think one thing that we're doing at least thinking hard about is organizational design. But at the end of the day, all the strategy and writing code and delivering product is one thing. Organizationally planning wise GM structures and having these GMs think like CEOs, there's a lot of work that we've, done in the last 9 months and we'll continue to have to do in the next 9 months to make sure that we really think of these individual products but it's very easy to go and spiff the sales force, as I was mentioning in my script. It just spiffs the sales force and say, why just to go and sell these new products. But what happens is they end up, basically cannibalizing the core product and money just shifts from one pocket to the other.
It's really, really easy to do that. But to really go and create new earth, we'll take some real organizational design. I mean, we are learning a lot of good lessons on what not to do as well.
Great. And then as a follow-up and more maybe architecturally, it seems like the storage market in general has got a healthy kind of demand backdrop to it. We've seen some healthy growth rates in the all flash side pure storage and NetApp, etcetera. I'm just curious of how you see the architectural landscape playing out, where maybe use it today versus where maybe an all flash offering might fit in the equation of a data center deployment model. And whether or not you see that actually that you're starting to compete against one another architecturally more?
Yes, it's a great question, by the way. I know Alan, in fact, when Jason is asking about one other product, I think, I miss talking about Nutanix Files. When Files is fastest growing product in this company, basically, without any kind of specialist sales force, and we barely have started the GM structure it files itself. It's going to be a software defined architecture, which means that in the Zai VPC, people can spin up their own filers without having to do anything with hardware. And that is at the core of our architecture that we have made everything.
Like you think of NetApp cloud volumes, it's hardware sitting next to a data center of Google or Amazon or Azure. What does it mean to fuse it within the data center of these cloud providers, the only way you could do that if it's pure software, to build these scale out architectures where people can spin them up, with a click of a button with no human involvement. And that's what's really going to differentiate some of our offerings actually where people are not dependent on proprietary hardware and NV RAM and all sorts of hardware assists to really get the best performance out. From day 1, we have said commodity servers, rack mount, and SSDs will serve the purpose of everything that required proprietary hardware up until now. Thank you.
Your next question comes from Katy Huberty from Morgan Stanley.
Thank you. You hit your target around hardware run off in the fourth quarter and yet you beat gross margin by 400 basis points. So can you just talk about the contributors to that upside? And then I have a follow-up.
Yes, I think if you look at the, support margins, There's a little bit of increase there around a couple of points probably quarter over quarter The team did a nice job, from a support perspective and the infrastructure and cost there. And then even some of our internal operations costs were a little bit lower, which clearly helped too. And then there are some other things around the fringe there. But pretty much those are the driving factors anyway, Katie.
And you now have 710 Global 2000 customers. Can you continue to add 30 to 40 a quarter? Or is there a point where you have so much scale and penetration that the incremental adds on a quarterly basis will slow down?
In our fiscal 2021, math, we have kept it at 30, 35. We'll obviously be at more global account managers over time. There's a lot more segmentation to be had in this business where many of our commercial account people will really be pulled up become enterprise account managers and many of the account managers, enterprise account managers will become global account managers. So the more focus we bring to global accounts because maybe some for global account managers have 10 accounts and probably they should only have 4 accounts. And so, I think every year, as a function of growth and scale, we'll start to segment it and we'll start to really focus on productivity of these accounts itself.
Thank you.
Our last question comes from Alex Hertz from KeyBanc.
Thanks. Thanks for the question. I won't have a follow-up, so I'll just ask the last question here. So as you implement the new software licensing model, I was just wondering, given what could be a big refresh in the installed base, was wondering what the what the marching orders are going to be to the sales force as far as approaching existing customers that, you know, might be trying to sort of expand their use cases and buy more software. Are you going to maybe transition them into, the new licensing model or leave some of those customers sort of in what they have today and just focus on new workloads.
So just sort of wondering how you're going to navigate, the installed base as you move to this new model.
Yes, I think the goal is to have them think hard about portability. And especially as we go and come up with this idea of hybrid consumption, which is still early days. So in the next 12 months, as Zai picks up, you'll see us really go and think hard about what is the hybrid contract going to look like and what would favor them the most in terms of the drag and drop experience between on prem and off prem. So I think it's probably a little early to say, what kind of a model will follow. I mean, obviously, the big push is to go and tell them that look portability is a good thing.
You know, you want portable licenses. But I think in the next 12 months, as I picks up, will probably have a lot more clarity as well.
All right. Thanks, guys.
And that was our last question at this time. I'd like to thank everyone for joining us today. This marks the end of the call. You may now disconnect.