Ladies and gentlemen, thank you for standing by and Welcome to the End- User Computing Tech Talk Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to turn the call over to Tonya Chin. Please go ahead.
Thank you, Denise. This call is also being broadcast live over the web and can be accessed in the investor relations section of the Nutanix website. I'm joined by Nikola Bozinovic, Nutanix's Vice President and General Manager of Desktop Services. Thanks for joining us, Nikola. We'd like to remind you that during today's call, management will be making forward-looking statements within the meaning of the safe harbor provision of federal securities laws regarding the company's business plans and objectives, expectations regarding products, services, product features, and technology that are under development, competitive and industry dynamics, potential market opportunities, and other 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 or revise these statements after this call. For a more detailed description of these risks and uncertainties, please refer to our quarterly report on Form 10-Q for the fiscal quarter ended April 30, 2020, filed with the SEC on June 4, 2020. Copies of our SEC filings can be obtained from the SEC or by visiting the investor relations section of the website. Finally, a supplemental slide deck can be found in the event section of our IR website that accompanies this presentation. As a reminder, no financials or projections will be discussed on today's call, and we thank you for your cooperation in advance. With that, I'll turn the call over to Nikola. Nikola, go ahead.
Thanks, Tonya. We're going to start this at page three, and today we're going to be talking about End-User Computing and how Nutanix is really helping transform the work for millions of people and thousands of companies that are dealing with this fast-changing environment. One thing that is very clear is that the coronavirus pandemic has changed the way we work, and there will be a new normal wherever we end up in a year or two after this. Things will definitely not go back to the old days of traditional desktops at the office and rows of desks, and that will be the new reality for most, if not for all employees. With this backdrop, End-User Computing technologies that we often refer to as EUC, are letting organizations be truly agile and flexible, and they can deliver services for both their employees and their external customers.
Instead of using physical devices, ordering, shipping, and configuring laptops and desktops, they can literally configure these things in minutes, and that really means that everything is moving at a much faster pace and that the new desktop, once the system is configured, can be ready in four to six minutes, and sometimes the applications are ready in a matter of one minute. Moving over to page four, I want to take a look at why Nutanix is so good for End-User Computing and for End-User Computing foundation. It's something that we've been doing for the last 10 years. We have thousands of customers and millions of end-users that are waking up every day and looking at Nutanix to deliver a platform on top of which they do their work.
In fact, since the end of the Q3 last fiscal year, a year ago, the percentage of our overall business of TCV bookings that we have on the End-User Computing side has gone up from 18% - 27%. We have seen a great interest in a variety of our End-User Computing solutions. Moving over to page four, Nutanix really, with this DNA in End-User Computing, solves the problems that have been plaguing over the last 10-20 years anyone who has tried to deploy a VDI solution. We're talking about things like long deployment times, taking a big capital investment upfront to invest in both software and hardware, and then solutions that do not scale and ultimately end up with unhappy end-users. In the survey that IDC did, more than 40% of companies say that they need to move faster.
That was done even before the pandemic. It is pretty obvious that the solution from Nutanix that allows for rapid deployment, bite-sized consumption, scaling as the customers grow, and provides a great performance for end-users is what is making companies really, really exciting and having them as happy customers. What is really crucial to our success with VDI so far is that we can seamlessly replace infrastructure that customers are running in their data center, and that means that customers can get nearly instant gratification, which is critical at these uncertain times. We talk a lot about infrastructure and cloud, and that really means different things to different people. Obviously, public clouds like AWS and Azure and Google have been getting a lot of attention, but there are different flavors of the cloud.
The reality is that this type of workload, End-User Computing, virtual desktops, are today more than 90% on-prem and will continue to be delivered from data center and from the cloud for many years to come. Some of the reasons include control or data residency or just performance and the latency that is critical to end-user experience. Moving on to our own solutions for End-User Computing to page six for customers who want the best solution for their private cloud and for the hybrid cloud. Nutanix has been delivering for the last 10 years industry's best platform, hyperconverged platform for virtual desktop environment, or short VDI.
We are going to talk more about how this core foundational workload has been developing and evolving at the time of pandemic, but we are also seeing a shift to a new modality and a new delivery model that is sometimes even more instant, and it simplifies the delivery of desktops, virtual desktops as a service. We see day to day in all our activities that as a service model is something that companies, especially those facing shortage of resources and sometimes shortage of talent, are looking for, where the responsibilities for maintaining and managing the platform are transferred to a vendor. Desktop as a service is definitely a very fast-growing trend, and ultimately, we are seeing that there is a push towards adoption of multi-cloud services where customers want different options and they want flexibility.
Moving on to page seven, let me talk about our core offering, Nutanix's platform for End-User Computing, which is traditionally used to run virtual desktops or VDI. Many companies who started with VDI 10 or more years ago are coming from industries that are traditionally invested in this technology, talking about healthcare, financial services, and banking, insurance companies, retail companies. They recognized the need to use VDI many years ago, and at this time, particularly the last couple of quarters, they've been coming back for more, and they've been doubling down on their existing VDI investment. It's really for distributed enterprises like remote office that means something very different these days. It used to be 50 or 100 people in a branch. Right now, each of our homes is an extension of an enterprise IT environment.
On page eight, we really committed and are strongly committed to flexibility and choice as something that customers can take advantage of on many different levels, starting from the hypervisor, but then also moving on to a form factor, where are they going to get their servers from, and ultimately, what the configuration of their system is going to look like. That is solved through our channel, but we are increasingly getting great traction with managed and GSIs Wipro provide even more options to our customers. There is something very unique on page nine that I want to highlight, and it's something that nobody else in the industry has.
It's a solution, a licensing solution, and packaging solution, and product solution that cuts across different parts of our portfolio to provide best features from our core technology, which is AOS, but then also goes to Prism, obviously, then Files and Flow and Meet. The big part of it is that customers can get the best of everything that Nutanix has to offer in a per-user license model. It's very unique for an infrastructure company to provide something on a per-user basis. Usually, that's tied to a number of devices and nodes or a number of cores. In our case, when we look at how End-User Computing solutions are solved, there is a user in the middle of End-User Computing, and everything is on a per-user basis. That's how licenses for VDI software brokers are sold.
We developed a license that can also make the sale and deployment a lot easier because customers do not have to go through a big sizing exercise. Do they need to run this on a small or a large cluster? Ultimately, they can split the licenses between on-prem and hybrid cloud. It really eliminates the variable costs of infrastructure software. Customers can pick whatever hardware they want to use and have a predictable bite-sized software infrastructure to run on. Over to page 10, all of our technology advantages start with the core. The key advantage of hyperconverged infrastructure, which is linear scaling with adding more nodes to the cluster, really shines when it comes to End-User Computing because that is how companies usually deploy End-User Computing technologies in VDI. You start with 500 users on a handful of nodes, and then you need another 500 users.
You will just go and add a few more nodes. The data locality that is the core of Nutanix's technology so that traffic does not travel over the network, but everything really happens inside the nodes, inside the machine on the PCI Express bus, is giving us best performance and also best resilience. On page 11, if you look at the End-User Computing you see at the top, it takes advantage of all services. We are grouping our portfolio products into these three big categories. Of course, it starts with our digital hyperconverged infrastructure, but then around data center, DevOps, and desktop services, we have different products that when packaged and licensed can really simplify both the sales process and the deployment process for our customers in End-User Computing.
On the next couple of slides, starting with slide number 12, I want to highlight a couple of products. The first one is our Files product, which eliminates the need to have a standalone NAS, and it is built in with the rest of the Nutanix platform. If you use desktops, even physical desktops, it's really your data that sits on your desktop or in your C documents folder. With Files, we really have a great scalable robust solution to store user profiles, home directories, and even departmental shares. It's something that otherwise would have to be a standalone with Nutanix solutions for End-User Computing. This comes in built in both on a product level and at a license level.
Moving on to page 13, for security and for securing the VDI environment, the traditional approach was to really overcomplicate network architecture, put each group of users into its own virtual network, and then build sometimes hundreds of policies on top of it, which really slowed everything down. Flow is a solution that allows for a built-in micro-segmentation where both inbound approvals and outbound approvals can be easily configured based on belonging to, for example, a group policy to a group in the Active Directory. Finally, on page 15, I want to talk about one of my favorite topics, which is our clusters and Nutanix clusters, and how can we help a solution like Citrix that customers are using in large numbers on Nutanix on-prem platform, how can we extend that to the public cloud?
We have lots of early access customers today, and it's a product that we are really, really excited about and what we can do for a hybrid cloud future of work where the same fabric can run both on-prem and in the cloud where there is a minimal effort and investment needed to migrate the workloads, and it really provides the best of options for either sustainable workloads that are running on-prem or elastic workloads and elastic desktops that are running in the cloud. How does that really work in practice? On page 16, this is a real customer example. It's a customer that's been with us for a while. It's JetBlue Airways that is using our private cloud solution that's built on our own AOS and our hypervisor AHV on top of it.
They run Citrix Virtual Apps and Desktops, and the solution is delivered through Nutanix consulting services. They reduce the time for adding capacity from sometimes many months to literally hours from the moment that the hardware hits their dock. They gained in also a business continuity and built-in redundancy for their critical workloads that include call centers at this time of heightened uncertainty for all industries, including airlines. Moving on to page 17, the question that we asked ourselves after seeing how customers want to have more flexibility and how they want to move faster is, how can we move beyond even traditional virtual desktops? What is it that we can do to offer a crisp all-in-one solution from Nutanix? We came up with a Desktop as a Service solution called Frame.
It is a virtual desktop as a service offered by Nutanix, and it's used to securely connect users, apps, and data anywhere and on any device. Customers like it because it's easy to configure, easy to deploy, and it just works. It is what is in Nutanix's DNA to simplify complex IT problems and to get to the value very, very quickly. We are seeing, in fact, a very interesting bifurcation of customer base and interest between the core VDI that runs on Nutanix platform most often on-prem and desktop as a service. We're seeing technology companies that are also changing the way they work. Maybe they have not adopted VDI 10, 15 years ago, the same way as banks or hospitals did, but are now committing to the future of work where bulk of their workforce will be remote sometimes indefinitely.
There are Silicon Valley companies that are leading the way and committing to that. We are seeing how the total opportunity is growing to deliver this next generation of virtual desktop solutions to technology companies, also to schools that sometimes just did not have resources or sophisticated skills required to deploy VDI, but right now with desktop as a service and shift to online and remote learning, there is a huge interest in education. Also, governments at all levels, from federal to state to local, are deploying desktop as a service solution. On page 18, it is just a simple illustration that in this new world that is all about the internet, web, and browsers, it is truly possible to even deploy something that used to be very complex as virtual desktop infrastructure from a browser on a laptop.
We're talking about thousands of desktops deployed very, very quickly and then delivered to browsers on virtually all devices. That is the future that SaaS companies showed us over the last 10-15 years. I think that same ease of use is coming to virtual desktops on the infrastructure side. On page 19, there's a really simple illustration on how answering a couple of questions and clicking on a couple of boxes in the user interface, this really works and this really happens.
From picking where the virtual desktops are going to be deployed on-prem with Nutanix or on some of the public clouds or when clusters go GA on Nutanix in a hybrid cloud environment to configuring the access through some of these solutions that are very popular for single sign-on like Okta or Azure AD, and then configuring sets of applications, connecting them to files that could be residing on Nutanix's solution or on Dropbox, Google Drive, OneDrive.
That all can sometimes take hours, not more than that, and it used to be months or weeks, and then deliver secure company-issued virtual desktops to end-users. On top of it, customers, they do not need any special relationship with the cloud provider. Of course, they can bring in their cloud subscription. If they are already an Azure shop or AWS shop or Google shop, yes, of course, they can use their credits.
Even if they just say, "Hey, I need 2,000 desktops later today," they can do that without establishing that relationship with anybody else but Nutanix. Also, by using this product, this multi-cloud product and this single pane of glass, not only is user experience great, but they avoid being locked into a single cloud infrastructure vendor. Moving on to page 20, I really want to highlight two things: this solution is not a software. It is a real service that is hosted and managed by Nutanix. Updates are exactly the same as for any other SaaS service. Salesforce gets updated or Gmail gets updated or Office 365 gets updated. The control plane and the SaaS component is managed by Nutanix.
Customers are in full control over content and configuration of their desktops, and they can choose to run them on-prem in the public cloud or in the hybrid cloud. There is real usage data that we collected on page 21 in our fiscal Q3 that ran from February 1, 2020 through the end of April earlier this year. It just shows that this multi-cloudness is not just a story. It is real and that we see usage for Frame that is equally split across a number of different options. Of course, we have customers running it on Nutanix, HPE, but also across Azure, AWS, Google. We have a growing number of customers that are deploying more than one solution. For workloads, they can run their own data centers on-prem. They do not have TCO, total cost of ownership, and economics.
For elastic workloads or for spikes in capacity, they can go to any of the clouds, one or more that we support. Customers really like this choice. Moving on to page 22, they like that this is a modern solution that is built for multi-cloud. It instantly scales. It is secure by design. At the end of the day, it provides them with a great, robust, yet very agile solution to deliver virtual desktops across a number of industries. On page 23, I really want to highlight three segments where we've been having a lot of success with Frame. U.S. federal is one, and the success there is really spreading to both. There is not only a great performance of the product, but we have achieved the highest level of certification.
It's called FedRAMP certification issued by the U.S. government that gives different federal and state and local agencies assurance that we are adhering to the best security practices, and it's something that we're very proud of. We're very proud of that at these times we're helping our government employees provide services to all of us in times of need. Education is another big vertical for us. We all know that the end of this past school year has seen a lot of change, and unfortunately, we are still not sure what the next school year is going to look like. The future of learning will not be the same, the same way the future of work will not be the same. There will be some or more of distance learning involved with every K through 12 and higher ed institution.
We are working very, very closely with a number of schools, also a number of school districts, and sometimes even states to deliver relief for millions of kids and hundreds of thousands of educators, giving them choice to deploy everywhere and really focusing on what is a very popular device and endpoint in schools over the last maybe five years. Google's Chromebooks really got to dominate the endpoint market in schools, especially in the U.S.. Frame, with its first browser-first approach, is really doing great in that market. Finally, I will be talking about technology companies that maybe have not been the first vertical that comes to mind when it comes to VDI, but now with distributed workforce, they are also looking at a modern desktop solution and virtual desktop solution. On page 24, I want to highlight a customer.
It's a Maryland Lottery that, in the height of the pandemic, really came to us to look for a solution for teleworking for hundreds of employees at a time when their offices were closed. We were able to deliver a solution for them using our Nutanix Enterprise Cloud solution with AHV hypervisor, with our Prism and Prism Pro management solutions, and then running Frame on top of it. They were able to deploy that literally in a matter of days and assured business continuity for what is a very important source of revenue for the state of Maryland. With that, I wanted to thank you for your time and open it up for questions.
Ladies and gentlemen, to ask a question, please press star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Again, if you have a question, please press star one on your telephone keypad. Your first question comes from Nick Heisler with SSFG. Your line is open.
Hi, thank you so much. This is a great presentation. I just want to ask a quick follow-up in terms of thinking about these offerings from the perspective of a customer in light of the pandemic and everything that's been going on. How do decision-making processes change between the initial focus on business continuity versus the long-term shift to the workforce, if that makes sense?
Yep. It's a great question. We've seen clearly a big change from, let's say, March and April, the panic buying season where there were two groups of customers that we saw. There were customers who were rapidly expanding their capacity because before pandemics, they had a certain group remotely. Others were working at the office. All of a sudden, this large spike in capacity demand really was something that we were able to help with.
At the same time, there were customers who didn't have VDI deployed, and they came to us looking for a solution that they can stand up really quickly and instantly. Those were two sides of the barbell that we were able to deliver for folks in March and April. As companies are getting, I'd say, more accustomed to the new situation, we're seeing much longer horizons in our customer engagements. This is all centered around something that I already mentioned, which is the future of work. Things that everybody thought are going to take five years, seven years, ten years are happening in a matter of weeks or months.
They realized that even with the surge in pandemics slowing down and going back to some new normal, not only do they want to provide their users with this sort of technology, but that business continuity is probably more critical than ever. Fortunately, we will have solutions for COVID-19 and coronavirus. I think it opened many, many thoughts on owning and being ready versus renting and not being ready. I think that is a long-term change in behavior where we are really well-positioned to talk to customers about multiple products, both traditional VDI software that I covered in the first part of the presentation and desktop as a service offering, and then mixing and matching the two.
Perfect. Thank you. If I could just ask a quick follow-up, thinking about kind of the long-term halo effect when you're having these long-term conversations, would you also expect that in the long term, shifting to a VDI or Desktop as a Service model would actually increase the need for hyperconverged infrastructure on-premises or in the cloud? Because all your resources need to be more centralized versus, let's say, in a traditional model, I'm saving my files on my computer. The centralized resources aren't deconstrained in the same way.
Absolutely. VDI has been a hero workload for Nutanix from the early, early days. In the first couple of years of Nutanix, I think majority workload, that means more than 50% of what Nutanix was used for in 2012 and 2013 and 2014, was VDI.
There was a halo of all other products, to be frank, that came out of that core VDI use case that extended to databases and business-critical applications and storage, of course. We are seeing resurgence of desktops. We're seeing resurgence of virtual desktops. Now customers are looking at both gravity of solutions, gravity as in what you just mentioned. If I have a virtual desktop, I want that virtual desktop to be close to my files and to my data and to my other applications so that front-end, back-end communication does not happen over the internet where sometimes latency or reliability might be an issue. We all were living in this world where we were getting comfortable, I'd say, with a little bit more risk. I do not need to own this. I'll always be able to go and rent it.
I think what the coronavirus pandemic showed us is that that 0.01, one in a hundred-year event is real, and that if we're not ready, we're going to pay the price. Ultimately, there is a big resurgence in terms of desktops. There is a big resurgence in terms of how people even think about maybe owning or putting together a number of solutions. I think that all plays to our favor and to our strength, which is both in terms of flexibility of where this can be delivered from and the breadth of the solution and breadth of the portfolio.
Great. Thank you so much. Thanks for this presentation.
Your next question comes from Rod Hall with Goldman Sachs. Your line is open.
Hi. This is RK on behalf of Rod. Thanks for taking my question and doing this presentation. You talked about a unique per-user pricing model. Could you expand on how you're able to do that?
Yes. This is something that we really introduced in order to remove sometimes a very time-consuming process of sizing from the transaction process. What I mean by that is Nutanix started by selling its software on top of a hardware appliance, and those two were very tightly coupled. It was really the number of boxes equaled the number of Nutanix licenses. When we look at and then when we decoupled hardware and software, we decoupled them financially. The way Nutanix software is sold, it's still tied to the number of, let's say, CPU cores. There is a crisp correlation between how many CPU cores are shipped and how many hardware nodes and Nutanix's software infrastructure.
When customers are buying Nutanix for End-User Computing, for VDI, or for desktop as a service, they care less about the number of CPUs. Imagine you're a IT administrator buying computers for your users. You will less likely count how many CPU cores are in. You'll say, "I need 1,000 users and I need 1,000 laptops." We are trying to align and say that if the use case is VDI, this does not extend to databases and other things that do not have that per-user nature. When there is a clear end-user at the deployment time, we want to get ourselves aligned with the way Citrix is licensed, Horizons is licensed, and ultimately Frame is licensed. Frame always was licensed on a per-user basis. We are saying that simply Nutanix's software infrastructure will also be licensed per user. There are a couple of options.
We call them good, better, best for how customers can get different parts of our product. Ultimately, they can decide to run Nutanix's software on the hardware that could be larger or smaller, or they maybe can decide to deploy some of the licenses on-prem, other licenses in the cloud. It really eliminates the tie-in to the number of CPU cores or nodes size. It makes the transaction smoother, and it makes us a lot more aligned with how our buyers really think about the problem that they have at hand.
That's very helpful. If I may ask a follow-up, could you contrast deploying VDI versus giving employees laptops and where we are in that and how you see that evolving?
Y eah. Absolutely. VDI traditionally has been very popular in industries that are heavily regulated.
The core benefits of VDI were centralized management, being able to very quickly provision, deprovision desktops. Ultimately, with a physical device, of course, our encryption technologies are getting better, but there is always a risk of loss of laptop, loss of data. With moving everything to virtual desktops, that task was much easier for administrators. I think that we've gotten a lot better with managing physical devices, for sure. In reality, the number of virtual desktops across all of the business desktops really never broke, I'd say, like 10% level. That means maybe out of 1 billion plus physical desktops or laptops, maybe 100 million were virtual laptops and desktops. That is the model that we've seen in a pretty stable state for the last couple of years. What has changed with this pandemic is that, as I said, everything has changed. Uncertainty has skyrocketed.
Just the fact that we don't know where the next batch of employees is going to come from based on everybody works from home. We are thinking differently about, are they at the office? Are they remote? Even we have been able to augment the physical desktops that Nutanix were using with virtual desktops, let's say, for new employees and consultants. We see customers of ours doing that as well.
It is really, instead of procuring a physical device that still needs to be configured, shipped, built, and it has like a three-year life cycle, when you think about flexibility, agility, and unit economics, the fact that you can spin up something in a matter of minutes, get your employees to be productive and access your apps and data securely, and that you are not necessarily committing to three years or five years, but that you can change up and down on pretty much day-to-day, month-to-month basis, is something that is very, very appealing to a lot of customers that we are talking to, namely, as I mentioned, enterprises who have been already using VDI and are uncertain about capacity. Right now, it is a big school preparation season. We do not know what is going to happen in three months, never mind three years.
That sort of ability to replace the computer lab with a virtual computer lab is just a clear winner.
Very helpful, color. Thank you.
This concludes today's conference call. Thank you for your participation. Have a great day. You may now disconnect.