Thank you to everyone for joining us at Needham's 25th Annual Growth Conference. My name is Mike Cikos. I'm the lead analyst covering the infrastructure and analytic software space. I'm very pleased to announce that we have with us for this fireside, the Nutanix management team, between CFO Rukmini and then Investor Relations Rich Valera. Thank you to both of you for joining us.
Thanks for having us.
Just-
My pleasure.
Pleasure. Absolute pleasure, and thank you for attending, really. I did just wanna run through some quick logistics before we launch into the fireside. For the folks who are tuning in, I have a set of questions on my side that I'm hoping to get to with the management team here. If at any point you have a question that you wanna ask, I'll do my best to get to it while we have management here to maximize your time. If anything comes as far as a follow-up, please feel free to email me. I know between Rich and Rukmini, they'll make themselves available to answer any questions you guys might have. Having gotten that out of the way, I think most people are fairly familiar with Nutanix, but I've been doing this just broadly.
Can you help us think about, to level set I guess, the core value proposition for Nutanix? I guess what is Nutanix's role within customers' IT stack? Just for maybe some people who are newer to the name or more generalists.
That's great. Yeah. Thank you, Mike. Nutanix is offers one software platform for hybrid multi-cloud. What we mean by that is the following, right? We sit in the infrastructure software portion of the stack. We are not sort of an application software or anything like that. We are really infrastructure and infrastructure software, which runs on in any kind of hardware that and servers that folks might procure. The problem that we're solving for our customers is simplicity, right? In their, either in their datacenters or in the public cloud. What we call private cloud or public cloud. Truly being able to operate seamlessly across those environments. Whether it's purely an on-premises, private cloud operating model or it's a hybrid multi-cloud operating model.
Increasingly what we're seeing is that folks are operating in hybrid environment. What we are able to do is allow our customers to run their applications without really worrying about their infrastructure or worrying about how they're gonna manage their infrastructure or where it runs and how it performances and all of that. We take care of all of that, so they can focus on really the business outcomes and what applications and workloads they are choosing to run on Nutanix. We now have over 23,000 customers. We have about half of the Global 2000. We are about $1.3 billion in ARR, which is growing 30+%. We had our, you know...
I know you have a question later on this, Mike Cikos, but we had our 1st quarter of operating profit in the October quarter, and we are now a fully subscription software company, right? We're selling our customers term licenses, which allows them flexibility from a business and operating model standpoint in terms of how they consume and how many years of term licenses they wanna procure. Our licenses are also truly portable, right? In terms of, again, what problem we're solving for them, these licenses are portable across any of the environments I talked about, whether it's a private cloud or a public cloud or seamlessly across those environments, which is unique, right? We don't know of any other vendors who are able to offer that level of interoperability and simplicity in running apps across those platforms.
That's great. I know it's jumping around a little bit here, but I think it's relevant just given the comments that you had. That simplicity is really the message, right? As far as the product and then what you guys are offering. It touches on macro a little bit. I know that we'll be delving into it a little bit later, but from a macro standpoint, in a weakening environment or a more difficult environment from a budgetary standpoint, I would argue or let me ask you before I bias the jury, is it fair to assume that that simplicity message is more powerful and relevant today versus where we were even just a year ago because of the benefits that you're talking about, which accrue to the customer over time?
Yeah, we believe so, right? And we believe that our, you know, our sellers that's what they're articulating to our customers and prospects. And when we say simplicity, yes, it's the simplicity of the experience itself in terms of how much complexity we're able to take out of their systems and save them time. But we've also, you know, done studies with IDC and others, right? We have a 43% lower five-year Total Cost of Ownership, right? There's almost a 90+% less unplanned downtime that people have. It's only 12 months to pay back the investment. The ROI is phenomenal, right? All these are data points that I think are always important, right, for customers. But to your point, Mike Cikos, perhaps become more so in an environment like this where people are scrutinizing budgets even more than normal.
That's great. And then another question, this is more about, I guess, the product roadmap or evolution, however you wanna phrase it here. I know that the company has recently spoken about the launch of NC2 on AWS, right? Can you discuss, again, for the audience, just remind them what NC2 is and what it's doing. The derivative or follow-up would be, what has customer feedback been like, as a result of this launching? How are things trending versus internal expectations on that front?
NC2 stands for Nutanix Cloud Clusters. We've actually had AWS for a couple of years now.
I'm sorry.
Mike, it's the Azure one. I know you know this.
Yes.
Azure one, we launched two months ago. It's one that is being eagerly awaited by our sellers and by several customers. What it is it's our, it's a way of consumption, really. It's not a separate product, and I think this is an important nuance to understand. When we say Nutanix Cloud Clusters, or NC2, what it allows our customers to do is to use our platform seamlessly across, you know, any cloud. What I talked about earlier, whether it's in a data center, in an on-premise environment, or whether it's in a public cloud, whether it be AWS or Azure. If you take the point about Azure, which we just made generally available two months ago, customers are able to use their Azure credits, right, in our environment.
If, let's say you have a customer who Been on-prem historically, they are looking to expand their workload into the public cloud for whatever reason it might be. We have examples of this that we've talked about and I can get into. What NC2 allows them to do is it allows them to move those workloads seamlessly without any refactoring of those applications, which I think folks will realize without us, right, it actually takes work to move that workload from an optimized environment to a public cloud environment. We make that easy for customers by making it seamless. They don't have to refactor the application because we take care of all of that for them. It's the same license. That's why I said it's not a separate product. It's more of a mode of working, if you will.
It's the same license. It's completely portable, right, across all of, you know, either of those environments. This is now available on Azure Marketplace, right? It makes it really easy for people to use it. We have seen good feedback from customers. We talked about actually one federal civilian agency in our last earnings call who's adopted this in addition to, you know, other portions of the stack that they've adopted, and seeing in good performance. Their customers are happy with that. We're also seeing customers buy it for option value, frankly, right? Because we meet customers where they are in their cloud journey. Some folks may say, "You know, I first want to modernize my data center before I can go on this public cloud journey." That's fine with us, right?
They often would choose us because we provide not just that first step, but can take them on that whole journey, you know, with us. That's perfectly fine for us because we are happy to kinda be in there and help them with their immediate need, but then they also see us as an enabler for the future part of their journey, right, if they're not quite ready for a full move to public cloud today. Varying levels of adoption, I would say, in terms of just where customers are in their journey. One of the things which it allowed us to do is truly broaden the conversation with things that we have on the truck and available for sale today. We were having those conversations before, but now with this generally available, our...
We're encouraging our sellers to have more and more of those conversations and meet customers where they are in their journey as it relates to, just this hybrid multi-cloud world.
To build on that for a second, cause I have my own views, but I'd love to hear your view here. Like, when you talk about the ability to move those workloads from, let's say, AWS to Azure, right? Can you help us think through what would be some of those perceived benefits to the customer from moving that workload between these different players? The follow-up would be, I think it might be lost on folks sometimes, but the rapidity of how quickly customers might be moving these workloads as well. Can you, I guess dwell on that for a moment, just because I'd be curious to hear what your perspective is.
Yeah. Maybe we should start by clarifying. You know, the hybrid word, right, for us, what we mean when we say that is a hybrid is a mix of sort of a on-prem or a private cloud and a public cloud environment.
Yes.
That's what a hybrid environment is. I think what you're mentioning now, Mike, is on the multi-cloud piece, right?
Yes.
Which is you might have multiple public cloud vendors, right, an AWS, an Azure, for example here, that the customer has in their environment. They may have built that out or contemplating that, because they don't wanna go with just one public cloud vendor. There are, you know, a lot of retail companies who don't want to, don't wanna necessarily have AWS for other reasons or, you know, whatever it might be, right? There are different reasons why people have more than one public cloud environment. As you can imagine, neither of those, none of the public cloud companies are incentivized to actually make that move easy, right?
Mm-hmm.
In fact, they're incentivized the other way. What we are able to do as someone who has a really strong hold in our customer's environments, to say, "You know what? We are agnostic, right? We just wanna make sure this is easy for you, whether you're hybrid or whether you're multi-cloud or you're hybrid and multi-cloud." We make that transition easy. To your point on rapidity, right? Because it's the same license that's portable, across, this can be done very seamlessly, right? We have examples, for example, of a customer who was using us in EMEA. This is a sports betting franchise. They were looking to expand in Asia.
Because of what the local regulations were there, it would have required them to, you know, open up an instance of AWS, for example, in Taiwan or somewhere in Asia. That would have taken time, right? For them to go and do that. Because they were using our platform, they were very seamlessly able to, like, move all of what they were running, expand to this new, completely new geography, in a matter of weeks, really, right, get that up and running, when the alternative would have been months probably, right, six months plus. You need to hire somebody there probably to go and operate that environment. It would have been six months plus versus with us was much, much faster and simpler, right, to go and make that expansion. That's one example.
There's disaster recovery is another use case. There's actually moving of workloads from private to public cloud is another use case. There are several use cases of us simplifying this situation for our customers.
That's great. Thank you. I'm sorry I'm looking at how much time we're chewing up on this, and it's just fascinating for me, but I wanna hit on some of the bigger things that clients have been bringing to our attention. One of those would be obviously macro, right? We kind of touched on that a little bit. I'm sure it's coming up in a number of your conversations these days. Given this economic backdrop, would be curious what impact has Nutanix seen in relation to macro? If we could start there, and then I'll probably build on that in a couple of different angles.
Yes. What we have seen is the following, right? Like, we've talked about demand remaining generally solid for us. I'll knock on wood as I say that. We did talk on our November earnings call for the quarter ended in October that anecdotally we were seeing increased, what I would call inspection of deals. It hasn't resulted in a systematic lengthening of sales cycles, right? It's not that we're seeing that in the data, but we are hearing that more from our sellers who are on the field. Not surprising. I'm sure everybody's doing that, right? Where they're saying, you know, let's be mindful about what we're spending on and making sure that it's appropriate. That was more anecdotal than anything.
I will say that, you know, as we thought about our outlook for our fiscal year ending in July, we did talk about how we expect the significant majority of our ACV, Annualized Contract Value, billings growth coming from our renewals billings growth. Mike, as you know, you know, we've talked about this before, right? As we went on this journey to become a subscription company, when we started that journey, we weren't selling term licenses, so there was really no concept of a renewal. Now, as we've been on this journey for a few years, some of those contracts that we sold before, they just come up for renewal, right? It's very formulaic. We sold it back then. We know when the license is expiring, it's coming up for renewal.
We're seeing that renewals base grow for us quite nicely. So we expect that a significant majority of our growth in ACV billings will come from renewals. The nice thing about that is that we believe that's lower risk than our new and expansion business, just given we have 90+% gross retention rates and it's already in there. The customer's already using it for a workflow, right?
Right.
Not something we have to go out and procure. That's what's baked in. We've also assumed some level of conservatism or caution in the new and expansion portion of the business because that's where we think there will be more of an impact as the economy remains uncertain. The last thing I'll say is we entered this fiscal year starting in August with a record level of backlog coming out of our July year-end. We expect, you know, over the course of this year to use that backlog as well and bring it down to more normal levels. That is also providing us with a, you know, a degree of confidence around what we think will, this year will play out.
That's where we are, and I think as with everybody else, we're all watching kind of the same signals. I think that everybody is to try and parse out, what the macro will do. That's how we thought about our outlook for this year.
That's great. With that comment earlier on the deal inspection, it makes sense, right? We've heard that from a number of folks across the board. Curious though, can you elaborate, I guess, between with the go-to-market process or maybe leveraging partners, are there learnings that you guys have had over the last, call it 3 months-6 months or however long you want to think we've been navigating these kind of economic tides, to help you either get in front of that or kind of fend off a broader impact from the macro? Is there anything that you guys are doing on that front to be more proactive, or how should we think about that?
Yeah. I'd say a couple of things. One is where we started, Mike, which is around the value proposition, right?
Mm-hmm.
In an environment where folks are looking for value and trying to be you know, thoughtful about where they, where they spend their money and making sure the return is there, we are encouraging our sellers to highlight all the things I talked about earlier, right? Our ROI of, you know, what's our five-year ROI? We're 300%, right? Less than 12 months to pay back. How do we make that, you know, TCO is lower, right, by 43%. How do we make sure that the customer and the decision-makers at the customer, understand kinda just what benefit they are accruing from this, as they think about spend, right? That's one motion that we've always done, right, but becomes important to highlight.
The second piece is knowing what levers we have, right, to make this work for the customer. What I mean by that, for example, is, because we're selling term licenses now, it allows us to think about. Excuse me. If a customer wants a three year license versus a five year license, because we do collect cash up front, we can do that for them, right? Except that on a three year license, the annualized value of that, of course, is gonna be higher, right, than it is for a five year. Just like any other subscription that any of us buy, right? If you commit to a longer period of time, your annualized cost is gonna be lower than it is if you commit to a shorter amount of time, right?
We equip our sellers with that, with those levers that they can work with to make sure that the customer is seeing good value and good benefits from us at the same time as the economics work for us, right? What I talked about where, you know, if they do a threyear transaction versus a five year, the annualized value of that is going to be, you know, is gonna be higher, right, in terms of how we price those offerings. We're doing all of that to try and ensure, right, that to your point, that we are able to handle objections that are may come up with the inspections. Again, this is not something we're seeing in a widespread way or systematically, right, but something that we are continuing to watch.
Great. Two follow-ups. Again, pieces that have been coming to us from clients. The first, you guys have been in the news obviously quite a bit, maybe for things that are going on with respect to takeout speculation. While we're on that topic, I guess could you first address like what the company said? Has it been coming up at all in client meetings? The second, obviously the news and deal with respect to VMware. The follow-up to that is, as that news has percolated through the market now on VMware specifically, is there a benefit to you as far as customers potentially leaving VMware or reassessing their environments? Is that in any way showing up in your pipeline or deal activity?
Yeah. Let me take that, you know, in two parts. Mike, I think the first one was about the rumors about us.
Yes.
in the press. We have not, you know, we don't comment, right, on rumors or speculation. We haven't. I think part of that question was, how are we handling it with customers, if I understood you correctly, right? I think, we have to focus on what we can control, and we've always been a very customer-oriented company. Our Net Promoter Scores is 90 and has been for a long time, so we keep coming back to that. You know, we have to work on and continue to do what's right for the customer here.
That's what we've been telling, the teams to do and telling customers, right, to the extent that they bring it up or have read something, that we remain focused on doing what's right for them, so they can see the benefit, right, of using Nutanix. I think the second part was around the VMware, proposed VMware acquisition by-
Yes.
... by Broadcom, Avago. I would say that that has certainly led to some increased engagement that we've had from customers and from their customers who previously, you know, may not have been as open to having a conversation with us. We are making sure that they understand our value proposition and why we can be a powerful alternative to portions of their, you know, a large portion of their portfolio. Those conversations are happening. We are doing everything we can to, again, articulate why we are a good fit. I will say that there are a few moving pieces here, right? One is our sales cycles are about 9 months- 12 months, we wouldn't expect some of those conversations to have come to fruition just yet. You know, there's some...
We are anecdotally, again, hearing from the market that some folks are choosing to renew with VMware, right? While, you know, before the acquisition and potentially any changes that might come after the closing of the transaction, so that they can buy some time to determine what their strategy is gonna be going forward. It's unclear just sort of how much of a benefit we might accrue as a part of this, right? Whether it's sort of a portion of people's portfolios or more or less. For our guide for this full year, you know, the year ending July, we don't anticipate and there's no upside baked into our outlook from that, Mike. Beyond that, also, it's hard to kind of put something specific out there for all the reasons we've talked about here. That's where we are.
Look, I think, you know, the deal is going through reviews and so on, right? It's sort of, you know, we'll see if and when it closes and what that might do. We remain focused on making sure that we are there for prospects, right? Their customers, our customers, to make sure they understand the value proposition and why we are a good, a great option for them to consider. I think the last thing I'll say is, you know, we've competed with VMware for a long time, right? Well before this acquisition was announced. That motion continues, right? Our reps are, of course, enabled and know very well how to go and sell against our competition. They will continue to do that.
It's more just making sure we're handling, this potential opportunity here, in as focused a way as we can.
Thank you. I'll apologize, I might have to throw myself on mute occasionally. I'm in the New York office, and the radiator is what's making that metal clinking sound. I'm going to be shackling.
I'm not good at answering, so you're fine.
Okay, okay. I guess another topic that I wanted to address as well, it's crazy to think that like you've been in the CFO role for less than a year now. I just feel like you assumed that role and you didn't miss a beat, right? At the same time, we also have a new Chief Revenue Officer for Nutanix as well. Given some of those management changes, can you help the audience think, does the company believe it has the bench at this point to execute on the vision? With those changes, whether it's you in the CFO role or the CRO, has there been any change, I guess, versus how Nutanix have previously been looking at this market and looking to go out and execute?
You know, I was thrilled and feel privileged to be in this role, right? I think the nice thing about both of those transitions that you talked about, Mike, was that, you know, I've been at the company almost six years now.
Mm-hmm
... and 5+ years when I took on the role, right? In that, it helped that I had sort of the context. I've been actually very integrally involved in a lot of the journey that we'd been on up until that point. Our CRO, Andrew Brinded, actually has also been with the company, right, I think five years or thereabout when he took on the role, right? In that sense, we had both he and I had, you know, really all the context around our respective functions. Of course, taking on increased responsibility is different, right? Than sort of, than not or being in part of the broader team.
That is different, but I think the context was really helpful, right, and has allowed us to kind of take and move forward as seamlessly as we can. Yes, I do think we have a good team in place. It's been great to see Andrew out there. He's out there with customers and partners with his team, right? From the get-go, they all know him, of course, but obviously as their new leader of the overall sales organization. He's also really talking about what I talked about earlier, right? With this availability of Azure, it allows us to emphasize the combination that we were already having, but having it more with like. This is all on the truck right now and available for you to use today, right?
He's really been thinking about and enabling our sellers on that. We had our sales kickoff for the first time in person, you know, since COVID, in August. Andrew was out there talking to his team about what the go-to-market vision is. We've talked about just priorities there as being continuous, you know, increased productivity of the sellers that we do have. Renewals engine is doing well, but how can we continue to keep that humming as we scale that engine? Because it is gonna continue to grow over the next several years. He's got, you know, his set of priorities, and he remains really focused on them. Yeah. I think we do...
short answer is we do feel like we have a good team in place for what this next evolution of the company needs to be, Mike. We're seeing some early results of all the work we've done up until this point, right, with the first quarter of operating profit in the October quarter, free cash flow generation that we've guided to and so on.
Great. Looking forward to the continued execution. You're hitting on the next place where I wanted to go as well, which is really talking more about revenue and profitability mechanics for the company, right? A little bit more in the weeds, and I hope I'm not overcomplicating this for the audience. With respect to revenue, right, one of the things that management cited as helping drive upside in the most recent quarter was a lower percentage of orders with future start dates, which benefited in quarter license revenue. It's a mouthful, right? Can you unpack that for the audience and maybe discuss that dynamic?
Yes. Yes. As I said at the beginning, we are a software platform. Our gross margins are low 80s. Because we are infrastructure software, we do run on servers. When our customers are buying their software, often they're also, you know, at the same time procuring hardware to run the software on. I should note at the beginning up here that this dynamic really only applies to our new and expansion business. Our renewals business is largely been immune from this. Because renewals typically they're only renewing their software license at the point of renewal.
When you come back to this dynamic, the simplest way to think about it is, you know, if you have a Netflix subscription, but your TV hasn't arrived yet, I know you can watch on your computer, but just for the sake of this example.
Sure. Sure.
Right? If that's the case, then you may wanna wait for the Netflix subscription to begin until after you have your TV, right? In our case, customers, what we saw really in the July quarter, and some amount in the April quarter as well, is, the lead times that they were seeing from their hardware providers was lengthening, right?
Mm-hmm.
What we saw was two things. The bigger impact was customers were willing to give us their purchase orders and saying, "We wanna buy Nutanix software." We would bill them, right, invoice them soon after, and they were even willing to give us the cash. They said, "Can you start the license to time it with when I would actually be able to run the software?" Right? Again, get the hardware to run the software. That's what I think you're referring to, Mike, and we talked about this as being future start dates, right?
Sure. Sure.
We said, you know, we get the order, it's a non-cancelable order. We're able to invoice the customer, collect the cash, so it often shows up in our billings number, but the revenue can only be recognized when the license actually starts. Right?
Sure.
That's the dynamic that we saw. We were measuring that in our business because we don't sell the hardware, right? We're seeing this secondhand either from our partners or from our customers. We could see it in our business as these future start date orders, right? The majority of them were because of the supply chain. To come to your question, we did see in the October quarter that percentage of our orders that came in with future starts was lower than it was the July quarter.
Mm-hmm.
What that meant was we had a buildup of deferred, right? Because we had this dynamic I talked about. We collected the cash, but we couldn't recognize revenue. We were able to draw down some of that deferred, right, on a net basis in the October quarter. That's the benefit that we saw of about $12 billion in the October quarter, and we expect that to be a benefit in this January quarter as well. In our guidance, we said it's up to the tune of probably around $10 billion or so. As this normalizes over time, Mike, this dynamic should go away, right? Like, we shouldn't see this deferred and drawing down of the deferred dynamic.
Just I think for context, if you look at our balance sheet, almost all of that deferred really is support revenue, right? We recognize support ratably, and historically that's what's been in the deferred. This dynamic has caused some license revenue to show up in that deferred as well.
For the hardware shipments that need to take place before you guys can recognize the license, right? Where is that from an industry perspective today as far as the bottlenecks? Maybe if you can discuss, like, how is that incorporated into your outlook for the year or your guidance, right? Because I imagine that probably plays a factor or role as far as how you're thinking about your outlook as well.
Yeah. Yeah. I should say that, you know, this is still a minority of our business, right? again, it applies.
Yes.
-to new and expansion, right? Not to renewals and even within that. What we've assumed is that I'll talk about this January quarter guidance where we assumed it stays more or less the same as what we saw in October, which again, was better than what we saw in the July quarter, right?
Mm-hmm.
Slightly improved from what we saw at the peak of this. We are assuming in the full year guidance that things start to ease modestly, Mike. Again, we are one step removed from this, so we are basing this based on what we're hearing from partners and customers. It'll ease modestly in second half. We don't believe this will be a flip the switch sort of a phenomenon where it suddenly snaps back to being more normal, but will likely be more gradual, right, as the rest of the year plays out.
Right. Right. On a profitability standpoint too, I know during the October quarter, Nutanix achieved Non-GAAP operating profitability, so congratulations on the milestone. How should we think about margin levers that Nutanix has to pull, going forward, especially given investor focus on profitability in the current market dynamic?
Yes, it's a great question. I want to start by saying that we have been on this journey to sustainable and profitable growth, Mike Cikos, well before I think kind of the market sentiment got to, you know, where it is right now. Rajiv, our CEO, has been in his role now for two years, and from the get-go, he's been focused on sustainable, profitable growth, right? What we saw in the October quarter is really a culmination of a lot of those efforts. We had free cash flow, $46 million, full year free cash flow, $100 million- $125 million, and operating margin on our GAAP basis of 2%-4% is what we've guided to. Like I said, that's a culmination of a lot of the work we've been doing up until that point.
To your question on what levers do we have, the renewals dynamic that I talked about before, is actually a big lever in terms of not just growth, because we said significant majority of our growth in ACV billings is coming from renewals, but also from a bottom-line perspective. As you can imagine, a dollar of renewals transacts much more efficiently than a dollar of new or expansion ACV. As that mix grows, so as the mix of renewals as a % of our total billings grows, it allows us to be more efficient, right, on the bottom line. That's one big lever. The second one actually is, I would argue, our productivity of our field sellers, right? These are folks that are largely focused on new and expansion, right?
They do keep an eye on renewals, so to speak, because that's an opportunity to go and expand, right, and keep that relationship going with the customer, yet another opportunity to go and talk to them. For them, when we talk about sales rep productivity, we're talking about new and expansion, right? We believe we've made some good progress on productivity improvements over the last couple of years broadly, but we think there's more room. We're not quite where we'd like to be, right? We are working on continuing to improve that sales rep productivity from a new and expansion standpoint, which also improves efficiency, right? Because with the people we have, how do we get them to be more productive, right? That's another lever. The last one I will say is just good expense management.
It's something we have focused on for a while now, and we'll continue to do so. We'll be... This is the balance that I think everybody tries to get between growth and investment, right? How are we spending wisely on areas that we wanna do, but being mindful about the return on that and choosing wisely, right? Those are the big levers that I would state are in front of us as we think about that balance between growth and profitability.
That's great. That's great. To boil it down and just kinda force it back, the big three I'm hearing would be renewals, sales productivity, and just ongoing expense discipline, throughout the organization.
Yeah.
I know it's probably a little bit more backwards-looking in scope, but just for context, right, one of the things that I'd appreciate if you could walk through. I know that renewals is obviously a big focus for the organization today, and it has been since Rajiv came to Nutanix as the CEO. Again, backwards looking, but given you guys are executing on this renewal base, what was the selling process? I guess, how was it architected previously? I think just having that context really draws out the importance of what you guys are trying to do with the renewals and helping you drive in profitability and demonstrate the tackles and all the goodness that comes from it. A little bit backwards looking, but if you could walk through that history.
Yeah. I think this renewals motion and the subscription journey that set that in motion, Mike-
Mm-hmm.
Was around event before, right? To be, to be fair to kind of what Rajiv walked into, if you will, right?
Yeah. Yeah.
We had already embarked on the subscription journey, and so we knew this renewal stream was coming, right?
Mm-hmm.
What we have been able to do since is make sure that that engine is set up to scale, right? Now we were doing a few renewals before we came, the magnitude of that renewal is gonna continue to grow, right? Scaling that machine and doing so efficiently, right? I think that was one important thing that we had to accomplish in the last couple of years. The other thing I will say is, if you think about productivity, right? Like you can think about sales productivity, and you can think about sales capacity, right? It's not this simplistic, you could say number of people and how much each person produce, right? Is think of A times B for the new and expansion piece.
For us, we've sort of deliberately been very mindful about how do we balance adding more capacity, which we want to do by the way, through the end of the year, right? Not dramatically, because we wanna get the sellers that we have to become as productive as they can be, right? Getting that productivity lever up and having that be a bigger driver than, you know, adding more and more reps, right? Like that balance has also, I think, evolved in the last couple of years to make sure that we are driving the productivity that we need and getting our sellers up to that level, right, over time. It's again, it's not gonna be an overnight thing, but we've seen good improvements the last couple of years, but we have work to do.
Awesome. Awesome. Probably time for one more, I wanna give you the final word here. If I think about the conversation we had, which was great for the audience, if there was really 1 to 2 things you would highlight, that you want the audience either leave with or I guess big priorities for the management team going forward, like what would be those couple things you'd point people to look at?
Look, I think for us, I do want folks to take away that we have as a subscription company, somewhat of a unique position in that just where we are in our journey is that we are seeing an increasing amount of our first batch, right? Our first cohorts of renewals come in, and it's leading to a significant increase in our renewal space. That, as we've talked about here, helps us with growth, right? And somewhat of a lower risk growth because of the fact that it's a renewal and it provides us efficiency, right? I think folks should definitely take that away, that renewals provides us with both sort of a growth lever and an efficiency lever.
The second thing I'd say in terms of just a trend overall, I think we believe that companies are facing a reality check when it comes to their wallets as they use more public cloud and causing them to think about prudent decision-making about where to run their apps and store their data. We think we being a single and simple platform for hybrid and multi-cloud differentiates us, right, in that environment when folks are facing that reality check. Those are two things I'd leave folks with.
Awesome. Thank you very much for the time. Again, to all the listeners out there, thank you for your time as well. Any follow-ups, please feel free to reach out. Rich and Rukmini. Thank you so much.
Thank you.
Thanks.
Mike.
Thanks, Mike.
Thanks, everyone.