Virtualize the Whole Data Center

In this Tech Barometer podcast segment, Nutanix CEO Dheeraj Pandey talks to the Bank of America about how businesses and organizations are moving to hybrid cloud IT.

By Jason Lopez

By Jason Lopez July 17, 2020

Bank of America Securities Interviews Nutanix CEO Dheeraj Pandey.  The key idea behind data center virtualization has been no change to the application, no change to the operating system, according to Nutanix CEO Dheeraj Pandey, in an investor call with Bank of America Securities.

This has been the philosophy behind the shift to virtual machines and as well as in storage, Pandey said.

“I think we now have to virtualize the entire data center and use lift and shift with this assertion: no change to the application, no change to the operating system. But now there's a third one, no change to IT workflows.”

This set up his vision for how Nutanix helps businesses and organizations move to hybrid cloud IT, where on-premises data centers and multiple public cloud services combine seamlessly. Making all of these technologies work together seamlessly is one of the IT industry’s biggest challenges in decades.

In this Tech Barometer podcast segment, a replay of Bank of America Securities’ June 30, 2020 “View from Top, CEO Insight Call,” Bank of America Senior Tech Analyst Wamsi Mohan talks with Pandey about Nutanix’s products and services, its prospects in light of the COVID-19 pandemic, marketshare and the competitive landscape. Pandey explains the company’s strategies to service clients in whatever cloud environment they work in from public clouds to private clouds and hybrid clouds.

TRANSCRIPT (unedited)

Jason Lopez: On June 30th of 2020 Nutanix CEO, Dheeraj Pandey spoke with Wamsi Mohan who's the managing director, IT enterprise hardware and tech supply chain at Bank of America Securities where Wamsi is senior tech analyst. This conference call is Bank of America's View from the Top CEO Insight Call.

Wamsi Mohan: Wamsi Mohan: Good afternoon, everyone. And thank you for joining our call today. Uh, first obligate Tory disclosure, conflict disclosures relating to the individual companies and securities discussed on this call today can be found on the call invitation I'm Wamsi, Mohan senior tech analyst at Bank of America. Uh, and today for our installment of View from the Top CEO Call series, we're to welcome Dheeraj Pandey, Chairman, CEO, and co-founder of a data center disruptor and leading hyperconverged provider Nutanix we're, especially delighted that the is made time for us again this year. Following our talk from last year, Dheeraj co founded the company in 2009, taking it from a innovative startup to now a multibillion dollar corporation. He brings a long history of technical knowhow and leadership and software and data management. He was we'd be of engineering at Aster data, which was acquired by Teradata before founding God Newtanics earlier in his career. He also managed the storage engine group for Oracle or exit data and coauthored numerous patents in the area of distributed databases. Dheeraj holds a BS in computer science from the esteem, the Indian Institute of technology, our ID conference in India. And I can attest to how hard it is to get in there since you'd Haddix IPO in September, 2016, the company has grown software and services buildings from 770 million annual run rate to one and a half billion very soon, which is extremely impressive. So Dheeraj thank you for taking the time to join this call today. We look forward to the conversation.

Dheeraj Pandey: Thank you. I'm seeing for the opportunity and thank you to our investor audience as well for their time.

Time to Virtualize the Entire Data Center

Wamsi Mohan: So Nutanix has come a long way from selling appliances to aspiring, to be the, uh, invisible it infrastructure anywhere. Where are we in this journey? And do you have the resources to compete with the largest of companies that are trying to do this?

Dheeraj Pandey: Yes. Great question. Um, you know, I, I was just thinking about our 10 years, you know, we finished 10 years last September. This is our 11th year, you know, many which ways, uh, we very similar to VMware of 10 years, 2008, did it billionaire and, uh, be pretty close to that. And then there was a recession for them as well because of the global financial crisis. And we face a similar one because of covert. And then the next four years, you know, they grew over from a half a billion dollar, a quarter to a billion dollar in January of 12. And I think we need to figure out what the next three, four years mean for us. Now. Obviously we are still two different companies, you know, they were into compute virtualization and then finally got into, you know, management and such. And we are a data company first. So we don't need as many hosts to run our licenses, to be able to get the same top line. And, um, data is hard. I know it's very, very unique advantage that we actually have because people pay for highly reliable, highly available data management and the way we brought it to the solver with hyperconvergence and a ton of autonomy to the application, administrators like, you know, Oracle and Splunk and Citrix and, and so on. I think, uh, we was the definition first decade now, as we look to the next decade, see, you know, this idea of a cloud as hardware. And when I say hardware as facilities, big hyperscaler data centers, and so on that train has already left the station. So it was the, the competitive advantage has to be about software. No, can Nutanix be the cloud software company that respect to not just being delivered anywhere and everywhere, but also being a morphous, you know, we can inject ourselves anywhere and everywhere and be this company that really helps our customers in the journey towards making computing invisible. I E simple like Apple, like, you know, secure because of all the reasons that we understand security to be a big requirement and finally being seamless where it's really multicloud, you know, it's running on prem, it's running on the edge, it's running in the large hyperscaler data centers. And the value of having a singular experience is where we are focused on. So we are looking at this as a blue ocean of what we could be, you know, in the next four years, what does it mean for us to become a three, four, $5 billion company in our own where the hyperscaler hardware is the new platform, you know, as a company, we started out with appliance, as you mentioned, but then over time we realize that the only way to grow our 10 is to really open up the software to other OEM servers. And that's why we opened up to Dell like five years ago, six years ago, and then to Lenovo and HPE and Fujitsu and on and so forth. So I think we've done a really good job of becoming as ubiquitous as a software could be. And, you know, the analysts probably are still confused about what is this thing? Is it hardware? Is it an appliance market? Is it a software? And we think that this is all about software and we will be, we're always about software, but, you know, early on we had to support an appliance because nobody wanted to support this architecture. You're cannibalizing a big portion of their data storage market over time, we've cannibalized the virtualization market. And we feel like we in the very early innings of this. So if we can become friends with all the platform companies, whether it's server platforms or it's a hyperscaler hardware as a platform, we can do this, uh, independently as well.

Wamsi Mohan: Okay. Thanks for that. [inaudible] so, yeah, COVID-19 is, is really being viewed as having accelerated companies shift to the public cloud. Do you agree with that notion and how do you view the opportunity in the marketplace, uh, given these recent developments?

Dheeraj Pandey: Yeah, I mean, in one way or the other, there was supposed to be a contraction cycle, you know, in our economy last time, it was because of the housing bubble this time it's because of covert. We feel it's a very good opportunity to bite-sized infrastructure. And I think subscription is at the core of this. If you go back 10 years, 12 years, why you elevation picked up from just being a Nicki testing, dev use case, which is what most of virtualization was useful for back in 2007 and eight to, well, we've got to use virtualization for every project, whether it's database, Microsoft virtualization, or exchange or SQL, or eventually in 2011, 2012, went on for SAP and Oracle. I think there was a massive push to use to define techniques. And back in the day, it was the cloud of its time, which realization I think there's a very similar move this time around as well. The only difference is that economics will matter, and that's why we are not going to take sides in. If people want to really lift and shift to a private cloud, we'll help them in that move. And people want to lift and shift. The public cloud will help that as well, but you are very right. I think this idea of hands-free, it is real and here to stay. And the only way to do hands free stuff is to really operate a cloud environment. We helped our customers in the journey towards infrastructure consolidation in the last 10 years. And I think there's two more consolidation waves. One of them already underway with data center consolidation, but eventually there'll be a cloud consolidation as well, because there's just a proliferation of so many cost centers because of credit card consumption models. And so on being that layer of software that provides the singular experience on from an off prem is a very, very unique opportunity for a software company like ours.

Wamsi Mohan: So that's a really interesting point. So Dheeraj, as you think about the way people are working with COVID-19, can you talk to us a little bit about the products in your portfolio that are perhaps shaping the way, uh, enabling people to do this work remotely?

Dheeraj Pandey: Yeah, I mean, as a service matters and I talk about ourselves as a software company, but these being it's done a really good job of being a very subservient company to our customers and in a subservience, you know, the, one of the key comes there, service. There's a reason why our net promoter score is 90 for the last six years, because he's been extremely service oriented with our customers. Even though we have shipped software on prem and we've shipped appliances before that, and we support our customers on OEM servers, and now we are going to support them on Amazon and Azure, but this subservience to the customer is the key to any company going forward with an extremely high retention rate and a very low churn, extremely high customer satisfaction, I think will be key at CCI will morph into FCI the service. You know, we believe that when we deliver our core digital platform in the public cloud servers, I think that'll be a great way to lift and shift because if you think about it, what made virtualization popular was what two assertions that VM-ware made back in the day 2003, 2005, no change to the application, more change to the operating system. And that was powerful, you know, no change to the application, no change to the operating system. And that's how people lifted and shifted from hardware to virtual machines. And I think the same thing happened with storage as well with storage virtualization in the last decade. I think we have now virtualized the entire data center and use lift and shift with this assertion, no change to the application, no change to the operating system, but now there's the third one, no change to it. Workflows because you can't have fragmented skillsets. You know, some people only know on prem and hog hardware and yet others who actually are aware of Amazon and some others were only aware of Azure while others develop Google. I think, you know, this need for a very common set of skills so that you can drag and drop entire data centers from one to the other will be paramount. And I think the way we are going about it is to say, look, you write your software. Once you write your it automation ones and you run it everywhere. So I think it's going to become a very key part of most of the enterprises way of thinking about this. And, you know, I think it all starts to the U S innovation begins in the U S and then disruption also begins in the U S because you end up spending so much with incumbents that you have to think about, you know, firing your supplier and virtualizing your environment. So I think it's ripe for innovation, this idea that you can really lift and shift from the private to public from on-prem three tier architectures to a private cloud is basically a great opportunity.

Wamsi Mohan: Let's dive into that a little bit. Right. So, so there has been more of a consensus around a hybrid multicloud sort of infrastructure or time. Well, what's your view on hybrid versus public and when customers, so I'll think this lift and shift, are you actually seeing customers move workloads across where he is clouds or is it an issue where it just prevents public cloud lock-in and it's the insurance that companies want?

Dheeraj Pandey: Java was a great way to abstract the hardware away from the application. So you could build portable applications. It's not like people wanted to move every day from one platform to another simply because they had Java. It just meant that as, and when they needed to move systems from, let's say sun Solaris to Intel, or from HPUX to Intel, for IBM AIX to Intel, they could do it in six days, not six years. You didn't have to read ID app at all. And I think that's what, you know, customers would cover. It is the way we look at it, that they would be looking for a Java, like portability for their entire infrastructure. And that doesn't mean that they'll keep moving stuff back and forth every day. That will mean that they'll have disaster recovery sites that across cloud, you know, maybe on prem is one side and the other side of the disaster recovery site, maybe they'll have edge applications where they want to keep most of the data, but they'll stream the summaries and the aggregates and roll ups to a public cloud for historical analysis. So we're going to have to really look at this in a nuance way. I mean, I always believe in trifecta, you know, one of the prime factors that would define the computing architecture for the enterprise will be lots of the land, you know, compliance and sovereignty is King. Especially as we see the organization being redefined in the last three years, laws of physics, you know, you can defy the data gravity requirements. You know, if you're going to generate a ton of data at the edge, then you cannot back haul all that stuff to a large data center and then finding laws of economics. You know, there are things that are predictable, that are much cheaper to own than to rent. So the good thing, what I'm seeing is that we've built an amazingly agnostic architecture with subscription, where we don't care and our sellers wouldn't care whether our licenses are being run on premise or off premise. And in many ways, the thing is going to come back to business wise. Do we have an architecture that will not take sides. And whether it's going to run at the edge, run in the private cloud or on the public cloud.

Wamsi Mohan: So do you ever, as you met, you mentioned on your last earnings call, that being the best market is important to you, as opposed to just being first to market. Can you give us an update on Nutanix clusters? How does Nutanix clusters really differentiate from other competing solutions and what sort of feedback have you received from customers on this? Yeah, I look back 10.

Dheeraj Pandey: Years, even eight years, seven years, you know, you know, what we were doing with hyperconvergence was a tall, it was a toy compared to this massive coalitions of Vblocks and flex bards converged infrastructure. And I mean, Gartner had a magic quadrant from converged infrastructure, and we would have to plead over these analysts to say, Hey, we think hyperconvergence with pure software running on commodity servers and commodity neck books and commodity storage is the way to go. And, uh, we had to prove it, you know, initially it was all about, well, maybe it's a good thing for the mid market. Maybe it's good for desktops. Maybe, maybe, maybe. And I think we had to keep plowing it to keep growing our Tam, keep distributing our software to multiple servers. And finally converged infrastructure went away and we displaced converged infrastructure everywhere. Cause it used to be like this hypocritical notion of a private cloud when it was barely anything more than just a rack with other joint, 1-800-CUSTOMER service number. I think what we did with architectural and we never hacked our way into that architecture with commodity servers, commodity storage, commodity networks. And the best thing is that that religion around commodity everything is going to greatly help us in the hyperscalers and Mon and cook because all they have is commodity commodity servers, commodity storage, commodity networks, and the, we we're doing it again. Architecturally in the public cloud is not to try to build our own service, which becomes a black box service. Now, what does it mean if you, if you would just build a black box service, that means that our on prem licenses cannot be reported to the public cloud. Ideally people want to say, look what I buy. I should be able to use it anywhere. So we had to keep that in mind, how to be a huge invariant. So people don't create silos of budgets and silos of people in silos and operators for public versus private. I think the second piece was they'd had to run in the native fleet. What, I mean, my native sleet is there's a commodity solver that, you know, Amazon and Azure are rolling out everywhere and there's 1500 or global data centers. And we had to be extremely flexible about that, so that we have global rule out stuff, our entire product portfolio, every time, Amazon and Azure add some hardware variant on their site. And lastly, I think we had to make sure that hyperconvergence was never compromised. So what do we mean by that? You know, 10 years ago, I'm seeing we argued that the network is the real enemy and it really, uh, work both ways. You know, there was a network with a network attached storage and there was a network which was fiber channel storage, you know, which was really expensive storage. And both of them were enemies of the application folks why, well, one of them was slow and unpredictable, which was NAZA network attached storage because of issues with internet. And the other one was not this expensive. It was highly bureaucratic, you know, EMCs and you know, the stuff that he had to do with fiber channel networking and storage, arrays and provisioning, and all sorts of things would take weeks if not, months to provision for application folks. So one side was a problem and performance and predictability, or the other side was a problem from a performance and profitability of people and projects and so on. So when we argued for Netflix being the enemy and we brought all the storage into the solver, it provided immense autonomy to the application folks in the hyperscaler environment, the network is the enemy one more time because it's virtualized network and it is going to be pretty challenging to make it all work for all the enterprise legacy apps built in the last 20 years. And that's why we are extremely confident that if you work on the native fleet of the hyperscalers, but at the same time we deliver enterprise grade data management, enterprise grade compute and enterprise grade operations management, I think we'll be in great shape. We can have the best of both worlds. People can continue to use their cloud connects and cloud credits, which is again architectural. And we wanted to make sure that people don't have to spend again on hardware if they've already committed for the next three years to Amazon and Azure, what's the best way to pull up their cloud commits and credits. So they don't at least have to buy hardware again. And on that stuff can be run are portable licenses that could run both or, you know, on prem as well as off prem, I think is extremely architectural. It's going to be the differentiation of this decade for us. And just like hyperconvergence 10 years ago, you know, we have to go and make this extremely seamless.

Wamsi Mohan: So there are, as you mentioned, yellow, so really getting to that next leg, offer avenues similar to how we immerse kale over time. What do you feel is needed in your product portfolio to accomplish that?

Dheeraj Pandey: No, by and large, the product portfolio is pretty close to being, I would say complete. There's always going to be things we do on networking and security and such, you know, this idea of delivering everything as a service is again, a very important piece. So I think there'll be a lot of things that we'll do to evolve our current portfolio, but the biggest revolution that Dustin's also very passionate about, he talks about this too, is the business model. The business model change has been one of the most rare things done in it. Actually, nobody in it moved from hardware to software subscription and naturals two to five years. And we would actually end up doing it. And I was looking at Autodesk's history and I was surprised that they started doing this stuff in 2003 and completed in 2019 and like, wow. Uh, I don't think we have that kind of a time given how the world is moving to cloud and as a service consumption model. So in many ways I think, uh, this was upon us to have done this so much faster. And, uh, I think it's going to be one of our biggest friends is this business model change of how, not just even the recession. You talked about corporate impact. I think if you can really go deliver bite-size infrastructure, you know, the three year terms moving from five to three years would be huge. Even sometimes, you know, foot in the door, one year stuff like the way flipping the door virtualization happened in 2008 or the way public cloud created these bite-sized things that people could try out before really having to commit to it for five years. I think it's going to be one of the greatest friends in our overall go to market.

Wamsi Mohan: Maybe that's a good segue to talk about the subscription model benefits, right? Like how, how is it beneficial to Nutanix? Do you have customers and revenue to your investors?

Dheeraj Pandey: Yeah, I mean, on the cost, let's start with customers. You know, when you move from hardware to software Rumsey, we grew our Tam, which is great for us, but we also gave optionality to our customers because they said, look, I'm already deeply committed to Dell or HP or Lenovo or Fujitsu or NEC in Japan. Uh, and we said, fine. You know, I think we can make our servers, uh, you know, our software on, on those servers. And all of a sudden they could actually mix and match stuff. So they, they could, you know, negotiate with us separately. They could negotiate with the silver vendors at scale as well. And, uh, it was a win-win I think subscription will be great to grow our cam simply because now we can take the same licenses to the public cloud. All of a sudden it opens up a new surface area for us to really go and spread the snow, which is our core digital infrastructure, our core business, uh, and we'll make it look exactly the same. And once we do that, you know, customers can really go to lift and shift all day long that they would like without really having to create new, spend the new budgets and are carving out new skill sets. Actually, I think for the customers, it also means that they have fewer fragmented budgets. You know, it's like, well, this is for private. That is for edge. And this is for public. No, it's like, you know, you have one span. And in fact, if anything, the public cloud folks want to do the same, but they're trying to bring computing infrastructure on prem. By saying, you can have a one single bill, one single identity, one single payment, and you can figure out where you want to run this via trying to come from the other side, from private to public and want to provide this completely unfragmented view of spend and single panes of glass for managing all effects. And, uh, I think for the sellers as well, and our sellers cannot be about private versus public. You know, if it has to be hybrid, it has to be honestly authentically hybrid where they don't care where the licenses are consumed here or there. It also makes our sellers be very friendly with the hyperscaler sellers because it's, he, I can be the killer app for consumption in the public cloud. You know, what better thing to consume in the public cloud than compute storage, networking, and security. There's nothing bigger than data in terms of consumption in the cloud actually. And so we can really help the hyperscalers sellers as well in terms of consumption of all the cloud commercial cloud careers that they're actually selling. And finally, I think for the investors, you know, including for the company, you become more efficient, you know, going from five years to three years is actually, you know, it looks like a small thing, but all of a sudden we can discount less. Maybe it's going to be 5% less discount. And that's huge. That's like 20 to 30% improvement in our overall business. If you just discounted 5% less going from five to three years, it also means that renewables can start happening quicker. And, uh, as Dustin has talked about in the past, I think as a company, that's the one last bastion that we did not excite this last decade on the walls itself. Most of our business right now is not renewables for more than 90% of our business is new and upsell, which is great from one point of view because our sellers have actually been used to hunting. But I think in the future, we can really create a very hedged and diversified model of revenue and billings where all the course of the next five to seven years, half our business could just be renewals. And that is a very different cost of sales than new and upsell. So I think all in all, it's a win, win, win. It's not easy as you've seen in the last 18 months for transition, you know, sometimes it commits some mistakes, but, and I think that's the reason why many public companies don't go for this kind of, uh, you know, relatively complicated stuff, you know, like you're in the arena and everybody's watching you and it has to be picture perfect, but at the same time, they pretty close. I think we have gone through a lot of the pain and now over the next three years, we believe a lot of the gains will actually come.

Wamsi Mohan: So dear, just to segue a little bit into this renewal dynamic, right. I think there was some confusion post the call around visibility in revenue, given the comments that, you know, you just to collate around renewables versus what is perceived as recurring revenues. So could you maybe just spend a moment talking through how you think investors should think through that in terms of the visibility in the business and also sort of what the recurring revenue is relative to sort of this low rate of current renewables?

Dheeraj Pandey: Yeah, absolutely. Well, so almost half our business is different. As you know, we have more than 1,000,000,001 in deferred revenue that grew 34% year over year. So definitely the actually pack a lot in the balance sheet as opposed to many companies on prem that try to squeeze everything into the current quarter. So you've done a really good job of that, but it does still have a cost of sale because we're paying our salespeople for all that money because we collect it all upfront. And I think with the new renewables that you're talking about, when the subscription comes up for renewal, it's going to be different team working on it. And our field reps, our account executives in the field will focus on annual contract value. Now that doesn't mean that they'll do one year term because it's pretty complicated to go back next year and renegotiate and storm. So I think there's a happy median in three years, which is where our business over the course of the next three to five years will come to stabilize. But the important thing here is that the wheezy have talked about renewals of the future. It's more about cost of sales and the focus of our field reps on hunting for three year terms, maybe some one year terms in some five-year terms, mostly around three to three and a half kind of number. And then when it comes up for refresh, there's another team that actually does the farming with respect to renewals very much like normal SAS companies, more of a cloud company that screener. Now, that being said, as I said, I just want to come back and say that we have done a pretty good job of almost 45 to 50% of our business being deferred. So we do have good visibility into revenue, but we'd like to do something similar and billings as well.

Wamsi Mohan: Okay. I love my sauce. And so can you maybe just give us some color on the actions which have been taken by a new worldwide sales leader, Chris Karras over the last year and a half or so to drive the improved execution in the field and what is it that has been done? What's what is it that still needs to be done?

Dheeraj Pandey: Um, yeah. Great question. You know, obviously Chris, um, is, has been around for the last three and a half, four years now and has seen an ear, uh, for a couple of years then obviously saw Americas before he took over the worldwide role. I think the biggest thing that I can think of onesy is discipline and that discipline obviously comes across the board from leading indicators, like pipeline to, uh, I would say middle indicators like coverage and segmentation and things of that nature too. And just downstream indicators of, uh, repeat business. And what's going on in terms of churn and attrition, all that stuff. We've done a pretty good job of talent coverage and pipeline. And he talks about his trifecta being talent coverage. And, you know, it's easier said than done, but amazing leadership that we've actually gotten, uh, in the last seven years from him. I think the other pieces around this transformation, which again, is not easy. I mean, there's a reason why there's such few companies. In fact, they're the only ones who have gone from hardware to software. You know, we had to lose some sales people who were only hardware sellers to software sellers. And now we are saying, look, you've got to convert this to subscription and really educate the Salesforce on things like annual contract value and such. So I think he's been extremely instrumental in the transformation of the business model as well. I think in the last few months, again, we needed amazing leadership in terms of virtual selling in terms of digital selling in terms of remote selling and, uh, what he's actually done and shown. You saw a lot of that in Q three numbers two is how we've, uh, headed up our business and even pivoted a little bit to end user computing, virtual desktop infrastructure. Cause you know, the future of work, the future of education feature of healthcare, they were challenged in the last few months and probably will be a big opportunity for us in the future, but really being able to go and pivot the business to go refocused on end user computing, which had become like less than 20% of our business to where it is now. There's 26, 27% of our business required a lot of agility that Chris brought to the table.

Wamsi Mohan: Okay. That's, that's helpful color. So a question I get a lot is really how you think about the trade off between growth and profitability. You alluded to, you know, a very large Tam ahead of you. So can you put that a little bit into context in terms of how you think about the Tam and also the trade off between growth and profitability?

Dheeraj Pandey: Yeah, yeah, absolutely. It's a very important piece of the puzzle on Nutanix. The overall gap profitability is a number that's misconstrued in our case because we deforce so much, we could easily defer a lot less and try to have a much better PNL, but at the same time we figured that we need predictability for the future. So that's an important piece of this. Now I also want to take a step back, but in 2015 and 2019, you know, we went from a hundred million to a billion, 2 billion, three, some such number in top line. And all we born was $75 million of free cash flow. So as a company, we've been very disciplined about making sure that they are not a zero sum game growth and profitability. Now we did want to move to subscription. So 2019 and 2020 have been different, but it's also to make sure that we did not go and, uh, make future a hostage. We knew that cloud here, we knew subscription had to be the name of the game. So we have to do what we had to do on free cash flow. We had to compress the CaRMS, uh, you know, it was very important piece of this subscription transition. So it's only in the last 12 to 18 months that it started to borne cash again. And it was very deliberate. We believe that rather than have the customer be our investor forever, because that's what they've been in some sense, raise money from our customer by doing longer term deals and collecting all of it upfront to a model where we can do three or deals and be a more profitable business. So a lot of what you're seeing with subscription is around efficiency and profitability. It won't show right now this quarter, but over the course of the next three years, we want to become like a normal SAS company, but it won't come for free. I think, you know, there's no such thing as free lunch. You know, you've got to give up something in the present to really get that in the future.

Wamsi Mohan: So the urge, uh, investors are somewhat worried about the cash burn rates, right? And then, and I appreciate the comment about only 75 million or, or extended period of time. People are worried that there needs to be some way that you guys would need to have to raise capital given what the company's ambition seems to be. Um, so what, what would you say to that and what are some of the preferred ways that you would contemplate this if needed?

Dheeraj Pandey: Yeah, I mean the easiest one is a, is a public convert and Dustin has talked about this and as a couple of previous conference appearances as well, but it's a pretty open market and, uh, it's really up to us. We still have a good amount of cash in the bank and it's going to be an art terms. And we feel like in the future, which is not a distanced feature, we'll probably have to go and do something of that nature as we especially go to this ACB transition, which is the right thing to do for the longterm. I think, uh, it's pretty accessible to us. So we just going to do it in our terms and our time, actually, one thing we are saying is that it's not like the markets are gonna close, so let's do the right thing and hopefully a five 21 is that, uh, you're ready. Do that.

Wamsi Mohan: Would you contemplate Iraj any, you know, not accessing the public markets to four lists, maybe to a strategic partner or something else like that?

Dheeraj Pandey: I wouldn't speculate on anything right now, simply because I think the cheapest money right now is a convert and it gives the easiest to get. But, uh, you know, I think you never said never, you know, there's always going to be investors out there who want to help the transformation who believes in things three years out. So we'd love to talk to them as well.

Wamsi Mohan: Okay, great. Um, switching a little bit to the customer based data. What trends are you seeing from repeat customers, either expanding into additional parts of the product are implementing, you know, more of the products they already have and sort of, you know, giving you higher wallet share. Are you seeing any changes to your churn rate under this code? 19 scenarios?

Dheeraj Pandey: Yeah, I mean, um, you know, Colbert definitely was a moment of reckoning for every technology company out there. And what we are seeing from our customers is this, we need great customer support. We need highly reliable products and by the way, someone needs to help us in this transition to what it means to be a cloud customer, whether it's lift and shift to the private cloud or lift and shift to the public cloud. So I think in that way, it's, it's, it's, this pandemic has actually been good. I shouldn't say that in those words, but I'm sorry, but I think it's, it's been a moment of reckoning, uh, for the company and, uh, the products that have actually really stopped all this field of core product, uh, working on HIV, for example, as being a hot selling product for us frame, which is the desktop of the service product, you know, a ton of customers, uh, last quarter, we are actually seeing a huge traction for not just VDI, which is on attachment Citrix, uh, and even on VMware horizon, but for desktop as a service. And it's a whole pyramid of, uh, you know, end users out there. And I want to look at the pyramid there's folks who, you know, just like VPN, you know, they're like give me a laptop and I'll just use VPN to connect to my office environment. Folks who would need virtual desktops, which means that it's sitting in the on prem environment and are folks who are probably task workers are more, the base of the pyramid users would be really happy with desktop as a service running in any cloud, but it's running an Amazon Azure GCP or on prem servers too. So we've seen a very good traction with end user computing, but even disaster recovery as a service in our xylene product has done pretty well in the last three, six months because people are looking at business continuity as one of the big drivers of hands-free it. And, uh, our files product has kicked off for, to a new level in the last three, four quarters because, you know, one of the things that people expect from us is be the best data. You know, of course you do watch realization and you folks make it invisible and everything else. But with respect to data databases, you have to be the best ticket. So we've seen two really good products to emerge in the last year, even in the last six months, I would say files and error errors, our databases as a service product, we are working really closely with not just our customers who are looking at Orca deployments and Microsoft sequel deployments, and even open source post-Christmas ton of financial service companies. We're looking at open source farms that Postgres they're looking for an enterprise grade to really make Postgres be enterprise grade. So databases of service, desktop of the service and unstructured data, I think needed to treat this as a single kind of traction.

Wamsi Mohan: Got it. That's helpful. Um, maybe you're shifting gears a little bit during coed. Obviously we've seen a lot of the workforce or from home, what's your view on the productivity at both an R and D and sales perspective, and would you care to share any color on, you know, what the recent trends have been in terms of demand, especially given that, you know, now we're starting to see some States open up, but also offset by some backtracking a little bit.

Dheeraj Pandey: Yeah. I tried to draw metaphor and analogy here, because again, we don't have a crystal ball. I feel like maybe in a hybrid world going forward, I think the last three months has come to prove that many employees are happy working from home. And depending on the demographics, you know, some of this is also demographics of the population employee population. Obviously all our work could have digital. Our customers are willing to do a lot of things digitally as well, obviously in your test this out with the new logos and new customers, because it's hard to build a relationship or a video conference call, but when it comes to our developers, R and D I think there's going to be a bell curve of people and a surprisingly large percentage of those are actually waiting for the vaccine and, or are saying, look, I can't come to work until the cases of subs subsided. So given all that, I see, like, you know, if you look three years out, it's going to look very much like cloud computing, you know, and again, I draw the analogy of what will happen to facilities office facility. They'll look a lot more over-committed, which is how public cloud data centers are in. There'll be very few dedicated cubes and dedicated spaces. There'll be some for those who want to come every day and you, the public cloud, we see that we call it dedicated instances, reserved instances. We are going to do see the exact same thing in facilities too. But most things will be basically on assigned and people come in and just use them. And in fact, there's going to be a large chunk of spillover in coffee areas and conference areas and stuff like that for folks want to just hang out outside in it. And it's very similar to the way public cloud actually works. And then your home becomes your private cloud actually, you know, and I think that bell curve is what we are preparing our, our a workforce for. Are you not going to take sides just like in order to take sides with our products. And, uh, and it also opens up new avenues and opportunities for the workforce. I mean, you already had a pretty distributed workforce in R and D and support, but, uh, I think sales obviously was always distributed, but I think R and D the fact that we can deliver it from San Jose and Seattle and Durham and Serbia and Berlin and Bangalore and pony says a lot. I mean, you know, same things, you know, on support side, in all their, from Sydney and Tokyo to San Jose, to Durham, to Amsterdam, to Serbia, to Poona. I think we've done a Bangalore. We've done a pretty good job of having global consistency with a distributed workforce. And I was looking at our R and D spend recently, and I was comparing it to a, a contemporary company that's also 10 years old and they just build one product, maybe a second product, you know, it's hardware company, these spend more money than we do. And I realized the reason we have such a rich product portfolio is because we were so good at distributing our workforce to work outside of San Jose. This is seven, eight years ago when we said, we're going to architecturally move this to a global model where the global team members don't feel like second class citizens. And it's hard to do if you don't have it in your DNA. You'd always look at non headquarters people as second class people actually. So I think that's going to be a big competitive advantage for Nutanix over this coming decade.

Wamsi Mohan: So here, if you could talk a little bit about the competitive landscape, I mean, ATI looks like it's really a, sort of a two horse race between Nutanix and we, mr. Or what are the main reasons where you win versus them versus when you lose and how should we think about your competition, uh, beyond ATI and frankly, are there natural partners for the business? I mean, Dell has VM-ware and HBS and fluidity, and D do you see any natural partners as well?

Dheeraj Pandey: Yeah, I mean, uh, you know, two horse races always been here. If you go back to hypervisors, it was a two horse race. You know, the Amir was the best of what it did. And Microsoft hyper V was supposed to be for the mid market and folks who didn't want to spend too much, it was bundled with windows as a virtualization technology. And, um, you know, same thing, even phones, I would say that Apple and Android, in some sense of the two horse race. And I think, uh, there's very little room for a third one. Let me just put it back there. And it's been true for pretty much, most things in life in John Chambers used to call it, if you're not the first or the second you get out of the business, I think it's very true, even, you know, if you look at open source, you know, uh, there was Lennox and then there was, uh, uh, PTSD and it didn't survive for too long. And similarly, when it came to databases, my SQL and Postgres, so we can go and talk about a lot of this stuff is going to be a two horse race in most markets out there. Now, the question is ADI, the exact same product. And that's where the one says, no, as a company, we are a data company first. And, and if we didn't do the hardest problems data, again, it's databases, unstructured data, you know, big IO, intensive workloads, which are mission critical. Yeah. And we wouldn't have a business, and that's not the same as [inaudible] can have a business because EMC can deliver hardware to manage data. Why be American do an also ran job of data. It's really hard to be a data, a company that cannibalizes your mothership, actually, which for us, we can freely go and do. And that's where the money is. That's where the reliability issues are. That's where the enterprise grade issues are. I mean, look, I talked about database as a service, so fastest growing products for us simply because it's a hard problem. And we do it in a multicloud way. You people can take databases and service to run in factories, uh, shop floors to on prem private cloud, to off-prem public cloud. And that's the point power of Nutanix actually, you know, that's how we go away in a lot. We go in with extremely nice, serious workloads. We don't have a hedge on an, any other architecture. You know, it's supposed to be hyperconverged all day long. We cannot spill over into hardware, which is provide proprietary. And in the public cloud is going to be the exact same thing. We cannot spill over into the public clouds, a block storage service or file servers. We have to do everything with a standardized equipment, but it's on prem and off prem. And that's how we differentiate. I think both companies actually have a different path. You know, they have gotten deeper into networking and security and trying to make money off of it. That for us, uh, I think networking and security has to be simple, easy, lightweight. And as an insurgent, that's all we can do. We can go and sell multimillion dollar network virtualization software, the public cloud doesn't sell network virtualization software as a multi million dollar deal network is a means to an end and or security is a means to an end, not an end in itself. So I think for us the story, did you own networking and securities to make it simple, like with developer friendly application administrator assembly, as opposed to going and making him do a things. And, uh, we go deep after data compared to the interaction, you know, and make it run anywhere and everywhere. It is a really hard problem. You know, the people who interviewed from BM ware come to us, engineers, develop managers, like how do you do this? Where your portable across all the social platforms and have a consistent customer experience. It's really hard what we did by putting it across different. Some of Andrew's and still saying, look, they're at MasterCard while the internet is going closer and closer and closer to just Dell, they're becoming more of a hardware company in that sense, actually. So what we have embarked upon is a hard problem subscription. You really hard, you know, uh, I just said, you know, that 13% and the close to 84% as of last quarter, it's architecture, you're trying to focus on the architectural things. So that three years down the road, we don't look back and say, now you just got to keep acquiring companies to grow our revenue or top line or something, you know? So I think these things to also fundamentally pay the tax now. So you don't have to really go and think about doing hacks later.

Wamsi Mohan: That's interesting perspective. Um, I was wondering if you could care to comment on sort of the, the journal article around Dell doing some strategic actions with VMware. Um, how, how do you think about that? If you, if you think about it at all and, and any, any homicides that you might want to share on that?

Dheeraj Pandey: Again, hard to speculate. It's a complicated arrangement that tax implications for the next 15 months. Again, it could go either way. I mean, they could completely spin it off or they could completely spin it in. And, uh, I think, uh, my goodness, what he's doing, you know, he is so savvy in the stuff that I can, uh, it's perilous to me to predict. What I do know though, is that the notion of cloud software becomes important because look cloud as a hardware. When I say cloud as a hardware, big facilities, big data centers that train has left the station. So there's no point in becoming that anymore. As I mentioned before, the important thing is what is cloud as an amorphous software that runs anywhere and everywhere. And that's where everybody's interest is right now. You know, it can be dispersed the cloud. Can we bring it on prem? Can we take it to the edge? Can we take this software and run it in the public cloud? So that lift and shift becomes easy. I think as a market segment, cloud software becomes a very important piece of the puzzle. And, you know, I go back to time again, because you can learn so much from history. You know, when a dealer is drawing from billionaire to 4 billion in 2008 and 12, the other $55 billion silver hardware market, there was a $30 billion storage hardware market. Those are $25 billion networking hardware market. And all they said was, look, I'm not competing with that. 110 billion. All I'm looking at is a way to virtualize, simplify, and integrate. And that's why I dissolved 4 billion a year. And that's how we have to look at the stats. Look at the end of the day, cloud software is not out there to compete with that a hundred, 110, 150, whatever that number is billion. The question is, can you build software that virtualizes simplifies and integrates for a singular experience? 

Wamsi Mohan: Interesting food for thought. I know we're coming up close to the top of the hour. Maybe two more questions if I could. Um, what's your view on, on consolidation trends in the industry? I mean, it looks as though, you know, we spoke about ATI about market dominance to players in the market. How do you see consolidation trends progress, especially when capital is so cheap and you know, this next decade probably sees a lot of companies that either don't have a growth strategy or enough off a product portfolio to singularly succeed. How do you view consolidation?

Dheeraj Pandey: I mean, you know, you answered the question, you know, capitalist cheap and there's a Baton passing that's going on in the industry right now from the old guard, the new guard. And it happened in the mentee's and, uh, even the APS for that matter, you know, as, as architecture shifted from mainframe to client server, from clients over the internet, internet from internet to appliances and virtualization to then the cloud, I think, you know, every decade has seen the Baton passing. And I think there's a bit of a Baton passing from the old to the new, and that's where consolidation really happens. And many have some element of fatigue and all sorts of things that create consolidation as well. But I foresee this next few years to be hyperactive when it comes to consolidation.

Wamsi Mohan: So to wrap up, maybe Dhiraj, can you maybe talk a little bit about, what do you think is most misunderstood as part of the Newtanics story and the investment community today? I'm sure you, you talked to Dustin and investors directly and to dye our team as well. Um, what is your impression of what is most misunderstood in the story and how do you think that gets resolved?

Dheeraj Pandey: Yeah, I mean, he looked a complicated story. We are in the arena and the folks were the front row seat to get it, you know, the longterm folks who have been with us for the last six, seven years of investors to get it. But because we did this transition two years ago and I've been going through this, it's a complicated story just for that reason alone on chemo, people in the bleachers that obviously just don't get it. But I think it's a Rite of passage. You know what we do? What is cloud software? Why should I even have cloud four? Prayer has been a journey of the last several years and probably will be for the next several years itself. I think the other piece is profitability and all that stuff. And again, I just want investors to know that, you know, but in 2015 and 19 born 75 million and we grew the business five, six X, and, and we are extremely paranoid about efficiency and the profitability. You know, we still a 10 year old company. So in the next three to five years, what could happen to us is, and that train has left. The station is when we started the transition years ago.

Wamsi Mohan: The next couple of years will be a very different company. Perfect. Well, Dheeraj, we really appreciate all your thoughts and your insights. It's always a pleasure to have these calls with you. And I feel like I learned something at the end of each of these that gives me some food for thought. So thank you so much for taking the time. I hope you're staying safe and, uh, we should ask the very best and, and talk to him. Thank you.

Dheeraj Pandey: Insightful. They pushed me to think hard, thanks to the audience as well. Take care of yourself. Take care of you.

Wamsi Mohan: Thanks Dheeraj.

Jason Lopez: This is the Tech Barometer podcast from The Forecast. That was the Bank of America View from the Top CEO Insight Call. Nutanix CEO Dheeraj Pandey spoke with Bank of America, senior tech analyst Wamsi Mohan. Tech Barometer is produced by The Forecast and you can find more tech content, stories, and podcasts at theforecastbynutanix dot com.

 

Jason Lopez is executive producer of Tech Barometer, the podcast outlet for The Forecast. He’s the founder of Connected Social Media. Previously, he was executive producer at PodTech and a reporter at NPR.

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