Prepared remarks
Hello. And welcome to Nutanix Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We ask that you limit yourself to 1 question and 1 follow-up. I would now like to hand the conference over to Richard Valera, Vice President of Investor Relations. You may begin.
Good afternoon. And welcome to today's conference call to discuss third quarter fiscal year 26 financial results. Joining me today are Rajiv Ramaswami, Nutanix's CEO and Rukmini Sivaraman, Nutanix's CFO. After the market closed today, Nutanix issued a press release announcing third quarter fiscal year 26 financial results. If you would like to read the release, please visit the Press Releases section of our IR website. During today's call, management will make forward-looking statements including financial guidance. These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements. For a more detailed description of these and other risks and uncertainties, please refer to our SEC filings, including our most recent annual report on Form 10-K and our subsequent quarterly reports on Form 10-Q, as well as our earnings press release issued today. These forward-looking statements apply as of today, and we undertake no obligation to revise these statements after this call. As a result, you should not rely on them as predictions of future events. Please note unless otherwise specifically referenced, all financial measures we use on today's call except for revenue are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided, to the extent available, reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Nutanix will be participating in the Bank of America Global Technology Conference on Tuesday, June 2, in San Francisco. We hope to see you there. Finally, our Q4 fiscal 26 quiet period will begin on Saturday, July 18. And with that, I will turn the call over to Rajiv. Rajiv?
Thank you, Richard, and good afternoon, everyone. In our Q3, we continued to see healthy demand for our solutions, as reflected in our strong bookings and outperformance versus our guided metrics. We see this demand driven by businesses looking to modernize their IT footprints, adopt hybrid cloud operating models, and deploy cloud native applications, including AI. In Q3, we delivered quarterly revenue of $703 million, above our guidance range, grew our ARR 15% year-over-year to $2.43 billion, and saw solid free cash flow generation. We also saw another healthy quarter of new logo additions, adding over 700 new customers in Q3. Looking ahead, the environment remains dynamic. Supply chain challenges continue to drive higher prices and generally longer lead times for server hardware from our partners, which are pressuring customer budgets and timelines. However, Nutanix's focus on customer choice helps mitigate some of this impact and enables customers to better manage their deployment timelines and budgets. These include choice of server vendors, choice of running in the public cloud via Nutanix Cloud Clusters or NC2, and, in particular, choice of adopting our cloud platform with a growing number of external storage options. Note that the majority of current data center infrastructure is based on external storage and legacy hypervisors on servers. Our support of external storage platforms is simplifying migrations to Nutanix from these environments without requiring significant hardware changes. In Q3, we continued to see success in the marketplace with our cloud platform. Our most notable wins, a few of which I will highlight, demonstrate the appeal of our solution to businesses that are looking to adopt hybrid multi-cloud operating models, deploy modern apps and AI, and in some cases, deploy our cloud platform while retaining their existing hardware, including external storage. Two of our largest new logo wins in the quarter reflect success with our initiative to support external storage. One was a seven-figure win with a North American-based healthcare services provider who chose the Nutanix cloud platform to replace their incumbent infrastructure software while retaining their Pure Storage FlashArray external storage. Another significant win was with a financial services provider who chose our cloud platform for running their Microsoft SQL databases while retaining their existing Dell PowerFlex arrays. We are pleased with the progress we have seen to date with our offering supporting external storage and expect continued growth as additional solutions become available over the course of the year. We also continue to see good uptake of our cloud native and AI offerings in Q3. An example is one of our largest wins in the quarter, with an aerospace and defense supplier in the APJ region. With this full stack expansion, the customer now plans to use Nutanix Kubernetes Platform, or NKP, to deploy and manage their container-based applications while continuing to run their VM-based applications on our platform. They also plan to use Nutanix Database Service for database automation and Nutanix Unified Storage for managing their unstructured data. We continue to see traction with our AI solution in Q3, with wins in areas including financial services, health care, and higher education. Finally, in Q3, we saw increased uptake of the public cloud deployment option for our platform, NC2. This included a notable quarter-over-quarter increase in both customer wins and course deployed. NC2 wins included a Fortune 500 financial services provider that was looking to expand its use of our cloud platform as they migrated away from their existing on-premises provider. Facing longer lead times and higher prices for servers, this customer chose to deploy NC2 on AWS. We also landed a new logo with an EMEA-based provider of outsourcing services. This customer was looking to replace their existing data center infrastructure provider and chose to deploy our cloud platform on NC2 in OVH public cloud pending availability of server hardware. Over time, they plan to migrate their production workloads back on-prem while maintaining disaster recovery services on NC2 in OVH. They also plan to migrate their Omnicell workloads to the Nutanix cloud platform. During the third quarter, we made a number of important product and partnership announcements, mainly in conjunction with our annual .NEXT customer and partner conference in Chicago, which drew over 5,000 attendees. We announced Nutanix IdentityAI in March at NVIDIA's DTC 26. This full-stack software solution is designed to reduce complexity, optimize performance and security, and enable lower and more predictable token costs for agentic AI applications. Today, our agentic AI solution works on platforms using NVIDIA GPUs. With our recently announced AMD partnership, we will also be supporting AMD's GPU solutions going forward. Then in April, at .NEXT, we announced new capabilities for our agentic AI solution to support a new generation of AI cloud providers, or neo-clouds. This solution is anticipated to become available in the second half of 26. We also introduced NKP Metal, which brings the automated lifecycle management and data services of the Nutanix cloud platform to bare metal Kubernetes. Finally, at .NEXT, we continue to demonstrate progress on our initiative to support external storage, announcing new partnerships with NetApp and Lenovo to support their storage platforms. Availability for both of these new solutions is expected within this calendar year. We also held our Investor Day in conjunction with .NEXT, and it was a pleasure seeing many of you in person at this event. We were happy to be able to share how our platform has evolved to a unified platform for running AI and both modern and traditional applications, to provide an update on our large and growing market opportunity, and to provide an update on our medium-term target model, including mid- to high-teens revenue and ARR growth in FY 2029. We look forward to continuing to drive towards the vision and targets we shared. In closing, we believe our business performed solidly in the third quarter, including strong bookings, healthy new logo additions, and solid free cash flow performance. Our opportunities with AI, modern applications, hybrid multi-cloud, and support for external storage provide us with a strong foundation for multi-year growth. And with that, I will hand it over to Rukmini Sivaraman.
Thank you, Rajiv, and thank you everyone for joining us today. It was great to see many of you at our Investor Day last month. I will first review our Q3 26 results followed by our guidance for Q4 2026 and the updated full year 2026 guidance. In Q3, we reported results that were above the high end of the range for all guided metrics. In Q3, we reported quarterly revenue of $703 million, higher than the guided range of $680 million to $690 million. ARR at the end of Q3 was $2.435 billion, representing year-over-year growth of 15%. NRR, or net dollar-based retention rate, at the end of Q3 was 106%. In Q3, average contract duration was 3.4 years, slightly higher than our expectations. Non-GAAP gross margin in Q3 was 87.8%. Non-GAAP operating margin in Q3 was 22.3%, higher than our guided range of 16% to 17% due to lower operating expenses related to timing of hiring among other factors and higher revenue than expected. Non-GAAP net income in Q3 was $136 million, or fully diluted EPS of $0.47 per share based on fully diluted weighted average shares outstanding of approximately 287 million shares. GAAP net income and fully diluted GAAP EPS in Q3 were $72 million and $0.25 per share, respectively. Free cash flow in Q3 was strong at $197 million, representing a free cash flow margin of 28%, benefiting from good bookings linearity in the quarter. Moving to the balance sheet, we ended Q3 with cash, cash equivalents, and short-term investments of $2.018 billion, up from $1.874 billion at the end of Q2. Moving to capital allocation, in Q3 our Board increased our existing share repurchase authorization by $750 million and we repurchased $50 million worth of common stock under our authorization. We also used about $32 million of cash to retire shares related to our employees' tax liability for their quarterly RSU vesting. Together, these actions help manage share dilution. Moving to Q4 guidance. Our guidance for Q4 fiscal 26 is as follows: revenue of $725 million to $745 million, non-GAAP operating margin 21% to 23%, fully diluted weighted average shares outstanding of approximately 292 million shares. Moving to the full year, our updated guidance for fiscal year 26 is as follows: revenue of $2.82 billion to $2.84 billion, an increase at the midpoint from our prior guidance; non-GAAP operating margin of approximately 22.5%, an increase from our prior guidance; free cash flow of $760 million to $780 million, representing a free cash flow margin of 27% at the midpoint, also an increase from our prior guidance. I will now provide a few points to note on our guidance. First, while we continue to operate in a dynamic environment, our TCV bookings expectations for the full year are higher relative to our last earnings call. Second, our customers continue to experience supply-related shortages and price increases for server hardware from our partners on which to run our software. This continues to impact the timing of conversion of our bookings into revenue and is factored into the updated guidance. We expect this to continue in fiscal Q4 and into fiscal year 2027. Third, we continue to invest for continued growth against our large market opportunity while finding ways to do so effectively and efficiently, resulting in the increased operating margin guidance for fiscal year 26. In closing, Q3 was a strong quarter in which we beat all guided metrics, and we are pleased to raise our full year guidance. We would like to thank our employees, customers, partners, investors, and stakeholders for their continued trust in us. With that, operator, please open the line for questions.
Questions and answers
Thank you. To withdraw your question, please press star 11 again. Please limit yourself to 1 question and 1 follow-up. Our first question comes from the line of Matt Martino with Goldman Sachs. Your line is open.
Hey, good evening. Thank you for taking the questions. Rajiv, maybe to start with you. We are now several quarters into this supply chain dynamic. Are you starting to see indicators that customers are getting better equipped to manage through it, whether it is building hardware lead times into procurement cycles, or leaning more on that software-hardware decoupling option? And does ultimately that translate into smoother deal conversion for Nutanix even if the supply backdrop does not improve materially over the next kind of 3 to 6 months?
Yeah. Yes, Matthew. For sure, customers are much more aware of the situation and are better navigating it, and we are also helping them with that. If you look at the last couple of months, we have seen hardware prices from several vendors continue to increase, but lead times are normalizing at some of the vendors while remaining extended at others. We do expect hardware prices to remain elevated going into FY 2027. Now, how are customers adapting? They are looking for more flexibility on software licensing terms. There are some instances of customers delaying projects, but those are not very common; it has happened once in a while. To your point earlier, we have a number of tools to help them offset these issues, and they are actually also making use of this. They have choice of several vendors. We have external storage platforms now available where they can do migrations without requiring new hardware purchases. They can use our solutions in the public cloud, and we have seen some customers do that when servers are more easily available and sometimes cheaper than buying enterprise servers. Our customers are certainly getting used to this, and we are providing them options to help them adapt to this supply chain environment.
Thank you, Matthew, for that question. So a couple of points to note. First, as you pointed out and as Rajiv just covered, the supply chain environment continues to be dynamic, and as we have talked about in the past, some of those dynamics can impact revenue timing from quarter to quarter. So that is the first piece. The second piece I will say is that the Middle East region has been a good growth driver for us in the past and represents a mid-single-digit percent of our revenue, and we saw good performance from that region in Q3. But as we all know, given the situation there, conducting new business in the region is more challenging, and so we factored those in and are taking a prudent approach with regard to our Q4 outlook. To your point, Matthew, in terms of what it will take for us to get to the higher end, if the supply environment continues to progress as it is, then we have factored that in. But if it is better or we find that customers are able to navigate it better than we have assumed, then we should be able to get to the high end of that range. Improvements in The Middle East or some combination thereof would also help.
And maybe I will add a couple more things there just clarifying the opening as well. I think it also depends on how much traction we get quickly with our external storage solution, for example, and public cloud solution. We do have new products coming to market. We have got the Pure Storage array and the PowerFlex already in the market. So that could also help.
Agreed. Thank you, Rajiv. Thanks, Matthew.
Thank you. Our next question comes from the line of Param Singh with Oppenheimer and Company. Your line is open.
So for my first one, I wanted to understand how much incremental ARR is coming from selling to attach on the external storage vendors, and how are you priced compared to your closest competitor, VMware? I'm trying to get a sense of what ARR traction could look like once incremental vendors come online with PowerStore this summer and then NetApp and then Lenovo later this calendar year.
Thank you. Param, let me take that. Good question. As I said earlier, the vast majority of data center infrastructure today is still external storage connected to legacy hypervisors on servers. With the solutions and tools we already have in the market, we have started seeing traction. For example, we had two significant deals I mentioned on the call: one with PowerFlex, one with Pure Storage. PowerStore coming on fairly soon here is going to accelerate that, and later in the year we should get NetApp. As we talked about at our Investor Day, over time, we intend to address a big chunk of this addressable market and expect good continued growth. Right now it is a small portion of our business, but it is rapidly growing, and we expect it to be a more significant chunk over time, especially since it makes it much easier to adopt our solution without changing hardware in a supply-constrained environment.
Got it. Thank you so much, Rajiv. And as my follow-up really quickly, on the AI product that you introduced and you talked about, any early feedback from customers there? Enterprise AI adoption is still in early stages and in flux, but I wanted to understand how customers feel about your product portfolio as it stands today. And would you price that as an add-on or kind of like out of your full stack? Thank you.
The Nutanix AI offering is an additional SKU that is on top of the rest of the full stack solution, so we are able to capture some extra value. There are two parts of the solution: one that we can sell directly to enterprises so they can build and operate their own GPU clusters, and a second part that we announced at .NEXT targeted towards neo-clouds and service providers. We are in the early stages on both, but we continue to see wins every quarter, including this quarter across verticals such as financial services, health care, and education. Many of these more regulated verticals tend to focus on having clusters on-prem, but it is still early days. The field is evolving rapidly, and we will continue to make advances rapidly. We do think this is a significant long-term opportunity and a tailwind to our overall business over time. Got it. Thank you so much for those answers, Rajiv. Really appreciate it.
Thank you. Our next question comes from the line of Jim Fish with Piper Sandler. Your line is open.
Hi, guys. Thanks for the question here. Maybe circling back on the first one and trying to get more certainty here. In light of the comments that you made also, Rajiv, you talked about an increase in public cloud deployment. First, any sense to the size of NC2 at this point or public cloud within the portfolio today? And secondly, how much is that increased server cost actually causing the shift towards cloud essentially, at least temporarily? It seems like you're seeing a pickup in NC2 because of rising server costs. Is that the message you are trying to convey, that customers are shifting to NC2 as an option and, as a result, NC2 is seeing incremental growth?
Yes. On the second part of your question, there is no doubt that enterprise server constraints are causing customers to look more at the public cloud with NC2. We have a couple of examples to give you color. We had a financial services company win this last quarter where their plan was originally an on-prem to on-prem migration from their legacy vendor onto Nutanix, but they discovered given the server pricing that they could get servers on AWS and use our software on them, and those were more easily available and faster to get going, so they are doing that. They will probably do some mix of on-prem migration and use a portion on Nutanix on AWS. In other cases, customers say it will take time to get servers, so let me start with NC2 on the public cloud and then bring that back on-prem as servers become available. We have certainly seen this contribute to acceleration of our NC2 bookings. As to the size of NC2 today, we have said we are seeing an uptick, more customers, and more consumption of NC2. We have not provided more specifics, and it is still a minority portion of our business, but it is growing.
Then, Rukmini, on the metric side of things, decent spike up of duration here, which is a little bit atypical of this quarter to begin with and you guys did not really call out any major massive kind of wins that would have influenced that. So can you walk us through what is causing that little bit of pickup here? And if that is kind of the rate we should be thinking about heading into Q4? And if we are going to see a bottom in net retention rate now here at 106, or if this is, again, kind of the rate to think about. Thanks, guys.
Thank you, Jim. So on duration: as I said in my prepared remarks, we did see average contract duration come in a little bit higher than we had expected for the quarter. No specific deal to call out, Jim; it can vary from quarter to quarter based on the deal mix. What we saw in Q3 was generally just a higher mix of larger and longer-duration transactions across both land and expand and renewals. Duration can also help revenue performance. So that is on duration; nothing specific to note, and I would not necessarily assume that continues — we just saw a mix in Q3 that contributed to that. On NRR, it is important to note that the delaying recognition of revenue relative to bookings also impacts ARR and NRR. So that is what we are continuing to see. The other piece is that average ACV or the ASPs of our new logos have been increasing over the past few years, and we gave some quantification of that at our Investor Day. That does create a bit of a headwind on expansion growth rate, which is reflected in NRR. All that said, we are continuing to focus on driving adoption and expansion of our solutions within the customer base, and that continues to remain a focus going forward.
Thank you. Our next question comes from the line of Wamsi Mohan with Bank of America. Your line is open.
Yes. Thank you so much. You said full year TCV bookings are higher than at the last earnings call, but customers are still facing these server-related issues. So any quantification on how much revenue and maybe free cash flow is being deferred because of these constraints? Maybe best guess or qualitatively, any color that you can share there?
Thanks for the question, Wamsi. We gave color on bookings because we think it is important for investors to know what is happening in terms of bookings as revenue timing shifts. We have not quantified specifically how much revenue is being deferred because of the supply constraints. We have made clear on prior calls that the supply chain has affected our ability to raise numbers earlier, and this quarter we were pleased to be able to raise our full year number coming off Q3. The supply chain continues to be a factor in our revenue impact, but we have not provided a specific dollar quantification. On operating margin, we were happy to take our full year guide up relative to what we said three months ago. We believe there is a large market opportunity we need to go and tackle and we will continue to invest for that, but we are doing so in a way that is efficient. For the quarter, there were fluctuations in timing of hiring which we expect to catch up over the next period of time, and we will continue to be thoughtful about how we invest going forward. We gave you our intent to continue to grow operating margins over time.
Our next question comes from the line of Sammy Chatterjee with JPMorgan. Your line is open.
Hi. Thank you for taking my question. This is MP on for Samik Chatterjee. For my first question, just wanted to ask how sales via OEM partners tracked relative to your own expectations heading into the quarter? Any color on expectations for how that should track through the rest of the calendar year? Thank you. I have a follow-up.
If you look at sell-through via our OEM partners, we have Cisco, Dell, and Lenovo, and we do a small amount with HPE as well. Those tracked as we expected. Cisco has continued to grow, Lenovo has been a good steady-state partner for several years, and Dell is growing from a small base. We do expect Dell-related business to potentially increase once PowerStore is in the market because they are more aligned toward external storage than selling HCI today. Thank you, Rajiv. And for my follow-up, on the new logo additions, can you discuss performance relative to different cohorts — large enterprises versus small and medium enterprises? Any meaningful difference across those cohorts? Those new logos — we added 700 this quarter — are well distributed across the entire segment spectrum. We have a three-tier segmented model to go after our customer base: the top tier of large enterprise, the middle tier of smaller enterprise and commercial, and a third tier that is channel-led. Typically there are more customers in the lower tiers, but we are seeing wins across all tiers, from Global 2000 customers down to smaller customers. It's a well-distributed set of new logos.
Thank you. Our next question comes from the line of Matthew Hedberg with RBC Capital Markets. Your line is open.
Hey, guys. This is Simran on for Matthew Hedberg. Congrats on the quarter, and thanks for taking our questions. Just one from me. Can you help us think through your available-to-renew pool into Q4 and any early thoughts you have around full year fiscal year 2027?
Hi, Simran. For Q4, nothing unusual to call out. We have quarter-to-quarter movement in renewals timing based on normal course of business. For fiscal year 2027, we typically provide guidance in our August earnings call after Q4, so I will leave it at that for now and say that ARR is expected to grow in fiscal year 2027 as one would expect.
Our next question comes from the line of Jim Long with Barclays. Your line is open.
Thank you. Two questions if I could. First, on the competitive landscape, not just pricing but given all the options you are providing — external storage, cloud-based options, server choices — how do you think the competitive landscape is stacking up against these options to keep growth going? And second, on the AI offerings, they are pretty new, but can you give a sense of how they are scaling and how we should think about the TAM or growth that those businesses could be ultimately? Any color would be helpful. Thank you.
On the competitive dynamics: some competitors are also partners. The main competitor that comes from where our customers are moving away from is VMware and now Broadcom. Most customers are looking to exit over time, and when they migrate they go to Nutanix, Red Hat, Microsoft, or sometimes public cloud directly. We tend to do very well with mission-critical VMware workloads running in production. Our platform is strong for that, and for customers that choose the public cloud, it is often easier for them to go to the public cloud on the Nutanix platform itself. We have customers operating at high volumes across Azure, AWS, and on-prem, all using Nutanix. With our expansion into external storage, we provide even more, and easier, options for customers to migrate. On AI adoption, it is early days. We introduced the Agentic AI stack recently and enhanced support for service providers; we are starting to see traction but most customers are still in early experimentation and getting GPU clusters on-prem is sometimes constrained by supply. We see this as a huge market opportunity — a multibillion-dollar TAM over time — but it is still early. We are encouraged by the signs across several verticals.
Our next question comes from the line of Sanjit Singh with Morgan Stanley. Your line is open.
Hi. This is Abhishek Murali on for Sanjit Singh. Thanks for taking the question. Wondering if we could get an update on the AMD partnership. I understood revenue contribution is supposed to happen in fiscal year 27, but is it on track for the platform to go into effect by the end of the year? And how is the pipeline shaping up? Thanks for taking the question.
It is very early in terms of an actual solution in the market. We already support AMD CPUs and will support more of their CPUs; that predates the partnership. On the GPU side, we do not quite have that solution in the market yet. Customers want options in the AI chip market — NVIDIA, AMD, public cloud chips, and others targeted at inference — and they want choice to minimize cost per token. Having AMD as an option will be helpful; we expect the first traction with that solution in the second half of FY 2027.
Our next question comes from the line of Mike Cikos with Needham. Your line is open.
Oh, terrific. Thank you. And congrats on the consistent execution in the volatile backdrop here. This is now the second consecutive quarter where management has discussed higher bookings expectations versus the prior earnings call, which is great color, particularly in light of the delayed conversion timeline to revenue. Two questions: first, the company does not guide or communicate bookings externally — is there any way you can help qualify or quantify to what degree your bookings outlook has improved over the last 90 to 180 days? And second, did the volume of deals with delayed conversions become more material in Q3 versus what was observed in Q2? Any color on those two dynamics would be appreciated. Again, congrats on the consistent execution.
Hi, Mike. Thanks for the questions. First, on bookings: you're right that we do not report bookings as a metric regularly. We have been providing incremental color over the last couple of quarters because revenue timing has shifted and we wanted to provide the underlying demand picture. In Q3, bookings were strong — over 20% on a TCV basis — and we wanted to call that out. Some of you calculate bookings based on RPO, so you'd see that there as well. We have not quantified, for the full year, how much bookings expectations have improved relative to three months ago, but I wanted to give you that Q3 number which was strong. On the second question regarding deals with delayed conversions: I am not breaking out specifics quarter-to-quarter because it can move around. It depends on what customers choose to deploy and which vendors' lead times normalize. Some vendors' lead times normalized while others remained elongated. In aggregate, we were pleased to raise our full-year revenue guide on the back of Q3.
Our next question comes from the line of Radi Sultan with UBS. Your line is open.
Thanks for taking the questions. Maybe first for Rajiv: with the vSphere 9 deadline at the end of next year, any trends in customer behavior as we approach that VMware deadline? And what are you doing to accelerate migrations ahead of that deadline?
vSphere 9 is a point in time and will cause waves over time. Most customers who purchased VMware Cloud Foundation historically have not fully adopted it; they buy it but often deploy it with external storage. The same will likely happen with VCF 9 — customers may buy it but not fully adopt it immediately, and deploying it fully will often require a substantial hardware refresh, including embedded storage updates. That creates more choice for customers: they can migrate to a modern platform like Nutanix or continue with the incumbent. We are providing customers choices to preserve hardware — come to us with existing external storage — or do a full HCI conversion. VCF 9 is a significant upgrade effort and can be complex. Our external storage support, public cloud options, automated migration tools, and commercial incentives together provide a compelling proposition for customers to migrate. We are seeing customers migrate every quarter, as reflected in our new logos.
Super helpful. One follow-up for Rukmini: you noted higher full-year TCV bookings relative to last quarter. Was that simply because Q3 TCV bookings outperformed and now your expectations for the full year are higher, or is that also inclusive of expecting Q4 TCV bookings to be higher than last quarter? If the latter, can you unpack what is driving that outperformance?
Overall, our comment was that for the full year our TCV bookings expectations are higher than what we expected three months ago. What is driving that: a couple of things — one is a longer average contract duration which helps TCV, and we have also seen better renewals performance. Those are the main drivers. We are continuing to watch and navigate the timing of bookings to revenue, and we are pleased with the overall bookings performance to date.
Our next question comes from the line of Simon Leopold with Raymond James. Your line is open.
Hi. This is Victor on for Simon. So just to clarify, the higher full-year revenue revision is a reflection of your expectations around better bookings traction and the higher TCV, is that correct?
Yes. We said our bookings expectations for the full year on a TCV basis are higher than we expected three months ago, and in Q3 bookings growth was strong at over 20% year over year. We beat Q3 and were happy to take up our full-year guidance as a result.
And to add, most of the new logo wins are coming from VMware platform customers.
Our next question comes from the line of Benjamin Bollin with Cleveland Research Company. Your line is open.
Good evening, everyone. Thank you for taking the question. Rajiv, you have introduced some programs to decouple software from hardware to make customers' lives easier. Could you talk about some of the things you are doing and how you think that is impacting overall visibility? I have a follow-up.
We have had a decoupled selling motion with most of our OEM partners for a while: customers choose the software and the hardware vendor they want, whether Dell, HPE, Lenovo, Cisco, etc. Historically, some vendors like Supermicro have had a tighter coupling, but given the current supply constraints we are explicitly encouraging customers to make their software choice independently and then choose the hardware that is available and suitable. This provides customers flexibility and choice given the supply situation, and that is the change we emphasized recently to give customers more options to deploy Nutanix on the hardware they already have or can acquire more quickly.
The other question is I know you are not quantifying the amount of time between when you collect cash and when software revenue recognition commences today, but could you talk a little bit about where you think average lead times are on the appliance business from appliance vendors today and where that stands relative to recent quarters?
Broadly, lead times vary by configuration and vendor. A range we see is anything from a few weeks, say three to four weeks, up to six months. It varies by week, month, configuration, and vendor.
Our next question comes from the line of Michael Cikos with Needham. Your line is open.
Oh, terrific. Thank you. And congrats on the consistent execution in the volatile backdrop here. This is now the second consecutive quarter where management has discussed higher bookings expectations. Versus the prior earnings call, which is great color particularly in light of the delayed conversion timeline to revenue. Two questions if I could, but first, the company does not guide to or communicate its bookings, at least externally. Is there any way you can help qualify or quantify to what degree your bookings outlook has improved over the last 90 to 180 days, and then the follow-up there is did the volume of deals with delayed conversions become more material in Q3 versus what was observed in Q2? Just any color on those two dynamics would be really appreciated. And again, congrats on the consistent execution here.
Hi, Mike. Thanks for those questions. As I said earlier, we are not reporting bookings as a regular metric, but we provided color because revenue timing is shifting. In Q3, bookings were strong — over 20% on a TCV basis — which we highlighted. We have not quantified how much our bookings outlook has improved relative to 90 to 180 days ago across the full year, but the Q3 number was strong. On deals with delayed conversions, I am not breaking out quarter-to-quarter specifics because it varies, but in aggregate the supply situation does continue to impact timing and some customers choose different deployment options as vendors normalize lead times at different paces.
Our next question comes from the line of Radi Sultan with UBS. Your line is open.
Awesome. Yeah. Thanks for taking the questions. Maybe just first for Rajiv. Just with the vSphere 9 deadline at the end of next year, any sort of trends in customer behavior as we approach that VMware deadline? And then what are you doing to sort of attack and accelerate some of those migrations ahead of that deadline end of next year?
vSphere 9 will be another point in time that forces decisions. Migration happens over time in multiple waves. Many customers who bought VMware Cloud Foundation have not fully adopted it and often deploy it with external storage. VCF 9 will force some customers to deploy, but it may require a significant hardware refresh to fully adopt. That creates a decision point where customers could migrate to Nutanix or choose to remain with the incumbent. We're providing options to preserve hardware via external storage support, provide public cloud alternatives, automated migration tools, and commercial incentives to make migration easier. We are seeing customers migrate to Nutanix every quarter, and the external storage support makes that easier.
Super helpful. And then just one follow-up for Rukmini. Just to be thinking about TCV bookings coming in higher relative to expectations for the year — just wanted to clarify, was that simply Q3 TCV bookings outperformed and now your expectations for the full year are higher, or is that also inclusive of Q4 TCV bookings you expect to be higher than last quarter? If the latter, can you unpack what is actually driving that outperformance? Thank you.
Yes. For the full year we expect TCV bookings growth to be higher than we expected three months ago. The drivers are primarily longer average contract duration, which increases TCV, and better renewals performance. Those are the two main contributors to the higher TCV expectations. We are monitoring the timing of bookings to revenue, and overall we are pleased with bookings performance to date.
Our next question comes from the line of Simon Leopold with Raymond James. Your line is open.
Hi. This is Victor on for Simon. So I think you kind of answered that in your last remark, but just to clarify, the higher full-year revenue revision is a reflection of your expectations around better bookings traction and the higher TCV, is that correct?
Yes. We beat Q3 and bookings growth was strong in Q3, and that gave us the confidence to raise the full-year revenue guidance.
And to add, most of our new logo wins are coming from VMware customers.
Our next question comes from the line of Benjamin Bollin with Cleveland Research Company. Your line is open.
Good evening, everyone. Thank you for taking the question. Rajiv, I think you have introduced some programs to decouple software from hardware and make customers' lives easier. Could you talk about some of the things that you are doing, and how you think that is impacting the overall visibility? And then I have a follow-up.
We have had a decoupled selling motion with our OEM partners for quite a while; customers choose the software and which hardware vendor they want. Historically, some OEMs sold more tightly integrated solutions, but given supply constraints we are making explicit the option to decouple software from hardware and give customers flexibility — choose the software, then choose the hardware that is available. This gives customers more options in the current environment and can improve their ability to deploy Nutanix even when server lead times are extended.
The other question is I know you are not quantifying the amount of time between when you collect the cash to when the software revenue recognition commences today, but could you talk a little bit about where you think average lead times are on the appliance business from appliance vendors today and where that stands relative to the past few quarters?
A broad range we see today is from a few weeks, around three to four weeks, to as long as six months. It varies by configuration, vendor, and over time.
Ladies and gentlemen, I am showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.