NCP-MCI-5.15 resources - Nutanix Certified Professional Multicloud Infrastructure (v5.15)

Here is a question for you. Which is more proprietary? The Nutanix hyperconverged compute, storage, and networking platform or a cloud like Amazon Web Services or Microsoft Azure?

It was a trick question. They are all proprietary, but oddly enough if you mix them together, you can get something that is at least somewhat less proprietary and more broadly useful — and therefore with a much larger addressable market. And in the case of Nutanix, if it lets go completely of its own cloud storage, compute and networking and wraps its new Nutanix Central management tools and application and data services around native cloud compute, storage, and networking, it has a chance of creating a universal substrate that spans on premises and cloud without forcing customers to run the Nutanix Compute Cloud stack, called NC2, on those clouds.

This is exactly what Nutanix is hoping to do with an effort called Project Beacon, which was announced at its accurate .NEXT 2023 user conference. We sat down with Lee Caswell, senior vice president of product and solutions marketing at Nutanix, to find out more about Project Beacon, which is the next and perhaps final expansion and evolution of the Nutanix server-SAN hybrid that debuted way back in 2011 to much fanfare.

Caswell, who came to Nutanix in February 2022, knows his way around virtual compute and storage. He was formerly vice president of product and technical marketing at VMware, NetApp, and Fusion-io and before that co-founder, chief marketing officer, and chief executive officer at hyperconverged infrastructure (HCI) pioneer Pivot3, which was acquired by Quantum in July 2021.

Our job is to always be on the lookout for the next platform, and so we have paid close attention since it uncloaked from stealth mode a dozen years ago. The Nutanix platform, which has had more names than Elizabeth Taylor had husbands over the years, had all of the hallmarks of a technology that could go mainstream in a big way, and had VMware stubbornly refused to do virtual SANs for longer, Nutanix may have eclipsed it. But VMware woke up and protected its market and Nutanix has grown more slowly than it otherwise might have.

But as we have pointed out before, Nutanix and all of the HCI players have, for reasons that are often perplexing, had a hard time going mainstream, by which we mean having hundreds of thousands of customers worldwide. Soon after founding The Next Platform, we took a stab at trying to understand what was holding HCI back despite its obvious benefits for enterprise customers. After watching Nutanix bleed cash for so many years, in September 2021 we pondered why HCI was not more pervasive given the quality of the Acropolis platform, which is another name for the Nutanix Compute Platform also sometimes called Nutanix Cloud Infrastructure. (Nutanix Compute Cloud or NC2 is NCI running on AWS or Azure.) And we also wondered why it was not more profitable after a decade in the market, and thought that maybe being part of the IBM-Red Hat collective could help the Nutanix HCI platform expand to what seemed to be its natural size. We wondered if Citrix Systems and Nutanix should merge, creating a behemoth that could create a big platform to rival those of Microsoft and VMware. We heard rumors about Nutanix potentially being acquired in October 2022 and suggested that only a big cloud would be rich enough to do so. And as 2022 was coming to a close, we just flat out asked if any of the modern storage providers – with Nutanix and Pure Storage being the examples – could actually make money, or even come close to the booming NetApp and EMC in their respective NAS and SAN markets in the 1990s and 2000s.

This Project Beacon twist is as interesting as it is inevitable, and we have seen it before in other platforms. Here is a good example. Just as the Dot Com Boom was beginning to bust, Vern Brownell, who ran infrastructure for Goldman Sachs, founded Egenera and created its BladeFrame platform and Processor Area Network (PAN) virtualization stack. This was way before VMware came on the scene, but just as server virtualization was taking Unix servers by storm. PAN created what we would call bare metal instances that could be virtualized and partitioned to run workloads, much like hardware partitions on Unix systems. Selling this hardware provide more difficult than anticipated, and seven years later the PAN Manager software was broken free of the BladeFrames and sold as a management tool for the blade server infrastructure made by IBM, Dell, Hewlett Packard, Fujitsu, and NEC. By 2013, Egenera was basically kaput, in this case because all of the blade server makers were creating their own management layer and they had no interest in helping their rivals, particularly Cisco Systems and the converged server-network hybrid code-named “California” and known as the Unified Computing System, or UCS, that shook up the server market from 2009 through 2013 before settling down.

Don’t take the wrong meaning from that comparison, with over 23,000 enterprise customers and $1.3 billion in cash in the bank, we are not suggesting that Nutanix is somehow going to fail. It is just difficult to get competitors with their own vested interests to cooperate, even if it is something that customers want.

And we think that enterprise customers operating at scale do want a unified, managed platform that spans on premises and clouds and we do think that existing Nutanix customers will welcome the Project Beacon effort to provide the same management and control for native compute and storage services on AWS and Azure that are provide for the NC2 stack running on premises or on bare metal instances from those two cloud providers.

The shift from virtualized to bare metal instances for running NC2 in the cloud is an important once, since it lowers the cost of the cloud infrastructure and also allows for the Acropolis hypervisor to be used as a single substrate across on premises and cloudy infrastructure. Otherwise, you have to use the native virtualization on the clouds – KVM on AWS and Hyper-V on Azure, or even ESXi on VMware on AWS if you want to do something that will be a very expensive proposition.

Project Beacon is going to be self-funded in a sense because it aims to make the new Nutanix Central cloud management tool span the clouds and on premises application and data services and help customers not only control the whole shebang from one place, but control the exorbitant costs they have on the clouds.

“Cost concerns are coming up because money is no longer free,” Caswell tells The Next Platform. “As the bills have come in, and interest rates are going up, people are now taking a harder look at how they are spending for infrastructure and how they might optimally locate compute and storage. Our latest survey on this workload movement shows that almost all customers have been moving applications across different infrastructure environments, and we expect that to actually increase over time as people start thinking about where’s the best place to locate things given cost, performance, and data sovereignty issues. The issue is a bit like having the kids load the dishwasher after a holiday meal. They just put everything in there, and when you open the door you see that more can fit if you start rearranging things. When it comes to cloud, we are at this optimization stage. It is interesting that Google and Microsoft are talking about optimization, not cost cutting, too.”

The heart of the Project Beacon effort is Nutanix Central itself runs in the cloud as a service, and it is not just an instance of the Prism HCI management tool pried loose from the Acropolis stack, but is rather a brand new piece of software that treats application and data services running on Acropolis, Azure, or AWS as peers. Gartner is calling such tools “digital platform conductor tools,” and we wonder are they thinking train or orchestra? (Probably orchestra.) The point is to have a common view of similar services running on dissimilar end points.

“Today, our relevance with the Nutanix stack is to hundreds or thousands of datacenter and edge end points, with some extension out to the cloud,” says Caswell. “The opportunity of moving up the stack with Project Beacon and Nutanix Central increases our relevance to millions of cloud users.”

Now here is the neat bit, which we are going to come back to and get some real data from Caswell when it is ready for publication. With Nutanix Central running application and data services and running NC2 on the cloud bare metal instances at AWS and Azure, by applying their own virtualization to them and then overcommitting CPUs and share resources across instances, Nutanix thinks it can cut the cost of providing compute and storage for applications in half compared to loading up Nutanix and running it on stock virtualized, T-shirt sized instances on Azure or AWS.

We are going to be talking to Nutanix and getting the information to explain how this works technically and economically. Half is a big deal.

• Nutanix has shown impressive sales momentum and expense management, with competitive success against rival VMware.
• The company's transition to a SaaS deployment model and focus on hybrid multi-cloud offerings positions it well for sustained growth.
• Nutanix's valuation remains reasonable, and its potential to benefit from the AI revolution could further boost its growth prospects.

Read the full article on Seeking Alpha

Shares in Nutanix Inc. surged in late trading after the cloud-computing company reported earnings and revenue beats in its fiscal third quarter and gave an upbeat outlook.

Nutanix reported adjusted earnings per share of four cents on revenue of $448.6 million, the latter up 11% year-over-year. Analysts had expected earnings of three cents per share on revenue of $433.12 million.

Annual recurring revenue in the quarter rose 32%, to $1.47 billion, and annual contract value rose 17%, to $239.8 million. Net cash provided by operating activities in the quarter was $64.3 million and free cash flow came in at $42.5 million.

Recent company highlights include the launch of Nutanix Central, a cloud-delivered interface that simplifies infrastructure management across various platforms, including public clouds, on-premises data centers and edge environments. Nutanix Central is aimed at providing a consistent management experience with integrated security, access to on-demand resources, governance controls and total license portability, simplifying the process of running applications and storing data across various environments.

Nutanix also announced a new initiative called Project Beacon, focused on decoupling applications and their data from the underlying infrastructure they’re hosted on. Project Beacon enables developers to write applications once and run them anywhere, avoiding vendor lock-in commonly associated with Platform as a Service. The platform provides the service via a single application programming interface and console, ensuring consistent management across environments and providing developers with control over data governance, protection and compliance.

“Our third-quarter results continued to demonstrate a good balance of growth and profitability, resulting in year-to-date ACV Billings growth exceeding 20%, combined with strong year-to-date free cash flow generation,” Chief Financial Officer Rukmini Sivaraman said in the company’s earnings release. “We continue to execute on our growing base of subscription renewals and remain focused on sustainable, profitable growth.”

Looking forward, Nutanix said it expects revenue of $470 million to $480 million in its fiscal fourth quarter. Analysts were expecting an outlook of $452.23 million. For its full fiscal year, the company expects revenue of $1.84 billion to $1.85 billion, higher than an expected $1.8 billion.

The revenue and earnings beats and the upbeat outlook prompted investors to bid up Nutanix shares nearly 15% in late trading.

Photo: Nutanix

Aims to enable developers to write applications once and run them anywhere

Nutanix (NASDAQ: NTNX), a leader in hybrid multicloud computing, announced Project Beacon, a multi-year effort to deliver a portfolio of data-centric Platform as a Service (PaaS) level services available natively anywhere - including on Nutanix or on native public cloud. With a vision of decoupling the application and its data from the underlying infrastructure, Project Beacon aims to enable developers to build applications once and run them anywhere.

According to the Enterprise Cloud Index, 75% of IT teams expect to leverage more than one IT infrastructure - including on-premises, in public cloud or at the edge - in the next one to three years. Moving applications to a different environment is currently possible at the infrastructure layer. However, the PaaS services that many organizations use to help developers build and ship applications faster cause lock-in as they are tied to specific public clouds. This leads to high switching costs when looking to move applications to an environment that is more suitable, whether it's due to cost, compliance, latency or other factors. Project Beacon aims to change that.

"Project Beacon is our vision for enabling developers to write applications once and run them anywhere by delivering data-centric PaaS level services that are no longer tied to a single infrastructure provider," said Rajiv Ramaswami, President & CEO at Nutanix. "We hope to enable enterprises to fully embrace the benefits of hybrid multicloud, not only at the infrastructure layer but also at the application data layer."

As part of Project Beacon, Nutanix aims to deliver the platform services that many organizations rely on, with a single API and console, integrated with Kubernetes(R) container orchestration, and consistent management across environments. This suite of data-centric platform services would be characterized by a consistent and simplified management experience, automated mobility, portable licensing, developer self-service, with built-in security and governance for cloud operations teams. Through these services, developers would have access to a suite of data-centric PaaS services whether in native public cloud, on-premises or at the edge, while operations teams would be able to remain in full control of data governance, compliance and data protection.

"As the industry's leading enterprise Kubernetes platform, Red Hat OpenShift helps customers build, deploy and manage any application, anywhere," said Matt Hicks, President and Chief Executive Officer, Red Hat. "With Project Beacon, Nutanix will build on our mission with a vision of data-centric platform services delivered consistently, anywhere, further extending customer choice on Red Hat's open hybrid cloud platforms with Nutanix's advanced data services."

Nutanix is starting with database services, the foundation of all apps. As part of this effort, the company aims to extend the customer benefits of the Nutanix Database Service(TM) (NDB) solution as a managed service in the public cloud. This will build on the NDB database automation and management experience already available on Nutanix Cloud Infrastructure (NCI), as a managed service on native public cloud infrastructure.?Nutanix would then expand from there to the most popular data-centric platform services, such as streaming, caching and search. The goal of this effort is to deliver all key elements needed to build modern applications so that developers would not have to rely on solutions that will lock them into a single infrastructure.

"Organizations have come to rely on public cloud services to accelerate the speed of development and innovation, but there are trade-offs - in terms of complexity, cost, lock-in, and more," said Dave Pearson, IDC RVP for Infrastructure Systems, Platforms and Technologies. "With Project Beacon, Nutanix aims to reduce lock-in and increase application development simplicity through unified management, automated mobility and the ability to write applications once and deploy them as-needed on appropriate infrastructure."

More information on Project Beacon is available here.

Nutanix is a Business Reporter client.

Soaring energy costs and data-hungry digital technologies are magnifying costs and carbon footprints. It’s time to do more with less

When a leading wealth management business starts talking about major reductions in costs, energy use and carbon footprint, you should sit up and take notice. These are money people that measure everything to the decimal point. Reputation is built on reaching client goals and developing trust, so anything that promises to transform the business has to really deliver.

For JM Finn, this has meant a 75 per cent reduction in data centre rack space, through a hyper-converged infrastructure (HCI), as part of an ongoing digital transformation and office relocation. Less hardware has meant less power consumption and yet performance has improved. According to Jon Cosson, JM Finn’s CISO and Head of IT, it’s still early days but already the business has seen “tangible benefits in terms of operational costs and environmental impact”.

Cosson’s experience mirrors the findings of an Atlantic Ventures study into data centre sustainability. This study calls for CIOs to “re-evaluate their current cloud and data centre strategies” to compensate rising energy costs and ambitious Net Zero targets. HCI, it suggests, must be part of the mix, claiming it can lead, in some instances, to energy savings of 30 to 40 per cent.

“HCI architectures provide customers with the opportunity to combine the advantages of a true cloud-like, highly automated IT infrastructure, with the flexibility to host it in any location,” says Atlantic Ventures. It’s a form of digital sobriety: an infrastructure that helps organisations focus their digital resources better, reducing waste and improving overall performance and data relevance.

This is important, because as companies go through a digital transformation process, there are a set of natural steps that are required. The success, or indeed failure, of those steps depends on the flexibility and efficiency of the underlying infrastructure. By rationalising this infrastructure – reducing the number of racks, for example – companies can typically shed the costly complexity of running their own data centres.

This does not necessarily mean shifting to public cloud and the hyperscalers by default, although they can have a significant role to play. What HCI does is provide organisations the best of all worlds, by enabling a hybrid cloud strategy and optimising the consumption of IT resources (whether public or private cloud), while also minimising costs and energy consumption.

The value of an HCI, such as Nutanix, is that the IT platform is simplified and automated, so it effectively manages itself, freeing up the IT team to focus on other work.

From a sustainability perspective, each part of the cloud and data centre ecosystem should deliver sustainable innovation. While a Nutanix HCI will focus on software that automatically optimises the consumption of IT resources, the data centre vendor (co-location or public cloud provider) should bring in innovation to reduce the consumption of water and energy for cooling purposes. Certainly, more data centres should adopt liquid cooling, which is already proving effective and sustainable. Meanwhile, hardware vendors should support sustainability measures through recycling and energy efficiency improvements. Each has a co-dependent role to play in helping customers reduce their environmental impacts and reach their Net Zero goals.

But it is HCI that can have the biggest impact. According to Atlantic Ventures, “in the EMEA region HCI architectures have the potential to reduce up to 56,68 TWh [terawatt hours] from 2022-2025 and save up to €8.22 billion in electricity costs in the same period for companies and data centre providers undertaking a complete transformation towards HCI.”

These are significant numbers but ultimately big changes can come from the genuine demands made on these services. While, culturally at least, it would be impossible to enforce or even advocate reduced usage of digital devices, there is certainly more that can be done in how data is processed and managed.

Automation within HCI certainly improves data processes and ensures that workloads are being run in their most efficient cloud locations. Ultimately it is about doing more with less, using advance automation and technologies that can make a real difference to how data is processed, stored, accessed and used. This is only going to get more urgent. As Gartner warns in its 10 Strategic Predictions for 2023, the proliferation of AI-driven technologies is going to be a huge sustainability challenge. Within three years it could even offset any sustainability gains already made.

As far as the data centre is concerned, there’s never been a more pressing time to take action.

To find out more, you can access the Atlantic Ventures report, Improving Sustainability in Data Centers, here.

The storage market is the most competitive that I’ve ever seen. While enterprise sales cycles are unusually elongated, and the market is stuttering forward in fits-and-starts, innovation continues unabated. Nearly any solution currently offered by the top five storage vendors can be deployed without regret – there's no dog in the bunch. As a result, it's a difficult market to stand out in.

Sometimes, you want something more than the usual mainstream storage vendors can deliver. For example, you may want an endlessly scalable, high-performance storage system, so you call VAST Data. You may want a consolidated petabyte-scale storage solution designed for 100% availability, containing some of the industry's best cyber-resilience features. That's when you call Infinidat.

Infinidat has made its name on delivering a robust enterprise storage solution that provides stellar performance, multi-petabyte capacity, and cyber-resilience features designed to address a broad range of mixed application workloads. As a result, the company is finding strong success, with its most accurate quarter showing some of the best growth in its twelve-year history.

Infinidat continues to drive innovation forward. Earlier this month, it unveiled its new InfuzeOS Cloud Edition and introduced new cyber-detection capabilities to its existing InfiniSafe solution. Let's look at what was announced.

InfuzeOS Cloud Edition

Enterprises today live in a multi-cloud reality. Nearly every large IT organization has resources spread across one or more clouds, mixed with on-prem infrastructure. On-prem infrastructure may be wholly owned and managed by the enterprise, or it may live on-prem in a consumption-based as-a-service model (such as Hewlett Packard Enterprise offers with its GreenLake portfolio). It’s complex.

The most challenging part of managing workloads across cloud boundaries is managing storage. It's not enough to repeat the cliché that data has gravity because that only touches on a piece of the story. Instead, IT organizations struggle to navigate the diverse set of management models and capabilities inherent in the different solutions as they do in moving the data itself. Vendors such as IBM, Nutanix, and VMware each offer cross-cloud management solutions to help simplify managing workloads and data across cloud boundaries, but, where storage is concerned, there are still gaps.

Storage vendors are beginning close that gap, enabling their storage software to be used in the public cloud. This is a significant trend, as it allows IT administrators to have a single set of capabilities and management experiences spanning multiple environments. NetApp has found success with its NetApp ONTAP for the public cloud. Pure Storage offers its Cloud Block Store. Last week Dell Technologies announced its new APEX Cloud Storage. Infinidat is also here with its new InfuzeOS Cloud Edition.

Infinidat’s flagship storage offering, InfiniBox, is powered by its InfuzeOS operating system. InfuzeOS is the brains behind the goodness delivered by InfiniBox. Within InfiniBox, InfuzeOS provides an audacious 100% availability ensure and features zero-impact snapshots, synchronous and asynchronous replication, supports an active/active controller architecture and multi-petabyte scalability, and contains a bevy of cyber-resiliency capabilities.

InfuzeOS Cloud Edition brings much of the goodness of Infinidat’s InfiniBox to the public cloud, with a seamless management experience for the storage administrator. It’s designed to supplement on-prem Infinidat storage, with use cases identified for disaster recovery, business continuity, and cloud backup. The new offering should also help with DevOps and application integration, proof-of-concept development, and supplement on-prem storage for burst and storage tiering.

The first release of InfuzeOS Cloud Edition is available for Amazon Web Services (AWS) in a single-node InfiniBox configuration. The InfuzeOS Cloud Edition also expands Infinidat's activities as an AWS Partner Network member, including its existing AWS Outposts Ready designation.

InfiniSafe Cyber Detection

Beyond performance and scalability, cyber-resiliency is what Infinidat is best known for. This isn't simply lip service; Infinidat backs up its claims with its famous 100% availability guarantee. Talk to Infinidat's CMO Eric Herzog, for even a few minutes, and you will learn more about the importance of data protection and cyber-resiliency than you would anywhere else.

Infinidat brings its cyber-resiliency capabilities to market under its InfiniSafe branding. As Infinidat describes it, InfiniSafe technology provides a multi-layered cyber stack for creating cyber-resilient environments with Infinidat's InfiniBox and InfiniBox SSA platforms.

Earlier this month, Infinidat unveiled its new InfiniSafe Cyber Detection, which enhances Infinidat’s cyber-resilience and capabilities by enabling IT administrators to detect ransomware and malware attacks with up to 99.5% accuracy. Further, the new offering enables new instantaneous recovery of data from known good snapshots on an Infinidat InfiniBox or InfiniBox SSA platform.

The unique element of InfiniSafe Cyber Detection is how it detects potential ransomeware and malware. Infinidat's new cyber detection technology performs continual deep scans of block, file, and database stores within InfiniBox and InfiniBox SSA snapshots. It does this using an AI-based scanning engine that validates the integrity of the data under store.

When a potential attack is identified, InfiniSafe Cyber Detection provides forensic reporting to the administrator and offers critical insights into where the compromised data may have originated. The administrator can then quickly recover to normal business operations, as the InfiniSafe technology will also let the administrator know which snapshots contain known-good data. This is a powerful capability.

Analyst’s Take

Infinidat isn't a public company, which only allows for limited visibility into its overall business. Infinidat is, however, a company that doesn't have a problem touting its success. The company announced in April of this year that it achieved one of the highest growth rates in company history, growing bookings in Q1 2023 by 59% year-on-year, along double-digital top-line revenue growth. The company is also profitable.

To contextualize Infinidat’s growth, none of its publicly traded competitors reported bookings growth of nearly 60%. Only Dell Technologies and Pure Storage reported double-digit revenue increases, with Dell reaching 10% growth. So Infinidat is growing faster than the market, which is exactly what you want to see in a company of its class.

Infinidat's momentum directly results from delivering solutions that meet the requirements of the most demanding IT environments. In addition, the company's relentless focus on cyber-resilience and availability are second-to-none across the enterprise IT storage landscape. This is a focus that clearly resonates with its customers, and its new InfiniSafe Cyber Detection will be very well received.

Disclosure: Steve McDowell is an industry analyst, and NAND Research an industry analyst firm, that engages in, or has engaged in, research, analysis, and advisory services with many technology companies, which may include those mentioned in this article. Mr. McDowell does not hold any equity positions with any company mentioned in this article.

Nautanix, a hybrid multicloud computing company, has announced Project Beacon, a multi-year effort to deliver a portfolio of data-centric Platform as a Service (PaaS).

As per the company, the vision is to decouple the application and its data from the underlying infrastructure and the Project Beacon aims to enable developers to build applications once and run them anywhere.

Rajiv Ramaswami, President & CEO at Nutanix, said, “Project Beacon is our vision for enabling developers to write applications once and run them anywhere by delivering data-centric PaaS level services that are no longer tied to a single infrastructure provider. We hope to enable enterprises to fully embrace the benefits of hybrid multicloud, not only at the infrastructure layer but also at the application data layer.”

Moreover, as part of Project Beacon, Nutanix aims to deliver the platform services that organizations rely on, with a single API and console, integrated with Kubernetes container orchestration, and consistent management across environments. This suite of data-centric platform services would be characterized by a consistent and simplified management experience, automated mobility, portable licensing, developer self-service, with built-in security and governance for cloud operations teams.

It is believed by the company that through these services, developers would have access to a suite of data-centric PaaS services in native public cloud, on-premises and at the edge, while operations teams would be able to remain in full control of data governance, compliance and data protection.

“Organizations have come to rely on public cloud services to accelerate the speed of development and innovation, but there are trade-offs in terms of complexity, cost, lock-in, and more. With Project Beacon, Nutanix aims to reduce lock-in and increase application development simplicity through unified management, automated mobility and the ability to write applications once and deploy them as-needed on appropriate infrastructure,” said Dave Pearson, IDC RVP for Infrastructure Systems, Platforms and Technologies.

Additionally, as part of this effort, the company aims to extend the customer benefits of the Nutanix Database Service (NDB) solution as a managed service in the public cloud. This will build on the NDB database automation and management experience already available on Nutanix Cloud Infrastructure (NCI), as a managed service on native public cloud infrastructure. Nutanix would then expand from there to data-centric platform services, such as streaming, caching and search. As per the information, the goal of this effort is to deliver all key elements needed to build modern applications so that developers would not have to rely on solutions that will lock them into a single infrastructure.

“With Project Beacon, Nutanix will build on our mission with a vision of data-centric platform services delivered consistently, anywhere, further extending customer choice on Red Hat’s open hybrid cloud platforms with Nutanix’s advanced data services,” shared Matt Hicks, president and chief executive officer, Red Hat.

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Participants

Rajiv Ramaswami; President, CEO & Director; Nutanix, Inc.

Richard Frank Valera; VP of IR; Nutanix, Inc.

Rukmini Sivaraman; Principal Accounting Officer & CFO; Nutanix, Inc.

Daniel Robert Bergstrom; Analyst; RBC Capital Markets, Research Division

Erik Loren Suppiger; MD & Equity Research Analyst; JMP Securities LLC, Research Division

James Edward Fish; Director & Senior Research Analyst; Piper Sandler & Co., Research Division

Jason Noah Ader; Partner & Co-Group Head of Technology, Media and Communications; William Blair & Company L.L.C., Research Division

Meta A. Marshall; VP; Morgan Stanley, Research Division

Michael Joseph Cikos; Senior Analyst; Needham & Company, LLC, Research Division

Pinjalim Bora; Analyst; JPMorgan Chase & Co, Research Division

Unidentified Analyst

Wamsi Mohan; MD in Americas Equity Research; BofA Securities, Research Division

Presentation

Operator

Thank you for standing by, and welcome to the Nutanix Q3 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. (Operator Instructions) As a reminder, today's call is being recorded. I would now turn the conference to your host, Mr. Rich Valera, Nutanix VP of Investor Relations. Please go ahead, sir.

Richard Frank Valera

Good afternoon, and welcome to today's conference call to discuss the results of our third quarter of 2023. Joining me today are Rajiv Ramaswami, Nutanix's President and CEO, and Rukmini Sivaraman, Nutanix's CFO. After the market closed today, Nutanix issued a press release announcing financial results for its fiscal third quarter of 2023. If you'd like to read the release, please hit the press releases section of our IR website. We also filed our 10-Q for our second quarter of fiscal 2023, which is available on the SEC's website.
During today's call, management will make forward-looking statements, including statements regarding our business plans, strategies, initiatives, vision, objectives and outlook, including our financial guidance as well as our ability to execute there on successfully and in timely manner and the benefits and impact thereof on our business, operations and financial results. Our plans to implement recommendations in our remedial measures following the completion of the Audit Committee investigation. Our expectations and estimates for the resolution of the third-party sulfur usage matter that was the subject of the investigation, including its estimated impact on our financial statements and guidance. Our financial performance and targets and use of new or different performance metrics in future periods, expectations regarding profitability, our competitive position and market opportunity, the timing and impact of our currency and future business model transitions, in fact, describing our growth macroeconomic, geopolitical and industry trends, including global supply chain challenges.
These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause genuine 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 annual report on Form 10-K in the fiscal year ended July 31, 2022, and our quarterly reports on Form 10-Q fiscal quarters ended October 31, 2022 and January 31, 2023, 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 representing our views in the future.
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 the extent available reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Lastly, Nutanix will be holding its 2023 Investor Day in New York City on September 26. Please see our earnings press release for registration information. Nutanix will also be appearing at the NASDAQ Investor Conference in London on June 13, and we hope to see some of you there.
And with that, I'll turn the call over to Rajiv. Rajiv?

Continuar leyendo la historia

Rajiv Ramaswami

Thank you, Rich, and good afternoon, everyone. Against an uncertain macro backdrop, we delivered a solid third quarter with results that came in ahead of our guidance and saw continued strong performance in our renewables business. With respect to the macro backdrop, in our third quarter we continued to see businesses prioritizing their digital transformation and data center modernization initiatives with a strong focus on total cost of ownership which plays to the strength of our platform. However, we also continue to see some increased inspection of deals by customers, which we believe is related to the more uncertain macro backdrop. And this is driving a modest elongation in sales cycles. We've considered this dynamic in our outlook for the remainder of the fiscal year.
Supply chain constraints with our server partners are here to have normalized at this point and are now having minimal impact on our business. In conjunction with the release of our fiscal third quarter earnings tonight, we also announced the conclusion of the Audit Committee investigation related to third-party software usage and the subsequent filing of our 10-Q for our fiscal second quarter. As a result of this process, we identified a material weakness in our internal control over financial reporting. And are working on remedial measures to address the identified weakness and help prevent this from happening again. We have also held the responsible employees accountable. This matter had no material impact on our historical financials and we believe it will have minimal impact going forward. While Rukmini will provide more details, we're pleased the investigation has been completed.
Taking a closer look at the third quarter, we delivered solid top line growth, including 17% year-over-year ACV billings growth driven by continued strong performance of our renewals business. Our ongoing focus on expense management helped us generate $42 million of free cash flow. Continuing our strong year-to-date free cash flow performance. Overall, I'm pleased with our financial performance in the third quarter. Our third quarter results reflect the value new and existing customers are seeing in both our core cloud platform and our solutions-based portfolio as they look to modernize while carefully managing their costs.
A good example of this is our largest deal in the quarter with a Fortune 500 semiconductor provider that was looking to accelerate its digital transformation. This customer decided to deploy their containerized manufacturing applications on Red Hat's OpenShift on our Nutanix cloud platform to optimize their infrastructure resources and operationalize their private cloud environment in their numerous manufacturing facilities around the world. They expect this will meaningfully reduce their costs while also enabling enhanced agility in deploying new products and responding to changing market demands. We see this win as a testament to the performance, scalability and total cost of ownership benefits delivered by our platform and our ability to expand our footprint within some of the world's largest companies.
Another notable win in the quarter was with a leading payment solutions provider in the EMEA region, who was looking to Excellerate their IT total cost of ownership by modernizing their infrastructure and implementing a multi-cloud architecture operating across several countries. They chose our Nutanix cloud platform including Nutanix cloud management to run their business-critical applications, leveraging its simplicity and built-in automation for infrastructure as a service. They also adopted Nutanix database service for managing and deploying their databases throughout their organization and Nutanix unified storage to service their unstructured data needs. By adopting the full Nutanix stat, this customer anticipates lowering that annual IT operating cost by 45%.
We are also seeing customers take advantage of the capabilities of Nutanix cloud clusters or NCT to rapidly and efficiently optimize their workload distribution across on-prem and public clouds. An example in the third quarter was a government agency in the EMEA region that was looking to shift a variety of on-prem workloads running on Nutanix Cloud platform to public cloud in keeping with a government cloud-first mandate. They initially chose to shift the workloads to Azure using NC2 for what they thought would be a contingency plan for workload migration. However, given the speed and simplicity afforded by NC2 for quickly transitioning workloads without refactoring as well as the cost effectiveness they found running workloads on NC2 on Azure, they decided to make NC2 their primary solution for public cloud migration.
This win demonstrates how our customers appreciate the ability to rapidly and seamlessly shift their workloads from their private clouds to the largest public cloud providers with the consistent management, governance and data services provided by the Nutanix cloud platform. Without the time and expense of refactoring their workloads and with lower ongoing operating costs.
Moving on. In early May, we held our first in-person .NEXT user conference in almost 4 years and saw strong attendance and engagement from our customers and partners. In conjunction with .NEXT, we made several important product-related innovation announcements, reflecting our continued investment in the hybrid multi-cloud platform. First, we announced new data services, including Nutanix data services for Kubernetes, which will bring the full power of Nutanix's enterprise class storage, snapshots, and disaster recovery to Kubernetes applications. And we introduced multi-cloud snapshot technology, which will deliver cross-cloud data mobility by enabling snapshots directly to cloud-native storage, starting with AWS' S3 of the storage service.
We also announced Nutanix Central, a cloud-delivered management solution that will enable a truly universal cloud operating model by providing a single console for visibility monitoring and management across public cloud, on-prem, hosted or edge environments. Finally, we introduced Project Beacon our vision for hybrid multi-cloud platform as a service, a multiyear effort to deliver data-centric platform-as-a-service offerings natively on Nutanix or on native public clouds. With the goal of decoupling the application and its data from the underlying infrastructure, Project Beacon aims to enable developers to build applications once and run them anywhere.
In closing, while the macro environment remains uncertain, we are encouraged that the compelling value proposition of our cloud platform and the strength of our business model enabled us to raise our fiscal year top line outlook and bottom line outlook. We remain focused on delivering innovation for our customers now and in the future, while continuing to drive sustainable, profitable growth.
And with that, I'll hand it over to Rukmini Sivaraman. Rukmini?

Rukmini Sivaraman

Thank you, Rajiv. Before I discuss our financial results and outlook, I would like to first provide a summary of the Audit Committee's completed review of our third-party software usage and the resulting implications. Upon completion of the investigation, the audit committee found that evaluation software from 2 of our third-party providers was used in a noncompliant manner for interoperability testing, validation, customer proof of concept, training and customer support over a multiyear period. In addition, the Audit Committee concluded that certain employees engaged in intentional misconduct to conceive use of evaluation software with respect to one of our third-party providers in violation of our code of business conduct and ethics and other policies. We have terminated employment for certain employees who were found to be primarily responsible for the intentional misconduct.
Through the investigation, we identified a material weakness in our internal control over financial reporting. In particular, we determined that our controls did not effectively provide the information and communication necessary to identify noncompliant use of third-party software. To address this material weakness, we are implementing or will implement several remedial measures, including enhanced internal processes, enhanced training and continuous communication regarding the importance of integrity and raising concerns in a timely manner. We have accounted for the estimated financial impact of this issue by recording cumulative estimated expenses of $11 million as of Q2 '23, which represents the estimable amount of future payments for past noncompliant usage of software from these 2 vendors accrued over a multiyear period.
We have accordingly also corrected the prior period financials shown in the 10-Q filed earlier today. We expect the incremental ongoing annual impact to operating expenses of this third-party software usage to be approximately in the low single-digit millions of dollars. You can find additional information, including our complete Q2 '23 results and information about the estimated financial impact and remedial measures related to the third-party software review in our 10-Q quarterly report for Q2 '23 that we filed earlier today with the SEC. We are pleased that this investigation has been completed.
I will now provide commentary on our Q3 '23 results followed by the outlook for Q4 '23 and the full year 2023. Q3 was a good quarter during which we beat all guided metrics. ACV billings in Q3 was $214 million, higher than our guidance of $220 million to $225 million and representing a year-over-year growth of 17%. Revenue in Q3 was $449 million, higher than our guidance of $430 million to $440 million and a year-over-year growth of 11%. ARR at the end of Q3 was $1.467 billion, a year-over-year growth of 32%. New logo additions were about 430 in Q3. Average contract duration in Q3 was 3 years, flat quarter-over-quarter as expected.
As described previously, the percentage of orders with future start dates, likely due to partner supply chain constraints continue to be an assumption in our Q3 guidance. Q3 revenue benefited approximately $5 million from the reduction in percentage of future start dates over time as more license revenue was recognized in quarter then was deferred. In line with the $5 million estimate we had provided on our last earnings call. As supply chain challenges faced by our server partners appear to have normalized, we expect its impact on our business to normalize as well. As a result, going forward, we will not continue to provide this quantification of revenue impact from orders with future start dates.
Non-GAAP gross margin in Q3 was 84%. Non-GAAP operating expenses in Q3 were $369 million. Non-GAAP operating margin in Q3 was 2%, and including the impact of about $10 million in nonrecurring tax obligations related to a portion of our employee RSUs that vested in Q3 and approximately $9 million of nonrecurring vehicle and advisory expenses, both of which related to the third-party software review and the delay in our 10-Q filing for Q2. Excluding these onetime items, non-GAAP operating margin in Q3 would have been approximately 6%. Non-GAAP net income in Q3 was $12 million or EPS of $0.04 per share based on fully diluted weighted average shares outstanding of approximately 282 million shares. Billings linearity was good and DSOs were 28 days in Q3.
Free cash flow in Q3 was $42 million, implying free cash flow margin of 9%. A few additional notes on Q3 free cash flow. One, the approximately $31 million payment for the settlement of the previously outstanding securities class action litigation which is the amount inclusive of legal fees and expenses, and net of our expected recovery under our D&O insurance is now expected to be paid and settled in Q4 rather than in Q3 as previously expected. The change in timing is due to routine process. Two, the $42 million of free cash flow in Q3 includes the impact of approximately $10 million of cash usage in Q3 for nonrecurring tax obligations related to a portion of our employee RSUs that vested in March as expected and mentioned on our last earnings call, and caused by the delay in our Q2 10-Q filing.
Three, the delay in our Q2, 10-Q filing also meant that we paused our ESPP program, delaying an estimated $20 million of net cash outflow related to ESPP, which would normally occur in Q3 to Q4. And fourth, free cash flow in Q3 was also impacted by approximately $6 million of payments for nonrecurring legal and advisory expenses related to the third-party software review. We ended Q3 with cash, cash equivalents and short-term investments of $1.358 billion, up slightly from $1.311 billion in '23.
Moving on to Q4. The guidance for Q4 fiscal '23 is as follows: ACV billings of $240 million to $250 million, revenue of $470 million to $480 million; non-GAAP gross margin of approximately 84% and non-GAAP operating margin of 9% to 10%.
Moving on to the full year outlook. With 1 quarter left. The guidance for fiscal year '23 is as follows: ACV billings of $915 million to $925 million, a year-over-year growth of 22% at the midpoint of the range. Revenue of $1.84 billion to $1.85 billion, a year-over-year growth of 17% at the midpoint. Non-GAAP gross margin of approximately 84%, non-GAAP operating margin of 6% to 7%, a year-over-year improvement of over 10 points of margin at the midpoint. Free cash flow of $125 million to $135 million, implying a free cash flow margin of 7% at the midpoint.
I will now provide some color on our full year guidance. First, we are seeing continued new on expansion opportunities for our solutions despite the uncertain macro environment. However, as Rajiv mentioned, and similar to last quarter, we have seen a modest elongation of sales cycles likely due to increased deal inspection. Our fiscal year '23 new and expansion ACV performance remains impacted by some of these macro dynamics and is performing slightly below our expectations entering the year and what we believe its longer-term potential is. We have considered a dynamic in our updated guidance. The renewals business continues to perform well, however, it tends to be at a lower aggregate average contract duration compared to our new and expansion business. Our relative economics on renewals have also continued to Excellerate over time as the renewals team has improved their execution.
Second, similar to our comments last quarter, the full year guidance assumes that contract durations would decrease slightly compared to fiscal year '22. Third, as stated previously, non-GAAP operating margin outlook for fiscal year '23 is 6% to 7%. Excluding the onetime expenses related to the third-party software review, this range would have been 7% to 8%. Finally, the updated free cash flow guidance of $125 million to $135 million includes the impact of the following nonrecurring items totaling about $65 million. Approximately $10 million of cash usage in Q3 for nonrecurring tax obligations related to a portion of our employee RSUs vesting, which is nonrecurring because it was due to the delayed filing of our 10-Q. Approximately $31 million in net cash outflow expected in Q4 from the previously mentioned litigation settlement. Approximately $15 million for legal and advisory fees related to the third-party software review across Q3 and Q4. And finally, an $11 million estimated payment in Q4 for the potential resolution with the third-party software vendors.
In closing, we are pleased that our Q3 results reflect our continued execution towards our stated objective of sustainable, profitable growth. and we expect to continue that focus. With that, operator, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Jim Fish of Piper Sandler.

James Edward Fish

Nice quarter and congrats on getting the investigation behind you and being a fairly minimal impact as we kind of all talked about here. Maybe just starting off on the assumptions around guide and what you guys are seeing with sales cycles. Obviously, we've talked about elongated sales cycle for some time now. We're hearing it from others in kind of this space. I guess how much have elongated sales cycle slowed or hindered that expansion rate with existing customers? And I know you're not going to provide you exact, but are net retention rates closer to essentially 120 now than where we were kind of before entering this year? Or as it actually gets a bit lower just given the macro economy?

Rajiv Ramaswami

Jim, let me start with some qualitative comments there and Rukmini can provide you some numbers there. So first of all, I think you talked about in NRR, when you look at our renewals, by the way, renewals, first of all, is solid, okay? No issues really from the macro piece. Now when you look at the macro itself in terms of the impact, it impacts both new logos as well as expansion business with our existing customers. Now the impact is similar to what we saw last quarter, which is -- takes longer in terms of deals are inspected more by some customers. And what we've seen is, therefore, the sales cycle has gotten modestly longer.
Now the other factor here, which is common during this kind of an environment is that customers -- some customers can tend to sweat their existing assets in the current environment which, of course, has an impact in terms of both new and expansion business for us. They might continue to run as long as they can before they spend more money. So if you look at that, the impact is on our FY '23 new and expansion ACV because of these dynamics. And what I'd say overall, qualitative color for that is that, that new and expansion business for us is performing slightly below our expectations entering the year and also below what we believe is long-term potential. Rukmini, do you want to add anything?

Rukmini Sivaraman

Yes. And Jim, thanks for the question on NRR. And as you noted, we don't really disclose that on a quarterly basis, Jim. But what I will say is that it's sort of still in the range that I think we had talked about at our last Investor Day in that 121%, 25% range. And so I'll leave it at that with regard to not specifically.

James Edward Fish

Yes, that's helpful, undermining and review. I appreciate that. And maybe, Rajiv, for you, your favorite question, any impact yet from your vantage point with the ongoing acquisition of really your top competitor and outside of that direct competition, I guess, what are you seeing from native hyperscaler offerings and the traditional raise? Obviously, you just alluded to some sweating of assets. Just trying to understand the competitive landscape here as you guys are still putting up solid growth.

Rajiv Ramaswami

Yes. I think, Jim, first of all, not a whole lot of change compared to last quarter on that. So clearly, on the Broadcom piece in terms of the acquisition, we're certainly seeing that higher level of engagement, continuing to do that with many customers around the world who are looking to look at their options, manage potential risks associated with this acquisition.
Now as we talked about our sales cycle is in 12 months. And so we haven't quite seen factoring in meaningful benefit from this in FY '22. Now on the other side of the equation from a competitive dynamic, it's the cloud native or hyperscale piece of it. What I would say is, if anything, I think our customers have gotten much more careful about what to put in the public cloud versus simply going all to the public cloud. So we see much more focus in terms of what should I be running on-prem, what should have been using in the public cloud? How can I look at optimizing that.
And that's actually playing to our strength and certainly helping us -- our whole strategy around helping our customers operate in a hybrid multi-cloud world is helping us at this time.

Operator

One moment please. Our next question comes from the line of Mike Cikos of Needham.

Michael Joseph Cikos

Thanks for getting me on here and I'll echo similar comments to my peer here as far as congrats on getting the audit committee investigation behind you in the -- moving on to the next chapter. I wanted to highlight the strength that you guys called out this quarter and then the uptick in guide. Can you help us think through how the quarter played out, maybe more from a linearity perspective as each progressive month worked through the quarter. Was it building? Or was the outperformance snowballing over the course of the quarter? Or is it really more dedicated to a specific month within the quarter as far as how trends played out?
And then my follow-up, I'll just ask it now. But -- good to see the slight uptick on gross margins as well. Is there anything you can do to help us wrap our heads around what's driving that uptick in gross margins and how sustainable that is as we think about the longevity of the business?

Rukmini Sivaraman

Thank you, Mike. So first, a question on linearity. So the linearity, I would say was largely as expected. There wasn't any significant unusual trends compared to typical Q3, Mike? So that's on the linearity. And then on gross margin, what I would say is we continue to be really focused on efficiency and all of that. So in terms of, I think, how sustainable this is, I think, was your question, we think that we will be in that low 80s range, right, maybe move around a little bit. One of the things we are focused on is continuing to make sure that we are attaching professional services where it makes sense, especially for some of the newer parts of our portfolio to make sure customers are adopting them effectively, and we're helping them do so. So it might move around a little bit here and there, but you saw the guide for the full year as well, which factors in all of those moving pieces at this point.

Michael Joseph Cikos

Makes a lot of sense. Thank you very much Rukmini.

Operator

Thank you. One moment, please. Our next question comes from the line of Pinjalim Bora of JPMorgan.

Pinjalim Bora

Congrats on the quarter and great to hear the conclusion of the investigation. Rajiv, it seems like a lot of innovation is coming out of Nutanix in the (inaudible), you talked about Project Beacon. It seems like a Holy Grail. I think VMware has kind of tried it as well. Talk to us about kind of where are the building blocks of the technology around that, a multi-hybrid cloud PaaS platform? And what -- where are we? How long is it going to take for us to kind of see a product launch GA?

Rajiv Ramaswami

Yes. So if you look at the Project Beacon and just a quick recap of that is, it's a multi-cloud platform as a service focused on data offerings to help companies build an app once using the set of services and be truly able to run them anywhere, completely portable on any underlying substrate, whether it be a cloud native on any public cloud or whether it be on-prem. So that's the quick recap of the vision.
Now if you look at -- this is clearly what we said that (inaudible) this is a multiyear journey for us, and it happens in multiple steps. If you look at where we are, we have a foundation for that today with our Nutanix database service, we today offer that on-prem on a Nutanix underlying substrate and help companies manage databases in a consistent way -- a variety of databases. We are on a path to make that offering available on top of native public cloud substrates. So that will be the first step in the road map. And we will comment on that in terms of specific execution when we get closer to releasing it.
And then beyond that will be other services, for example, things like messaging, streaming, cashing, et cetera, that we would over time add on. Some of these could also be done in partnerships. So we -- like I said, we started with our (inaudible) offering and over multiple years, we will get to that journey. And I also expect that there will be a broader ecosystem of people like us who are like-minded in terms of establishing this truly hybrid vision for building apps and being able to run them everywhere.

Pinjalim Bora

Understood. Understood. And Rukmini, maybe my math is wrong here or maybe I'm getting the numbers wrong. It seems like there's a little bit of cautious sentiment going forward. But when I look at the guidance, I think you're raising the revenue guidance by $40 million, and you beat by something like 13 or 14, if I read that correctly. Help me -- what gives you confidence if the macro is actually getting a little bit worse?

Rukmini Sivaraman

Thank you, Pinjalim, for that question. So I'll guide has a few pieces, right? So let me start with (inaudible) your questions on revenue. But if I just talk with ACV billings here for a second, we did take that guide up as well, right, from 1915 to 925 and as you pointed out, we took revenue up as well. So one is that we feel good given all the caveats right, to the point about the more elongation of sales cycles, in some cases, which you touched upon earlier, I believe, if it's a new logo, we see customers choosing to sort of stretch their assets out a little longer. So some of those dynamics are playing out.
But I think a few things that we believe sort of bolsters that overall guidance is our renewables business, as we said from day 1 from when we started the year, it has continued to perform well, right? And with that mix growing over time, that helps us form a pretty strong foundation for the guide overall. And then the one other point I'll make is ACV billings is more of a transactional sort of quarter-over-quarter number, right, if things that are built in the quarter, but revenue obviously flows in as a waterfall over time. So there's also the net revenue benefit we are seeing, and we've talked about this each quarter this year from recognizing more license revenue, right, from the future start date orders than we were deferring which is a boost that seem more on the revenue side than a seed on the billing side. So those are some of the things that are driving that guide, Pinjalim.

Pinjalim Bora

Can I kind of one follow-up lastly. Did you bring your assumption on that start date for Q4 guidance kind of down?

Rukmini Sivaraman

So we haven't specifically diverse water assumptions (inaudible) Pinjalim, but I think it's fair to say that overall, we have seen the (inaudible) dynamics normalize for our server partners going in, we had assumed that things would be better, right, towards the end of the year, but we had to assume it could be completely normal, right? But at this point, it does seem like those have largely normalized.

Operator

Our next question comes from the line of (inaudible).

Unidentified Analyst

Congrats on the quarter and the successful competition of the investigation. I have 2 questions. First of all, do you have any comments on the channel partners, especially the service providers, especially against this Broadcom backdrop and VMware, hopefully, post merger, you guys can get more love from service providers. Any thoughts on that?

Rajiv Ramaswami

Absolutely, George. I'll tell you, I mean, that's the larger large untapped opportunity for us because that's a route to market that historically we have not spent a lot of time on and only recently have really started engaging with service provider partners. In fact, and it's already bearing fruit for us. I think last quarter or the quarter before, some of the largest deals in the quarter came through the service provider channel. So we keep adding to our service providers set of partners. We actually have high hopes in terms of that being a strong channel for us going forward.
What I would still say is that we are still in the first inning of a baseball game to put that analogy when it comes to our service providers in terms of billings that out of market. And to your point, I think, clearly, there's a very large established service provider channel with the Investor Day and we're only on our -- and I think some of those channel partners, service providers are going to be certainly more inclined to work with us more So going forward.

Unidentified Analyst

Great. Also, Rajiv, a quick follow-up. In terms of the land spend, are you seeing kind of increasing attach to the wholesale APAC and especially given kind of a more mature kind of business model and the kind of some of the additional use cases. Maybe you can unpack quantify so the attach kind of growing over time for the entire platform.

Rajiv Ramaswami

Yes, there's no doubt. I mean I think if you recall, we came out with our simplified solution-oriented product portfolio a while ago. And we have now seen an increasing portion of our deals, of course, coming through that new portfolio. Now as part of that, the very specific things that we've seen is Nutanix cloud management, notably higher attach for Nutanix cloud management as part of what we sell today. So whenever we sell Nutanix cloud infrastructure, there's a very logical attach of cloud management, and we see that certainly happening impact.
And then I think on the other pieces, I think Nutanix database service tends to be somewhat more of a specialized cell because it is targeting database admins and developers versus the core infrastructure. So that's not as much of an attach, although we are trying to attack that more with database workloads running on our platform. And then unified storage, which is the last component of our portfolio there. Certainly, I think is also seeing a good attach. So we are actually quite happy with how your wise portfolio is going and being adopted in the market. And and customers are certainly wanting to adopt more and more of the entire portfolio. So it's -- when people want to build a cloud, it's like I said, very common for them to consider you're taking the whole thing, whole stack, which would be NCI and CM plus some in the U.S.

Unidentified Analyst

Okay. Great. And thanks again, I will go back to the queue.

Operator

One moment, please. Our next question comes from the line of Meta Marshall of Morgan Stanley.

Meta A. Marshall

Great. I appreciate it. Congrats on the quarter, guys. Maybe you guys have commented on sort of cloud optimization projects or data center modernization projects clearly a theme across multiple names over the past few quarters. Just where do you think customers are on that journey of kind of figuring out what the end shade of what their data centers are looking like? And does that kind of involve -- you just spoke about kind of deeper adoption of the portfolio, but I guess I'm just wondering, does that involve kind of a deeper conversation about what Nutanix products could be used kind of upfront. So maybe just kind of where are we in figuring out kind of their end state on hybrid cloud? And just does that involve kind of more services upfront from Nutanix?

Rajiv Ramaswami

Yes. I think that's a very good question, Meta. So in fact, I'm just -- I had a conversation only yesterday with one of our large enterprise customers. What I would say is I think they were 5 years ago there were a set of customers who said, we are going to go to the public cloud period, the cloud first. And now it's much more about a cloud operating model, which is they like what the cloud offers in terms of agility, self-service, rich set of services and sometimes an OpEx model instead of a CapEx model in terms of consumption. They like that, but not necessarily a location, right? So if you just go and do everything in the public cloud, they realize that cost optimization is a growing and important part of what they have to deal with today. So what we are seeing right now is much more discussion around this hybrid multi-cloud. People wanted to run workloads across both locations.
And for us, one of the things that we are working hard to do is to actually build awareness within our customer base about the fact that we do actually have offerings that are very relevant to them in terms of enabling them to operate across all of this because if you recall, our own history as a company, we started out most people -- customers now of us as a HCI company, right, hyperconverged infrastructure. And we've been working hard to get our narrative out in terms of what we can do for them today.
And when we talked about how we can actually help them operate across both these environments very well, very efficiently. I think the conversation becomes much more strategic with our customers and they start using more of our portfolio and certainly more of our services as well that to implement some of the capabilities there. So I would say, again, for us, the -- there's a lot of, I think, still opportunity here that this whole hybrid operations and mindset from our customers is opening up.

Meta A. Marshall

Great. And maybe just a doing this back of the envelope, but it would seem that the OpEx step down quarter-on-quarter on the guide. Is that all just from onetime impacts that you kind of saw in fiscal Q3 and so underlying to actually relatively stable? Or is there anything that I'm just missing there?

Rukmini Sivaraman

No, that's exactly right, Meta. The underlying OpEx when you back out some of these onetime nonrecurring items that I talked about, relatively stable. I mean, there's some moving pieces, but really small. So you are correct that if that goes out Q3, Q4 should be relatively stable.

Meta A. Marshall

Okay. Perfect.

Operator

One moment, please. Our next question comes from the line of Jason Ader of William Blair.

Jason Noah Ader

I wanted to just follow up on that last question. After Rajiv in terms of what you've seen over the last 5 years, let's say, the kind of the pace of customers shifting workloads to the public cloud, refactoring applications, a lot of initiatives around that over the last 5 years. In this environment of cost optimization, have you seen enterprises sort of take a step back and say, you know what, maybe we were moving a little bit too quickly and provide things a little more evaluation and thought and you talked about PCL, so maybe just kind of paint a picture for us in terms of this last, I don't know, 12 months versus what you've seen in the prior 4 years?

Rajiv Ramaswami

Yes, Jason, I would say that (inaudible) has definitely changed over the last year on this topic. I think they've got a set of customers who said, we are going to refactor, let's go move everything to the public cloud. And I think they ran into 2 issues. One was that it actually was pretty expensive for them to refactor in the first place. And then second, once they did refactor and ran everything into the public cloud, and they're starting to operate at scale, I mean, it's an easy on ramp, right, in the sense that upfront is very easy, you like the ease of use and so forth.
But then as you start using a lot of the services, then you start seeing your bill going up and you soon realize that there's a significant premium there compared to what you were doing before. And so that consciousness is now very much cost optimization is very much a key part of many of our customers thinking. And so now like I mentioned to Meta's question, there is definitely -- it's not a -- close to my eyes, so let me refactor everything more to the public cloud. That's no longer the conversation at all, right? I think it's much more about, okay, I'm going to have a process for figuring out what I'm going to go footwear. And in fact, I heard one customer mention that as they're establishing a target state architecture approach for every app that they have in their portfolio, and they're going to then decide what to do about that app. It is going to be running the data center. Does it make sense to refactor it et cetera. So I think people are being much more careful about managing their application portfolio now than they were before.

Jason Noah Ader

Got you. And then just as a quick follow-up on that. As I think about things like NC2 and VMware and AWS, the pushback that we always got on that as well, that's great and it's an easy lift and shift, but it's sort of a stop gap, right? Ultimately, you want to have the app refactored. And I guess if a customer does go that route and use NC2, what's the risk in your mind that refactoring is just sort of an inevitable step on that app and then potentially you lose the app?

Rajiv Ramaswami

Yes. I think first of all, 2 points. Yes, customers can lift and ship and take it easily to the public cloud realization, no doubt about it. Now as the refactor and start creating a cloud-native version of the app, one of the things that's a little less understood about NC2 is that even in that scenario, we can actually help run that app very efficiently, right? Even for a pure cloud-native app, you can take our cloud native app that's been fully refactored and run it on NC2 on bad metal say, in AWS or Azure and get significant advantages, both in terms of potentially cost savings, but also in terms of ease of management, and the ability to have 1 team manage their on-prem and their cloud environments with a single set of tools. So those are sustainable.
We've also seen examples of where we can deliver depending on the application itself, quite substantial cost savings in terms of ongoing runtime costs as well. So that combination plus as we look at our future, when you look at things like Project Beacon, where people cannot build these cloud-native apps using affordable center data services, and then they can decide where they want to land them. So for us, we don't think of NC2 as a temporary, hey, migrate and then you're out of the picture. We actually think is migrate and operate. And if you also look at it from a cloud provider's perspective, if you're an AWS and Amazon or Azure, what you really care about is customers consuming our services. It doesn't matter whether they're using (inaudible) as long as those apps are running in the hyperscaler environment.
So there's not a -- so this combination is what makes NC2 quite sticky over time.

Operator

Our next question comes from the line of Wamsi Mohan of Bank of America.

Wamsi Mohan

I was wondering if you could comment on demand maybe by vertical? Do you see anything different, particularly in financial services or government or health care this quarter? And what trends are you seeing currently in those verticals?

Rajiv Ramaswami

So yes, both financial services and health care are important verticals for us. I will say we have not seen any significant changes. I mean, I know people talk about what's been happening in the banking world. But we have not seen any significant changes in demand patterns. If anything from some of the larger banks, we are seeing more engagement now with us than before. And so nothing significant for us to report in terms of changes.

Wamsi Mohan

Okay. And as a follow-up, I mean, your gross margins, obviously very strong, but the broader demand environment is kind of weak and there are lots of pockets in the overall market that have gotten more competitive. And frankly, increased levels of discounting across many areas of the data center. So I was wondering if you saw any of those kind of trends. And if you didn't part take, did you leave revenue on the table or billings went table?

Rajiv Ramaswami

Yes. And of course, as you can imagine, we look at that very closely and manage that, and our ASPs have been quite steady. Part of the reason is most of our selling is the value sell. We look at -- we have a team of cloud economists who actually build economic models for almost any of the significant deals we have and talk about -- and showcase the TCO benefits that our customer gets by using our solution. And that's how we justify the pricing. So yes, of course, there's a competitive environment out there, but we haven't seen anything significant yet that's impacting our gross margins.

Wamsi Mohan

Okay. And if I could sneak one last one in. Can you maybe just help us think through what impact backlog drawdown is having on fiscal '23? And sort of what kind of a headwind that might pose for fiscal '24?

Rukmini Sivaraman

I'll take that one. Thank you for the question, Wamsi. So I think as we've said from the beginning of this fiscal year, right, both revenue growth and ACV billings have benefited from the strong backlog level with which we entered the year. And revenue, specifically has also benefited from this dynamic of recognition of deferred license revenue from the future start date orders as we've talked about in the past, right? So the full year results, we expect will reflect a benefit from both of these Wamsi, but the logic as a software company, we don't typically kind of specify or guide to backlog or anything like that. But yes, entering this year, we did have a record level of backlog, which is benefiting growth for this year on both revenue and ACV billings.

Operator

Our next question comes from Dan Bergstrom of RBC Capital Markets.

Daniel Robert Bergstrom

It's Dan Bergstrom for Matt Hedberg. Maybe to build on a previous question and the positive outlook despite some macros with guidance for the fourth quarter, did anything change around the level of conservatism in the outlook? Or are you using a consistent approach versus the third quarter?

Rukmini Sivaraman

Dan, I'll take that question. We have been pretty consistent in our approach. So we haven't necessarily become more or less conservative for Q4 as related to Q3, which I believe was your question. Did I get the question correctly?

Daniel Robert Bergstrom

Yes. Perfect. And then maybe to verify on free cash flow for the fourth quarter from the prepared remarks. Sounds like there's a $31 million and $20 million outflow that may have been expected in the third quarter but will be in the fourth quarter. Is that correct?

Rukmini Sivaraman

That is correct. And if I can just take a minute to maybe talk a little bit about Q4 free cash flow, right? So for the full year, we provided a guide of $125 to $135. And we also said that there is about $65 million of onetime outflow, right? So if you add that, you are now at a $190 million to $200 million free cash flow for the year. And that less the $150-or-so million that we've already done year-to-date would be a reasonable way to think about a normalized Q4 free cash flow with some normal quarter-to-quarter adjustments.

Operator

Our next question comes from the line of Erik Suppiger of JMP Securities.

Erik Loren Suppiger

Yes. And congrats on the quarter and the audit. With regards to the software compliance issue, can you tell us how you learned about that? And are you continuing to use the software from the 2 vendors that you had to do to work with on this?

Rajiv Ramaswami

Yes. I think I can take that, Erik. So yes, we discovered it, management discovered it, and (inaudible) software purchase review. And yes, we are continuing to use the software. But again, for the (inaudible) that we talked about.

Rukmini Sivaraman

And the only thing I would add is we are in contact with both of those vendors at this time and are working towards a commercial resolution.

Operator

Thank you. I'm showing no further questions at this time. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.