Good afternoon. My name is Meriama and I will be your Conference Operator today. At this time I would like to welcome everyone to the Nutanix Q2 Fiscal 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Tonya Chin, Investor Relations. You may begin your conference.

Good afternoon everyone and welcome to today’s conference call to discuss the results of our second quarter of fiscal year 2017. This call is also being broadcast live over the web, and can be accessed in the Investor Relations section of the Nutanix website. Joining me today are Dheeraj Pandey, Nutanix’s Chairman and CEO; Duston Williams, CFO; and Howard Ting, Chief Marketing Officer. After the market close today, Nutanix issued a press release announcing the financial results for its second quarter of fiscal 2017. If you’d like a copy of the release, you can access it in the Press Releases section of the company’s website. We would like to remind you that during today’s call management may make forward-looking statements within the meaning of the Safe Harbor provisions of federal securities laws, regarding the company’s anticipated future revenue, gross margin, operating expenses, net loss, loss per share, free cash flow, business plans and objective, product features, technology and consumption models that are under development, competitive and industry dynamics, changes in sales productivity, expectations regarding increased software sale, future pricing of certain components of our solutions, our plans regarding and the impact of the adoption of new revenue recognition standards, potential market opportunities and other financial and business related information. These forward-looking statements involve a number of risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially and adversely from those anticipated by these statements. These forward-looking statements apply as of today and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more detailed description of these risks and uncertainties, please refer to our quarterly report on Form 10-Q for the second quarter of fiscal 2017 filed with the SEC on December 08, 2016, as well as our earnings release posted a few minutes ago on our website. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website. Also please note that, unless otherwise specifically referenced, all financial measures we use on this call are expressed on a non-GAAP basis and have been adjusted to exclude certain charges. We have provided reconciliations of these non-GAAP financial measures to GAAP financial measures in the Investor Relations section of our website and in our earnings press release. Now, I’ll turn it over to Dheeraj Pandey, CEO of Nutanix. Dheeraj?

Thank you, Tonya. Hi everyone, thank you for dialing in. January 27, was a cherishable moment for Nutanix. November 11, through January 12, was our first full quarter of selling our earliest product. General availability of our 1.0 product happened exactly five years ago in January of ‘12. Most naysayers along the way thought we should sell the company, because it was going to be nearly impossible to build a new category and software infrastructure without the muscle and staying power of an incumbent. Rather than sell the company we packaged and sold products, root force and built a market around hyper-convergence largely because of our share conviction for web scale engineering and consumer grade design. Today everyone is trying to copy us and yet most except VMware, are missing the point with this fundamental rearchitecture enterprise computing, there is so much more than a new form factory in hardware. It’s all about a software defined infrastructure running on commodity servers powered by a cloud operating system and OS that works the whole body of compute, storage, virtualization, networking, systems and operations management, web scale automation and security. It is meaningfully treated in the definition of this cloud OS at least twice in the last four years. So, once in late 2013, when we fundamentally laid the ground work for our own hypervisor that we now call AHV. And then in 2016 a few months before the IPO, when we acquired Calm.io to lay the foundation for app centric automation. There is also a new convergence on the horizon, with VMware and AWS announcing intent to serve the enterprise customers with a new hybrid cloud stack that melts AWS’s hardware with VMware’s software. This could be a lost opportunity if it’s done arm’s length like the way converge infrastructure was…

Thank you, Dheeraj. We delivered record revenue in Q2 above the target range. This performance coupled with lower than expected expenses enabled up to deliver non-GAAP EPS that was significantly better than our expectations. Revenue for the second quarter was $182 million growing 77% from a year ago and up 9% from the previous quarter. New business was up nicely in the quarter, with new customer bookings growing to 40% of the total bookings up from 35% in the prior quarter. We built $227 million for the quarter, representing a 59% increase from a year ago and a 5% decrease from the prior quarter. This quarterly billings performance was somewhat impacted by fewer than expected large deals. We define the large deals as customers buying more than $500,000 in any given quarter. Over the last four quarters deals over $500,000 averaged about 45% of our total bookings. In Q2 we performed somewhat below this level, primarily in North America. With the focus on long-term sustainable growth over the last quarter or so we started the segment the North American sales force with more focus around major accounts. The execution is ongoing, but in the process we may have underestimated the impact of productivity associated with this realignment, which included promoting some of our best performing sales reps into management roles. This realignment is a natural step in our evolution, as we prepare to deliver the next $1 billion in billings. We expect the North American productivity to rebound over the next few quarters and you can certainly expect us to update you on our progress in this area next quarter. Our international bookings came in very strong. And I am happy to report that both EMEA and APAC have experienced record booking quarters in Q2 by a wide margin, with…

[Operator Instructions] And your first question comes from the line of Jayson Noland with R. W. Baird.

Okay. Great, thank you. I wanted to ask about the promotions that impacted productivity. Are those productivity issues expected to continue into the back half of this year?

I think we have done the right thing for the long-term, which is six months out. We definitely believe that these people need to have a larger blast radius than just individual contributors. But we are hopeful that the way they actually will become player coaches rather than just being players will actually help us out in the next half -- in this coming half as well.

We have obviously Jayson replaced those individuals with other great performance some from the outside, some from the inside. So that process takes place and as that process takes place the productivity comes down a little bit, looks like it’s come down it has come down in North America specifically. And there is no reason why that shouldn’t work out overtime.

Okay. And then a follow-up Duston on the commodity constraints. Are you seeing any impact to lead times? And then is this -- is your expectation that this carries through the first half of this calendar year or at least your fiscal year?

Yeah, I mean we don’t have perfect inside, but clearly next quarter doesn’t look a whole lot better. And from a lead time our ops guys have done a terrific job, we bought ahead a little bit in Q2. So that helped us out from a cost perspective. And yes SSDs have certainly been tight, we have been able to manage that around and change mix and a few things like that. And we’re going to other means as needed on DRAM and things like that. But so far the teams has done a really nice job.

And we also looked at some dual sourcing, which goes to little bit of consumer grade flash kinds as well, which is not really consumer grade but have little bit more endurance cycle that we think we can actually absorb in their platform itself.

Okay, I’ll leave it there. Thanks guys.

Your next question comes from Nehal Chokshi with Maxim Group. Your line is open.

Thank you. The promotion of this top producers into player cultures, does it introduced a new sales management layer or this has been the mode of operation in prior years as well?

So this has been like Nehal, obviously in the last one year we’ve had an increased surge in sales hiring, which now requires a management hierarchy that is basically experienced in the story telling as well as in understanding what it means to conduct a lot of these enterprise conversations.

So, why do you think then that it impacted the typical play book this quarter as oppose to prior quarters then?

The calendar 2016 was a year when we had two surges of sales force, which was not evident in 2015 itself.

Okay, thank you.

Your next question comes from John Lucia with JMP Securities. Your line is open.

Hey guys, thanks for taking my questions. I just wanted to ask, what kind of gives you the confidence that the sales that you saw in Q2 in regard to the productivity will improve over the next couple of quarters? I didn’t really heard a direct answer there, so do you have anything, any plan that you have to fix those issues or can you just walk us through that?

Just I’ll let Dheeraj give you some specifics there, but just again the said context here. In Q2 the revenue was above guidance. So we were pleased from that perspective. Our internal plans didn’t quite meet up to expectations, but we did from a total perspective do okay there. And please don’t lose sight of what’s happened in EMEA and APAC, which has been -- had a great quarters, we got new leadership in EMEA that’s looking good, APAC was actually our best performing most productive region last quarter. So they had an outstanding quarter. So, those two are bright spots there and by the way North America has performed pretty flawlessly over the last several years. So, there is absolutely no reason in the world why they shouldn’t get back to their record productivity that they’ve had in the past. I don’t know Dheeraj you want to add something.

I think that’s well said, actually at the end of the day, North America has carried most of the rest of the world all the time in. But the good thing is that we have built a really good portfolio of regions around the world, EMEA and APAC and Federal and U.S. commercial. And I think we have managed a portfolio that’s been diverse just happen to be a quarter where EMEA and APAC carried the bulk of the portfolio doesn’t mean that Americas won’t come back.

Okay. And did I hear you right that you said you added nine Global 2000 customers?

It’s Dell XE only, just with Dell XE.

Okay. What was the total?

49 in total, I believe.

49. Okay. Alright, thank you.

That was a good quarter Global 2000 wise.

Great.

Your next question comes from Andrew Nowinski with Piper Jaffray. Your line is open.

Alright, thanks. So, pure stores claims that hyperconverged structures only being used in smaller less data driven workloads and in branch offices and I know you said last quarter that the branch office is only about 8% to 9% of workloads and 75% is used for virtualization. So like can you just give us your view of where you see hyperconverged being used?

Yes, I mean those numbers have been change at all. And we pretty much are in the same ballpark. I mean, if you think about $1 billion annual run rate, we cannot be selling remote office, branch office systems and making $1 billion in annualized run rate. Definitely about more than 50% of our workloads are with Tier 1enterprice workloads. VDI is about a little less than 30% for our workloads and a lot of the Tier 1 workloads include Microsoft, SAP, Oracle. And as we give examples in the prepared speech there is tone of really mission critical workloads that we are driving in Global 2000 as well.

Got it, thanks. And then just a question on the accelerated option of Acropolis. So when customers use Acropolis are they still using VMware or hypervisor in their rest of their data center for the workloads that don’t reside on the Nutanix ray well it’s actually ripping out VMware entirely? I’m just trying to understand the adoption curve of Acropolis and how easy it will be to sustain that accelerating rate?

So Acropolis Hypervisor and it’s call AHV, basically goes with at least one workload in mind and as I give the example of one of our hotel customers and large hotel chain. They start testing on a single workload and from then on as the confidence grows they actually start to dialup the AHV consumption itself, and that's what we have seen. One of our largest retail customers today has thrown the count list to us saying I want to get VMware out of my entire account with AHV. So these things happen once the trust for the platform has actually grown.

Got it, thanks.

Your next question comes from Jason Ader with William Blair. Your line is open.

Thank you. First, I just wanted to see if you could give us any detail on the percentage of bookings from Dell? And then second on top of that, if Dell favors their own technology in their new comp plan how does that impact to bookings over the next year?

Jason, I’ll take the first part. As you know historically we haven’t broken out the OEM piece of the business, we’ve -- a little bit of a proxy maybe on the software content which we talked about early at 15% of bookings. I will say we did ship more OEM nodes this quarter fair amount, but more OEM nodes this quarter than we did last quarter.

I think on the just the a prognoses of the relationship Jason, people have speculated about the demise of this relationship ever since to Dell-AMC merger was announced 18 months ago. And Dell has had EVO:RAIL and VxRail and vSAN ready nodes to sell for a long-time now. They say they lead with VxRail and VMware only environments. So it’s our job then to convince the customer on why Nutanix is a better fit to support their multi hypervisor strategy. And with that there is only one product in town that works at scale. We should not expect Dell to build our AHV brand or demand. That's what our sellers do with their do and touch with the end-user. Now having said that we continue to develop our go-to-market with Lenovo and Cisco and it increasingly taking the software layer out for some of our largest customers. We are also continuing to explore other win-win partnership opportunities with companies and channel partners. We’ll see the need to build alternative revenue streams for themselves beyond the VMware stack itself.

Okay. So you basically at this point you do not think that even if the comp plan creates incentives for the Dell sales people to fit their own technology that it’s going to have a significant impact on your relationship with Dell is that what you're saying?

Well there is a frontend comp plan, but this backend rebates and gross margins a lot of those things. I mean eventually it's the bottom-line that eventually matters. And a lot of those things will be combination of the frontend comp plans and the backend rebates and such.

Jayson this is Howard let me just add one thing here. The other thing that I think we've been successful conveying to the Dell sellers is that this is a product that works in a boarder set of scenarios in used cases then their own VxRail product. And it's exhibited extremely strongly repeat purchase rates. So I think on those two basis also there is a tremendous amount of interest in their sales organization for this product.

Okay, thanks guys.

Your next question comes from Simona Jankowski with Goldman Sachs. Your line is open.

Hi thank you. Just as a follow up the previous question, I think Dell EMC VMware combined their go-to-market at the beginning of February in terms of their incentives. So just curious what kind of impact should you noticed in terms of the run rate of bookings or wins in the month since that change. And then more broadly on the competitive environments, any comments you can share following HP SimpliVity transaction would be helpful as well.

Yes on the first one we have done as much activity in terms of training and enabling the Dell EMC CPSD team. This is a converged platform team that was the erstwhile we see team that's now has a portfolio that includes hyperconverged as well. And honestly Simona this is going to come down to the hassle on the street. Because EMC owned VMware in the past as well I mean the sales manager, the RDs, the account managers and how they actually work with each other and figure out what's the fastest product to retire their quotas and what's going to leave them the least friction in terms of repeat business. Those things will actually matter more than just a strategy from the corporate itself. So we believe that Dell CPSD strategy includes Dell XC as a big part of their overall portfolio as well. And SimpliVity front, if you take a step back, SimpliVity really were bringing that customer delight to its end users it wouldn't have ended up the way it did. And we have predicted this six-seven months ago because we were hearing all this from the market. There was a reason why Cisco passed on them, even though they were close partners. HP picked up a relatively distressed asset, which will buy them nothing more than some short lived press. If the products don't work I think even the HP partner sellers don't care about back end rebates. They sell whatever retire their quotas the fastest and brings repeat business with least friction. But we're absolutely not concerned about HP or Cisco or NetApp in terms of competition. They're not software companies with experience in building full stack operating systems that address compute and storage and networking and security and overall management.

And just back on Dell for a second with their software bookings flat at about 15% does that imply that, assuming Lenovo continue to grow, that Dell was down on a sequential basis?

Again we don't break it out. Just on the calc itself again we do a rolling four quarters just in this quarter on a rolling four quarters we happen to drop out a higher quarter and a lower quarter came in, which knocked it down a little bit it would have gone up a little bit. So that little bit insight there.

I see. Thank you.

And your next question comes from Rich Kugele with Needham & Company. Your line is open.

Thank you good afternoon. Two quick questions. First, Duston is there a way of looking at AHV adoption on a customer basis versus node? And just to understand perhaps like you could have quite a few large customers who're just expanding their nodes on their AHV versus something about boarder adoption marketwise. And then I have a follow-up.

Yes so Richard we have a very philosophical view on whether we want to really be part of an MQ for the hypervisor at all. Because like Amazon Zen hypervisor is not part of an MQ for the hypervisor itself. I think the hypervisor is now a means to an end, it’s not an end in itself and I think the way it was actually being sold for the last decade where virtualization was a strategy of the CIO is no more true. So we don’t believe in going and trying to build an MQ and then say look we are the leaders at the visionary quadrant. I think it’s going to be stepping back five years into this whole thing. We have to bundle it, we have to sort of give it out for free and yet say look, you don’t need a virtualization budget, you don’t need a virtualization team to manage all those stuff, it’s part of the overall solution itself. Is that answer of your question?

Yes, thank you. And then from a Global 2000 perspective, you did actually add a pretty similar amount to what you had added in previous quarters. So I guess when you’re looking at your sales force this is strictly a very large customer, very large order issue in specifically North America. Correct?

Yes larger, I wouldn’t say very large, but larger yes in North America.

Okay. And are you concerned that’s the price increases even if they are component related can delay that recovery?

I don’t think so, I think they’re fairly modest, when you look at the memory cost -- memory pricing and then you look at the percentage of our COGS that memory is made up and then you look at the pricing and what we need to do to get somewhat even, it’s not a substantial list price increase.

Okay, understood. Thank you.

Your next question comes from Mark Murphy with JPMorgan. Your line is open.

Yes, thank you very much. So I believe you said that you consummated a price increase on February 1st, and it sounds like it’s not a large magnitude, but I am curious with a month under your belt. How do you think at this point the elasticity of that pricing change will net out if you had to take a guess?

Just I think it’s just too early to tell quite honestly. We’re -- you are right, we’re in a month, but I think we need to let it play out a little bit to give you a solid answer.

Especially because the codes that actually ended up as POs in February or given out in January and maybe late part of December itself.

Okay. And then what is your, I am sorry, go ahead.

As there is some flushing to do here on the older stuff too.

Okay. And what is your expectation for how long the component price increase phenomenon continues in terms of DRAM and NAND, I think we can see that it will extend into next quarter. I am curious how much longer beyond that do you think it will continue?

Yes at this point, I think the price increases again next quarter not as severe and these things they turn quick when they turn. But I think it’s probably somewhat and probably mitigated a little bit more in our Q1, but it probably extends into Q1. And then we need to see from there how it plays out.

And I think in the meanwhile, we also have to work the whole body, when it comes what it means to deliver something in pure software for very large deals and so on. So those are things that we’ll also be exploring and becoming quarters.

So the last question I wanted to ask you the press release you mentioned that you’re evolving and refining your strategy including sales focus and alternate consumption models. And I am just curious if that’s a gradual evolution along the same trend line you have been on? And relating to the sales focus concepts that you had mentioned already today, are you contemplating maybe some more material changes going forward that we’re not aware as yet?

Not at this point, I mean it’s an -- this new consumption model is a relatively young idea and most things because of the inertia of rest they take a while to actually get there. So as and when it becomes something material we’ll come back and talk more about it.

Thank you.

Your next question comes from Katy Huberty with Morgan Stanley. Your line is open.

Yes thanks, good afternoon. Duston, I wanted to ask you a couple of questions. First, one is, in the gross margin guidance for the next quarter are you assuming that none of the price increases stick and are pass through to customers is that what’s baked into guidance or is it something else? And then the second question is sales and marketing expense was up very slightly sequentially much less than normal, was that a slowdown of hirings that occurred in the January quarter, or is that had to do with commissions given that as you said the revenues came in below internal plan?

Yes, so on the question there, sales will grow more this quarter. As you saw with our guidance there we brought sales expenses up and we have got some sales meetings that occurred this quarter, will occur this quarter. So we have got that going in the opposite direction and we have got headcount that we added towards the end of Q2, which gets fully baked into Q3. So there is a bunch of headcount there, there is so more marketing demand spend which we’ll spend certainly around larger account focused and things like that in Q3 also. So, we hired a fair amount of folks, we hired over 200 people in Q2, we will bring that down a little bit, probably obviously for Q3, but there wasn’t a massive backing of hiring, there is some timing of expenses and sales meetings when they fall and stuff like that. I am sorry the first question again Katy.

The first question was what’s baked into gross margin for the April quarter, are you assuming that’s none of the price increases stick, or are you assuming that some of that is able to push through.

Yes, I am pretty much assuming none of the very little if any of the price increases stick. And again we will see, hopefully that’s not the case, that’s not the plan. But, you can do that math too if you look at the cost increases in DRAM and memory as a percent of our total BOM and you can back into pretty much starting at the 60% you can get to the 57% to 58% just almost basically on the DRAM cost increases.

Okay, thanks. And then just quick question for Dheeraj, as it relates to AHV adoption increasing, what does that mean from a financial modeling standpoint, do those customers repurchase at a higher rate? Do they tend to pay for more software overtime? How should we read that from a financial modeling standpoint that the [indiscernible] penetration is increasing?

Well I think the first thing there is stickiness and how it helps the company actually get a full stack in front for customers. And beyond the stickiness it’s also how does the story, the way we actually go and talk to the CIO especially in the Global 5000 go and compete with this idea for public cloud rented model versus owned. So owned versus rented, we couldn’t do this without really having a full-fledged cloud operating system itself. I think that’s where it actually begins and we have been very consistent in saying that the way to monetize this is to actually look at the full stack as oppose to looking at a skew which is the hypervisor as a separate line item in an invoice itself. But I think without AHV we will never deliver things like paravirtualized storage IO pipeline, we could not deliver network virtualization in all this NSX goodness that you hear from VMware all that is only possible because we own AHV. I mean we’re doing things with hybrid networking and things like that a lot of that stuff means that we had to own AHV as a strategic asset and the fact that we have been developing it for the last three plus years is now barring some fruit in lot of the core kernel of this infrastructure components beyond compute and storage.

Thank you.

Your next question comes from Ittai Kidron with Oppenheimer. Your line is open.

Thanks. Couple from me, first on the billings comment that you mentioned that you had fewer larger deals over 500k, I just want to make sure that that directly maps to the changes of leadership and promotions you did in sales. Meaning it didn’t happen in areas where you did not make material changes to your sales organization?

Correct, again EMEA was had a good quarter and APAC had a really good quarter.

And is the pace of productivity improvement of new sales people I mean is that changing are you still thinking 9 to 12 months to get to full productivity.

Well we've got a four quarter ramp, but as we bring on large account global type sales reps here naturally those are going to take longer to ramp because they’re bigger accounts and we need to give the reps time to go obviously get those comps up and running. So it won't be a large percentage of our sales force, but reasonable piece of it will have some elongated ramps just by the nature of the accounts that they're hunting.

Okay. And then lastly on the gross margin Duston you talked about the impact where the typical cost declines you expect every quarter and that this quarter it was actually up 2%. Is it fair to say that your gross margin would have been more around 62%, 63% in the quarter if this would have been a normal DRAM price decline?

All things being equal that's a fair calculation the only unknown there is what we would have done with that 2% and I'm pretty sure I know what I would have done with that 2% it would have been 60% and the billings would have been higher.

Got it okay, very good. Alright, good luck guys.

Your next question comes from Mehdi Hosseini with Susquehanna. Your line is open.

Hi thanks this is Dave Ryzhik for Mehdi Hosseini. Duston going back to the FASB-606 [ph] for 2Q you mentioned it would have been 300 basis points higher. Just our base back it on roadmap suggested those that software only revenue would be around 20% of total product revenue. Is that about right? And I have a follow up.

I haven't quite honestly done that direct calc there. But there is some other movement in there and some other calculations it may not be perfect. But you're probably not massively off.

And for your 3Q guide what would gross margins be under the new revenue recognition if you were to obviously have it for 3Q?

Yes we haven't done that or calc. What we did is we went back and took at a tops-down look at the history and what it would look like the Q2, but we have not done that looking forward.

And just one quick one, you source all your hardware from third-parties and you mentioned that you built up, you strategically built up inventories. Just wanted to understand how that work since the third-parties I assume they would be the ones procuring the DRAM and the SSDs.

Yes we don't -- we're obviously involved in that, but we don't carry inventory specifically ourselves.

Okay, got it. Thank you.

Your next question comes from Alex Kurtz with Pacific Crest. Your line is open.

Hey guys just a couple of questions from me. And sorry if this question has already been asked, but late last year there was a view that rep productivity from a large chunk of the sales force hadn’t really accelerated and that was sort on the horizon as far as driving revenue acceleration. So again sorry if you already answered this, but what happened to that catalyst in the story from where we were late last year to now?

Well I think as we spoke there was four or five really good account managers that we've promoted to become RDs. And then basically $0.5 million plus deals which happens to be 45% plus consistently or around 45% for the last four quarters dipped a little. So in the loss averages I think these two things by themselves would have made Q2 look way better.

And then Alex also within that whole process, I mean promoting some of the top performance is one piece of it, but within that process we're also in some cases taking existing reps and refocusing for commercial to enterprise because of the opportunities there. Well naturally you get a little what we've experienced is some downturn in productivity with that and we're bringing in more folks to focus on that too. So you've got a combination of things it’s just not -- wouldn't just focus on the promotions more of the realignment of the sales force again towards enterprise business, more towards enterprise business.

And just my last question VxRail head-to-head...

I'm sorry just to make sure you heard the statistics again, we've been pretty successful here. We've been running bookings roughly deals over $500,000 equaling about 45% of the total bookings that’s been reasonably consistent. So we’ve already been reasonably successful here that just turned down a little bit in the current quarter.

I understand. And then just one VxRail was there a change in the comparative percentage against VxRail quarter-to-quarter with an increase/decrease?

None of material changed, we are seeing more hyperconverged for all as the large incumbent system spenders are starting to lead more with hyperconverged as oppose to try and protect their traditional three tier. So overall we are seeing a higher share of hyperconverged in the deals that we are competing. But the win rate remains high and of the hyperconverged category VxRail is probably the number one product we’ve seen.

Okay. Thanks, Howard.

Your next question comes from Matthew Hedberg with RBC Capital Market. Your line is open.

Hi, guys. Thanks for taking my questions. I had one other on the gross margin side, with the early adoption 606 and assuming that component prices rebound, it would seem logical to me that gross margin could be at this 63% to 65% long-term model maybe sooner than we expected. I guess looking our further, would there be up side do you think to that gross margin expectation longer term or do you think you could spend any upside there?

Yes, I think, Mat, we’ve talk about this a lot. I think I would continue to focus on around 60% for the immediate future.

But is the assumption though that after post adoption I think you said it was a 300 basis points potential tailwind?

Yes, I mean obviously we wouldn’t do anything extreme, but we’d take advantage of some of it maybe let some go through, but too early to make a call on that yet.

Okay. And then…

First half to get through the DRAM mess that's going on in the marketplace now and we’ll let that clear out and then we’ll have a clear review on things going forward.

Got it. And then last for you guys, I believe it was .NEXT in Europe that you guys talked about to move to network visualization. Curious if you could give up an update there on sort of what you’re hearing from customers there?

So, we did release network visualization as part of our 5.0 release, but we are also working on micro segmentation service, services chaining, service insertion so that you can really get the whole portfolio of what one can actually expect from an east west network and security, software defense security story itself. So, things like how do you insert parallel to firewall are a 5 load balancer things like that. How do you do a one click micro segment that actually goes in protection application all happening from the self-service portal itself. Those are the kind of things that you should come to expect from us in the coming quarter or too.

Great, thanks guys.

There are no further questions at this time. I will now turn the call back over to Tonya Chin.

Thanks again to everybody for joining us today. We’re very excited about the opportunity in front of us and feel we hold this unique leadership positions in a rapidly growing market. Our enterprise cloud platform is the best in the industry and well positioned to capture increasing opportunities in the hybrid cloud market. With NTS of 90 plus for the last several years our superior value proposition to customers is clearly evident. We look forward to updating on our progress on our next earnings call. Okay just disconnect operator.

This concludes today’s conference call. You may now disconnect.