Thank you for standing by, and welcome to the Nutanix Q3 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, today's call is being recorded. I would now like to turn the conference over to your host, Mr. Rich Valera, Nutanix's VP of Investor Relations. Please go ahead, sir.

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 visit 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 thereon successfully and in a timely manner and the benefits and impact thereof on our business, operations and financial results. Our plans implement recommendations and remedial measures all on the completion of the Audit Committee investigation. Our expectations and estimates from resolution of the third-party software usage matter that was a 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 current and future business model transitions, the factors driving 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 actual results to differ materially and adversely from those anticipated by these statements. For a more detailed description of these and other risks and uncertainties, please refer to our SEC filings, including our annual report on Form 10-K for the fiscal year ended July 31, 2022, and our quarterly reports on Form 10-Q for the 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, 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, must otherwise specifically reference 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?

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 renewals business. With respect to the macro backdrop, in our third quarter, we continued to see businesses prioritizing their digital transformation and data center modernization initiative 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 consider this dynamic in our outlook for the remainder of the fiscal year. Supply chain constraints with our server partners appear 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 are pleased the investigation has been completed. Taking a closer look at the third quarter, we delivered solid topline 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…

Thank you, Rajiv. Before I discuss our financial result 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 two of our third-party providers was used in a non-compliant manner for interoperability testing, validation, customer proof-of-concept, training and customer support over a multi-year period. In addition, the Audit Committee concluded that certain employees engaged in intentional misconduct to conceal 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 non-compliant 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 continued 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 2023, which represents the estimable amount of future payments for past non-compliant usage of software from these two vendors accrued over a multi-year 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 2023…

Thank you. Our first question comes from the line of Jim Fish of Piper Sandler. Your line is open.

Hey guys. 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 give the 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?

Jim, let me start with some qualitative comments there and Rukmini can give you some numbers there. So first of all, I think you talked about 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 some customers at least 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 FY2023 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?

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%, 125% range. And so I'll leave it at that with regard to NRR specifically.

Yes. That's helpful Rukmini and Rajiv. 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. Thanks.

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 cycles tend to be nine to 12 months. And so we haven't quite seen factoring in meaningful benefit from this in FY2023. Now on the other side of the equation from a competitive dynamic, it's the cloud native or hyperscaler 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.

Thank you. Our next question comes from the line of Mike Cikos of Needham. Your line is open.

Hey guys. 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? Thank you again.

Thank you, Mike. So first, a question on linearity. So 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 we saw the guide for the full-year as well, which factors in all of those moving pieces at this point.

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

Thank you, Mike.

Thank you. Our next question comes from the line of Pinjalim Bora of JPMorgan. Your line is open.

Great. Hey guys. 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 .NEXT, 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?

Yes. So if you look at the Project Beacon and just a quick recap of that is, let’s say 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 at .NEXT, is that this is a multi-year 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 Nutanix database 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.

Understood. Thank you for that. 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?

Thank you, Pinjalim, for that question. So I'll guide has a few pieces, right. So let me start with I know your question was on revenue. But if I just start with ACV billings here for a second, we did take that guide up as well, right, from 915 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 modest elongation of sales cycles, in some cases, which you touched upon earlier, I believe, in terms 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 renewals business, as we said from day one from when we started the year, 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.

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

So we haven't specifically diverse what those assumptions are Pinjalim, but I think it's fair to say that overall, we have seen the supply chain 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 hadn’t assumed it could be completely normal, right. But at this point, it does seem like those are largely normalized.

Got it. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of George Wang of Barclays. Your line is open.

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

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 now building ours 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.

Great. Also, Rajiv, a quick follow-up. In terms of the land expand, are you seeing kind of increasing attach to the whole survey stack 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?

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 attach 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 this revised portfolio is going and being adopted in the market. 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.

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

Thank you Our next question comes from the line of Meta Marshall of Morgan Stanley. Your line is open.

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 state 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?

Yes. I think that's a very good question, Meta. So in fact, I'm just – I had a conversation on this only yesterday with one of our large enterprise customers. What I would say is I think they were five 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 know 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.

Great. Thanks. And maybe just Rukmini, I’m doing this back of the envelope, but it would seem as if OpEx stepped 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 OpEx to actually relatively stable? Or is there anything that I'm just missing there? Thanks.

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

Okay. Perfect. Thanks.

Thank you.

Thank you. Our next question comes from the line of Jason Ader of William Blair. Your line is open.

Yes. Thank you. I wanted to just follow up on that last question asked to Rajiv. In terms of what you've seen over the last five 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 five 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 give things a little more evaluation and thought and you talked about TCO, 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 four years?

Yes, Jason, I will say this dialogue 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 two 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 my eyes, 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.

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?

Yes. I think first of all, two points. Yes, customers can lift and ship and take it easily to the public cloud Jason, no doubt about it. Now as they 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 bare 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 one 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 a portable set of 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 on Amazon or Azure, what you really care about is customers consuming our services. It doesn't matter whether they're using Nutanix or not, 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.

Very helpful. Thanks.

Thank you. Our next question comes from the line of Wamsi Mohan of Bank of America. Your line is open.

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

Hey, Wamsi. So yes, both financial services and healthcare 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.

Okay. Thanks, Rajiv. 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?

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 a 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.

Okay. Thank you. 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 2023? And sort of what kind of a headwind that might pose for fiscal 2024?

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 just 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.

Okay. Thank you very much.

Thank you.

Thank you. Our next question comes from Dan Bergstrom of RBC Capital Markets. Your line is open.

Hey. It's Dan Bergstrom for Matt Hedberg. Thanks for squeezing us in here. 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?

Hi, 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?

Yes. Perfect. Thanks. 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?

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.

Perfect. Thank you.

Thank you. Our next question comes from the line of Erik Suppiger of JMP Securities. Your line is open.

Yes. Thanks for taking the question. 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 two vendors that you had to do to work with on this?

Yes. I think I can take that, Erik. So yes, we discovered it, management discovered it, and it was discovered as part of a software purchase review. And yes, we are continuing to use the software. But again, for the non-production use cases that we talked about.

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.

All right. Very good. Thank you.

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.