Good day and thank you for standing by and welcome to the Nutanix Q4 2023 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would like to introduce your host for today’s call, Richard Valera, VP of Investor Relations. You may begin.

Good afternoon and welcome to today’s conference call to discuss the fourth quarter and fiscal year 2023 financial results. 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 fourth quarter and fiscal year 2023 financial results. If you’d like to read the release, please visit the Press Releases section of our IR website. During the call today, 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 on them successfully and in a timely manner and their benefits and impact on our business operations and financial results. Our financial performance and targets, expectations regarding and the factors driving our growth and profitability, our competitive position and market opportunity, customer demand, the impact of our business model transition and macroeconomic, geopolitical, industry, customer and other trends. 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 included on our annual report on Form 10-K for fiscal year ended July 31, 2022 and subsequent quarterly reports on Form 10-Q as well as our earnings press release issued today. These forward-looking statements apply as of today and we undertake no obligation to revise these statements after this call. As a result, you should not rely on them as 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, to the extent available, reconciliations of these non-GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Lastly, I’d like to remind you again that Nutanix will be holding its 2023 Investor Day in New York City on September 26. Please go to the Events section of the Nutanix Investor Relations website if you’d like to register. And with that, I’ll turn the call over to Rajiv. Rajiv?

Thank you, Rich and good afternoon everyone. We delivered a good fourth quarter with results that came in ahead of our guidance, capping off a strong fiscal 2023. The uncertain macro backdrop that we saw in our fourth quarter was largely unchanged compared with the prior quarter and we continue to see steady demand for our solutions in Q4. This was driven by businesses prioritizing their digital transformation and infrastructure modernization initiatives and looking to optimize their total cost of ownership. Taking a closer look at the fourth quarter, we were happy to have exceeded all of our guided metrics. We delivered strong ACV billings growth and record quarterly revenue of $494 million, a nearly $2 billion annualized run-rate. We also had another quarter of good free cash flow generation despite some expected one-time payments. Overall, our fourth quarter financial performance was a strong finish to our fiscal year. Our full year fiscal 2023 results demonstrate the progress we’ve made with our subscription model. Specifically, we delivered healthy year-over-year ACV billings growth of 27%, led by outperformance of our renewals business. We also delivered our first year of non-GAAP profitability in the company’s history with a non-GAAP operating margin of 9%. Finally, despite the impact of several one-time payments, we generated free cash flow in excess of $200 million, a roughly tenfold increase compared to our prior fiscal year. Beyond the financials, we made significant progress across all aspects of our business in fiscal 2023. On the product front, we delivered general availability of NC2 on Microsoft Azure, announced meaningful new products in areas such as Kubernetes, data services and cloud management and defined our data services vision with Project Beacon to enable companies to build portable applications. We also enhanced our corporate governance profile through amendments to our bylaws…

Thank you, Rajiv. I will first provide commentary on our Q4 ‘23 results and fiscal year ‘23 results, followed by our outlook for Q1 ‘24 and fiscal year ‘24. Q4 ‘23 was a good quarter in which we exceeded all guided metrics. ACV billings in Q4, was $279 million, higher than our guidance of $240 million to $250 million. Revenue in Q4 was $494 million, higher than our guidance of $470 million to $480 million. ARR at the end of Q4 was $1.562 billion, a year-over-year growth of 30%. Similar to last quarter, we saw a modest elongation of sales cycles likely due to increased deal inspection. New logo additions were about 500 in Q4. Average contract duration in Q4 was 3 years, flat quarter-over-quarter as expected. Non-GAAP gross margin in Q4 was 85.8%, higher than our expectations because of higher revenue than expected, certain non-recurring savings and timing of hiring. Non-GAAP operating expenses in Q4 were $361 million. Non-GAAP operating margin in Q4 was 13%, higher than our guidance of 9% to 10%. Non-GAAP net income was $68 million or EPS of $0.24 per share based on fully diluted weighted average shares outstanding of approximately 286 million shares. Billings linearity was good and DSOs were 29 days in Q4. Free cash flow in Q4 was $46 million, implying free cash flow margin of 9%, higher than our expectations, largely due to better-than-expected billings and collections. We ended Q4 with cash, cash equivalents and short-term investments of $1.437 billion, up from $1.358 billion in Q3 ‘23. Looking at our full year financial results, we exceeded all guided metrics for fiscal year ‘23 as well. ACV billings in fiscal year ‘23 were $957 million, higher than our guidance of $915 million to $925 million and representing a year-over-year growth of 27%.…

Thank you. [Operator Instructions] And our first question comes from Pinjalim Bora from JPMorgan. Your line is now open.

Congrats on the quarter. Thanks for taking questions. Rajiv, I wanted to talk about AI. The GPT-in-a-Box, help us understand, is that largely kind of integrated offering, kind of with a bundled pricing? Or is there any new functionality that you have developed. And it seems like it’s spend across hardware, software and services. How are you kind of thinking of going to market with it?

[Operator Instructions]

Pinjalim, can you hear me now?

Yes. I can hear.

Okay, sorry. Yes. So first of all, in terms of the platform, it’s the same Nutanix cloud platform integrated with standard server platforms with NVIDIA DPUs as part of the solution, okay? And on top of that, what we add is a curated set of MLOps software and LLMs, largely open source models, and we put that all together with the services offering that helps customers deploy this out of the box. Now what do they use it for? So what we see with generative AI is there’s been a lot of focus about training these large LLM models in the public cloud. But when it comes to the actual usage of these, what you’re going to see is companies need to run these AI models where their data is. And in a lot of applications, enterprise applications, sensitive data is stored on-prem or at edge locations where they’re actually gathering the data in the first place. So with GPT-in-a-Box, they can run their AI applications, their applications by fine-tuning these large LLM models that have been changed in the public cloud using what we call foundational models and public data. They can find tune this, make them more compact to run with their own data and use it on-prem. So that’s the offering. Now in terms of go-to-market, we have a small tiger team that’s very focused on working with our customers as we put use cases together. We are also building an ecosystem of ISVs and SI partners that can help us take this to market and expand our scale. So it’s still early days, but I’m excited about where this is going.

Yes, understood. Thank you. And one for Rukmini. Rukmini, you talked about ATR slowing this year. Maybe help us understand why would that be the case? Is that just because that ACV was a little bit slower this year? Is that kind of adding up to it? And then are you baking in any upside from the VMware opportunity in the guidance?

Hi, Pinjalim, thank you for the question. So on the first question on ATR. So we expect continued growth in our renewal ACV business in fiscal year ‘24 and our GRR continues to be good at 90% plus. But as you noted and as we said in our prepared remarks, we do expect that the renewal ACV will – is expected to grow at a slower rate in fiscal ‘24 than in ‘23 due to the shifting of some renewals from ‘24 to ‘23, largely due to co-terming and some natural variation, right, that we see, the timing of renewals as customers choose to renew based on their budget cycles or other factors. In fiscal year ‘25, we expect renewals to go to reaccelerate based on our current view of our available to renew or ATR. And I think it’s important to emphasize also that we continue to believe that this growing mix of renewals over time as a proportion of our total billings continues to be a driver of both billings growth and margin expansion over a multiyear period. And I think your second question, Pinjalim, was around have we baked in any benefit from VMware spending acquisition by Broadcom, and so we continue to see significant engagement and opportunities related to potential concerns around that transaction. And in Q4, we did see a few of these opportunities close including a 7-figure ACV deal with the 1400 company. So while it’s difficult to predict the timing of these wins as we’ve talked about before, just because of some of the dynamics in the market, we do expect some benefit from these deals influenced by this transaction and have factored that into our guidance.

Got it. Thank you very much.

Thank you.

And thank you. [Operator Instructions] And our next question comes from Jim Fish from Piper Sandler. Your line is now open.

Hey, guys. Nice quarter. Nice guide. I’d also see the new customers pick up again, understanding there is some seasonality here. But was anything causing that in particular in this environment to see the 500 net new customers, including anything on the competitive front to the last question and I appreciate the details on the net retention rate in the quarter here. But can you walk us through kind of how we should be thinking about net retention into next year, given kind of what’s going on with retention rates? And does this mean with the cash flow guide being close to $300 million of this year that we could be thinking about well north of $300 million for fiscal ‘25 or is that just an Analyst Day item that we should be patient for?

Yes. I think there are three questions there, Jim. Maybe I’ll take the first two, which is around new logos and the competitive outlook, and then Rukmini can focus on the financial questions. So on the new logos, we continue to focus on these higher quality, higher ASP new logos. Most of them just new logo account. But seasonally, of course, Q4 is a strong quarter for us and vis-à-vis earlier that you saw the strength and new logos there, relatively speaking. It’s also we’re focusing on larger, more strategic transactions, and we are seeing success on that front, certainly. So that’s the new logo piece. From a competitive perspective, you already talked about the VMware dynamic there. Clearly, we’ve seen the engagement level grow there. Clearly, we’ve seen some deals starting to close. And there is still a lot of variability in terms of how the pendulum is going to swing on this one from customers who might just use us to get at a lower price from VMware to customers who truly see us about bringing a second [indiscernible], reducing their risk with an alternative provider. So we’ll have to see how that plays out. The hydro cloud piece is really starting to work in terms of customers using more of us in the public cloud. So that piece of it is working well. Our partnership with the hyperscalers is actually coming through actually also nicely in that regard. So we feel good about our competitive positioning as we get into FY ‘24. Rukmini, you can perhaps address the NRR and other questions?

Yes. Yes. Hi, Jim, so on NRR, we were happy with the 1.3% that we reported for fiscal year ‘23. And in terms of fiscal year ‘24, Jim, what I say is I think you should still assume that part or sort of new and expansion business, the majority does come from expansion, like we talked about that before. We’re not giving out a specific number today, Jim, but more color to come on that at our Investor Day. And similarly, on free cash flow, yes, we’re happy to sort of guide to $280 million to $300 million for fiscal year ‘24 and again, more to comment at Investor Day. What I will say, though, is we continue to be focused on all elements of that profitable growth piece, which means that we do intend to continue to evolve our – grow our margins, free cash flow margins over time, while growing the top line, right? So that continues to be the intent, but I’ll sort of hold on any specific free cash flow outlook beyond ‘24 for our Investor Day.

Fair enough. Just last one for me, Rajiv, on that Cisco partnership, I mean, how much demand were you getting for this? Just nice to have as Cisco UCS is a much smaller shareholder of that server market relative to some of your other partners and understanding Cisco has one of the best sales motions out there with this. But are there any minimums to think about or how should we expect the impact probably more for fiscal ‘25, but any impact for fiscal ‘24?

Yes. So again, let me pass it out there. So Jim, first of all, yes, we have seen customer requests in the past for customers. There are many large customers with UCS deployments. They would like to see this joint solution from us and Cisco. So we’re happy that we’re able to announce that. Also importantly for us, the fact is Cisco has a go-to-market machine that’s much bigger than ours. We today have about 20 – call it about 25,000 customers roughly but our addressable market in terms of customers are at least 100,000. And so Cisco’s broad market reach could help us get those initial entries. And again, we’re going to work, co-sell with Cisco. Cisco is going to be the front in terms of selling this but we’re going to be helping them along the way. And just I look at this as an expansion opportunity for us with a much larger customer base. Good for the customer in terms of them buying an integrated solution for everything they need in the data center, right? There’s a virtual platform, cloud platform from us, hardware from Cisco, both in terms of servers and storage as well as the networking features and the security aspects of this. So we are excited about this. Now in terms of the numbers, what we expect is we just literally announced it here. And we – there’s a whole process of training, enabling the fee etcetera. So we are factoring in a small amount in the later half of this year, like more likely in our Q4, but we certainly expect the momentum to build here over time.

Congrats, guys. Thank you.

Thank you. [Operator Instructions] And our next question comes from Meta Marshall from Morgan Stanley. Your line is now open.

Great, thanks. Maybe just as a first question, understanding kind of the new customer cohort you guys have said is kind of a focus on higher quality and larger customers. Is there any way to quantify, just in terms of what that cohort – just in terms of kind of initial deal size or anything that kind of makes the point on that metric? And then just on kind of the re-acceleration and kind of general elongation of sales cycles right now, do you think that, that is kind of a the catalyst for that reverting in fiscal ‘25 is purely macro? Do you need to kind of see more multi-cloud spending? Like what is it, just a matter of macro? Or what kind of do you think is the main catalyst for that re-acceleration? Thanks.

Let me take a crack at the first part and Rukmini can add on. So our new ASP for these new logo ASPs are certainly up year-over-year for us given the focus. We haven’t put a number on it, but perhaps one of the things we could do, take that as an action for our Investor Day to come back to you with looking at, for example, how many customers we have with over $1 million, for example of ARR. So we – it’s a good question, we will come back to you with more color. But in general, yes, new logo ASPs have been going up as a result of our focus. Rukmini, do you want to take the rest?

Sure. Yes. Meta, thanks for the question. So I think you had a couple of things in the – woven into your question, Meta. So one was, I think, around just sort of sales cycles, right, which as we’ve talked about in the past, continues to – we continue to see a modest elongation there, and that is really affecting only our sort of new and expansion business, right? And so that’s sort of what we continue to see and some of those macro factors are factored into our ‘24 outlook in the new and expansion portion. Now – and then you referenced the acceleration that we talked about in ‘24 as it relates to our renewal ACV growth rate. So just again, to reemphasize, the renewals ACV will continue to grow year-over-year for a while as we’ve talked about in the past. What we said was at ‘24, renewal ACV growth is at a slower pace than ‘23 because of the some timing variations between ‘23 and ‘24 due to some co-terming, but also largely due to just some timing as it relates to when customers choose to make their purchases because of their budget cycles and so on. And so we view that as effect in ‘24. But when we look at the available to renewal pool for ‘25, we see that reacceleration in ‘25. So that’s what we were referencing. And I just wanted to make sure I was clear on the new and expansion portion versus the renewals, which I hope that answers your question.

Yes. No, that’s perfect. Thank you.

Thank you.

And thank you. [Operator Instructions] And our next question comes from Mike Cikos from Needham. Your line is now open.

Thank you. Thanks for getting me on the line here. I did want to come back to the ACV billings for a second. And I know that – congrats on the outperformance on the guidance. I believe you guys have cited outperformance stemming from specifically renewals when I think about the ACV billings. What drove that outperformance? Can you put some finer parameters around it, whether it would be – it sounds like macro was relatively stable, but was it just better execution, potentially conservatism for the guide? Like how do we view the different pieces that contributed to the outperformance you guys were able to generate?

Hi Mike. Thanks for the question. So, there were maybe a couple of components that I will talk to, and I welcome Rajiv to add anything else that you would like. So, the first one is that around renewals, right, what we say when we mean renewals outperformed is that we see some core earnings, as we have talked about before, which is sometimes more difficult to forecast. And we are also seeing continued improving discipline around renewals economics, which is what we transact the renewals as compared to sort of what the original transaction was, right. So, those are the ones that are contributing to improvement in renewals outperformance. And so that was a big driver, I would say, Mike, the outperformance in ACV billings. So, that was really the largest driver of outperformance for Q4 ACV billings.

Great. And I guess a two quarter on a follow-up. One, kind of fees-up the ACV billings again. But if I think about the guidance that we have today for Q1 ACV billings, it’s actually down sequentially. And if I look over the most recent 2 years, you have gone up from Q4 to Q1. Can you help us think about why it would be down sequentially, maybe part of it has to do with this co-terming effect or maybe some of those deals that came in, in Q4 from let’s say, the VMware deal that we cited earlier, that can you guys – that’s the first question, as far as the ACV billing guide being down in Q1 sequentially. The second is gross margins. I know we cited a benefit from non-recurring savings and the timing of hiring. Can you help us unpack what – or quantify what the non-recurring savings were or what that dollar figure was and then the timing of hiring, I guess we should expect for you guys to hire into that in the out year, or is this – this is hiring that’s been – you guys can actually prove more efficient versus what you had initially anticipated?

Okay. Thank you, Mike. Let me take that one-by-one. So, on the Q4 to Q1, our typical seasonality is actually Q1 being lower than Q4, Mike, typically, because Q4 is a seasonally high quarter for us given it’s the year-end, right. And it’s sort of – sellers are motivated, right, to go and have a good Q4. Last year was a bit of an anomaly, right. Because if you recall in Q4 ‘22, we saw some of this impact from supply chain disruptions that were affecting our partners and therefore, are also impacting us to some degree, right. So, the Q4 ‘22 number was actually probably artificially lower, which led to a sequential increase last year. This is more normal, is how I would characterize that, Mike. And then to your question on gross margin, so we said a few things there. So, one was revenue higher than expected, I think that’s straightforward. And your question was on the other two. So, what we say when we mean timing of hiring is as sort of attrition happens, normal levels of attrition, but sometimes it takes time to backfill and so on, right. So, that can sometimes cross quarter boundaries. And so we saw some of that in Q4. Those people we would expect to be hired and backfill in short order here, right, so really probably in Q1. And the non-recurring savings were not huge amounts, Mike. But just remember that I think Q4 also is a high gross margin here as well because COGS and operating expenses don’t fluctuate as much over the year, but Q2 and Q4 are seasonally higher top line quarters for us, right. So, you will see that those margins tick up higher in Q2 and Q4 and take a little bit lower in Q1 and Q3, which is why if you look at our overall fiscal year ‘24 guide, we are saying gross margin is approximately in that 84% range.

Thank you very much. I really appreciate all the color. Thank you.

Thank you, Mike.

Thank you. And one moment for our next question. And our next question comes from George Wang from Barclays. Your line is now open.

Hey guys. Congrats on the quarter. I just want to ask about any update on the repatriation trends, especially given definitely macro, are you guys seeing sort of increased repatriation to on-prem, which may benefit your tenants?

Yes. So, George, I can’t say that we have seen increased repatriation as well. We have certainly seen instances of repatriation. What I would say is interesting is that we have also seen stuff in the other direction, which is people have committed to some of these large public cloud spend commitments. And what they are saying, they are not able to get their applications really to public cloud as quickly as they would like to see and so they are now stuck with saying, I have to spend this much money in the public cloud because I committed to it already. And so we have seen that come to us because now they are looking at this saying, we are available through the marketplace of Azure and AWS. And we have seen people purchasing our software through the Azure and AWS marketplace, which help them retire some of their commitment in public spend. So, yes, I think we see the world being hybrid, some work loads are being repatriated from the public cloud. I wouldn’t say it’s necessarily a wholesale trend, we see that in spots versus a systemic trend yet at this point. But the world is very much hybrid, people are being much more conscious about how much to put in the public cloud in the first place.

Okay. Great. Just a quick follow-up, if I can, we simplified portfolio kind of platform approach. Can you talk about kind of the tax rate to Nutanix Cloud Platform, Cloud Manager and the kind of maybe high-level commentary on cross-sell and up-sell?

Yes. So, I think two questions there. On the attach rate of the portfolio, for sure, the biggest change that we have seen since we launched our revised portfolio with much higher attach for cloud management along with our cloud infrastructure. In fact, that is the easiest attach sale, really, right. Everybody who built the cloud also wants to operate the cloud. So, naturally attaching cloud operations, cloud management to our infrastructure. That’s the best we have seen. We have also seen, of course, NC2, which is our public cloud extension is a natural extension, natural attach and it’s really – it ties together with our cloud platform very nicely. So, that’s another attach that is still relatively small for us, but growing every quarter in terms of customers, number of customers and customer accounts. Unified storage is the other element of the portfolio that we see reasonable attach with as well. The one that we have to actually really work with a specialist team to sell is our Nutanix database portfolio because that’s largely sold a level up in the stack to the people who are either managing databases or at developers that requires more specialist skills, and that’s much more of a specialist.

Okay. Great. Thanks. Congrats again.

Thank you.

Thank you. And one moment for our next question. And our next question comes from Mehdi Hosseini from SIG. Your line is now open.

Yes. Thanks for taking my question. I want to go back to your fiscal year ‘24 guide. If I just take the midpoint, it seems like OpEx would need to grow by 7% and I understand you honestly, it’s coming, but would the collaboration or the deal with Cisco actually help? Is some of these OpEx growth assumptions built into the model, or does that order be bake into account, or do that account for any cost savings as Cisco scales your product…?

Hi Mehdi. Thank you for that question. So, let me first address the OpEx point, then we will talk about any potential impact from Cisco. So, if you look at our operating expense profile over the last several years, since about 3 years ago, it was about $1.5 billion and last year it was $1.4 billion, right. It was actually, we have kind of really kept it sort of flat to down over the last 3 years, while of course continuing to grow ACV billings, the ARR revenue and so on since over that time. So, we have been really sort of cautious about OpEx and then focusing on improved efficiency and productivity. Where we are now is that we are making some very prudent, I would say and targeted investments in our go-to-market and in our innovation engine. As we talked about, our market, we believe is large and growing in order to go and capitalize on that. So, we are making some targeted investments on that front. Now, on the Cisco piece, I think what we expect the Cisco partnership for us to do is to continue to help sort of our productivity go up and really be additive to our overall top line, right. So, that’s how we should think about operating expenses relative to last year, but also relative to any potential impact on Cisco.

Okay. And one follow-up for Rajiv, I just want to go back to your prepared remarks. And I am just trying to better understand, I kind of agree with you that security, privacy, compliance would actually bode well for enterprises to scale AI. But as you think about the train models moving from a cloud infrastructure into on-prem, would that actually require your existing or prospective customer with additional one-time CapEx investment or no?

Yes. So, that depends on what they have – I mean obviously, this AI requires compute resources, right. It requires several platforms with GPUs attached to it. So clearly, these are new workloads for the customer, they are going to have to buy new hardware, right, so – and put our software on it. What they would do, just to clarify what they would do, the models likely are combinational models that are trained on publicly available data in the public cloud. But then when they bring it on-prem, they are going to fine tune this, and potentially make it more compact with their own specific data. A good example just to see how this works, maybe it’s – take support as an example, even after the support, in terms of support, we have a lot of internal documentation that we don’t put in the public cloud, internal design documents as well. So, imagine using a generative AI back end to be able to go through all of that and quickly try and arrive at root cause or try and arrive at answers to customer support questions. So, we want to run that on-prem or in a secure location where our data is stored. And so we will typically run that on, again, standard servers with GPU accelerators, running DJI models with our stack.

Thank you. Is that where Cisco could come in and actually become a partner to facilitate that additional investment required?

I think the Cisco piece, by the way, just let me – I think we should decouple that, right, because this AI piece works with everybody servers. So, customers can buy servers from Dell or HP or Lenovo or any of server partners and we have a wide variety of them, and we have been supporting GPUs for multiple years. So, we don’t necessarily need this to be only Cisco. So, they can buy that from whoever they like their server partners. What we expect with Cisco is a significant expansion in terms of our go-to-market reach, right, with their go-to-market, their ability to sell into a much broader customer base and their footprint, we should be able to benefit from that in the long-term.

Got it. Thank you for the color.

Thank you. And one moment for our next question. And our next question comes from Erik Suppiger from JMP Securities. Your line is now open.

Yes. Thanks for taking the question and congrats on a good quarter. First off, on the GPT-in-a-Box, are those customers developing their own large language model or are they using third-party software on that box? And then secondly, in the – go ahead.

Yes, Erik, I think the answer that most of them would not build their own large language models. They would use foundation models that are available. For example, there is new ones coming out like Lama 2 [ph] that are open source. They could, of course, use GPT if they like as well. But there are much of the models. Most customers in the enterprise, I don’t think will develop their own models, but use what’s available out there. They would probably fine tune it with the data that they have.

Okay. That makes sense. And then secondly, in the partnership with Cisco, are the Cisco sales getting comped on selling the Nutanix software?

Yes, they are getting compensated just as if they were selling Cisco products, so 100% compensation for their service.

Very good. Okay. Thank you.

Thank you. And one moment for our next question. And our next question comes from Wamsi Mohan from Bank of America. Your line is now open.

Hi. Thanks for taking the questions. It’s Ruplu filling in for Wamsi today. I had one question for Rajiv and one for Rukmini. Rajiv, can you comment on a couple of things to specifically demand by vertical. You talked about some share gains this quarter. How is the pricing environment? Is that holding steady, or are you seeing any pricing pressure? And then can you talk about your view on the backlog heading into fiscal ‘24, has that normalized now, or is it still elevated?

Yes. So, on the pricing, we haven’t seen any significant change in pricing this quarter compared to our last quarter. And in general, as we, for example, attach more of our products with our portfolio towards these, ASPs tend to go up, right, because we are simply attaching more of the portfolio. So, we haven’t seen any shift or big change in our pricing dynamics. Now, on the backlog and with respect to verticals, again, I can’t say that there is any significant difference. I think it’s more a function of volume and deal size that dictates discounts and rather than any particular vertical related factors for us. Now, with respect to the backlog, I am going to let Rukmini comment on that.

Yes. Thank you, Rajiv and hi Ruplu. So, on backlog, as we talked about I think last year for fiscal year ‘23, backlog, it did move around as expected during the course of fiscal year ‘23. Despite that, we ended ‘23 actually with a slight increase and that should impact backlog dollars year-over-year. And we are factoring that into the outlook for fiscal year ‘24. So, we expect some backlog to be consumed over the course of this year. But as is to be expected in an uncertain macro environment like the one we are in, I think the range of possible outcomes are just wider than before. And more generally, as we continue to grow, the absolute dollar number of backlog could also continue to increase over time.

Okay. Thanks for the details there. If I can ask you, looking at the guidance for fiscal 1Q versus the full year fiscal ‘24, it looks like there is operating margin improvement as you go through the year. So, what are the drivers for that? And then if you can talk about the seasonality you expect in ACV billings. Again, looking to – should we think that going from 2Q to 3Q, should we expect the same level of decline, your renewables business is growing. So, just any thoughts on how should we model ACV billings in fiscal ‘24? Thank you.

Okay. So, there were a couple of questions there. I think the first one was on Q1 operating margin versus full year and so I think I will just remind folks that, again, Q2 and Q4 are seasonally in general, seasonally a stronger quarter for us. Q2 because you have December in there, which is annual budget flush for many customers. And so Q2 is stronger for that reason and Q4 is our fiscal year-end. And so Q2 and Q4 seasonally strong quarters, which means that margins, although operating expenses and cost of goods sold don’t vary as much, the top line does look stronger in Q2 and Q4, and therefore, margins in general also tend to look stronger in Q2 and Q4 compared to Q1 and Q3, right. So, that’s sort of one call out on the margin piece on the full year versus 1Q. And then on seasonality, I think was your second question, Ruplu. More generally, I would just say, I think as I have said, you should expect some seasonality in top line for a slight decline between 2Q to 3Q and that follows sort of a new and expansion. Therefore, generally, renewals ATR also does follow that pattern as well. And to the extent we expect any variation in that, we will make sure to call that out. But as of now, you should still expect somewhat fairly normal patterns we can talk to that.

Okay. Thanks for the details.

Thank you.

Thank you. And one moment for our next question. And our next question comes from Nehal Chokshi from Northland Capital Markets. Your line is now open.

Yes. Thank you and congrats on a strong quarter, you had another one. That’s fantastic. And nice to see the buyback being announced, could you talk about what is the priority of allocating capital to buyback growth to, say, paying down debt?

Yes, sure. So, I will just talk more generally and our focus continues to be on sustainable profitable growth, as we have said and we continue to make prudent and thoughtful investments into our go-to-market innovation engine, as I have said earlier, in response to another question. We are happy to have generated over $200 million of cash – of cash flow last year and have $1.4 billion of cash and short-term investments. And so we think of this share repurchase authorization as a reflection of the confidence in our long-term financial outlook by returning capital to shareholders while ensuring that we have optionality to continue to invest in growth and to our other strategic priorities. And to your question on paying down debt and how we do take a look at that, of course we look at all of the alternative uses of our cash before making any decision. And our public convert, we pay 25 basis points on those, and they are not due for another few years. And so it made sense for us to think about that more holistically and sort of we believe that doing the share repurchase authorization is sort of the best use of our cash, given all of the other options available to us.

So, what’s your anticipation of the pace of utilization of that buyback authorization then?

We have not given a specific timeframe, Nehal, and authorization does not have an expiration date. And so the timing and amounts will depend on a variety of factors, as you can imagine, right, including just business conditions, stock prices and other factors and so I will leave that there.

Would it be fair to say that you want to return a certain percentage of free cash flow on a go-forward basis?

We are not giving out sort of a certain percentage at this point, Nehal. But we will just talk more generally about capital allocation and how we plan to use our cash at our Investor Day as well, right. So, I would be happy to sort of take more – we talk more about that then. But at this point, we are not committing to a specific percentage.

Okay. Great. Thank you and congrats.

Thank you.

Thank you. And I am showing no further questions. This concludes today’s conference call. Thank you for participating. You may now disconnect.