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What changed in Nutanix, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Nutanix, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+462 added−445 removedSource: 10-K (2023-09-21) vs 10-K (2022-09-21)

Top changes in Nutanix, Inc.'s 2023 10-K

462 paragraphs added · 445 removed · 344 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

60 edited+18 added−16 removed45 unchanged
Biggest changeAdditionally, as companies increasingly offer competing solutions, they may be less willing to cooperate with us as an OEM or otherwise. 7 Table of Contents We believe the principal competitive factors in our market include: • product features and capabilities; • system scalability, performance and resiliency; • management and operations, including provisioning, troubleshooting, analytics, automation and upgrades; • total cost of ownership over the lifetime of the technology; • customer freedom of choice over, and product interoperability with third-party applications, infrastructure software, infrastructure systems and platforms and public clouds; • application mobility across disparate silos of enterprise computing, including public and private cloud infrastructure; and • quality of customer experience, including usability, support and professional services.
Biggest changeWe believe the principal competitive factors in our market include: • product features and capabilities; • system scalability, performance and resiliency; • management and operations, including provisioning, troubleshooting, analytics, automation, and upgrades; • total cost of ownership over the lifetime of the technology; • customer freedom of choice over, and product interoperability with, third-party applications, infrastructure software, infrastructure systems, and platforms and public clouds; • application mobility across disparate silos of enterprise computing, including public and private cloud infrastructure; and • quality of customer experience, including usability, support and professional services. 7 Table of Contents We are also venturing into a number of markets that are adjacent to our core HCI market, both through the expansion in hybrid multicloud environments as well as through our addition of new functionality in our cloud platform and through portfolio products.
Our disaster recovery solutions include long distance data replication between multiple sites, advanced failover orchestration capabilities and support for metro high availability configurations, zero loss synchronous replication and snapshot based disaster recovery over any distance. AHV .
Our disaster recovery solutions include long distance data replication between multiple sites, advanced failover orchestration capabilities and support for metro high availability configurations, zero data loss synchronous replication and snapshot-based disaster recovery over any distance. AHV .
AHV is built upon a widely-used open source hypervisor technology, known as KVM and extends its base functionality to include additional features for storage performance and workload management such as virtual machine high availability and live migration. AHV also includes such features as flexible migrations, automated workload placement, security hardening, network virtualization, data protection and disaster recovery and rich analytics.
AHV is built upon a widely-used open source hypervisor technology, known as KVM, and extends its base functionality to include additional features for storage performance and workload management, such as virtual machine high availability and live migration. AHV also includes features such as flexible migrations, automated workload placement, security hardening, network virtualization, data protection, disaster recovery and rich analytics.
Diversity, Equity, Inclusion and Belonging At Nutanix, we value that our differences make us stronger: our diverse backgrounds, experiences and perspectives when shared, make us a more innovative and resilient team, and we can better delight and serve our customers when our teams reflect the diversity of businesses and communities we serve.
Diversity, Equity, Inclusion and Belonging At Nutanix, we value that our differences make us stronger: our diverse backgrounds, experiences and perspectives when shared, make us a more innovative and resilient team, and we can better delight and serve our customers when our teams reflect the diversity of the businesses and communities we serve.
Following an evaluation of our longer-term facilities plans due to our transition to a hybrid work environment, we recently entered into amendments to these lease agreements to reduce the leased space to approximately 215,000 square feet beginning in June 2024. We also maintain offices in North America, Europe, Asia Pacific, the Middle East, Latin America, and Africa.
Following an evaluation of our longer-term facilities plans due to our transition to a hybrid work environment, we entered into amendments to these lease agreements to reduce our leased space to approximately 215,000 square feet beginning in June 2024. We also maintain offices in North America, Europe, Asia Pacific, the Middle East, Latin America, and Africa.
Our solutions allow organizations to simply move their workloads, including enterprise applications, high-performance databases, end-user computing and virtual desktop infrastructure ("VDI") services, container-based modern applications, and analytics applications, between on-premises and public clouds. Our goal is to provide a single, simple, open software platform for all hybrid and multicloud applications and their data.
Our solutions allow organizations to simply run and move their workloads, including enterprise applications, high-performance databases, end-user computing and virtual desktop infrastructure ("VDI") services, container-based modern applications, and analytics applications, between on-premises and public clouds. Our goal is to provide a single, simple, open software platform for all hybrid and multicloud applications and their data.
Information about Segment and Geographic Areas The segment and geographic information required herein is contained in Note 13 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Corporate Information We were incorporated in Delaware in September 2009 as Nutanix, Inc.
Information about Segment and Geographic Areas The segment and geographic information required herein is contained in Note 14 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. Corporate Information We were incorporated in Delaware in September 2009 as Nutanix, Inc.
We offer varying levels of software support to our customers based on their needs. We also offer hardware support for customers who purchase the Nutanix-branded NX configured-to-order hardware appliances. Professional Services. We provide consulting and implementation services to customers through our professional services team for assessment, design, deployment and optimizing of their Nutanix environments.
Our Support Programs Product Support. We offer varying levels of software support to our customers based on their needs. We also offer hardware support for customers who purchase the Nutanix-branded NX configured-to-order hardware appliances. Professional Services. We provide consulting and implementation services to customers through our professional services team for assessment, design, deployment and optimizing of their Nutanix environments.
For more information, see the section titled "Components of Our Results of Operations" included in Part II, Item 7, as well as Note 2 of Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K.
For more information, see the section titled "Components of Our Results of Operations" included in Part II, Item 7, as well as Note 3 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
See Item 1A, "Risk Factors," for further discussion of risks related to the potential impact of government regulation on our business. Employees and Human Capital We had approximately 6,450 employees worldwide as of July 31, 2022. None of our employees in the United States are represented by a labor organization or is a party to any collective bargaining arrangement.
See Item 1A, "Risk Factors," for further discussion of risks related to the potential impact of government regulation on our business. Employees and Human Capital We had approximately 6,450 employees worldwide as of July 31, 2023. None of our employees in the United States are represented by a labor organization or are a party to any collective bargaining arrangement.
We typically provide these services at the time of initial installation to help the customer with configuration and implementation. Our End Customers Our solutions serve a broad range of workloads, including enterprise applications, databases, virtual desktop infrastructure, unified communications, and big data analytics, and we support both virtualized and container-based applications.
We typically provide these services at the time of initial installation to help the customer with configuration and implementation. 4 Table of Contents Our End Customers Our solutions serve a broad range of workloads, including enterprise applications, databases, virtual desktop infrastructure, unified communications, and big data analytics, and we support both virtualized and container-based applications.
We intend to continue to invest in developing our enterprise cloud platform with new features, services and products to expand our market opportunity in both core and adjacent markets. • Invest to acquire new end customers.
We intend to continue to invest in developing our enterprise cloud platform with new features, services and solutions to expand our market opportunity in both core and adjacent markets. • Invest to acquire new end customers.
AOS supports major hypervisors, including our native AHV and VMware ESXi and uses software running across a scale-out cluster of servers to deliver advanced storage capabilities to all workloads running on the compute cluster. Building on a distributed data fabric, AOS enables robust enterprise storage services across multiple storage protocols.
AOS supports major hypervisors, including AHV and VMware ESXi, and uses software running across a scale-out cluster of servers to deliver advanced storage capabilities to all workloads running on the cluster. Building on a distributed data fabric, AOS enables robust enterprise storage services across multiple storage protocols.
We believe that these investments will contribute to our long-term growth, although they may adversely affect our profitability in the near term. Manufacturing We do not manufacture any hardware. The Nutanix-branded NX series appliances, including those that are delivered by us, are manufactured for us based on our specifications by Super Micro Computer, Inc. ("Supermicro").
We believe that these investments will contribute to our long-term growth, although they may adversely affect our profitability in the near-term. 6 Table of Contents Manufacturing We do not manufacture any hardware. The Nutanix-branded NX series appliances, including those that are delivered by us, are manufactured for us based on our specifications by Super Micro Computer, Inc. ("Supermicro").
We believe this land and expand strategy enables us to quickly expand our footprint within our existing end customer base from follow-on orders that in the aggregate are often multiples of the initial order. 5 Table of Contents • Enhanced focus on renewals .
We believe this land and expand strategy enables us to quickly expand our footprint within our existing end customer base from follow-on orders that in the aggregate are often multiples of the initial order. • Enhanced focus on renewals .
Nutanix Database Service (NDB) – We also provide automated database management to simplify database administration and to efficiently manage database copies that proliferate in most IT environments (previously known as Nutanix Era). NDB supports a variety of databases, both proprietary and open source, and can run both in the private datacenter and in public clouds through Nutanix Cloud Clusters.
Nutanix Database Service (NDB) – Previously known as Nutanix Era, NDB provides automated database management to simplify database administration and to efficiently manage database copies that proliferate in most IT environments. NDB supports a variety of databases, both proprietary and open source, and can run both in the private datacenter and in public clouds through Nutanix Cloud Clusters.
Supermicro designs, assembles and tests the Nutanix-branded NX series appliances and it procures the components used in the NX series appliances directly from third-party suppliers. Our agreement with Supermicro was renewed in May 2021 for one year and automatically renews for successive one-year periods thereafter, with the option to terminate upon each annual renewal.
Supermicro designs, assembles and tests the Nutanix-branded NX series appliances and it procures the components used in the NX series appliances directly from third-party suppliers. Our agreement with Supermicro automatically renews annually in May for successive one-year periods thereafter, with the option to terminate upon each annual renewal.
Nutanix Cloud Infrastructure (NCI) – Our offerings in hybrid cloud infrastructure combine our core HCI software stack (AOS) and our native, enterprise-grade hypervisor (AHV), and also add in support for virtual networking, disaster recovery, network and data security and Kubernetes container runtime. AOS . AOS converges virtualization, storage, and networking services into a turnkey solution.
Nutanix Cloud Infrastructure (NCI) – Our offerings in hybrid cloud infrastructure combine our core HCI software stack (AOS), native, enterprise-grade hypervisor (AHV), virtual networking, disaster recovery, network and data security and Kubernetes container runtime. AOS . AOS converges virtualization, storage, and networking services into a turnkey solution.
Delivery of Our Solutions The Nutanix Cloud Platform can be deployed on-premises at the edge or in data centers, running on a variety of qualified hardware platforms, in popular public cloud environments such as AWS (currently generally available) and Microsoft Azure (currently in public preview and expected to become generally available in the future) through Nutanix Cloud Clusters, or, in the case of our cloud-based software and software-as-a-service ("SaaS") offerings, via hosted service.
Delivery of Our Solutions The Nutanix Cloud Platform can be deployed on-premises at the edge or in data centers, running on a variety of qualified hardware platforms, in popular public cloud environments such as AWS and Microsoft Azure through Nutanix Cloud Clusters, or, in the case of our cloud-based software and software-as-a-service ("SaaS") offerings, via hosted service.
In addition to specifically tailored packages for each country based on local market practice and the competitive landscape, we also provide a range of globally available support programs such as an Employee Assistance Program, online health engagement and child development support. 9 Table of Contents Health, Wellness, and Safety Our priority is the health and safety of our employees.
In addition to specifically tailored packages for each country based on local market practice and the competitive landscape, we also provide a range of globally available support programs such as an Employee Assistance Program, online health engagement and child development support. Health, Wellness, and Safety The health and safety of employees and others on our property are a top priority.
We intend to grow our base of end customers by continuing to invest in sales and marketing, leveraging our network of channel partners and OEMs, grow our business internationally and extending our enterprise cloud platform to address new customer segments.
We intend to grow our base of end customers by continuing to invest in sales and marketing, leveraging our network of channel partners and OEMs, growing our business internationally, and extending our enterprise cloud platform to address new customer segments. • Continue to drive follow-on sales to existing end customers.
Some of our competitors may also expand their product offerings, acquire competing businesses, sell at lower prices, bundle with other products, provide closed technology platforms, partner with other companies to develop joint solutions, or otherwise attempt to gain a competitive advantage.
Some of our competitors may also expand their product offerings, acquire competing businesses, sell at lower prices, bundle with other products and capabilities (including artificial intelligence, machine learning, and generative AI capabilities), provide closed technology platforms, partner with other companies to develop joint solutions, or otherwise attempt to gain a competitive advantage.
We also leverage some open source software in most of our products. See Item 1A, "Risk Factors," for further discussion of risks related to protecting our intellectual property. Facilities Our corporate headquarters are located in San Jose, California where, under lease agreements that expire through May 2030, we currently lease approximately 432,000 square feet of space.
See Item 1A, "Risk Factors," for further discussion of risks related to protecting our intellectual property. Facilities Our corporate headquarters are located in San Jose, California where, under lease agreements that expire through May 2030, we currently lease approximately 333,000 square feet of space.
NC2 provides ultimate flexibility for customers as just another deployment model for their NCI licenses, allowing them to take advantage of the elasticity of public cloud resources while maintaining the same operating model they have been accustomed to on premises. Elastic disaster recovery, cloud bursting, site consolidation and cloud migration are typical NC2 use cases.
NC2 provides ultimate flexibility for customers as just another deployment model for their NCI licenses, allowing them to take advantage of the elasticity of public cloud resources while maintaining the same operating model they have been accustomed to on-premises.
We had a broad and diverse base of over 22,000 end customers as of July 31, 2022, including approximately 980 Global 2000 enterprises.
We had a broad and diverse base of over 24,000 end customers as of July 31, 2023, including approximately 1,020 Global 2000 enterprises.
Compliance with these laws, rules and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations or competitive position as compared to prior periods.
Government Regulation Our business activities are subject to various federal, state, local and foreign laws, rules and regulations. Compliance with these laws, rules and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations or competitive position as compared to prior periods.
In 2022, we updated our pricing and packaging to simplify our product portfolio and streamline the products and offerings that we have developed over the years. The description of our products and offerings below are based on our new simplified product portfolio, but will also refer, in parentheses, to the product names that we have used in the past.
The description of our products and offerings below are based on our new simplified product portfolio, but will also refer, where noted in parentheses, to the product names that we have used in the past.
We will also continue to establish partnerships with cloud and ecosystem partners to provide our customers with freedom of choice. • Invest in growth while balancing growth against operating expenses. We intend to continue investing in our growth, while balancing such growth against our operating expenses. By maintaining this balance, we believe we can drive towards profitable growth.
We will also continue to establish partnerships with cloud and ecosystem partners to provide our customers with freedom of choice. 5 Table of Contents • Invest in growth while balancing growth against operating expenses. We intend to continue investing in our growth, while balancing such growth against our operating expenses.
Our sales teams and channel partners then seek to systematically target follow-on sales opportunities to drive additional purchases throughout our broader product portfolio, while also focusing on customer adoption and customer consumption of their original purchases.
Our end customers typically deploy our technology initially for a specific project or application deployment. Our sales teams and channel partners then seek to systematically target follow-on sales opportunities to drive additional purchases throughout our broader product portfolio, while also focusing on customer adoption and consumption of their original purchases.
In addition to our land and expand strategy described above, as part of our transition to a subscription-based model, we have enhanced our focus on renewals, which are typically associated with lower sales costs.
In addition to our land and expand strategy described above, as part of our transition to a subscription-based model, we have enhanced our focus on renewals, which are typically associated with lower sales costs. • Deepen engagement with current channel, OEM, cloud and ecosystem partners and establish additional routes to market to enhance sales leverage.
To provide our customers with the freedom to choose the best consumption model based on their specific business needs, we have also continued to reshape our licensing by moving toward a subscription-based business model. A subscription-based business model means one in which our products, including associated support and entitlement arrangements, are sold with a defined term.
We operate a subscription-based business model to provide our customers with the flexibility to choose the licensing that works best for them based on their specific business needs. A subscription-based business model means one in which our products, including associated support and entitlement arrangements, are sold with a defined term.
We have never had a work stoppage and we consider our relationship with our employees to be good. We understand the importance of human capital and prioritize building our culture, talent development, compensation and benefits, and diversity and inclusion. Our human capital resources objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants.
We have never had a work stoppage and we consider our relationship with our employees to be good. 8 Table of Contents We understand the importance of human capital and prioritize building our culture, talent development, compensation and benefits, and diversity and inclusion.
Our channel partners include distributors, resellers, managed service providers, telcos and global systems integrators. Arrow Electronics, Inc., a distributor to our end customers, represented 29%, 32% and 33% of our total revenue for fiscal 2020, 2021 and 2022, respectively.
Our Elevate Partner Program simplifies engagement for our partner ecosystem using a consistent set of tools, resources, and marketing platforms. Our channel partners include distributors, resellers, managed service providers, telcos and global systems integrators. Arrow Electronics, Inc., a distributor to our end customers, represented 32%, 33% and 32% of our total revenue for fiscal 2021, 2022 and 2023, respectively.
Tech Data Corporation, another distributor to our end customers, represented 14%, 15% and 15% of our total revenue for fiscal 2020, 2021 and 2022, respectively. OEM Partners . OEMs typically pre-install our software on hardware appliances and sell to end customers, and our offerings may also be sold through our OEMs and delivered directly to our end customers.
Tech Data Corporation, another distributor to our end customers, represented 15%, 15% and 16% of our total revenue for fiscal 2021, 2022 and 2023, respectively. OEM Partners . Our OEM partners typically pre-install our software on hardware appliances and sell to end customers as an appliance. Our OEM partners can also sell our offerings as software-only to our end customers.
Key drivers of our path towards profitability include growth in renewals (where the cost associated with renewals is generally lower than the cost associated with new subscriptions) and continuing to leverage sales and marketing efficiencies. Sales and Marketing Sales .
By maintaining this balance, we believe we can sustain profitable growth. Key drivers of profitability include growth in renewals (where the cost associated with renewals is generally lower than the cost associated with new subscriptions), driving revenue growth and continuing to leverage sales and marketing efficiencies. Sales and Marketing Sales .
Such integrations enable a simpler deployment and consumption experience for our customers in their environments and increases adoption of our enterprise cloud platform. We have also developed and announced strategic technology partnerships that bring together best-in-class solutions across the ecosystem into integrated offerings and demonstrated interoperability and support for our customers, including partnerships with Red Hat, Citrix, and Intel.
We have also developed and announced strategic technology partnerships that bring together best-in-class solutions across the ecosystem into integrated offerings and demonstrated interoperability and support for our customers, including partnerships with Red Hat, Inc., Citrix Systems, Inc., and Intel Corporation.
In fiscal 2022, ACV billings was $756.3 million, representing a year-over-year increase of 27%. 1 Table of Contents The Nutanix Cloud Platform Leveraging the foundation of our core HCI technology, the Nutanix Cloud Platform delivers a rich set of products, solutions and services to enable our customers to simply manage their private cloud and, increasingly, their public and hybrid multicloud environments.
The Nutanix Cloud Platform Leveraging the foundation of our core HCI technology, the Nutanix Cloud Platform delivers a rich set of products, solutions and services to enable our customers to simply run and manage their private cloud and, increasingly, their public and hybrid multicloud environments.
Dell Technologies ("Dell"), Lenovo Group Ltd. ("Lenovo"), International Business Machines Corporation ("IBM"), Fujitsu Technology Solutions GmbH ("Fujitsu"), Hewlett Packard Enterprise ("HPE") and Inspur Group ("Inspur") pre-install our software on their hardware to create the Dell XC Series, Lenovo Converged HX Series, IBM CS Series, Fujitsu XF Series, HPE DX Series and Inspur inMerge 1000 Series appliances, respectively.
Dell Technologies ("Dell"), Lenovo Group Ltd. ("Lenovo"), Fujitsu Technology Solutions GmbH ("Fujitsu"), and Hewlett Packard Enterprise ("HPE") pre-install our software on their hardware to create the Dell XC Series, Lenovo Converged HX Series, Fujitsu XF Series, and HPE DX Series appliances, respectively. HPE also delivers our software with HPE DX Series Servers as a service through the HPE GreenLake offering.
However, many of our competitors have substantially greater financial, technical and other resources, greater brand recognition, larger sales forces and marketing budgets, a larger existing customer base, broader distribution and larger and more mature intellectual property portfolios. Intellectual Property Our success depends in part upon our ability to protect and use our core technology and intellectual property.
We believe that we are positioned favorably against our competitors based on these factors. However, many of our competitors have substantially greater financial, technical and other resources, greater brand recognition, larger sales forces and marketing budgets, a larger existing customer base, broader distribution, and larger and more mature intellectual property portfolios.
("VMware") (which has agreed to be acquired by Broadcom Inc.), that offer a broad range of virtualization, infrastructure and management products to build and operate enterprise and hybrid clouds; • traditional IT systems vendors, such as Cisco Systems, Inc.
("VMware") (which has agreed to be acquired by Broadcom Inc.), that offer a broad range of virtualization, infrastructure and management products to build and operate enterprise and hybrid clouds; • providers of public cloud infrastructure and SaaS-based offerings, such as AWS, Google Cloud, Oracle Cloud, and Microsoft Azure; and • traditional IT systems vendors, such as Dell, HPE, Hitachi Data Systems ("Hitachi"), International Business Machines ("IBM"), Lenovo, Pure Storage, Inc.
The deployment of Nutanix Cloud Clusters on AWS extends the availability of our core HCI software, along with all of our solutions, to bare metal Amazon Elastic Compute Cloud instances on AWS (currently generally available).
The deployment of Nutanix Cloud Clusters on AWS extends the availability of our core HCI software, along with all of our solutions, to bare metal Amazon Elastic Compute Cloud ("EC2") instances on AWS. We also have a partnership with Microsoft Corporation ("Microsoft") to offer a hybrid cloud solution on Microsoft Azure by extending Nutanix Cloud Clusters to Azure environments.
Nutanix Kubernetes Engine (previously known as Karbon) . Our cloud infrastructure stack also provides for automated deployment and management of Kubernetes clusters to simplify the provisioning, operations and lifecycle management of cloud-native environments, containerized applications and microservices. 2 Table of Contents Nutanix Cloud Clusters (NC2) .
Our cloud infrastructure stack also provides for automated deployment and management of Kubernetes clusters to simplify the provisioning, operations and lifecycle management of cloud-native environments, containerized applications and microservices. Nutanix Cloud Clusters (NC2) . We provide full automation to deploy our cloud infrastructure stack in public cloud environments like Amazon Web Services ("AWS") and Microsoft Azure as NC2.
Nutanix customers can simplify storage operations, while delivering enterprise-grade NFS and SMB files services (Nutanix Files), as well as S3-compatible object services (Nutanix Objects), at nearly any scale.
Nutanix Unified Storage (NUS) – Our Unified Storage product offering includes scale-out storage services that consolidate management of structured and unstructured data. Nutanix customers can simplify storage operations, while delivering enterprise-grade Network File System (NFS) and Server Message Block (SMB) files services (Nutanix Files), as well as S3-compatible object services (Nutanix Objects), at nearly any scale.
Growth and Development One of our culture principles is to Believe in Striving -- to constantly learn, continuously improve, and eternally evolve -- and to that end we invest resources to foster a learning culture throughout the company and to empower our employees to drive their personal and professional growth by equipping them with onboarding and learning programs.
We also continue to support the well-being and continued development of our employees by offering well-being days, during which all employees may enjoy private time away from work requirements. 9 Table of Contents Growth and Development We challenge our employees to constantly learn, continuously improve, and eternally evolve -- and to that end we invest resources to foster a learning culture throughout our company and to empower our employees to drive their personal and professional growth by equipping them with onboarding and learning programs.
We believe that our facilities are adequate to meet our needs for the immediate future and that, should it be needed, we would lease suitable additional space to accommodate our operations. 8 Table of Contents Government Regulation Our business activities are subject to various federal, state, local and foreign laws, rules and regulations.
We lease all of our facilities and do not own any real property. We believe that our facilities are adequate to meet our needs for the immediate future and that, should it be needed, we would lease suitable additional space to accommodate our operations.
Our channel partners sell our solutions to end customers, and in certain cases, may also deliver our solutions to end customers through a managed or integrated offering. Our Elevate Partner Program simplifies engagement for our partner ecosystem using a consistent set of tools, resources, and marketing platforms.
Our solutions can be purchased through one of our channel partners or OEMs. Channel Partners . Our channel partners sell our solutions to end customers, and in certain cases, may also deliver our solutions to end customers through a managed or integrated offering.
Our Partners We have established relationships with channel, OEM, ecosystem and cloud partners, all of which help to drive the adoption and sale of our solutions with our end customers. Our solutions can be purchased through one of our channel partners or OEMs. Channel Partners .
Purchases of non-portable software are typically accompanied by the purchase of separate support and entitlements. 3 Table of Contents Our Partners We have established relationships with our channel, OEM, ecosystem and cloud partners, all of which help to drive the sale and adoption of our solutions with our end customers.
HPE also delivers our software with HPE DX Series Servers as a service through the HPE GreenLake offering. Some of our OEM partners also sell associated support offerings. Ecosystem Partners . We have developed relationships with a broad range of leading technology companies that help us deliver world-class solutions to our customers.
We have developed relationships with a broad range of leading technology companies that help us deliver world-class solutions to our customers.
Nutanix Cloud Management (NCM) – Our offerings in cloud management combine intelligent operations, self-service for infrastructure and applications, multicloud governance and security.
Elastic disaster recovery, cloud bursting, site consolidation and cloud migration are typical NC2 use cases. 2 Table of Contents Nutanix Cloud Management (NCM) – Our offerings in cloud management combine Intelligent Operations, Self-Service for infrastructure and applications, Cost Governance and Security Governance for the hybrid multicloud.
Configured-to-order appliances, including our Nutanix-branded NX hardware line, can be purchased from one of our channel partners, original equipment manufacturers ("OEMs") or, in limited cases, directly from Nutanix. 3 Table of Contents Our enterprise cloud platform typically includes one or more years of support and entitlements, which provides customers with the right to software upgrades and enhancements as well as technical support.
Our cloud-based SaaS subscriptions have terms extending up to five years. Configured-to-order appliances, including our Nutanix-branded NX hardware line, can be purchased from one of our channel partners, original equipment manufacturers ("OEMs") or, in limited cases, directly from Nutanix.
Furthermore, as we expand our product offerings, we may expand into new markets and we may encounter additional competitors in such markets.
Furthermore, as we expand our product offerings, we may expand into new markets and we may encounter additional competitors in such markets. Additionally, as companies increasingly offer competing solutions, they may be less willing to cooperate with us as an OEM or otherwise.
Flow Virtual Networking and Flow Network Security . Flow provides services to visualize the network, automate common network operations, build virtual private networks, and integrate with various third-party networking and security products. We supplement the networking capabilities of AOS with application-centric firewall services based on advanced microsegmentation technology (Flow Network Security) that protect applications against internal and external threats.
We supplement these networking capabilities with application-centric, stateful, distributed firewall services based on advanced microsegmentation technology (Flow Network Security) that protect applications against internal and external threats. Nutanix Kubernetes Engine (previously known as Karbon) .
In addition, we compete against vendors of hyperconverged infrastructure products, such as Cisco, Dell, HPE, VMware and many smaller companies. As our market grows, we expect it will continue to attract new companies as well as existing larger vendors.
As the market in which we compete continues to develop, we expect it will continue to attract new companies as well as existing larger vendors.
Purchases of term-based licenses and SaaS subscriptions have support and entitlements included within the subscription fees and are not sold separately. Purchases of non-portable software are typically accompanied by the purchase of separate support and entitlements.
Our enterprise cloud platform typically includes one or more years of support and entitlements, which provides customers with the right to software upgrades and enhancements as well as technical support. Purchases of term-based licenses and SaaS subscriptions have support and entitlements included within the subscription fees and are not sold separately.
We rely on patents, trademarks, copyrights and trade secret laws, confidentiality procedures and employee nondisclosure and invention assignment agreements to protect our intellectual property rights. As of July 31, 2022, we had 346 United States patents that have been issued and 219 non-provisional patent applications pending in the United States. Our issued U.S. patents expire between 2031 and 2040.
As of July 31, 2023, we had 420 United States patents that have been issued and 205 non-provisional patent applications pending in the United States. Our issued U.S. patents expire between 2031 and 2041. We also leverage some open source software in most of our products.
Partners participating in our Nutanix Elevate Partner Program can gain eligibility for business development funds; targeted incentives; deal registration based pricing and field support; sales, services and technical training; innovative marketing campaigns; and dedicated account support. 6 Table of Contents Research and Development Our research and development efforts are focused primarily on improving current technology, developing new technologies in current and adjacent markets and supporting existing end customer deployments.
Through our unified Elevate Partner Program, we offer qualified partners access to market development funds, co-branded marketing campaigns, joint demand programs, and comprehensive learning paths. Research and Development Our research and development efforts are focused primarily on improving current technology, developing new technologies in current and adjacent markets and supporting existing end customer deployments.
("Cisco"), Dell, HPE, Hitachi Data Systems ("Hitachi"), IBM and Lenovo, that offer integrated systems that include bundles of servers, storage and networking solutions, as well as a broad range of standalone server and storage products; • traditional storage array vendors, such as Dell, Hitachi, Pure Storage, and NetApp, which typically sell centralized storage products; and • providers of public cloud infrastructure and SaaS-based offerings, such as AWS, Google Cloud, and Microsoft Azure.
("Pure Storage"), NetApp, Inc. ("NetApp"), and Huawei Technologies Co., Ltd. ("Huawei"), that offer integrated systems that include bundles of servers, storage and networking solutions, as well as a broad range of standalone server and storage products.
Our offerings in cloud management include our control plane providing management and analytics across the Nutanix Cloud Platform, which delivers integrated management, capacity planning, robust operational analytics, automated remediation, self-service capabilities and one-click administration (previously known as Prism Pro/Ultimate).
Intelligent Operations provides critical capabilities such as integrated management, capacity planning, robust operational analytics, automated remediation, and one-click administration (previously known as Prism Pro/Ultimate). Self-Service (previously known as Nutanix Calm) provides automation services that streamline application lifecycle management, self-service provisioning for infrastructure and applications, and powerful hybrid multicloud orchestration.
Competitors in these markets include large, sophisticated companies that may have more experience or longer operating histories in these markets as well as new entrants. We believe that we are positioned favorably against our competitors based on these factors.
These adjacent markets include areas such as cloud disaster recovery, data services for Kubernetes, data governance and compliance, cloud management, files and object storage, and database automation and database-as-a-service. Competitors in these markets include large, sophisticated companies that may have more experience or longer operating histories in these markets as well as new entrants.
We believe that these transitions – from hardware to software solutions, and from life-of-device to subscription models – will contribute to our long-term growth. In fiscal 2022, our subscription billings increased to 92% of total billings, up 3 percentage points from fiscal 2021, and our subscription revenue reached $1.4 billion, representing a year-over-year increase of 15%.
In fiscal 2023, our subscription billings increased to 93% of total billings, up one percentage point from fiscal 2022, and our subscription revenue reached $1.7 billion, representing a year-over-year increase of 21%. In fiscal 2023, ACV billings was $956.8 million, representing a year-over-year increase of 27%.
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Furthermore, as part of our transition to a subscription-based business model, we have transitioned to a sales compensation structure that is based on Annual Contract Value ("ACV"). These transitions have caused, and will continue to cause, our traditional life-of-device licensing models to become increasingly replaced by term-based licenses, portable across hybrid- and multicloud deployments.
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The Nutanix Cloud Platform’s scale-out architecture, enterprise-grade data services and freedom of infrastructure choice enable customers to standardize on the Nutanix Cloud Platform as a single cloud platform to run a wide variety of their workloads ranging from end-user computing, VDI, enterprise applications, high-performance databases, and analytics applications to container-based modern applications, artificial intelligence ("AI"), machine learning ("ML"), and generative AI workloads. 1 Table of Contents In fiscal 2022, we updated our pricing and packaging to simplify our product portfolio and streamline the products and offerings that we have developed over the years.
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All of our offerings are supported by a unified control plane, unified Application Programming Interfaces ("APIs"), security, and lifecycle management. The Nutanix Cloud Platform is available in private cloud deployment, and is increasingly available on public cloud, through managed service providers and telcos, and in the future, as-a-Service.
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Flow Virtual Networking and Flow Network Security . Flow provides services to visualize the network, automate common network operations, build virtual private networks, and integrate with various third-party networking and security products. Flow Virtual Networking simplifies creation, isolation, and management of software defined networks (SDN) that connect applications running in the hybrid multicloud environments without manual configurations of physical networks.
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In addition, we provide full automation to deploy our cloud infrastructure stack in public cloud environments like Amazon Web Services ("AWS") bare-metal (currently generally available) and Microsoft Azure (currently in public preview and expected to become generally available in the future) as NC2.
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Cost Governance (previously known as Nutanix Beam) provides deep visibility, rich analytics and easy remediation across hybrid multicloud to optimize IT spend. Security Governance (also known as Security Central) enables monitoring, threat detection and remediation of real-time security vulnerabilities and compliance issues.
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We also provide cloud governance (previously known as Nutanix Beam) as well as automation services that streamline application lifecycle management, provide self-service provisioning for infrastructure and applications, and deliver powerful multicloud orchestration (previously known as Nutanix Calm). Nutanix Unified Storage (NUS) – Our Unified Storage product offering includes scale-out storage services that consolidate management of structured and unstructured data.
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NDB is a foundational offering in line with our longer-term vision to deliver a portfolio of data-centric platform services in the hybrid multicloud environment.
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Desktop-as-a-Service – Our Desktop-as-a-Service product offering provides a rich set of end-user computing ("EUC") services that can reduce the cost of delivering virtualized desktops and applications, while improving performance and scalability. Services include virtualization, file storage, security and networking for traditional VDI environments.
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Some of our OEM partners also sell associated support offerings. We recently announced a strategic partnership with Cisco Systems, Inc. ("Cisco") to offer a hyperconverged solution that integrates Cisco's Unified Computing and Cisco Intersight with the Nutanix Cloud Platform. Ecosystem Partners .
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We also provide desktop-as-a-service (Nutanix Frame) to deliver virtual apps or desktops to users from multiple public cloud environments and/or an enterprises private cloud data center, which can be easily accessed from any browser.
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Such integrations enable a simpler deployment and consumption experience for our customers in their environments and increases adoption of our enterprise cloud platform.
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Our cloud-based SaaS subscriptions have terms extending up to five years.
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Our marketing team enables our global sales force and sales via our partner ecosystem. Our marketing focuses on educating our customers, prospects, partners, media and analysts, and influencers about the benefits and business outcomes our cloud software platform and solutions can deliver.
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We also have a partnership with Microsoft Corporation ("Microsoft") to offer a hybrid cloud solution on Microsoft Azure by extending Nutanix Cloud Clusters to Azure environments and ultimately enabling hybrid cloud management, on-premises or in Azure, through the Azure Arc control plane (currently in public preview and expected to become generally available in the future). 4 Table of Contents Our Support Programs Product Support.
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The breadth of our product portfolio allows us to engage multiple buyer and user personas across the organization, including senior executives, IT professionals, and developers.
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One area of continued focus is increasing our sales to new, and expanding our sales to existing, large enterprise customers. • Continue to drive follow-on sales to existing end customers. Our end customers typically deploy our technology initially for a specific project or application deployment.
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We recently launched a modernized brand identity and new strategic narrative that highlights our evolution in corporate positioning from being the pioneer and a leader in HCI to now solving the market’s toughest challenges in operating hybrid multicloud environments.
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While renewals have historically represented a small portion of our overall business, we expect that they will be a significant driver of our top-line growth as we continue our subscription transformation. • Deepen engagement with current channel, OEM, cloud and ecosystem partners and establish additional routes to market to enhance sales leverage.
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We engage buyers through a variety of outbound and inbound marketing programs that include email, digital marketing, corporate and third-party events that generate customer and prospect awareness - including our annual user event .NEXT, in-person and virtual demand generation activities, social media outreach, media and analyst relations activities, learning certifications, community programs, platform test drives, thought leadership, and our website.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditional risks associated with our transition to a subscription-based business model include, but are not limited to: • if current or prospective end customers prefer our historical life-of-device licenses, adoption of our subscription-based model may not meet our expectations, or may take longer to achieve than anticipated; • our transition could cause confusion or concerns among current or prospective end customers and partners, including concerns regarding recent changes to our pricing and packaging models; • we may be unsuccessful in implementing or maintaining subscription-based pricing models, or we may implement a pricing model or strategy that is not optimal and could negatively affect adoption, renewal rates and our business results; • our end customers may shift purchases to our lower priced subscription offerings, which could negatively affect our overall financial results; 22 Table of Contents • when purchasing multi-year term-based subscription licenses, or as a result of our recently announced sales compensation model change to one that is based primarily on ACV, we may see an increase in the number of customers who choose to pay for only the first year of the applicable term upfront, instead of the full term as we have seen historically, which would negatively impact our operating and free cash flows, potentially significantly, and as a result we may need to raise additional capital which we may not be able to do on terms favorable or acceptable to us, or at all; • our relationships with existing channel and OEM partners that are accustomed to selling life-of-device licenses may be damaged, and we may be required to dedicate additional time and resources to educate our channel partners about our transition; • we may see increased discounting behavior from our sales employees and, if we are unable to monitor, prevent and manage such discounting behavior successfully and in a timely manner, our business and financial results will be negatively affected; • if we are unsuccessful in adjusting our go-to-market cost structure, or in doing so in a timely or cost-effective manner, we may incur higher than expected sales compensation costs, particularly if the pace of our subscription transition is faster than anticipated; • we may face additional and/or different financial reporting obligations, which could increase the costs associated with our financial reporting and investor relations activities; • similarly to our decision to start reporting ACV billings, run-rate ACV and annual recurring revenue, we may choose to supplement our financial reporting with new or different metrics, which could increase the costs associated with our financial reporting and may be difficult for investors to understand; and • investors, industry and financial analysts may have difficulty understanding the shift in our business model, resulting in changes in analysts' financial estimates or failure to meet investor expectations.
Biggest changeAdditional risks associated with our transition to a subscription-based business model include, but are not limited to: • if current or prospective end customers prefer our historical life-of-device licenses, adoption of our subscription-based model may not meet our expectations; • our transition could cause confusion or concerns among current or prospective end customers and partners, including confusion or concerns arising from recent changes to our pricing and packaging models; • we may be unsuccessful in maintaining subscription-based pricing models, or we may implement a pricing model or strategy that is not optimal and could negatively affect adoption, renewal rates and our business results; • our end customers may shift purchases to our lower priced subscription offerings, which could negatively affect our overall financial results; • we may see increased discounting behavior from our sales employees and, if we are unable to monitor, prevent and manage such discounting behavior successfully and in a timely manner, our business and financial results will be negatively affected; and • if we are unsuccessful in adjusting our go-to-market cost structure, or in doing so in a timely or cost-effective manner, we may incur higher than expected sales compensation costs, particularly if the pace of our subscription transition is faster than anticipated. 39 Table of Contents Finally, our transition to a subscription-based business model as an IT infrastructure and platform company has few, if any, precedents, and there are many risks or uncertainties that may remain unknown to us as part of the transition.
The 2026 Notes bear interest at a rate of 2.50% per annum, with such interest to be paid in kind on the 2026 Notes held by Bain through an increase in the principal amount of the 2026 Notes, and paid in cash on any 2026 Notes transferred to entities that are not affiliated with Bain Capital, LP ("Bain"), on a semi-annual basis.
The 2026 Notes bear interest at a rate of 2.50% per annum, with such interest to be paid in kind on the 2026 Notes held by Bain Capital, LP ("Bain") through an increase in the principal amount of the 2026 Notes, and paid in cash on any 2026 Notes transferred to entities that are not affiliated with Bain, on a semi-annual basis.
In particular, to align with the new subscription-based business model, starting in fiscal 2021 we have adjusted our sales compensation structure, which was previously based on total contract value, to one that is based primarily on ACV, which has caused our average contract term lengths to decline and could negatively impact our revenue and operating and free cash flows, potentially significantly.
In particular, to align with the new subscription-based business model, starting in fiscal 2021 we adjusted our sales compensation structure, which was previously based on total contract value, to one that is based primarily on ACV, which has caused our average contract term lengths to decline and could negatively impact our revenue and operating and free cash flows, potentially significantly.
If we fail to manage our relationships with such manufacturers effectively, or if such manufacturers experience delays, disruptions or increased manufacturing lead times, component lead-time disruptions, capacity constraints or quality control problems in their operations or are unable to address our or our end customers’ requirements for or concerns about timely delivery, our ability to sell our solutions to our end customers could be severely impaired due to the lack of availability of certified hardware appliances, and our customers' ability, or willingness, to consume our software may be materially impacted or delayed, which will adversely affect our business and operating results, competitive position, brand and reputation, as well as our relationships with affected customers. 33 Table of Contents In particular, we rely substantially on Supermicro to manufacture, as well as assemble and test, the Nutanix-branded NX series appliances, including those that are delivered by us.
If we fail to manage our relationships with such manufacturers effectively, or if such manufacturers experience delays, disruptions or increased manufacturing lead times, component lead-time disruptions, capacity constraints or quality control problems in their operations or are unable to address our or our end customers’ requirements for or concerns about timely delivery, our ability to sell our solutions to our end customers could be severely impaired due to the lack of availability of certified hardware appliances, and our customers' ability, or willingness, to consume our software may be materially impacted or delayed, which will adversely affect our business and operating results, competitive position, brand and reputation, as well as our relationships with affected customers. 32 Table of Contents In particular, we rely substantially on Supermicro to manufacture, as well as assemble and test, the Nutanix-branded NX series appliances, including those that are delivered by us.
Further, the increase in some costs associated with our cloud-based services may be difficult to predict over time, especially in light of our lack of historical experience with the costs of delivering cloud-based versions of our solutions. 24 Table of Contents We believe our plan has certain advantages; however, it also presents a number of risks to us including, but not limited to, the following: • arrangements entered into on a ratable subscription basis may delay when we can recognize revenue, even when compared to similar term-based subscription sales, which we currently recognize upfront, and can require up-front costs, which may be significant; • since revenue is recognized ratably over the term of the customer agreement, any decrease in customer purchases of our ratable subscription-based products and services will not be fully reflected in our operating results until future periods.
Further, the increase in some costs associated with our cloud-based services may be difficult to predict over time, especially in light of our lack of historical experience with the costs of delivering cloud-based versions of our solutions. 21 Table of Contents We believe our plan has certain advantages; however, it also presents a number of risks to us including, but not limited to, the following: • arrangements entered into on a ratable subscription basis may delay when we can recognize revenue, even when compared to similar term-based subscription sales, which we currently recognize upfront, and can require up-front costs, which may be significant; • since revenue is recognized ratably over the term of the customer agreement, any decrease in customer purchases of our ratable subscription-based products and services will not be fully reflected in our operating results until future periods.
We operate in the intensely competitive enterprise infrastructure market and compete primarily with companies that sell software and hardware to build and operate enterprise clouds, integrated systems and standalone storage and servers, as well as providers of public cloud infrastructure solutions. These markets are characterized by constant change and rapid innovation.
We operate in the intensely competitive enterprise IT infrastructure market and compete primarily with companies that sell software and hardware to build and operate enterprise clouds, integrated systems and standalone storage and servers, as well as providers of public cloud infrastructure solutions. These markets are characterized by constant change and rapid innovation.
If any hardware or software errors, defects or security vulnerabilities are discovered in our solutions after commercial release, a number of negative effects in our business could result, including but not limited to: • lost revenue or lost OEM or other channel partners or end customers; • increased costs, including warranty expense and costs associated with end customer support as well as development costs to remedy the errors or defects; • delays, cancellations, reductions or rescheduling of orders or shipments; • product returns or discounts; and • damage to our reputation and brand. 36 Table of Contents In addition, we could face legal claims for breach of contract, product liability, tort or breach of warranty.
If any hardware or software errors, defects or security vulnerabilities are discovered in our solutions after commercial release, a number of negative effects in our business could result, including but not limited to: • lost revenue or lost OEM or other channel partners or end customers; • increased costs, including warranty expense and costs associated with end customer support as well as development costs to remedy the errors or defects; • delays, cancellations, reductions or rescheduling of orders or shipments; • product returns or discounts; and • damage to our reputation and brand. 35 Table of Contents In addition, we could face legal claims for breach of contract, product liability, tort or breach of warranty.
We may have to seek a license for the technology, which may not be available on terms favorable or acceptable to us or at all, and as a result may significantly increase our operating expenses or require us to restrict our business activities in one or more respects.
We may have to seek a license for the technology at issue, which may not be available on terms favorable or acceptable to us or at all, and as a result may significantly increase our operating expenses or require us to restrict our business activities in one or more respects.
Following our transition to software-only sales and due to our ongoing transition toward a subscription-based model, our success will also depend heavily on the ability of our sales team to adjust their strategy to focus on software-only and subscription-based sales effectively and in a timely manner.
Following our transition to software-only sales and due to our transition toward a subscription-based model, our success will also depend heavily on the ability of our sales team to adjust their strategy to focus on software-only and subscription-based sales effectively and in a timely manner.
Acquisitions may also disrupt our ongoing business, divert our resources, require significant management attention that would otherwise be available for development of our business and may be viewed negatively by our end customers, investors or securities analysts.
Acquisitions or divestitures may also disrupt our ongoing business, divert our resources, require significant management attention that would otherwise be available for development of our business and may be viewed negatively by our end customers, investors or securities analysts.
If we are unable to have appliances or replacement products shipped in a timely manner, end customers may seek to cancel their contracts with us, we may suffer reputational harm, and our business, operating results and prospects may be adversely affected. 35 Table of Contents Our ability to sell our solutions is dependent in part on ease of use and the quality of our technical support, and any failure to offer high-quality technical support would harm our business, operating results and financial condition.
If we are unable to have appliances or replacement products shipped in a timely manner, end customers may seek to cancel their contracts with us, we may suffer reputational harm, and our business, operating results and prospects may be adversely affected. 34 Table of Contents Our ability to sell our solutions is dependent in part on ease of use and the quality of our technical support, and any failure to offer high-quality technical support would harm our business, operating results and financial condition.
If our financial results fail to meet (or significantly exceed) our announced guidance or the expectations of analysts or public investors, analysts could downgrade our Class A common stock or publish unfavorable research about us.
If our financial results fail to meet (or exceed) our announced guidance or the expectations of analysts or public investors, analysts could downgrade our Class A common stock or publish unfavorable research about us.
The occurrence of any of the foregoing could cause governments and governmental agencies to delay or refrain from purchasing our solutions in the future or otherwise have an adverse effect on our business, operating results and prospects. 37 Table of Contents Third-party claims that we are infringing intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses, and our business could be harmed.
The occurrence of any of the foregoing could cause governments and governmental agencies to delay or refrain from purchasing our solutions in the future or otherwise have an adverse effect on our business, operating results and prospects. 36 Table of Contents Third-party claims that we are infringing intellectual property, whether successful or not, could subject us to costly and time-consuming litigation or expensive licenses, and our business could be harmed.
Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations could result in additional cost and liability to us, damage our reputation and brand, inhibit sales and adversely affect our business and operating results. 42 Table of Contents Failure to comply with anticorruption and anti-money laundering laws, including the U.S.
Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations could result in additional cost and liability to us, damage our reputation and brand, inhibit sales and adversely affect our business and operating results. 42 Table of Contents Failure to comply with anti-corruption and anti-money laundering laws, including the U.S.
If our end customers do not purchase additional software licenses or appliances or software upgrades, or renew or upgrade their subscription and support and entitlement agreements, our revenue may decline and our operating results may be harmed.
If our end customers do not renew or upgrade their subscription and support and entitlement agreements and/or purchase additional software licenses or software upgrades, our revenue may decline and our operating results may be harmed.
We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes of a series surrendered therefor or pay cash with respect to Notes of such series being converted or at their maturity. 51 Table of Contents In addition, our ability to repurchase Notes of a series or to pay cash upon conversions of such Notes or at their maturity may be limited by law, regulatory authority or agreements governing our future indebtedness.
We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes of a series surrendered therefor or pay cash with respect to Notes of such series being converted or at their maturity. 54 Table of Contents In addition, our ability to repurchase Notes of a series or to pay cash upon conversions of such Notes or at their maturity may be limited by law, regulatory authority or agreements governing our future indebtedness.
Any violation of the FCPA, other applicable anticorruption laws and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, which could have a material and adverse effect on our reputation, brand, business, operating results and prospects.
Any violation of the FCPA, other applicable anti-corruption laws and anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, which could have a material and adverse effect on our reputation, brand, business, operating results and prospects.
Any of these developments could extend the lead times, increase the costs of the components or costs of product development, cause us to miss market windows for product launch and adversely affect our business, operating results and financial condition. 34 Table of Contents We generally maintain minimal inventory for repairs and a number of evaluation and demonstration units, and generally acquire components only as needed.
Any of these developments could extend the lead times, increase the costs of the components or costs of product development, cause us to miss market windows for product launch and adversely affect our business, operating results and financial condition. 33 Table of Contents We generally maintain minimal inventory for repairs and a number of evaluation and demonstration units, and generally acquire components only as needed.
If we are unable to manage these factors effectively, our gross margins may decline, and fluctuations in gross margin may make it difficult to manage our business and to achieve or maintain profitability, which could adversely affect our business and operating results. 32 Table of Contents Our sales cycles can be long and unpredictable and our sales efforts require considerable time and expense.
If we are unable to manage these factors effectively, our gross margins may decline, and fluctuations in gross margin may make it difficult to manage our business and to achieve or maintain profitability, which could adversely affect our business and operating results. 31 Table of Contents Our sales cycles can be long and unpredictable and our sales efforts require considerable time and expense.
Our OEMs may in turn distribute our solutions through their own networks of channel partners with whom we have no direct relationships. 29 Table of Contents We rely, to a significant degree, on our channel partners to select, screen and maintain relationships with their distribution networks and to distribute our solutions in a manner that is consistent with applicable law, regulatory requirements and our quality standards.
Our OEMs may in turn distribute our solutions through their own networks of channel partners with whom we have no direct relationships. 27 Table of Contents We rely, to a significant degree, on our channel partners to select, screen and maintain relationships with their distribution networks and to distribute our solutions in a manner that is consistent with applicable law, regulatory requirements and our quality standards.
We may not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges.
We may not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an acquisition or divestiture transaction, including accounting charges.
We are also venturing into a number of markets that are adjacent to our core HCI market, both through the expansion of HCI in hybrid multicloud environments as well as through our emerging products, and some of our competitors in these adjacent markets have more experience with those markets and more resources targeted at penetration of those markets than we do.
We have also ventured into a number of markets that are adjacent to our core HCI market, both through the expansion of HCI in hybrid multicloud environments as well as through our emerging products, and some of our competitors in these adjacent markets have more experience with those markets and more resources targeted at penetration of those markets than we do.
Upon completion of the transition to the new sales model, we will be more reliant on fewer channel partners, which may reduce our contact with our end customers making it more difficult for us to establish brand awareness, ensure proper delivery and installation of our software, support ongoing end customer requirements, estimate end customer demand, respond to evolving end customer needs and obtain subscription renewals from end customers. 30 Table of Contents All of our sales to government entities have been made indirectly through our channel partners.
Upon completion of the transition to the new sales model, we will be more reliant on fewer channel partners, which may reduce our contact with our end customers making it more difficult for us to establish brand awareness, ensure proper delivery and installation of our software, support ongoing end customer requirements, estimate end customer demand, respond to evolving end customer needs and obtain subscription renewals from end customers. 28 Table of Contents Substantially all of our sales to government entities have been made indirectly through our channel partners.
The scope of these indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’ fees.
The scope of these defense and indemnity obligations varies, but may, in some instances, include indemnification for damages and expenses, including attorneys’ fees.
The risks and uncertainties described below are not the only ones we face; additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect our business. If any of the following risks occur, our business, financial condition, operating results and prospects could be materially harmed.
The risks and uncertainties described below are not the only ones we face; additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect our business. If any of the following risks occur, our business, financial condition, operating results, cash flows and prospects could be materially harmed.
For example, the General Data Protection Regulation ("GDPR"), which became effective in May 2018, superseded prior EU data protection legislation, and the UK General Data Protection regulation (“UK GDPR”), both impose more stringent data protection requirements, provide an enforcement authority which substantially increases compliance costs, and impose large penalties for noncompliance.
For example, the General Data Protection Regulation ("GDPR"), which became effective in May 2018, superseded prior EU data protection legislation, and the UK General Data Protection regulation, both impose more stringent data protection requirements, provide an enforcement authority which substantially increases compliance costs, and impose large penalties for noncompliance.
These challenges related to acquisitions or investments could adversely affect our business, operating results, financial condition and prospects.
These challenges related to acquisitions, divestitures or investments could adversely affect our business, operating results, financial condition and prospects.
Factors that are difficult to predict and that could cause our operating results to fluctuate include, but are not limited to: • the timing and magnitude of orders (including the start dates thereof), shipments and acceptance of our solutions in any quarter; • our ability to attract new and retain existing end customers; • disruptions in our sales channels or shifts in our relationships with important channel partners and OEMs; • the timing of revenue recognition for our sales, the impact of which is heightened by our focus on software-only sales and ongoing transition to a subscription-based model; • reductions in end customers’ budgets for information technology purchases; • delays in end customers’ purchasing cycles or deferments of end customers’ purchases in anticipation of new products or updates from us or our competitors; • fluctuations in demand and competitive pricing pressures for our solutions; • the lengths of our contract terms; • the mix of solutions sold, including the mix between appliance and software-only sales and the mix between subscription-based and non-subscription-based transactions, and the mix of revenue between products and support, entitlements and other services, which will depend in part on whether we are successful in executing our strategy to transition our business to a subscription-based model; 31 Table of Contents • our ability to develop, introduce and ship in a timely manner new solutions and product enhancements that meet customer requirements, and market acceptance of such new solutions and product enhancements; • the timing of product releases or upgrades or announcements by us or our competitors; • any change in the competitive dynamics of our markets, including consolidation or partnerships among our competitors or partners, new entrants or discounting of prices; • the amount and timing of expenses to grow our business and the extent to which we are able to take advantage of economies of scale or to leverage our relationships with OEM or channel partners; • the costs associated with acquiring new businesses and technologies and the follow-on costs of integrating and consolidating the results of acquired businesses; • the amount and timing of stock-based compensation expenses; • our ability to control the costs of our solutions and their key components, or to pass along any cost increases to our end customers; • general economic, industry and market conditions and other events that may be outside of our control, such as political and social unrest, terrorist attacks, hostilities, war, malicious human acts, climate change, natural disasters (including extreme weather), supply chain disruption or shortages, pandemics or other major public health concerns, and other similar events; and • future accounting pronouncements and changes in accounting policies.
Factors that are difficult to predict and that could cause our operating results to fluctuate include, but are not limited to: • the timing and magnitude of orders (including the start dates thereof), shipments and acceptance of our solutions in any quarter; • our ability to attract new end customers and retain, and increase sales to, existing end customers; • disruptions in our sales channels or shifts in our relationships with important channel partners and OEMs; • the timing of revenue recognition for our sales, the impact of which is heightened by our focus on software-only sales and our transition to a subscription-based business model; • reductions in end customers’ budgets for information technology purchases; • delays in end customers’ purchasing cycles or deferments of end customers’ purchases in anticipation of new products or updates from us or our competitors; • fluctuations in demand and competitive pricing pressures for our solutions; • the lengths of our contract terms; 29 Table of Contents • the mix of solutions sold, including the mix between software-only and appliance sales and the mix between subscription-based and non-subscription-based transactions, and the mix of revenue between products and support, entitlements and other services, which will depend in part on whether we are successful in executing our strategy to transition our business to a subscription-based model; • our ability to develop, introduce and ship in a timely manner new solutions and product enhancements that meet customer requirements, and market acceptance of such new solutions and product enhancements; • the timing of product releases or upgrades or announcements by us or our competitors; • any change in the competitive dynamics of our markets, including consolidation or partnerships among our competitors or partners, new entrants or discounting of prices; • the amount and timing of expenses to grow our business and the extent to which we are able to take advantage of economies of scale or to leverage our relationships with OEM or channel partners; • the costs associated with acquiring new businesses and technologies and the follow-on costs of integrating and consolidating the results of acquired businesses; • the amount and timing of stock-based compensation expenses incurred as a result of granting equity awards to attract, retain, and motivate employees and key personnel; • our ability to control the costs of our solutions and their key components, or to pass along any cost increases to our end customers; • general economic, industry and market conditions and other events that may be outside of our control, such as political and social unrest, terrorist attacks, hostilities, war, malicious human acts, climate change, natural disasters (including extreme weather), supply chain disruption or shortages, pandemics or other major public health concerns, and other similar events; and • future accounting pronouncements and changes in accounting policies.
The global macroeconomic environment has been, and may continue to be, inconsistent, challenging and unpredictable due to the ongoing COVID-19 pandemic, international trade disputes or tensions, tariffs, including those imposed by the U.S. government on Chinese imports to the United States, restrictions on sales and technology transfers, rising interest and inflation rates, uncertainties related to changes in public policies such as domestic and international regulations and fiscal and monetary stimulus measures, taxes, or international trade agreements, actual or potential government shutdowns, elections and any related political instability, geopolitical turmoil and civil unrests, instability in the global credit markets, uncertainties regarding the effects of the United Kingdom’s separation from the European Union, commonly known as "Brexit," and other disruptions to global and regional economies and markets.
The global macroeconomic environment has been, and may continue to be, inconsistent, challenging and unpredictable due to pandemics, international trade disputes or tensions, tariffs, including those imposed by the U.S. government on Chinese imports to the United States, restrictions on sales and technology transfers, rising interest and inflation rates, uncertainties related to changes in public policies such as domestic and international regulations and fiscal and monetary stimulus measures, taxes, or international trade agreements, actual or potential government shutdowns, elections and any related political instability, geopolitical turmoil and civil unrests, instability in the global credit markets, uncertainties regarding the effects of the United Kingdom’s separation from the European Union, commonly known as "Brexit," and other disruptions to global and regional economies and markets.
We face significant risks if we fail to comply with the FCPA and other anticorruption laws that prohibit companies and their employees and third-party intermediaries from authorizing, offering or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person or securing any advantage.
We face significant risks if we fail to comply with the FCPA and other anti-corruption laws that prohibit companies and their employees and third-party intermediaries from authorizing, offering or providing, directly or indirectly, improper payments or benefits to foreign government officials, political parties and private-sector recipients for the purpose of obtaining or retaining business, directing business to any person or securing any advantage.
We derive a significant portion of our revenue from end customers and channel partners outside the United States. We derived approximately 46%, 46% and 44% of our total revenue from our international customers based on bill-to-location for fiscal 2020, 2021 and 2022, respectively.
We derive a significant portion of our revenue from end customers and channel partners outside the United States. We derived approximately 46%, 44% and 44% of our total revenue from our international customers based on bill-to-location for fiscal 2021, 2022, and 2023, respectively.
In addition, retaliatory acts by Russia in response to Western sanctions could include cyber attacks that could disrupt the economy or that could also either directly or indirectly impact our operations. We regularly face a wide variety of attempted attacks of this nature, some of which may be successful, although none to-date have had a significant impact on our business.
In addition, retaliatory acts by Russia in response to Western sanctions could include cyber attacks that could disrupt the economy or that could also either directly or indirectly impact our operations. 51 Table of Contents We regularly face a wide variety of attempted attacks of this nature, some of which may be successful, although none to-date have had a significant impact on our business.
In response to the pandemic, authorities, businesses, and individuals implemented numerous unprecedented measures from time to time, including travel bans and restrictions, quarantines, shelter-in-place, stay-at-home, remote work and social distancing orders, and shutdowns.
In response to the COVID-19 pandemic, authorities, businesses, and individuals implemented numerous unprecedented measures from time to time, including travel bans and restrictions, quarantines, shelter-in-place, stay-at-home, remote work and social distancing orders, and shutdowns.
If we are ultimately unable to achieve or maintain profitability at the level anticipated by analysts and our stockholders, the price of our securities may decline, potentially significantly. 18 Table of Contents The enterprise IT market is rapidly changing and expanding, and we expect competition to continue to intensify in the future from both established competitors and new market entrants.
If we are ultimately unable to achieve or maintain profitability at the level anticipated by analysts and our stockholders, the price of our securities may decline, potentially significantly. The enterprise IT market is rapidly changing and expanding, and we expect competition to continue to intensify in the future from both established competitors and new market entrants.
Consequently, we can make no assurance that these transactions once undertaken and announced, will close. 50 Table of Contents These kinds of acquisitions or investments may result in unforeseen expenditures and operating and integration difficulties, especially if the acquisitions or investments are more complex in structure and scope, including due to the geographic location of the acquired company.
Consequently, we can make no assurance that these transactions once undertaken and announced, will close. 53 Table of Contents These kinds of acquisitions, divestitures or investments may result in unforeseen expenditures and operating and integration difficulties, especially if the acquisitions, divestitures or investments are more complex in structure and scope, including due to the geographic location of the acquired company.
If we are unable to hire, train and maintain sufficient numbers of effective sales personnel, or our new or existing sales personnel are not successful in obtaining new end customers, convincing existing customers to renew their subscription-based purchases, or increasing sales to our existing customer base generally, our business, operating results and prospects will be adversely affected. 28 Table of Contents If we do not effectively compose, structure and compensate our sales force to focus on the end customers and activities that will primarily drive our growth strategy, our business will be adversely affected.
If we are unable to hire, train and maintain sufficient numbers of effective sales personnel, or our new or existing sales personnel are not successful in obtaining new end customers, convincing existing customers to renew their subscription-based purchases, or increasing sales to our existing customer base generally, our business, operating results and prospects will be adversely affected. 26 Table of Contents If we do not effectively develop, structure and compensate our sales force to focus on the end customers and activities that will primarily drive our growth strategy, our business will be adversely affected.
In particular, to align with the new subscription-based business model, starting in fiscal 2021, we adjusted our sales compensation structure, which was previously based primarily on total contract value, to one that is based primarily on annual contract value ("ACV"), which has caused our average contract term lengths to decline and thereby negatively impact our topline results.
In particular, to align with our subscription-based business model, starting in fiscal 2021, we adjusted our sales compensation structure, which was previously based primarily on total contract value, to one that is based primarily on ACV, which has caused our average contract term lengths to decline and thereby negatively impact our topline results.
In addition, at the state level, there may be periods during which the use of net operating losses is suspended or otherwise limited. 48 Table of Contents Our business is subject to the risks of natural disasters (including extreme weather), man-made problems and other similar events that may be outside of our control.
In addition, at the state level, there may be periods during which the use of net operating losses is suspended or otherwise limited. Our business is subject to the risks of natural disasters (including extreme weather), man-made problems and other similar events that may be outside of our control.
Our business, operations and performance are dependent in part on worldwide market, economic and financial conditions and events that may be outside of our control, such as global, regional, and local economic developments, fiscal, monetary and tax policies, inflation, recession, political and social unrest, terrorist attacks, hostilities or the perception that hostilities may be imminent, military conflict, war, including an escalation of the war in Ukraine and related sanctions as well as measures taken in response to such sanctions, malicious human acts, climate change, natural disasters (including extreme weather), pandemics or other major public health concerns and other similar events, and the impact these conditions and events have on the overall demand for enterprise computing infrastructure solutions and on the economic health and general willingness of our current and prospective end customers to purchase our solutions and to continue spending on IT in general.
Our business, operations and performance are dependent in part on worldwide market, economic and financial conditions and events that may be outside of our control, such as global, regional, and local economic developments, fiscal, monetary and tax policies, high inflation, rising interest rates, recession, political and social unrest, terrorist attacks, hostilities or the perception that hostilities may be imminent, military conflict, war, including the ongoing war in Ukraine and related sanctions as well as measures taken in response to such sanctions, malicious human acts, climate change, natural disasters (including extreme weather), pandemics or other major public health concerns and other similar events, and the impact these conditions and events have on the overall demand for enterprise computing infrastructure solutions and on the economic health and general willingness of our current and prospective end customers to purchase our solutions and to continue spending on IT in general.
If these markets experience a shift in customer demand, or if customers in these markets focus their new spending on, or shift their existing spending to, public cloud solutions or other solutions that do not interoperate with our solutions more quickly or more extensively than expected, our solutions may not compete as effectively, if at all.
If the markets in which we compete experience a shift in customer demand, or if customers in these markets focus their new spending on, or shift their existing spending to, public cloud solutions or other solutions that do not interoperate with our solutions more quickly or more extensively than expected, our solutions may not compete as effectively, if at all.
Even if we are not a party to any litigation between a customer and a third party relating to infringement by our solutions, an adverse outcome in any such litigation could make it more difficult for us to defend our solutions against intellectual property infringement claims in any subsequent litigation in which we are a named party.
Even if we are not a party to any litigation between a customer and a third party relating to infringement by our products or services, an adverse outcome in any such litigation could make it more difficult for us to defend our solutions against intellectual property infringement claims in any subsequent litigation in which we are a named party.
Furthermore, such downward impact on average term lengths may be further exacerbated by our transition to an ACV-based sales compensation structure during fiscal 2021. This may also make it difficult to rapidly increase our revenue in any period through additional sales.
Furthermore, such downward impact on average term lengths may have been further exacerbated by our transition to an ACV-based sales compensation structure during fiscal 2021. This may also make it difficult to rapidly increase our revenue in any period through additional sales.
These factors may also make it difficult to increase our revenue in a given period through additional sales in the same period. 21 Table of Contents In addition, due to the generally shorter terms of subscription-based licenses as compared to our historical life-of-device licenses, maintaining our historically high customer renewal rates and minimizing customer churn will become increasingly important.
These factors may also make it difficult to increase our revenue in a given period through additional sales in the same period. 38 Table of Contents In addition, due to the generally shorter terms of subscription-based licenses as compared to our historical life-of-device licenses, maintaining our historically high customer renewal rates and minimizing customer churn have become increasingly important.
We have received, and in the future may receive, inquiries from other intellectual property holders and may become subject to claims that we infringed or are infringing their intellectual property rights, particularly as we expand our presence in the market and face increasing competition.
We have received, and in the future may receive, inquiries from other intellectual property holders and may become subject to allegations and claims, in litigation and outside litigation, that we infringed or are infringing their intellectual property rights, particularly as we expand our presence in the market and face increasing competition.
Our financial statements could fail to reflect adequate reserves to cover such a contingency. 47 Table of Contents Changes in global tax laws could increase our worldwide tax rate and could have a material adverse effect on our business, cash flow, results of operations or financial conditions.
Our financial statements could fail to reflect adequate reserves to cover such a contingency. Changes in global tax laws could increase our worldwide tax rate and could have a material adverse effect on our business, cash flow, results of operations or financial conditions.
Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our consolidated financial statements and may materially affect our financial results in the period or periods for which such determination is made. 50 Table of Contents Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Vendors may not provide us with early or any access to their technology and products, assist us in these development efforts, certify our solutions, share with or sell to us any APIs, formats, or protocols we may need, or cooperate with us to support end customers.
Vendors may not provide us with early or any access to their technology and products, assist us in these development efforts, certify our solutions, share with or sell to us any application programming interfaces ("APIs"), formats, or protocols we may need, or cooperate with us to support end customers.
Any such issuance could result in substantial dilution to our existing stockholders and cause the market price of our Class A common stock to decline. 55 Table of Contents Conversion of our Notes may dilute the ownership interest of existing stockholders, or may otherwise depress the price of our securities.
Any such issuance could result in substantial dilution to our existing stockholders and cause the market price of our Class A common stock to decline. Conversion of our Notes may dilute the ownership interest of existing stockholders, or may otherwise depress the price of our securities.
For example, following our earnings release in February 2019, the price of our Class A common stock fell significantly and, as a result, multiple class action securities lawsuits have been filed against us, as well as multiple shareholder derivative claims.
For example, following our earnings release in February 2019, the price of our Class A common stock fell significantly and, as a result, multiple class action securities lawsuits were filed against us, as well as multiple shareholder derivative claims.
Moreover, as we have substantially completed our transition to focus on software-only transactions and continue our transition to a subscription-based business model, we have also had to retrain our seasoned sales employees who have historically focused on appliance sales and selling software licenses for the life of the device in order to maintain or increase their productivity.
Moreover, as part of our transition to focus on software-only transactions and our transition to a subscription-based business model, we have also had to retrain our seasoned sales employees who have historically focused on appliance sales and selling software licenses for the life of the device in order to maintain or increase their productivity.
Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our securities. 39 Table of Contents In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting to comply with the SEC rules that implement Sections 302 and 404 of the Sarbanes-Oxley Act, we have expended and anticipate that we will continue to expend significant resources and undertake various actions, including incurring accounting-related costs and implementing new internal controls and procedures, and providing significant management oversight.
Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the market price of our securities. 19 Table of Contents In order to restore, maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting to comply with the SEC rules that implement Sections 302 and 404 of the Sarbanes-Oxley Act, we have expended and anticipate that we may continue to expend significant resources and undertake various actions, including implementing our remediation plan, incurring accounting-related costs, implementing new internal controls and procedures, and providing significant management oversight.
We have also recently seen higher than normal attrition among our sales representatives and while we are actively recruiting additional sales representatives, it will take time to replace, train, and ramp them to full productivity, and if we are unable to do so, we may not be able to achieve our growth targets.
In recent years, we have also seen higher-than-normal attrition among our sales representatives and while we are actively recruiting additional sales representatives, it will take time to replace, train, and ramp them to full productivity, and if we are unable to do so, we may not be able to achieve our growth targets.
The introduction of new products by our competitors, the market acceptance of products based on new or alternative technologies, or the emergence of new industry standards could render our existing or future solutions obsolete or less attractive to end customers.
The introduction of new products by our competitors, the market acceptance of products based on new or alternative technologies, including AI capabilities, or the emergence of new industry standards could render our existing or future solutions obsolete or less attractive to end customers.
We have recently seen higher-than-normal attrition among our sales representatives and our overall sales headcount being below our targets, which may negatively impact our billings and revenue growth. While we continue to recruit additional sales representatives, it takes time to replace, train, and ramp them to full productivity.
In recent years, we have seen higher-than-normal attrition among our sales representatives and our overall sales headcount being below our targets, which may negatively impact our billings and revenue growth. While we continue to recruit additional sales representatives, it takes time to replace, train, and ramp them to full productivity.
We are continuing to adapt to and develop strategies to address international markets but there is no guarantee that such efforts will have the desired effect. As of July 31, 2022, approximately 56% of our full-time employees were located outside of the United States.
We are continuing to adapt to and develop strategies to address international markets but there is no guarantee that such efforts will have the desired effect. As of July 31, 2023, approximately 58% of our full-time employees were located outside of the United States.
Any failure to anticipate or develop new or enhanced solutions or technologies in a timely or cost-effective manner in response to technological shifts, could result in decreased revenue and harm to our business and prospects.
Any failure to anticipate or develop new or enhanced solutions or technologies, including AI capabilities, in a timely or cost-effective manner in response to technological shifts, could result in decreased revenue and harm to our business and prospects.
Any of these events could adversely affect our business, operating results, financial condition and prospects. The success of our business depends in part on our ability to protect and enforce our intellectual property rights.
Any of these events could adversely affect our business, operating results, financial condition and prospects. 37 Table of Contents The success of our business depends in part on our ability to protect and enforce our intellectual property rights.
These securities litigation matters, as well as any additional securities litigation matters that may be instituted against us, could result in substantial costs, divert our management’s attention and resources from our business, and adversely impact our reputation and brand. This could have an adverse effect on our business, operating results and financial condition.
Any securities litigation matters that may be instituted against us could result in substantial costs, divert our management’s attention and resources from our business, and adversely impact our reputation and brand. This could have an adverse effect on our business, operating results and financial condition.
We currently have a number of agreements in effect pursuant to which we have agreed to defend, indemnify and hold harmless our end customers, suppliers and channel and other partners from damages and costs which may arise from the infringement by our solutions of third-party patents or other intellectual property rights in the United States and in other countries.
We currently have a number of agreements in effect pursuant to which we have agreed to defend, indemnify and hold harmless our end customers, suppliers and channel and other partners from damages and costs which may arise from allegations of infringement, or actual infringement, by our products and services of third-party patents or other intellectual property rights in the United States and/or in other countries.
Factors that could cause fluctuations in the market price of our securities include the following: • price and volume fluctuations in the overall stock market from time to time; 53 Table of Contents • volatility in the market prices and trading volumes of high technology stocks; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • changes in financial estimates by any analysts who follow our company, including as a result of any current and future business model transitions (including our ongoing transition to a subscription-based business model), or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; • announcements by us or our competitors of new products and solutions or new or terminated significant contracts, commercial relationships or capital commitments; • public analyst or investor reaction to our press releases, other public announcements and filings with the SEC; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes or fluctuations in our operating results; • actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; • actual or threatened litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or our solutions, or third-party proprietary rights; • rumored, announced or completed acquisitions of businesses or technologies of or by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations or principles; • any major changes in our management or our Board of Directors; • general economic conditions and slow or negative growth of our markets; and • other events or factors which may be outside of our control, such as political and social unrest, terrorist attacks, hostilities, war, malicious human acts, climate change, natural disasters (including extreme weather), pandemics or other major public health concerns (such as the ongoing COVID-19 pandemic), and other similar events, or responses to these events. 54 Table of Contents In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.
Factors that could cause fluctuations in the market price of our securities include the following: • price and volume fluctuations in the overall stock market from time to time; • volatility in the market prices and trading volumes of high technology stocks; • changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular; • changes in financial estimates by any analysts who follow our company, including as a result of any current and future business model transitions (including our transition to a subscription-based business model), or our failure to meet these estimates or the expectations of investors; • the financial projections we may provide to the public, any changes in these projections, or any failure to meet or exceed these projections; • announcements by us or our competitors of new products and solutions or new or terminated significant contracts, commercial relationships or capital commitments; • public analyst or investor reaction to our press releases, other public announcements and filings with the Securities and Exchange Commission; • rumors and market speculation involving us or other companies in our industry; • actual or anticipated changes or fluctuations in our operating results; • actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally; • actual or threatened litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors; • developments or disputes concerning our intellectual property or our solutions, or third-party proprietary rights; • rumored, announced or completed acquisitions of businesses or technologies of or by us or our competitors; • new laws or regulations or new interpretations of existing laws or regulations applicable to our business; • changes in accounting standards, policies, guidelines, interpretations or principles; • any major changes in our management or our Board of Directors; • general economic conditions and slow or negative growth of our markets; and 56 Table of Contents • other events or factors which may be outside of our control, such as political and social unrest, terrorist attacks, hostilities, war, malicious human acts, climate change, natural disasters (including extreme weather), pandemics or other major public health concerns, and other similar events, or responses to these events.
Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, or an adverse report from our independent auditors, could increase our operating costs and could materially impair our ability to operate our business and could have a material and adverse effect on our operating results and could cause a decline in the price of our securities.
Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis could increase our operating costs and could materially impair our ability to operate our business and could have a material and adverse effect on our operating results and could cause a decline in the price of our securities.
The technology industry has experienced component shortages and delivery delays in the past, and is currently experiencing a global chip shortage, and there may be shortages or delays of critical components in the future as a result of strong demand in the industry, component availability constraints, or other factors.
The technology industry has experienced component shortages and delivery delays in the past, including a global chip shortage, and there may be shortages or delays of critical components in the future as a result of strong demand in the industry, component availability constraints, or other factors.
Our ongoing transition to a subscription-based business model has resulted in, and may continue to result in, a compression to our topline results, and if we fail to successfully manage the transition, our business, operating results and free cash flow may be adversely affected.
Our transition to a subscription-based business model has resulted in, and may continue to result in, a direct or indirect compression to our topline results, and if we fail to successfully manage the transition, our business, operating results and free cash flow may be adversely affected.
The COVID-19 pandemic (including any variants) has caused, and continues to cause, significant disruptions, volatility and uncertainty to the global economy and unprecedented strains on governments, health care systems, educational institutions, businesses and individuals around the world, including in nearly all of the regions in which we operate.
For example, the COVID-19 pandemic (including any variants) caused significant disruptions, volatility and uncertainty to the global economy and unprecedented strains on governments, health care systems, educational institutions, businesses and individuals around the world, including in nearly all of the regions in which we operate.
Those effects include, but are not limited to: • Delays or disruptions in our or our partners’ supply chains and data center operations, including delays, difficulties or disruptions in procuring and shipping, or an inability to procure or ship, the hardware appliances (or any components thereof) on which our software solutions run, including our Nutanix-branded NX hardware line, which may negatively affect our ability to close transactions with our customers and partners and/or to recognize the revenue from those transactions; • Decisions by our customers and potential customers, particularly in industries most impacted by the COVID-19 pandemic, to reduce IT spending or delay or abandon their planned or future purchases, which may reduce the demand for our solutions and/or result in extended sales cycles; 14 Table of Contents • Decisions by our customers to purchase our software solutions on shorter subscription terms than they have historically, and/or request to only pay for the initial year of a multi-year subscription term upfront, which could negatively impact our financial performance, and our cash flow in particular, when compared to historical periods; • Our customers and partners experiencing liquidity issues or entering bankruptcy or similar proceedings, which would impact our ability to collect payments in a timely manner, if at all; • Shifts in industry trends, for example, towards large public cloud providers, which may reduce the demand for our solutions; • An inability to meet in person or otherwise effectively communicate with our current or potential customers, vendors, suppliers, and partners, which may negatively affect our current and future relationships with such customers, vendors, suppliers, and partners and our ability to generate demand for our solutions; • Additional delays, cancellations, or changes to user and industry conferences and other marketing events relating to our solutions, including our own customer and partner events, which may negatively impact our ability to obtain new and retain existing customers, and effectively market our solutions; • An inability to provide 24x7 worldwide support and/or replacement parts to our end customers in a timely manner or at all; • Delays or disruptions to our product roadmap, and our ability to deliver new products, features, or enhancements in a timely manner or at all; • Potential for increased cyber attacks and security challenges to the extent that our employees and those of our partners, customers and service providers work remotely from non-corporate managed networks during the ongoing COVID-19 pandemic and potentially beyond; • Adoption of new laws or regulations, or changes to existing laws or regulations, including any restrictions or health and safety requirements that may be imposed if and when we start re-opening our global offices and any new or additional restrictions against immigration and travel (such as cancellations or restrictions on the availability of visas, delays in the issuance of visas or suspensions of entry), which may create additional regulatory uncertainty and cause us to incur additional expenses in order to comply with, or due to delays or changes caused or mandated by, such laws or regulations and/or materially impair our ability to hire and retain skilled professionals; • Increased rate of attrition among our employee base, and inability to attract, recruit, retain and, where applicable, ramp to full productivity, qualified employees and key personnel; • Changes in our work environment and workforce, which may present operational and workplace culture challenges; • Difficulties or delays in ramping, training, and retaining new sales teams in an effective manner due in part to the inability to provide in-person trainings; • Negative physical and mental health impacts on, and resulting unavailability or reduced productivity of, our employees as a result of such employees or their family members contracting the virus, being placed in quarantine or self-isolation, being in jurisdictions where travel or other activities remain restricted, or due to prolonged social distancing measures; 15 Table of Contents • A significant and/or prolonged decline in, or increase in volatility relating to, the global financial and other capital markets, including significant and prolonged volatilities in stock prices, interest rates and exchange rates, and/or or a potential global recession or depression, which would adversely affect, potentially materially, our business and stock price, as well as our ability to access capital markets on terms favorable or acceptable to us, if at all; • Changes in our internal controls, policies and procedures due to remote work arrangements, which may result in significant deficiencies or material weaknesses in our internal controls in the preparation of our financial reports, and the resulting increased costs of controls and compliance oversight activities; • An inability to execute our business continuity plans and/or maintain our critical business processes; and • Increased quarterly fluctuations in, and an inability to forecast or difficulties or delays in forecasting, our financial performance or results of operations, as well as related impacts to any financial guidance we may issue from time to time, including any modification or withdrawal thereof.
Those effects include, but are not limited to: • delays or disruptions in our or our partners’ supply chains and data center operations, including delays, difficulties or disruptions in procuring and shipping, or an inability to procure or ship, the hardware appliances (or any components thereof) on which our software solutions run, including our Nutanix-branded NX hardware line, which may negatively affect our ability to close transactions with our customers and partners and/or to recognize the revenue from those transactions; • decisions by our customers and potential customers to reduce IT spending or delay or abandon their planned or future purchases, which may reduce the demand for our solutions and/or result in extended sales cycles; • decisions by our customers to purchase or renew our software solutions on shorter subscription terms than they have historically, and/or request to only pay for the initial year of a multi-year subscription term upfront, which could negatively impact our financial performance, and our cash flow in particular, when compared to historical periods; • our customers and partners experiencing liquidity issues or entering bankruptcy or similar proceedings, which would impact our ability to collect payments in a timely manner, if at all; • shifts in industry trends, for example, toward large public cloud providers, which may reduce the demand for our solutions; • an inability to meet in person or otherwise effectively communicate with our current or potential customers, vendors, suppliers, and partners, which may negatively affect our current and future relationships with such customers, vendors, suppliers, and partners and our ability to generate demand for our solutions; 47 Table of Contents • additional delays, cancellations, or changes to user and industry conferences and other marketing events relating to our solutions, including our own customer and partner events, which may negatively impact our ability to obtain new and retain existing customers and effectively market our solutions; • an inability to provide 24x7 worldwide support and/or replacement parts to our end customers in a timely manner or at all; • delays or disruptions to our product roadmap, and our ability to deliver new products, features, or enhancements in a timely manner or at all; • potential for increased cyber attacks and security challenges to the extent that our employees and those of our partners, customers and service providers work remotely from non-corporate managed networks; • adoption of new laws or regulations, or changes to existing laws or regulations, including any restrictions or health and safety requirements that may be imposed and any new or additional restrictions against immigration and travel (such as cancellations or restrictions on the availability of visas, delays in the issuance of visas or suspensions of entry), which may create additional regulatory uncertainty and cause us to incur additional expenses in order to comply with, or due to delays or changes caused or mandated by, such laws or regulations and/or materially impair our ability to hire and retain skilled professionals; • increased rate of attrition among our employee base, and inability to attract, recruit, retain and, where applicable, ramp to full productivity, qualified employees and key personnel; • changes in our work environment and workforce, which may present operational and workplace culture challenges; • difficulties or delays in ramping, training, and retaining new sales teams in an effective manner due in part to the inability to provide in-person trainings; • negative physical and mental health impacts on, and resulting unavailability or reduced productivity of, our employees as a result of such employees or their family members contracting the virus, being placed in quarantine or self-isolation, being in jurisdictions where travel or other activities remain restricted, or due to prolonged social distancing measures; • a significant and/or prolonged decline in, or increase in volatility relating to, the global financial and other capital markets, including significant and prolonged volatilities in stock prices, interest rates and exchange rates, and/or or a potential global recession or depression, which would adversely affect, potentially materially, our business and stock price, as well as our ability to access capital markets on terms favorable or acceptable to us, if at all; • changes in our internal controls, policies and procedures due to hybrid or remote work arrangements, which may result in significant deficiencies or material weaknesses in our internal controls in the preparation of our financial reports, and the resulting increased costs of controls and compliance oversight activities; • an inability to execute our business continuity plans and/or maintain our critical business processes; and • increased quarterly fluctuations in, and an inability to forecast or difficulties or delays in forecasting, our financial performance or results of operations, as well as related impacts to any financial guidance we may issue from time to time, including any modification or withdrawal thereof. 48 Table of Contents The duration, scope and ultimate impact of any pandemic or other similar major public health concern and the actions taken in response on the global economy and our business remain highly fluid, cannot be predicted with any degree of certainty, and will be highly dependent upon numerous factors, many of which are beyond our control, including the actions of governments, businesses and other enterprises in response to the pandemic and the extent and effectiveness of those actions.
Furthermore, as we expand our operations internationally, our support organization will face additional challenges, including those associated with delivering support, training and documentation in languages other than English. In addition, as we continue to evolve our product portfolio, which may include additional solutions, our ability to provide high-quality support will become more difficult and will involve more complexity.
Furthermore, as we have international operations, our support organization faces additional challenges, including those associated with delivering support, training and documentation in languages other than English. In addition, as we continue to evolve our product portfolio, which may include additional solutions, our ability to provide high-quality support will become more difficult and will involve more complexity.
Our main competitors fall into the following categories: • software providers, such as VMware (which has agreed to be acquired by Broadcom Inc.), that offer a broad range of virtualization, infrastructure and management products to build and operate enterprise and hybrid clouds; • traditional IT systems vendors, such as Cisco, Dell, HPE, Hitachi, IBM and Lenovo, that offer integrated systems that include bundles of servers, storage and networking solutions, as well as a broad range of standalone server and storage products; • traditional storage array vendors, such as Dell, Hitachi, Pure Storage, and NetApp, which typically sell centralized storage products; and • providers of public cloud infrastructure and SaaS-based offerings, such as AWS, Google Cloud, and Microsoft Azure.
Our main competitors fall into the following categories: • software providers, such as VMware (which has agreed to be acquired by Broadcom Inc.), that offer a broad range of virtualization, infrastructure and management products to build and operate enterprise and hybrid clouds; 16 Table of Contents • providers of public cloud infrastructure and SaaS-based offerings, such as AWS, Google Cloud, Oracle Cloud, and Microsoft Azure; and • traditional IT systems vendors, such as Dell, HPE, Hitachi, IBM, Lenovo, Pure Storage, NetApp, and Huawei, that offer integrated systems that include bundles of servers, storage and networking solutions, as well as a broad range of standalone server and storage products.
As a result, our sales and marketing costs may increase. In addition, we have adjusted, and may in the future need to further adjust, our go-to-market cost structure, particularly as it relates to how we structure, effect, and compensate our sales teams, including for renewal transactions, to become more efficient as we transition to the subscription-based business model.
In addition, we have adjusted, and may in the future need to further adjust, our go-to-market cost structure, particularly as it relates to how we structure, effect, and compensate our sales teams, including for renewal transactions, to become more efficient as part of our transition to a subscription-based business model.
Our gross margins may be affected by a variety of factors, including fluctuations in the pricing of our products, including as a result of competitive pricing pressures or increases in component pricing, and the degree to which we are successful in selling the value of incremental feature improvements and upgrades, changes in the cost of components of our hardware appliances, changes in the mix between direct versus indirect sales, changes in the mix of products sold and the timing and amount of recognized and deferred revenue, particularly as a result of our continued transition to a subscription-based business model.
Our gross margins may be affected by a variety of factors, including fluctuations in the pricing of our products (including as a result of competitive pricing pressures or increases in component pricing), the degree to which we are successful in selling the value of incremental feature improvements and upgrades, changes in the cost of components of our hardware appliances, customer renewal rates and the degree to which renewals drive our top-line growth, changes in the mix between direct versus indirect sales, changes in the mix of products sold, and the timing and amount of recognized and deferred revenue, particularly as a result of our transition to a subscription-based business model.
Our defense of intellectual property rights claims brought against us or our end customers, suppliers and channel partners, with or without merit, could be time-consuming, expensive to litigate or settle, divert management resources and attention and force us to acquire intellectual property rights and licenses, which may involve substantial royalty or other payments.
Our defense of intellectual property rights claims brought against us or our end customers, suppliers and channel partners, regardless of whether the claims have merit, could be time-consuming, expensive to litigate or settle, divert management resources and attention and force us to acquire intellectual property rights and licenses, which may involve substantial royalty or other payments.
As a result of these and future data transfer developments, we may experience a reluctance from current or prospective EEA, UK, and Swiss customers to use our products and may find it necessary to make changes to our data transfer mechanisms and handling of personal data, including with respect to the provision of our products and services.
As a result of these and future data transfer developments, we may experience a reluctance from current or prospective customers in the EEA, UK, Switzerland and other similar countries to use our products and may find it necessary to make changes to our data transfer mechanisms and handling of personal data, including with respect to the provision of our products and services.
Various factors could cause the rate of adoption of public cloud infrastructure to increase, including the ongoing COVID-19 pandemic, continued or accelerated decreases in the price of public cloud offerings, increased interoperability with on-premises infrastructure solutions that compete with our solutions, and improvements in the ability of public cloud providers to deliver reliable performance, enhanced security, better application compatibility and more precise infrastructure control.
Various factors could cause the rate of adoption of public cloud infrastructure to increase, including decreases in the price of public cloud offerings, increased interoperability with on-premises infrastructure solutions that compete with our solutions, and improvements in the ability of public cloud providers to deliver reliable performance, enhanced security, better application compatibility and more precise infrastructure control.
These business model transitions and compensation structure changes may lead to fluctuations in sales productivity that will make it more difficult to accurately project our operating results or plan for future growth.
These business model transitions and compensation structure changes, have contributed to, and may continue to contribute to, fluctuations in sales productivity that will make it more difficult to accurately project our operating results or plan for future growth.
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. We do not intend to pay dividends in the foreseeable future.
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.
Our employee headcount increased significantly since our inception. We anticipate that our operating expenses will increase in the long term as we scale our business, including in developing and improving our new and existing solutions, expanding our sales and marketing capabilities and global coverage, and in providing general and administrative resources to support our growth.
We anticipate that our operating expenses will increase in the long term as we scale our business, including in developing and improving our new and existing solutions, expanding our sales and marketing capabilities and global coverage, and in providing general and administrative resources to support our growth.
A number of companies, both within and outside of the enterprise and cloud computing infrastructure industry, hold a large number of patents covering aspects of storage, servers, networking, desktop, security, virtualization, database management, and cloud services products.
A number of companies, both within and outside of the enterprise and cloud computing infrastructure industry, hold a large number of patents covering aspects of storage, servers, networking, desktop, security, virtualization, database management, cloud services products, and other technologies relevant to our products.
These risks include: • competition from companies that traditionally target larger enterprises, service providers and government entities and that may have pre-existing relationships or purchase commitments from such end customers; • increased purchasing power and leverage held by large end customers in negotiating contractual arrangements with us; • more stringent requirements in our support service contracts, including demand for quicker support response times and penalties for any failure to meet support requirements; and • longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end customer that elects not to purchase our solutions.
These risks include: • competition from companies that traditionally target larger enterprises, service providers and government entities and that may have pre-existing relationships or purchase commitments from such end customers; • increased purchasing power and leverage held by large end customers in negotiating contractual arrangements with us; • more stringent requirements in our support service contracts, including demand for quicker support response times and penalties for any failure to meet support requirements; and • longer sales cycles and the associated risk that substantial time and resources may be spent on a potential end customer that elects not to purchase our solutions. 23 Table of Contents Large organizations often undertake a significant evaluation process that results in a lengthy sales cycle.
Second, and of lesser significance, the revenue associated with certain SaaS subscription purchases will be recognized ratably over the term of the subscription, resulting in less upfront revenue as compared to our term-based licenses and historical life-of-device licenses.
Second, the revenue associated with certain SaaS subscription purchases is recognized ratably over the term of the subscription, resulting in less upfront revenue as compared to our term-based licenses and historical life-of-device licenses.
These risks are discussed more fully below and include, but are not limited to, risks related to: Risks Related to Our Business and Industry • the impact of the COVID-19 pandemic (including any variants) on our business, operations, financial performance, and stock price; • our ability to achieve our business plans, vision, and objectives, including our growth and go-to-market strategies, successfully and in a timely manner; • macroeconomic or geopolitical conditions, industry trends, and technological developments, including disruptions and delays in global supply chains; • the competitive market, including our competitive position and advantages and ability to compete effectively; • our ability to predict future financial performance from our historical financial performance; • any current and future business model transitions (including our ongoing transition to a subscription-based business model); • our ability to address customer needs and expand or maintain our customer base; • our platform, solutions, products, services and technology, including their interoperability and availability with and on third-party platforms and technologies, and current and future product roadmaps; • our reliance on key personnel and ability to attract, train, incentivize, retain, and/or ramp to full productivity, qualified employees and key personnel; • our ability to form new or maintain and strengthen existing, strategic alliances and partnerships, as well as the impact of any changes thereto; • our reliance on key manufacturers, suppliers or other vendors; • our ability to obtain, maintain, protect, and enforce our intellectual property rights; • any changes to, or failure to comply with, laws and regulations, as well as the impact of and any regulatory investigations and enforcement actions and other legal proceedings, including any pending or future class action lawsuits; • complex and evolving U.S. and foreign privacy, data use and data protection, content, competition, consumer protection, and other laws and regulations; and 12 Table of Contents • the occurrence of security breaches, improper access to or disclosure of our data or user data, and other cyber incidents or undesirable activity on our platform.
These risks are discussed more fully below and include, but are not limited to, risks related to: Risks Related to Our Business and Industry • our ability to achieve our business plans, vision, and objectives, including our growth and go-to-market strategies, successfully and in a timely manner; • macroeconomic or geopolitical conditions, industry trends, and technological developments, including disruptions and delays in global supply chains; • the competitive market, including our competitive position and advantages and ability to compete effectively; • our ability to predict future financial performance from our historical financial performance; • our ability to remediate the previously-identified material weakness in our internal controls and maintain an effective system of internal controls; • our ability to address customer needs and expand or maintain our customer base; • our platform, solutions, products, services and technology, including their interoperability and availability with and on third-party platforms and technologies, and current and future product roadmaps, including expanding our AI-related capabilities; • our reliance on key personnel and ability to attract, train, incentivize, retain, and/or ramp to full productivity, qualified employees and key personnel; • our ability to form new or maintain and strengthen existing, strategic alliances and partnerships, as well as our ability to manage any changes thereto; • our reliance on key manufacturers, suppliers or other vendors; • our ability to obtain, maintain, protect, and enforce our intellectual property rights; • any business model transitions (including our transition to a subscription-based business model); • the impact of a pandemic or major public health concern on our business, operations, financial performance, and stock price; • any changes to, or failure to comply with, laws and regulations, as well as the impact of and any regulatory investigations and enforcement actions and other legal proceedings, including any pending or future class action lawsuits; 12 Table of Contents • complex and evolving U.S. and foreign privacy, data use and data protection, content, competition, consumer protection, and other laws and regulations; • the occurrence of security breaches, improper access to or disclosure of our data or user data, and other cyber incidents or undesirable activity on our platform; and • investors’ and other stakeholders’ expectations of our performance relating to environmental, social and governance factors.
Risks Related to Our Convertible Notes As of July 31, 2022, we had outstanding $145.7 million aggregate principal amount of 0% convertible senior notes due 2023 (the "2023 Notes"), $750.0 million aggregate principal amount of 2.50% convertible senior notes due 2026 (the "2026 Notes"), and $575.0 million aggregate principal amount of 0.25% convertible senior notes due 2027 (the “2027 Notes,” together with the 2023 Notes and the 2026 Notes, the “Notes”).
Risks Related to Our Convertible Notes As of July 31, 2023, we had outstanding $750.0 million aggregate principal amount of 2.50% convertible senior notes due 2026 (the "2026 Notes") and $575.0 million aggregate principal amount of 0.25% convertible senior notes due 2027 (the "2027 Notes," together with the 2026 Notes, the "Notes").

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeFollowing an evaluation of our longer-term facilities plans due to our transition to a hybrid work environment, we recently entered into amendments to these lease agreements to reduce the leased space to approximately 215,000 square feet beginning in June 2024. We also maintain offices in North America, Europe, Asia Pacific, the Middle East, Latin America, and Africa.
Biggest changeFollowing an evaluation of our longer-term facilities plans due to our transition to a hybrid work environment, we entered into amendments to these lease agreements to reduce our leased space to approximately 215,000 square feet beginning in June 2024. We also maintain offices in North America, Europe, Asia Pacific, the Middle East, Latin America, and Africa.
Item 2. Properties Our corporate headquarters are located in San Jose, California where, under lease agreements that expire through May 2030, we currently lease approximately 432,000 square feet of space.
Item 2. Properties Our corporate headquarters are located in San Jose, California where, under lease agreements that expire through May 2030, we currently lease approximately 333,000 square feet of space.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The information set forth under the "Legal Proceedings" subheading in Note 7 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference. Item 4. Mine Safety Disclosures Not Applicable. 58 Table of Contents PART II
Biggest changeItem 3. Legal Proceedings The information set forth under the "Legal Proceedings" subheading in Note 8 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K is incorporated herein by reference.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFiscal Year 7/31/17 7/31/18 7/31/19 7/31/20 7/31/21 7/31/22 Nutanix, Inc. $ 100.00 $ 230.12 $ 106.85 $ 104.45 $ 169.55 $ 71.22 Nasdaq Composite Index $ 100.00 $ 122.13 $ 131.59 $ 174.72 $ 240.30 $ 204.37 Nasdaq Computer Index $ 100.00 $ 127.40 $ 143.94 $ 210.14 $ 281.92 $ 239.56 The information on the above graph shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act, and shall not be incorporated by reference into any registration statement or other document filed by us with the SEC, whether made before or after the date of this Annual Report on Form 10-K, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing. 61 Table of Contents Securities Authorized for Issuance Under Equity Compensation Plans The information required by this item is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders, which will be filed no later than 120 days after the end of our fiscal year ended July 31, 2022.
Biggest changeFiscal Year 7/31/18 7/31/19 7/31/20 7/31/21 7/31/22 7/31/23 Nutanix, Inc. $ 100.00 $ 46.43 $ 45.39 $ 73.68 $ 30.95 $ 61.77 Nasdaq Composite Index $ 100.00 $ 107.74 $ 143.06 $ 196.76 $ 167.33 $ 195.47 Nasdaq Computer Index $ 100.00 $ 109.50 $ 162.42 $ 234.00 $ 197.59 $ 250.79 63 Table of Contents The information on the above graph shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act, and shall not be incorporated by reference into any registration statement or other document filed by us with the SEC, whether made before or after the date of this Annual Report on Form 10-K, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.
This figure does not include a substantially greater number of "street name" holders or beneficial holders of our common stock whose shares are held of record by banks, brokers and other financial institutions. Dividend Policy We have never declared or paid cash dividends on our common stock.
This figure does not include a substantially greater number of "street name" holders or beneficial holders of our common stock whose shares are held of record by banks, brokers and other financial institutions. Dividend Policy We have never declared or paid cash dividends on our Class A common stock.
The graph assumes an initial investment of $100 on July 31, 2017 in the common stock of Nutanix, Inc., the NASDAQ Composite Index and NASDAQ Computer Index and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
The graph assumes an initial investment of $100 on July 31, 2018 in the common stock of Nutanix, Inc., the NASDAQ Composite Index and NASDAQ Computer Index and assumes reinvestment of any dividends. The stock price performance on the following graph is not necessarily indicative of future stock price performance.
Any future determination to declare dividends will be made at the discretion of our Board of Directors, subject to applicable laws and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant.
Any future determination to declare dividends will be made at the discretion of our Board of Directors, subject to applicable laws and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant. Unregistered Sales of Equity Securities and Use of Proceeds None.
Fiscal 2021 Fiscal 2022 Fiscal Quarter: High Low High Low First quarter $ 28.71 $ 20.84 $ 43.95 $ 33.10 Second quarter $ 33.86 $ 23.36 $ 36.28 $ 24.71 Third quarter $ 35.07 $ 25.65 $ 28.47 $ 22.14 Fourth quarter $ 39.95 $ 26.54 $ 26.34 $ 13.75 Holders of Record As of July 31, 2022, there were 92 holders of record of our Class A common stock.
Fiscal 2022 Fiscal 2023 Fiscal Quarter: High Low High Low First quarter $ 43.95 $ 33.10 $ 27.40 $ 15.21 Second quarter $ 36.28 $ 24.71 $ 33.32 $ 25.09 Third quarter $ 28.47 $ 22.14 $ 29.52 $ 23.42 Fourth quarter $ 26.34 $ 13.75 $ 30.55 $ 23.94 Holders of Record As of July 31, 2023, there were 72 holders of record of our Class A common stock.
We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends in the foreseeable future.
We do not anticipate paying any dividends on our Class A common stock in the foreseeable future.
Removed
Unregistered Sales of Equity Securities and Use of Proceeds None. 59 Table of Contents Purchases of Equity Securities by the Issuer Share Repurchase Program The following table provides information with respect to the shares of our Class A common stock we repurchased during the fiscal year ended July 31, 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) September 1, 2021 - September 30, 2021 1,368,780 $ 42.77 1,368,780 $ — (1) In September 2021, we used approximately $58.5 million of the net cash proceeds from the issuance of $97.7 million in aggregate principal amount of our 0.25% convertible senior notes due 2027 to repurchase shares of Class A common stock in open market transactions. 60 Table of Contents Stock Performance Graph The following graph shows a comparison from July 31, 2017 through July 31, 2022 of the cumulative total return for our Class A common stock based on the closing price on the last day of each respective period.
Added
Purchases of Equity Securities by the Issuer There were no purchase of equity securities by the issuer during the fiscal year ended July 31, 2023. Following the end of fiscal 2023, our Board of Directors authorized the repurchase of up to $350.0 million of our Class A common stock.
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For more information on the share repurchase program, refer to Note 15 of Notes to Consolidated Financial Statements included in Part II, Item 8, of this Annual Report on Form 10-K. 62 Table of Contents Stock Performance Graph The following graph shows a comparison from July 31, 2018 through July 31, 2023 of the cumulative total return for our Class A common stock based on the closing price on the last day of each respective period.
Added
Securities Authorized for Issuance Under Equity Compensation Plans The information required by this item is incorporated herein by reference to our definitive proxy statement for our 2023 annual meeting of stockholders, which will be filed no later than 120 days after the end of our fiscal year ended July 31, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The following table presents a reconciliation of total billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses and free cash flow to the most directly comparable GAAP financial measures, for each of the periods indicated: Fiscal Year Ended July 31, 2020 2021 2022 (in thousands, except percentages) Total revenue $ 1,307,682 $ 1,394,364 $ 1,580,796 Change in deferred revenue 272,410 126,732 127,845 Total billings (non-GAAP) $ 1,580,092 $ 1,521,096 $ 1,708,641 Gross profit $ 1,020,993 $ 1,102,458 $ 1,259,640 Stock-based compensation 27,348 30,483 38,225 Amortization of intangible assets 14,777 14,776 13,579 Restructuring charges — — 218 Impairment of lease-related assets 537 13 — Non-GAAP gross profit $ 1,063,655 $ 1,147,730 $ 1,311,662 Gross margin 78.1 % 79.1 % 79.7 % Stock-based compensation 2.1 % 2.2 % 2.4 % Amortization of intangible assets 1.1 % 1.0 % 0.9 % Non-GAAP gross margin 81.3 % 82.3 % 83.0 % Operating expenses $ 1,849,914 $ 1,763,240 $ 1,717,084 Stock-based compensation (324,650 ) (328,062 ) (305,021 ) Amortization of intangible assets (2,603 ) (2,604 ) (2,604 ) Restructuring charges — — (10,957 ) Impairment and early exit of lease-related assets (2,465 ) (1,407 ) (597 ) Other (1,499 ) (2,407 ) (432 ) Non-GAAP operating expenses $ 1,518,697 $ 1,428,760 $ 1,397,473 Net cash (used in) provided by operating activities $ (159,885 ) $ (99,810 ) $ 67,543 Purchases of property and equipment (89,488 ) (58,647 ) (49,058 ) Free cash flow (non-GAAP) $ (249,373 ) $ (158,457 ) $ 18,485 The following table presents a reconciliation of subscription billings and professional services billings to the most directly comparable GAAP financial measures, for each of the periods indicated: Fiscal Year Ended July 31, 2020 2021 2022 (in thousands) Subscription revenue $ 1,030,180 $ 1,243,621 $ 1,433,773 Change in subscription deferred revenue 246,233 110,534 129,787 Subscription billings $ 1,276,413 $ 1,354,155 $ 1,563,560 Professional services revenue $ 45,889 $ 73,094 $ 91,744 Change in professional services deferred revenue 26,177 16,198 (1,942 ) Professional services billings $ 72,066 $ 89,292 $ 89,802 71 Table of Contents NUTANIX, INC.
Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The following table presents a reconciliation of total billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, and free cash flow to the most directly comparable GAAP financial measures, for each of the periods indicated: Fiscal Year Ended July 31, 2021 2022 2023 (in thousands, except percentages) Total revenue $ 1,394,364 $ 1,580,796 $ 1,862,895 Change in deferred revenue 126,732 127,845 142,687 Total billings (non-GAAP) $ 1,521,096 $ 1,708,641 $ 2,005,582 Gross profit $ 1,102,458 $ 1,259,640 $ 1,530,708 Stock-based compensation 30,483 38,225 34,577 Amortization of intangible assets 14,776 13,579 9,870 Restructuring charges — 218 230 Impairment of lease-related assets 13 — — Non-GAAP gross profit $ 1,147,730 $ 1,311,662 $ 1,575,385 Gross margin 79.1 % 79.7 % 82.2 % Stock-based compensation 2.2 % 2.4 % 1.9 % Amortization of intangible assets 1.0 % 0.9 % 0.5 % Restructuring charges — — — Impairment of lease-related assets — — — Non-GAAP gross margin 82.3 % 83.0 % 84.6 % Operating expenses $ 1,764,569 $ 1,718,492 $ 1,737,858 Stock-based compensation (328,062 ) (305,021 ) (277,168 ) Amortization of intangible assets (2,604 ) (2,604 ) (827 ) Restructuring charges — (10,957 ) (5,073 ) Impairment / early exit of lease-related assets (1,407 ) (597 ) (1,726 ) Litigation settlement accrual and legal fees (2,407 ) (432 ) (38,675 ) Non-GAAP operating expenses $ 1,430,089 $ 1,398,881 $ 1,414,389 Loss from operations $ (662,111 ) $ (458,852 ) $ (207,150 ) Stock-based compensation 358,545 343,246 311,745 Amortization of intangible assets 17,380 16,183 10,697 Restructuring charges — 11,175 5,303 Impairment / early exit of lease-related assets 1,420 597 1,726 Litigation settlement accrual and legal fees 2,407 432 38,675 Non-GAAP (loss) income from operations $ (282,359 ) $ (87,219 ) $ 160,996 Operating margin (47.5 )% (29.0 )% (11.1 )% Stock-based compensation 25.7 % 21.8 % 16.6 % Amortization of intangible assets 1.2 % 1.0 % 0.6 % Restructuring charges — 0.7 % 0.3 % Impairment / early exit of lease-related assets 0.1 % — 0.1 % Litigation settlement accrual and legal fees 0.2 % — 2.1 % Non-GAAP operating margin (20.3 )% (5.5 )% 8.6 % Net cash (used in) provided by operating activities $ (99,810 ) $ 67,543 $ 272,403 Purchases of property and equipment (58,647 ) (49,058 ) (65,404 ) Free cash flow (non-GAAP) $ (158,457 ) $ 18,485 $ 206,999 72 Table of Contents NUTANIX, INC.
Net cash provided by financing activities of $663.8 million for fiscal 2021 consisted of $723.6 million of proceeds from the is issuance of the 2026 Notes, net of issuance costs, and $65.8 million of proceeds from the sale of shares through employee equity incentive plans, partially offset by $125.1 million of repurchases of our Class A common stock and $0.5 million of payments for finance leases.
Cash Flows from Financing Activities Net cash provided by financing activities of $663.8 million for fiscal 2021 consisted of $723.6 million of proceeds from the is issuance of the 2026 Notes, net of issuance costs, and $65.8 million of proceeds from the sale of shares through employee equity incentive plans, partially offset by $125.1 million of repurchases of our Class A common stock and $0.5 million of payments for finance leases.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Subscription revenue — Subscription revenue includes any performance obligation which has a defined term and is generated from the sales of software entitlement and support subscriptions, subscription software licenses and cloud-based software as a service offerings. • Ratable — We recognize revenue from software entitlement and support subscriptions and SaaS offerings ratably over the contractual service period, the substantial majority of which relate to software entitlement and support subscriptions.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Subscription revenue — Subscription revenue includes any performance obligation which has a defined term and is generated from the sales of software entitlement and support subscriptions, subscription software licenses and cloud-based SaaS offerings. • Ratable — We recognize revenue from software entitlement and support subscriptions and SaaS offerings ratably over the contractual service period, the substantial majority of which relate to software entitlement and support subscriptions.
Other Income (Expense), Net Other income (expense), net consists primarily of interest income and expense, which includes the amortization of the debt issuance costs associated with our 0% convertible senior notes due 2023 (the "2023 Notes"), our 2.50% convertible senior notes due 2026 (the "2026 Notes") and our 0.25% convertible senior notes due 2027 (the "2027 Notes"), changes in the fair value of the derivative liability associated with the 2026 Notes, non-cash interest expense on the 2026 Notes, the amortization of the debt discount on the 2026 Notes, interest expense on the 2027 Notes, debt extinguishment costs, interest income related to our short-term investments, and foreign currency exchange gains or losses.
Other Income (Expense), Net Other income (expense), net consists primarily of interest income and expense, which includes the amortization of the debt discount and debt issuance costs associated with our previously outstanding 0% convertible senior notes due 2023 (the "2023 Notes"), our 2.50% convertible senior notes due 2026 (the "2026 Notes") and our 0.25% convertible senior notes due 2027 (the "2027 Notes"), changes in the fair value of the derivative liability associated with the 2026 Notes, non-cash interest expense on the 2026 Notes, the amortization of the debt discount on the 2026 Notes, interest expense on the 2027 Notes, debt extinguishment costs, interest income related to our short-term investments, and foreign currency exchange gains or losses.
These accrued liabilities are not reflected in the contractual obligations disclosed in the table above, as it is uncertain if or when such amounts will ultimately be settled. Uncertain tax positions are further discussed in Note 12 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
These accrued liabilities are not reflected in the contractual obligations disclosed in the table above, as it is uncertain if or when such amounts will ultimately be settled. Uncertain tax positions are further discussed in Note 13 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We record a charge related to these items when we determine that it is probable a loss will be incurred and we are able to estimate the amount of the loss. Our historical charges have not been material. As of July 31, 2022, we had accrued liabilities related to uncertain tax positions, which are reflected on our consolidated balance sheet.
We record a charge related to these items when we determine that it is probable a loss will be incurred and we are able to estimate the amount of the loss. Our historical charges have not been material. As of July 31, 2023, we had accrued liabilities related to uncertain tax positions, which are reflected on our consolidated balance sheet.
Our solutions allow organizations to simply move their workloads, including enterprise applications, high-performance databases, end-user computing and virtual desktop infrastructure ("VDI") services, container-based modern applications, and analytics applications, between on-premises and public clouds. Our goal is to provide a single, simple, open software platform for all hybrid and multicloud applications and their data.
Our solutions allow organizations to simply run and move their workloads, including enterprise applications, high-performance databases, end-user computing and virtual desktop infrastructure services, container-based modern applications, and analytics applications, between on-premises and public clouds. Our goal is to provide a single, simple, open software platform for all hybrid- and multicloud applications and their data.
Non-GAAP gross profit, non-GAAP gross margin and non-GAAP operating expenses are performance measures which we believe provide useful information to investors, as they provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures, such as stock-based compensation expense, that may not be indicative of our ongoing core business operating results.
Non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), and non-GAAP operating margin are performance measures which we believe provide useful information to investors, as they provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures, such as stock-based compensation expense, that may not be indicative of our ongoing core business operating results.
We expect R&D expense, in the long term, to increase in absolute dollars as part of our long-term plans to invest in our future products and services, including our newer subscription-based products, although R&D expense may fluctuate as a percentage of total revenue and, on an absolute basis, from quarter to quarter. 76 Table of Contents NUTANIX, INC.
We expect R&D expense, in the long term, to increase in absolute dollars as part of our long-term plans to invest in our future products and services, including our newer subscription-based products, although R&D expense may fluctuate as a percentage of total revenue and, on an absolute basis, from quarter to quarter. 77 Table of Contents NUTANIX, INC.
Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could change the results from those reported. The critical accounting estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below. 86 Table of Contents NUTANIX, INC.
Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements, which, in turn, could change the results from those reported. The critical accounting estimates, assumptions and judgments that we believe have the most significant impact on our consolidated financial statements are described below. 88 Table of Contents NUTANIX, INC.
(2) For additional information regarding our operating leases, refer to Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. (3) Purchase obligations and other commitments pertaining to our daily business operations.
(2) For additional information regarding our operating leases, refer to Note 7 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. (3) Purchase obligations and other commitments pertaining to our daily business operations.
We recognize revenue from software entitlement and support contracts ratably over the contractual service period, which typically commences upon transfer of control of the corresponding products to the customer. We recognize revenue related to professional services as they are performed. 75 Table of Contents NUTANIX, INC.
We recognize revenue from software entitlement and support contracts ratably over the contractual service period, which typically commences upon transfer of control of the corresponding products to the customer. We recognize revenue related to professional services as they are performed. 76 Table of Contents NUTANIX, INC.
Non-GAAP gross profit and non-GAAP gross margin — We calculate non-GAAP gross margin as non-GAAP gross profit divided by total revenue. We define non-GAAP gross profit as gross profit adjusted to exclude stock-based compensation expense, amortization of acquired intangible assets, impairment of lease-related assets, and costs associated with other non-recurring transactions.
Non-GAAP gross profit and Non-GAAP gross margin — We calculate non-GAAP gross margin as non-GAAP gross profit divided by total revenue. We define non-GAAP gross profit as gross profit adjusted to exclude stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, impairment of lease-related assets, and costs associated with other non-recurring transactions.
Net cash used in investing activities of $597.2 million for fiscal 2021 consisted of $1.4 billion of short-term investment purchases and $58.6 million of purchases of property and equipment, partially offset by $784.2 million of maturities of short-term investments and $70.1 million of sales of short-term investments.
Cash Flows from Investing Activities Net cash used in investing activities of $597.2 million for fiscal 2021 consisted of $1.4 billion of short-term investment purchases and $58.6 million of purchases of property and equipment, partially offset by $784.2 million of maturities of short-term investments and $70.1 million of sales of short-term investments.
A single organization or customer may represent multiple end customers for separate divisions, segments, or subsidiaries, and the total number of end customers may contract due to mergers, acquisitions, or other consolidation among existing end customers. 70 Table of Contents NUTANIX, INC.
A single organization or customer may represent multiple end customers for separate divisions, segments, or subsidiaries, and the total number of end customers may contract due to mergers, acquisitions, or other consolidation among existing end customers. 71 Table of Contents NUTANIX, INC.
These multiples exclude the effect of one end customer who had a very large and irregular purchase pattern that we believe is not representative of the purchase patterns of all of our other end customers. 74 Table of Contents NUTANIX, INC.
These multiples exclude the effect of one end customer who had a very large and irregular purchase pattern that we believe is not representative of the purchase patterns of all of our other end customers. 75 Table of Contents NUTANIX, INC.
These measures include improving the efficiency of our demand generation spend, focusing on lower cost renewals, increasing leverage of our channel partners, and optimizing headcount in geographies based on market opportunities. 72 Table of Contents NUTANIX, INC.
These measures include improving the efficiency of our demand generation spend, focusing on lower cost renewals, increasing leverage of our channel partners, and optimizing headcount in geographies based on market opportunities. 73 Table of Contents NUTANIX, INC.
Cost of support, entitlements and other services revenue Cost of support, entitlements and other services revenue increased year-over-year for both fiscal 2021 and fiscal 2022 due primarily to higher personnel-related costs, resulting from growth in our global customer support organization.
Cost of support, entitlements and other services revenue Cost of support, entitlements and other services revenue increased year-over-year for both fiscal 2022 and fiscal 2023 due primarily to higher personnel-related costs, resulting from growth in our global customer support organization.
There is no GAAP measure that is comparable to ACV billings, ARR or run-rate ACV, so we have not reconciled either ACV billings, ARR or run-rate ACV numbers included in this Annual Report on Form 10-K to any GAAP measure.
There is no GAAP measure that is comparable to ACV billings or ARR, so we have not reconciled either ACV billings or ARR numbers included in this Annual Report on Form 10-K to any GAAP measure.
For additional information regarding our convertible senior notes, refer to Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
For additional information regarding our convertible senior notes, refer to Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Refer to Note 1 and Note 2 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information on revenue recognition.
Refer to Note 1 and Note 3 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional information on revenue recognition.
Net cash provided by financing activities of $103.6 million for fiscal 2022 consisted of $88.7 million of proceeds from the issuance of the 2027 Notes in the subscription transactions that closed in September 2021, net of issuance costs, $67.8 million of proceeds from the sale of shares through employee equity incentive plans, and $39.9 million of proceeds from the termination of portions of the convertible note hedge transactions previously entered into in connection with the 2023 Notes, partially offset by $58.6 million of repurchases of our Class A common stock, $18.4 million of payments for the termination of portions of the warrant transactions previously entered into in connection with the 2023 Notes, and $14.7 million of debt extinguishment costs. 85 Table of Contents NUTANIX, INC.
Net cash provided by financing activities of $103.6 million for fiscal 2022 consisted of $88.7 million of proceeds from the issuance of the 2027 Notes in the subscription transactions that closed in September 2021, net of issuance costs, $67.8 million of proceeds from the sale of shares through employee equity incentive plans, and $39.9 million of proceeds from the termination of portions of the convertible note hedge transactions previously entered into in connection with the 2023 Notes, partially offset by $58.6 million of repurchases of our Class A common stock, $18.4 million of payments for the termination of portions of the warrant transactions previously entered into in connection with the 2023 Notes, and $14.7 million of debt extinguishment costs.
We have also recently seen higher than normal attrition among our sales representatives, and while we are actively recruiting additional sales representatives, it will take time to replace, train, and ramp them to full productivity. As a result, our sales and marketing expense will fluctuate, and may decline, in the near term.
In recent years, we have also seen higher-than-normal attrition among our sales representatives, and while we are actively recruiting additional sales representatives, it will take time to replace, train, and ramp them to full productivity. As a result, our sales and marketing expense will fluctuate, and may decline, in the near-term.
Recent Accounting Pronouncements Refer to "Recent Accounting Pronouncements" in Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. 89 Table of Contents
Recent Accounting Pronouncements Refer to "Recent Accounting Pronouncements" in Note 1 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. 90 Table of Contents
We continue to invest in the growth of our business over the long-run, including the development of our solutions and investing in sales and marketing to capitalize on our market opportunities, while improving our operating cash flow performance by focusing on go-to-market efficiencies. By maintaining this balance, we believe we can drive toward profitable growth.
We continue to invest in the growth of our business over the long-run, including the development of our solutions and investing in sales and marketing to capitalize on our market opportunities, while improving our operating cash flow performance by focusing on go-to-market efficiencies. By maintaining this balance, we believe we can sustain profitable growth.
For additional information, see Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. In September 2020, we issued $750.0 million in aggregate principal amount of 2.50% convertible senior notes due 2026 to BCPE Nucleon (DE) SVP, LP, an entity affiliated with Bain Capital, LP.
In September 2020, we issued $750.0 million in aggregate principal amount of 2.50% convertible senior notes due 2026 to BCPE Nucleon (DE) SPV, LP, an entity affiliated with Bain Capital, LP. For additional information, see Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We have recorded a full valuation allowance related to our federal and state net operating losses and other net deferred tax assets and a partial valuation allowance related to our foreign net deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. 77 Table of Contents NUTANIX, INC.
We have recorded a full valuation allowance related to our federal and state net operating losses and other net deferred tax assets and a partial valuation allowance related to certain foreign net operating losses due to the uncertainty of the ultimate realization of the future benefits of those assets. 78 Table of Contents NUTANIX, INC.
Total billings, subscription billings, ACV billings, ARR, run-rate ACV, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, and free cash flow have limitations as analytical tools and they should not be considered in isolation or as substitutes for analysis of our results as reported under generally accepted accounting principles in the United States.
Total billings, subscription billings, ACV billings, ARR, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, and free cash flow have limitations as analytical tools and they should not be considered in isolation or as substitutes for analysis of our results as reported under generally accepted accounting principles ("GAAP") in the United States.
Non-GAAP Financial Measures and Key Performance Measures We regularly monitor total billings, subscription billings, ACV billings, ARR, run-rate ACV, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, free cash flow, and total end customers, which are non-GAAP financial measures and key performance measures, to help us evaluate our growth and operational efficiencies, measure our performance, identify trends in our sales activity and establish our budgets.
Non-GAAP Financial Measures and Key Performance Measures We regularly monitor total billings, subscription billings, ACV billings, ARR, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, free cash flow, and total end customers, which are non-GAAP financial measures and key performance measures, to help us evaluate our growth and operational efficiencies, measure our performance, identify trends in our sales activity and establish our budgets.
For additional information on revenue recognition, see Note 2 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K and "Critical Accounting Estimates" later in this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section. 73 Table of Contents NUTANIX, INC.
For additional information on revenue recognition, see Note 3 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K and "Critical Accounting Estimates" later in this "Management’s Discussion and Analysis of Financial Condition and Results of Operations" section. 74 Table of Contents NUTANIX, INC.
The increases in cash generated from operating activities for fiscal 2021 and fiscal 2022 were due primarily to decreases in our net loss from operations.
The increases in cash generated from operating activities for fiscal 2022 and fiscal 2023 were due primarily to decreases in our net loss from operations.
In addition, starting in fiscal 2019, as a result of our transition towards a subscription-based business model, more of our customers began purchasing separately sold subscription term-based licenses that could be deployed on a variety of hardware platforms.
Subscription-Based Business Model Starting in fiscal 2019, as a result of our transition toward a subscription-based business model, more of our customers began purchasing separately sold subscription term-based licenses that could be deployed on a variety of hardware platforms.
As of July 31, 2022, approximately 73% of our end customers who have been with us for 18 months or longer have made a repeat purchase, which is defined as any purchase activity, including renewals of term-based licenses or software entitlement and support subscription renewals, after the initial purchase.
As of July 31, 2023, approximately 74% of our end customers who have been with us for 18 months or longer have made a repeat purchase, which is defined as any purchase activity, including renewals of term-based licenses or software entitlement and support subscription renewals, after the initial purchase.
The total average contract term was approximately 3.8 years, 3.4 years and 3.2 years for fiscal 2020, 2021 and 2022, respectively. Total average contract term represents the dollar-weighted term across all subscription and life-of-device contracts billed during the period, using an assumed term of five years for licenses without a specified term, such as life-of-device licenses.
The total average contract term was approximately 3.4 years, 3.2 years and 3.0 years for fiscal 2021, 2022 and 2023, respectively. Total average contract term represents the dollar-weighted term across all subscription and life-of-device contracts billed during the period, using an assumed term of five years for licenses without a specified term, such as life-of-device licenses.
We evaluate these measures because they: • are used by management and the Board of Directors to understand and evaluate our performance and trends, as well as to provide a useful measure for period-to-period comparisons of our core business, particularly as we progress through our transition to a subscription-based business model; • are widely used as a measure of financial performance to understand and evaluate companies in our industry; and • are used by management to prepare and approve our annual budget and to develop short-term and long-term operational and compensation plans, as well as to assess our actual performance against our goals. 68 Table of Contents NUTANIX, INC.
We evaluate these measures because they: • are used by management and the Board of Directors to understand and evaluate our performance and trends, as well as to provide a useful measure for period-to-period comparisons of our core business, particularly as we operate a subscription-based business model; • are widely used as a measure of financial performance to understand and evaluate companies in our industry; and • are used by management to prepare and approve our annual budget and to develop short-term and long-term operational and compensation plans, as well as to assess our actual performance against our goals. 69 Table of Contents NUTANIX, INC.
These offerings represented approximately $508.8 million, $639.3 million and $770.4 million of our subscription revenue for fiscal 2020, 2021 and 2022, respectively. • Upfront — Revenue from our subscription software licenses is generally recognized upfront upon transfer of control to the customer, which happens when we make the software available to the customer.
These offerings represented approximately $639.3 million, $770.4 million and $905.8 million of our subscription revenue for fiscal 2021, 2022 and 2023, respectively. • Upfront — Revenue from our subscription software licenses is generally recognized upfront upon transfer of control to the customer, which happens when we make the software available to the customer.
We calculate our non-GAAP financial and key performance measures as follows: Total billings — We calculate total billings by adding the change in deferred revenue between the start and end of the period to total revenue recognized in the same period.
We calculate our non-GAAP financial and key performance measures as follows: Total billings — We calculate total billings by adding the change in deferred revenue and the change in unbilled accounts receivable between the start and end of the period to total revenue recognized in the same period.
Notwithstanding that fact, we believe that our cash and cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.
Notwithstanding that fact, we believe that our cash and cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for working capital, including share repurchases, and capital expenditures for at least the next 12 months.
Total billings, subscription billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, and free cash flow are not substitutes for total revenue, subscription revenue, gross profit, gross margin, operating expenses, or cash provided by (used in) operating activities, respectively.
Total billings, subscription billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, and free cash flow are not substitutes for total revenue, subscription revenue, gross profit, gross margin, operating expenses, operating loss, operating margin, or net cash provided by (used in) operating activities, respectively.
Product gross margin increased by 1.5 percentage points, from 90.7% in fiscal 2020 to 92.2% in fiscal 2021, and by 0.5 percentage points, to 92.7% in fiscal 2022, due primarily to the higher mix of software revenue, as we continued to focus on more software-only transactions, which have a higher margin as compared to hardware sales.
Product gross margin increased by 0.5 percentage points, from 92.2% in fiscal 2021 to 92.7% in fiscal 2022, and by 1.7 percentage points, to 94.4% in fiscal 2023, due primarily to the higher mix of software revenue, as we continued to focus on more software-only transactions, which have a higher margin as compared to hardware sales.
These subscription software licenses represented approximately $521.3 million, $604.3 million and $663.4 million of our subscription revenue for fiscal 2020, 2021 and 2022, respectively. Non-portable software revenue — Non-portable software revenue includes sales of our enterprise cloud platform when delivered on a configured-to-order appliance by us or one of our OEM partners.
These subscription software licenses represented approximately $604.3 million, $663.4 million and $825.0 million of our subscription revenue for fiscal 2021, 2022 and 2023, respectively. Non-portable software revenue — Non-portable software revenue includes sales of our enterprise cloud platform when delivered on a configured-to-order appliance by us or one of our OEM partners.
We account for forfeitures of all share-based awards when they occur. 87 Table of Contents NUTANIX, INC.
We account for forfeitures of all share-based awards when they occur. 89 Table of Contents NUTANIX, INC.
Additionally, end customers who have been with us for 18 months or longer have total lifetime orders, including the initial order, in an amount that is more than 6.9x greater, on average, than their initial order.
Additionally, end customers who have been with us for 18 months or longer have total lifetime orders, including the initial order, in an amount that is more than 7.8x greater, on average, than their initial order.
Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product and service offerings, the continuing market acceptance of our products, the impact of COVID-19 pandemic on our business, our end customers and partners, and the economy, and the timing of and extent to which our customers transition to shorter-term contracts or request to only pay for the initial term of multi-year contracts as a result of our transition to a subscription-based business model. 84 Table of Contents NUTANIX, INC.
Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product and service offerings, the continuing market acceptance of our products, our end customers and partners, and the economy, and the timing of and extent to which our customers transition to shorter-term contracts or request to only pay for the initial term of multi-year contracts as a result of our transition to a subscription-based business model.
Net cash used in investing activities of $54.2 million for fiscal 2022 consisted of $1.1 billion of short-term investment purchases and $49.1 million of purchases of property and equipment, partially offset by $1.1 billion of maturities of short-term investments and $18.0 million of sales of short-term investments.
Net cash used in investing activities of $54.2 million for fiscal 2022 consisted of $1.1 billion of short-term investment purchases and $49.1 million of purchases of property and equipment, partially offset by $1.1 billion of maturities of short-term investments and $18.0 million of sales of short-term investments. 86 Table of Contents NUTANIX, INC.
Furthermore, our customers may, including in response to the uncertainty caused by the COVID-19 pandemic, decide to purchase our software solutions on shorter subscription terms than they have historically, and/or request to only pay for the initial year of a multi-year subscription term upfront, which could negatively impact our billings, revenue and cash flow in a given period when compared to historical life-of-device or multiple-year term-based license sales.
Furthermore, our customers may decide to purchase our software solutions on shorter subscription terms than they have historically, and/or request to only pay for the initial year of a multi-year subscription term upfront, which could negatively impact our billings, revenue and cash flow in a given period when compared to historical life-of-device or multiple-year term-based license sales.
We calculate the total annualized value for a contract by dividing the total value of the contract by the number of years in the term of such contract, using, where applicable, an assumed term of five years for contracts that do not have a specified term. 69 Table of Contents NUTANIX, INC.
We calculate the total annualized value for a contract by dividing the total value of the contract by the number of years in the term of such contract, using, where applicable, an assumed term of five years for contracts that do not have a specified term.
For example, our term-based licenses generally have an average term of less than four years and thus result in lower billings and revenue in a given period when compared to our historical life of device license sales, which have a duration equal to the life of the associated appliance, which we estimate to be approximately five years.
For example, our term-based licenses generally have an average term of approximately three years and thus result in lower billings and revenue in a given period when compared to our historical life-of-device license sales, which have a duration equal to the life of the associated appliance based on an estimate of approximately five years.
The Nutanix Cloud Platform can be deployed on-premises at the edge or in data centers, running on a variety of qualified hardware platforms, in popular public cloud environments such as AWS (currently generally available) and Microsoft Azure (currently in public preview and expected to become generally available in the future) through Nutanix Cloud Clusters, or, in the case of our cloud-based software and software-as-a-service ("SaaS") offerings, via hosted service.
The Nutanix Cloud Platform can be deployed on-premises at the edge or in data centers, running on a variety of qualified hardware platforms, in popular public cloud environments such as AWS and Microsoft Azure through Nutanix Cloud Clusters, or, in the case of our cloud-based software and software-as-a-service ("SaaS") offerings, via hosted service.
Our presentation of non-GAAP gross profit should not be construed as implying that our future results will not be affected by any recurring expenses or any unusual or non-recurring items that we exclude from our calculation of this non-GAAP financial measure.
Our presentation of non-GAAP gross profit and non-GAAP gross margin should not be construed as implying that our future results will not be affected by any recurring expenses or any unusual or non-recurring items that we exclude from our calculation of these non-GAAP financial measures.
Furthermore, our ongoing transition to a subscription-based business model and ongoing product transitions, such as our updated pricing and packaging to simplify our product portfolio, may cause concerns among our customer base, including concerns regarding changes to pricing over time, and may also result in confusion among new and existing end customers, for example, regarding our pricing models.
Furthermore, our transition to a subscription-based business model and product transitions may cause concerns among our customer base, including concerns regarding changes to pricing over time, and may also result in confusion among new and existing end customers, for example, regarding our pricing models.
There are no required principal payments on the 2027 Notes prior to their maturity. For additional information, see Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
There are no required principal payments on the 2027 Notes prior to their maturity. For additional information, see Note 6 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. 85 Table of Contents NUTANIX, INC.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Provision for Income Taxes Fiscal Year Ended July 31, Change Fiscal Year Ended July 31, Change 2020 2021 $ % 2021 2022 $ % (in thousands, except percentages) Provision for income taxes $ 17,662 $ 18,487 $ 825 5 % $ 18,487 $ 19,264 $ 777 4 % The year-over-year increase in the provision for income taxes in fiscal 2021 and fiscal 2022 was due primarily to higher foreign taxes as a result of higher taxable earnings in foreign jurisdictions, as we continued to grow our business internationally.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Provision for Income Taxes Fiscal Year Ended July 31, Change Fiscal Year Ended July 31, Change 2021 2022 $ % 2022 2023 $ % (in thousands, except percentages) Provision for income taxes $ 18,487 $ 19,264 $ 777 4 % $ 19,264 $ 20,975 $ 1,711 9 % The year-over-year increase in the provision for income taxes in fiscal 2022 and fiscal 2023 was due primarily to higher foreign taxes as a result of higher taxable earnings in foreign jurisdictions, as we continued to grow our business internationally.
Support, entitlements and other services gross margin increased by 5.3 percentage points, from 60.3% in fiscal 2020 to 65.6% in fiscal 2021, and by 2.1 percentage points to 67.7% in fiscal 2022, due primarily to support, entitlements and other services revenue growing at a higher rate than personnel-related costs. 81 Table of Contents NUTANIX, INC.
Support, entitlements and other services gross margin increased by 2.1 percentage points, from 65.6% in fiscal 2021 to 67.7% in fiscal 2022, and by 2.7 percentage points to 70.4% in fiscal 2023, due primarily to support, entitlements and other services revenue growing at a higher rate than personnel-related costs. 82 Table of Contents NUTANIX, INC.
This number increases to approximately 20.9x, on average, for Global 2000 end customers who have been with us for 18 months or longer as of July 31, 2022.
This number increases to approximately 25.8x, on average, for Global 2000 end customers who have been with us for 18 months or longer as of July 31, 2023.
As of July 31, 2022, we considered approximately 73% of our global sales team members to be fully ramped, while the remaining approximately 27% of our global sales team members are in the process of ramping up.
As of July 31, 2023, we considered approximately 80% of our global sales team members to be fully ramped, while the remaining approximately 20% of our global sales team members are in the process of ramping up.
The broad nature of the technology shift that our enterprise cloud platform represents, the relationships our end customers have with existing IT vendors, and our transition toward a subscription-based business model sometimes lead to unpredictable sales cycles.
The broad nature of the technology shift that our enterprise cloud platform represents and the relationships our end customers have with existing IT vendors sometimes lead to unpredictable sales cycles.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Fiscal Year Ended July 31, 2020 2021 2022 (as a percentage of total revenue) Revenue: Product 58.6 % 50.6 % 47.9 % Support, entitlements and other services 41.4 % 49.4 % 52.1 % Total revenue 100.0 % 100.0 % 100.0 % Cost of revenue: Product 5.4 % 3.9 % 3.5 % Support, entitlements and other services 16.5 % 17.0 % 16.8 % Total cost of revenue 21.9 % 20.9 % 20.3 % Gross profit 78.1 % 79.1 % 79.7 % Operating expenses: Sales and marketing 88.7 % 75.5 % 61.9 % Research and development 42.4 % 39.9 % 36.2 % General and administrative 10.4 % 11.0 % 10.5 % Total operating expenses 141.5 % 126.4 % 108.6 % Loss from operations (63.4 )% (47.3 )% (28.9 )% Other expense, net (2.0 )% (25.5 )% (20.3 )% Loss before provision for income taxes (65.4 )% (72.8 )% (49.2 )% Provision for income taxes 1.4 % 1.3 % 1.2 % Net loss (66.8 )% (74.1 )% (50.4 )% 79 Table of Contents NUTANIX, INC.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Fiscal Year Ended July 31, 2021 2022 2023 (as a percentage of total revenue) Revenue: Product 50.6 % 47.9 % 49.0 % Support, entitlements and other services 49.4 % 52.1 % 51.0 % Total revenue 100.0 % 100.0 % 100.0 % Cost of revenue: Product 3.9 % 3.5 % 2.7 % Support, entitlements and other services 17.0 % 16.8 % 15.1 % Total cost of revenue 20.9 % 20.3 % 17.8 % Gross profit 79.1 % 79.7 % 82.2 % Operating expenses: Sales and marketing 75.5 % 61.9 % 49.6 % Research and development 40.0 % 36.2 % 31.2 % General and administrative 11.0 % 10.5 % 12.5 % Total operating expenses 126.5 % 108.6 % 93.3 % Loss from operations (47.4 )% (28.9 )% (11.1 )% Other expense, net (25.5 )% (20.3 )% (1.4 )% Loss before provision for income taxes (72.9 )% (49.2 )% (12.5 )% Provision for income taxes 1.3 % 1.2 % 1.1 % Net loss (74.2 )% (50.4 )% (13.6 )% 80 Table of Contents NUTANIX, INC.
We are focused on actively managing these realignments and potential effects. As part of our overall efforts to improve our free cash flow performance, we have also proactively taken steps to increase our go-to-market productivity and over time, we intend to reduce our overall sales and marketing spend as a percentage of revenue.
As part of our overall efforts to improve our free cash flow performance, we have also proactively taken steps to increase our go-to-market productivity and over time, we intend to reduce our overall sales and marketing spend as a percentage of revenue.
Support, entitlements and other services revenue increased year-over-year for both fiscal 2021 and fiscal 2022 in conjunction with the growth of our end customer base and the related software entitlement and support subscription contracts.
Support, entitlements and other services revenue increased year-over-year for both fiscal 2022 and fiscal 2023 in conjunction with the growth of our end customer base and the related software entitlement and support subscription contracts and renewals. 81 Table of Contents NUTANIX, INC.
ACV billings and run-rate ACV are performance measures that we believe provide useful information to our management and investors as they allow us to better track the topline growth of our business during our transition to a subscription-based business model because they take into account variability in term lengths.
ACV billings is a performance measure that we believe provides useful information to our management and investors as they allow us to better track the topline growth of our business during our transition to a subscription-based business model because it takes into account variability in term lengths.
Transition to Subscription Starting in fiscal 2019, as a result of our transition towards a subscription-based business model, more of our customers began purchasing separately sold subscription term-based licenses that could be deployed on a variety of hardware platforms.
In addition, starting in fiscal 2019, as a result of our transition toward a subscription-based business model, more of our customers began purchasing separately sold subscription term-based licenses that could be deployed on a variety of hardware platforms. 65 Table of Contents NUTANIX, INC.
In addition, starting in fiscal 2021, we began compensating our sales force based on ACV instead of total contract value, and while we expect that the shift to an ACV-based sales compensation plan will incentivize sales representatives to maximize ACV and minimize discounts, it could also further compress the average term of our subscription term-based licenses.
In addition, starting in fiscal 2021, we began compensating our sales force based on ACV instead of total contract value, and the shift to an ACV-based sales compensation plan incentivizes sales representatives to maximize ACV and minimize discounts, which may further compress the average term of our subscription term-based licenses.
Sales and marketing expense decreased year-over-year for fiscal 2022 due primarily to lower marketing costs resulting from decreased spending and increased efficiencies, as well as lower headcount-related costs, driven by the 2% decrease in sales and marketing headcount from July 31, 2021 to July 31, 2022.
Sales and marketing expense decreased year-over-year for fiscal 2023 due primarily to lower personnel-related costs, driven by the 8% decrease in sales and marketing headcount from July 31, 2022 to July 31, 2023, as well as lower marketing costs.
For additional information, see Note 5 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
For additional information regarding the securities class actions, refer to Note 8 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Due to investments in our business as well as the potential cash flow impacts resulting from our continued transition to a subscription-based business model, we expect our operating and free cash flow to continue to fluctuate during the next 12 months.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Due to investments in our business as well as the potential cash flow impacts resulting from our transition to a subscription-based business model, our operating and free cash flow may continue to fluctuate during the next 12 months.
Cost of product revenue remained relatively flat year-over-year for fiscal 2022 due primarily to the fact that hardware revenue was also relatively flat. Slight fluctuations in hardware revenue and cost of product revenue are anticipated, as we expect to continue selling small amounts of hardware for the foreseeable future.
Cost of product revenue decreased year-over-year for fiscal 2023 due primarily to corresponding decreases in hardware revenue. Slight fluctuations in hardware revenue and cost of product revenue are anticipated, as we expect to continue selling small amounts of hardware for the foreseeable future.
Purchases of non-portable software are typically accompanied by the purchase of separate support and entitlements. 63 Table of Contents NUTANIX, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Product revenue is generated primarily from the licensing of our solutions. Support, entitlements and other services revenue is primarily derived from the related support and maintenance contracts.
Purchases of non-portable software are typically accompanied by the purchase of separate support and entitlements. Product revenue is generated primarily from the licensing of our solutions. Support, entitlements and other services revenue is primarily derived from the related support and maintenance contracts.
For example, in August 2022, we announced that we will be decreasing our global headcount by approximately 4%, primarily in sales and marketing, as part of our continued effort to drive toward sustainable profitable growth.
For example, in August 2022, we announced a plan to reduce our global headcount by approximately 4%, primarily in sales and marketing, as part of our efforts to drive toward profitable growth.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Cash Flows The following table summarizes our cash flows for the periods presented: Fiscal Year Ended July 31, 2020 2021 2022 (in thousands) Net cash (used in) provided by operating activities $ (159,885 ) $ (99,810 ) $ 67,543 Net cash provided by (used in) investing activities 24,559 (597,153 ) (54,189 ) Net cash provided by financing activities 57,797 663,845 103,635 Net (decrease) increase in cash, cash equivalents and restricted cash $ (77,529 ) $ (33,118 ) $ 116,989 Cash Flows from Operating Activities Net cash used in operating activities was $159.9 million and $99.8 million for fiscal 2020 and fiscal 2021, respectively, and net cash provided by operating activities was $67.5 million for fiscal 2022, representing improvements of $60.1 million and $167.4 million, respectively, as compared to the respective prior year periods.
Cash Flows The following table summarizes our cash flows for the periods presented: Fiscal Year Ended July 31, 2021 2022 2023 (in thousands) Net cash (used in) provided by operating activities $ (99,810 ) $ 67,543 $ 272,403 Net cash used in investing activities (597,153 ) (54,189 ) (49,785 ) Net cash provided by (used in) financing activities 663,845 103,635 (112,709 ) Net (decrease) increase in cash, cash equivalents and restricted cash $ (33,118 ) $ 116,989 $ 109,909 Cash Flows from Operating Activities Net cash used in operating activities was $99.8 million for fiscal 2021 and net cash provided by operating activities was $67.5 million and $272.4 million for fiscal 2022 and fiscal 2023, respectively, representing improvements of $167.4 million and $204.9 million, respectively, as compared to the respective prior year periods.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) ARR — We calculate ARR as the sum of ACV for all non-life-of-device contracts in effect as of the end of a specific period.
ARR — We calculate ARR as the sum of ACV for all non-life-of-device contracts in effect as of the end of a specific period.
Disaggregation of Revenue and Billings The following table depicts the disaggregation of revenue and billings by type, consistent with how we evaluate our financial performance: Fiscal Year Ended July 31, 2020 2021 2022 (in thousands) Disaggregation of revenue: Subscription revenue $ 1,030,180 $ 1,243,621 $ 1,433,773 Non-portable software revenue 208,158 71,390 49,694 Hardware revenue 23,455 6,259 5,585 Professional services revenue 45,889 73,094 91,744 Total revenue $ 1,307,682 $ 1,394,364 $ 1,580,796 Disaggregation of billings: Subscription billings $ 1,276,413 $ 1,354,155 $ 1,563,560 Non-portable software billings 208,158 71,390 49,694 Hardware billings 23,455 6,259 5,585 Professional services billings 72,066 89,292 89,802 Total billings $ 1,580,092 $ 1,521,096 $ 1,708,641 67 Table of Contents NUTANIX, INC.
Disaggregation of Revenue and Billings The following table depicts the disaggregation of revenue and billings by type, consistent with how we evaluate our financial performance: Fiscal Year Ended July 31, 2021 2022 2023 (in thousands) Disaggregation of revenue: Subscription revenue $ 1,243,621 $ 1,433,773 $ 1,730,848 Non-portable software revenue 71,390 49,694 37,382 Hardware revenue 6,259 5,585 2,824 Professional services revenue 73,094 91,744 91,841 Total revenue $ 1,394,364 $ 1,580,796 $ 1,862,895 Disaggregation of billings: Subscription billings $ 1,354,155 $ 1,563,560 $ 1,868,943 Non-portable software billings 71,390 49,694 37,382 Hardware billings 6,259 5,585 2,824 Professional services billings 89,292 89,802 96,433 Total billings $ 1,521,096 $ 1,708,641 $ 2,005,582 68 Table of Contents NUTANIX, INC.
The decrease in other expense, net for fiscal 2022 was due primarily to the change in the fair value of the derivative liability related to the 2026 Notes, which was reclassified to equity during the first quarter of fiscal 2022, partially offset by the debt extinguishment costs resulting from the exchange of $416.5 million in aggregate principal amount of the 2023 Notes for $477.3 million in aggregate principal amount of the 2027 Notes. 83 Table of Contents NUTANIX, INC.
The decrease in other expense, net for fiscal 2023 was due primarily to the fair value of the derivative liability related to the 2026 Notes, which was reclassified to equity during the first quarter of fiscal 2022, the debt extinguishment costs resulting from the exchange of $416.5 million in aggregate principal amount of the 2023 Notes for $477.3 million in aggregate principal amount of the 2027 Notes, the $11.0 million gain on our divestiture of Frame Desktop-as-a-Service ("Frame"), and an increase in interest income on our investments. 84 Table of Contents NUTANIX, INC.
Non-GAAP operating expenses — We define non-GAAP operating expenses as total operating expenses adjusted to exclude stock-based compensation expense, impairment of lease-related assets, costs associated with business combinations, such as amortization of acquired intangible assets, revaluation of contingent consideration and other acquisition-related costs and costs associated with other non-recurring transactions.
Non-GAAP operating expenses — We define non-GAAP operating expenses as total operating expenses adjusted to exclude stock-based compensation expense, amortization of acquired intangible assets, restructuring charges, impairment of lease-related assets, litigation settlement accruals and legal fees related to certain litigation matters, and costs associated with other non-recurring transactions.
If we are unable to address these challenges, our business and operating results could be materially and adversely affected. Investment in Profitable Growth We continue to invest in our growth over the long-run, while improving our operating cash flow performance by focusing on go-to-market efficiencies. By maintaining this balance, we believe we can drive toward profitable growth.
Investment in Profitable Growth We continue to invest in our growth over the long-run, while improving our operating cash flow performance by focusing on go-to-market efficiencies. By maintaining this balance, we believe we can sustain profitable growth.
This includes our newer products outside of our core hyperconverged infrastructure offering, both as compared to traditional datacenter architectures as well as the public cloud, particularly as we continue to pursue large enterprises and mission critical workloads and transition toward a subscription-based business model.
A key focus of our sales and marketing efforts is creating market awareness about the benefits of our enterprise cloud platform. This includes our newer products outside of our core hyperconverged infrastructure offering, both as compared to traditional datacenter architectures as well as the public cloud, particularly as we continue to pursue large enterprises and mission critical workloads.
Research and development expense increased year-over-year for fiscal 2022 due primarily to higher personnel-related costs resulting from growth in our R&D headcount, which grew 13% from July 31, 2021 to July 31, 2022, partially offset by lower stock-based compensation expense resulting from terminations during the period and lower technical costs. 82 Table of Contents NUTANIX, INC.
Research and development Fiscal Year Ended July 31, Change Fiscal Year Ended July 31, Change 2021 2022 $ % 2022 2023 $ % (in thousands, except percentages) Research and development $ 558,008 $ 572,999 $ 14,991 3 % $ 572,999 $ 580,961 $ 7,962 1 % Percent of total revenue 40.0 % 36.2 % 36.2 % 31.2 % Research and development expense increased year-over-year for both fiscal 2022 and fiscal 2023 due primarily to higher personnel-related costs resulting from growth in our R&D headcount, which grew 13% from July 31, 2021 to July 31, 2022 and 6% from July 31, 2022 to July 31, 2023, partially offset by lower stock-based compensation expense resulting from terminations during the period and lower technical costs. 83 Table of Contents NUTANIX, INC.
Subscription billings — We calculate subscription billings by adding the change in subscription deferred revenue between the start and end of the period to subscription revenue recognized in the same period. ACV billings — We calculate ACV billings as the sum of the ACV for all contracts billed during the period.
Subscription billings — We calculate subscription billings by adding the change in subscription deferred revenue between the start and end of the period to subscription revenue recognized in the same period. 70 Table of Contents NUTANIX, INC.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Key Financial and Performance Metrics We monitor the following key financial and performance metrics: As of and for the Fiscal Year Ended July 31, 2020 2021 2022 (in thousands, except percentages and end customer count) Total revenue $ 1,307,682 $ 1,394,364 $ 1,580,796 Year-over-year percentage increase 5.8 % 6.6 % 13.4 % Subscription revenue $ 1,030,180 $ 1,243,621 $ 1,433,773 Total billings $ 1,580,092 $ 1,521,096 $ 1,708,641 Subscription billings $ 1,276,413 $ 1,354,155 $ 1,563,560 Annual contract value ("ACV") billings $ 505,179 $ 594,292 $ 756,326 Annual recurring revenue ("ARR") $ 481,250 $ 878,733 $ 1,202,438 Run-rate ACV $ 1,219,965 $ 1,535,360 $ 1,797,423 Gross profit $ 1,020,993 $ 1,102,458 $ 1,259,640 Non-GAAP gross profit $ 1,063,655 $ 1,147,730 $ 1,311,662 Gross margin 78.1 % 79.1 % 79.7 % Non-GAAP gross margin 81.3 % 82.3 % 83.0 % Operating expenses $ 1,849,914 $ 1,763,240 $ 1,717,084 Non-GAAP operating expenses $ 1,518,697 $ 1,428,760 $ 1,397,473 Total deferred revenue $ 1,183,441 $ 1,312,923 $ 1,445,538 Net cash (used in) provided by operating activities $ (159,885 ) $ (99,810 ) $ 67,543 Free cash flow $ (249,373 ) $ (158,457 ) $ 18,485 Total end customers (1) 17,360 20,130 22,600 (1) The total end customer count reflects standard adjustments/consolidation to certain customer accounts within our system of record and is rounded to the nearest 10.
Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Key Financial and Performance Metrics We monitor the following key financial and performance metrics: As of and for the Fiscal Year Ended July 31, 2021 2022 2023 (in thousands, except percentages and end customer count) Total revenue $ 1,394,364 $ 1,580,796 $ 1,862,895 Year-over-year percentage increase 6.6 % 13.4 % 17.8 % Subscription revenue $ 1,243,621 $ 1,433,773 $ 1,730,848 Total billings $ 1,521,096 $ 1,708,641 $ 2,005,582 Subscription billings $ 1,354,155 $ 1,563,560 $ 1,868,943 Annual contract value ("ACV") billings $ 594,292 $ 756,326 $ 956,810 Annual recurring revenue ("ARR") $ 878,733 $ 1,202,438 $ 1,561,981 Gross profit $ 1,102,458 $ 1,259,640 $ 1,530,708 Non-GAAP gross profit $ 1,147,730 $ 1,311,662 $ 1,575,385 Gross margin 79.1 % 79.7 % 82.2 % Non-GAAP gross margin 82.3 % 83.0 % 84.6 % Operating expenses $ 1,764,569 $ 1,718,492 $ 1,737,858 Non-GAAP operating expenses $ 1,430,089 $ 1,398,881 $ 1,414,389 Operating loss $ (662,111 ) $ (458,852 ) $ (207,150 ) Non-GAAP operating (loss) income $ (282,359 ) $ (87,219 ) $ 160,996 Operating margin (47.5 )% (29.0 )% (11.1 )% Non-GAAP operating margin (20.3 )% (5.5 )% 8.6 % Total deferred revenue $ 1,312,923 $ 1,445,538 $ 1,595,032 Net cash (used in) provided by operating activities $ (99,810 ) $ 67,543 $ 272,403 Free cash flow $ (158,457 ) $ 18,485 $ 206,999 Total end customers (1) 20,130 22,600 24,550 (1) The total end customer count reflects standard adjustments/consolidation to certain customer accounts within our system of record and is rounded to the nearest 10.
Liquidity and Capital Resources As of July 31, 2022, we had $402.9 million of cash and cash equivalents, $3.0 million of restricted cash and $921.4 million of short-term investments, which were held for general corporate purposes.
As of July 31, 2023, we had $512.9 million of cash and cash equivalents, $2.8 million of restricted cash and $924.5 million of short-term investments, which were held for general corporate purposes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA hypothetical 10% decrease in the U.S. dollar against other currencies would result in an increase in our operating loss of approximately $46.1 million, $51.3 million and $58.5 million for fiscal 2020, 2021 and 2022, respectively.
Biggest changeA hypothetical 10% decrease in the U.S. dollar against other currencies would result in an increase in our operating loss of approximately $51.3 million, $58.5 million and $60.8 million for fiscal 2021, 2022 and 2023, respectively.
The increase in this hypothetical change is due to an increase in our expenses denominated in foreign currencies due to the continued growth of our business internationally. This analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.
The increase in this hypothetical change in fiscal 2023 is due to an increase in our expenses denominated in foreign currencies due to the continued growth of our business internationally. This analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.
Our expenses are generally denominated in the currencies in which our operations are located. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative instruments.
Our expenses are generally denominated in the currencies where our operations are located. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative instruments.
Therefore, we do not expect our operating results or cash flows to be materially affected by a sudden change in interest rates. 90 Table of Contents
Therefore, we do not expect our operating results or cash flows to be materially affected by a sudden change in interest rates. 91 Table of Contents

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