Nutanix, Inc (NASDAQ: NTNX) Q2 2025 Earnings Call dated Feb. 26, 2025
Corporate Participants:
Richard Valera — Vice President, Investor Relations
Rajiv Ramaswami — President & Chief Executive Officer
Rukmini Sivaraman — Chief Financial Officer
Analysts:
Meta A. Marshall — Analyst
James E. Fish — Analyst
Pinjalim Bora — Analyst
Ben Bollin — Analyst
Jake Wilhelm — Analyst
Ruplu Bhattacharya — Analyst
Michael Cikos — Analyst
Jason Ader — Analyst
Param Singh — Analyst
Jeff Hickey — Analyst
George Wang — Analyst
Presentation:
Operator
Good day and thank you for standing by. Welcome to the Nutanix second quarter 2025 earnings conference call. At this time, all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your questions. Please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Rich Valera, Vice President of Investor Relations. Please go ahead.
Richard Valera — Vice President, Investor Relations
Good afternoon and welcome to today’s Conference call to discuss second quarter fiscal year 2025 financial results. Joining me today are Rajiv Ramaswamy, Nutanix’s President and CEO, and Rukmini Sivaraman, Nutanix’s cfo. After the market closed today, Nutanix issued a Press release announcing second quarter fiscal year 2025 financial results. If you’d like to read the release, please visit the Press Releases section of our IR website. During today’s call, management will make forward looking statements including financial guidance. These forward looking statements involve risks and uncertainties, some of which are beyond our control which could cause actual results to differ materially and adversely from those anticipated by these statements. For a more detailed description of these and other risks and uncertainties, please refer to our SEC filings, including our most recent annual report on Form 10K and quarterly reports on Form 10Q, as well as our earnings press release issued today. These forward looking statements apply as of today and we undertake no obligation to revise these statements after this call. As a result, you should not rely on them as predictions of future events. Please note, unless otherwise specifically referenced, all financial measures we use on today’s call, except for revenue, are expressed on a non GAAP basis and have been adjusted to exclude certain charges. We have provided, to the extent available, reconciliations of these non GAAP financial measures to GAAP financial measures on our IR website and in our earnings press release. Nutanix will be participating in the KeyBank Emerging Technology Summit in San Francisco on March 4 and the Morgan Stanley TMT Conference in San Francisco on March 6th. We hope to see some of you at these events. Finally, our third quarter fiscal 2025 quiet period will begin on April 17th and with that I’ll turn the call over to Rajeev. Rajeev
Rajiv Ramaswami — President & Chief Executive Officer
Thank you Rich and good afternoon everyone. We’re happy to report second quarter results that came in ahead of our guidance against a dynamic backdrop. Our results benefited from the strength of the Nutanix cloud platform, demand from businesses looking for a trusted long term partner committed to innovation and customer care and go to market leverage from our partnerships and programs. Taking a closer look at the second quarter, we once again exceeded all of our guided metrics. We grew our ARR 19% year over year to $2.06 billion and delivered strong free cash flow. We also saw our second quarter in a row of year over year new logo growth exceeding 50% with strength seen across all of our customer segments including the Global 2000. Finally, we strengthened our balance sheet and increased our financial flexibility by issuing convertible notes at attractive terms and putting in place a revolving credit facility. Nugenix recently published the results of our seventh annual Enterprise Cloud Index survey. The report shows that implementing GENAI is top of mind for enterprises, with over 80% of those surveyed having started implementing their Gen AI strategies. Respondents view infrastructure modernization as key to deploying Gen AI. Challenges with respect to data security, compliance and performance remain priorities. We believe the Nutanix Cloud platform, including Nutanix Kubernetes platform and Nutanix Enterprise AI or nai, is well suited to helping enterprises quickly and efficiently deploy and run their Gen AI applications on real life use cases wherever their data resides. As One example, in Q2, a financial services provider in the EMEA region adopted our Nutanix Enterprise AI platform to deploy their internal GENAI applications, which include multilingual translation and a multilingual chatbot. NAI will enable them to deploy their Genai apps on their existing Nutanix cloud platform while benefiting from the automation NAI provides in scaling and running of inferencing endpoints for large language models. Our largest wins in the quarter demonstrated our ability to land and expand within some of the largest and most demanding organizations in the world as they look to modernize their IT footprints while also managing through disruption from industry ma. One of these wins was a new logo with a North American based Global 2000 energy technology company which was motivated to seek alternatives due to a 200% price increase from their incumbent vendor. They were looking for an alternative solution that could also meet their cybersecurity requirements and desire for improved operational efficiency. They chose the Nutanix Curve platform including Nutanix Cloud Manager, which will enable them to streamline their operations through increased automation and reduce their existing IT footprint by over 30%. Another significant win in the quarter was an expansion with a Global 2000 provider. Of IT consulting services based in the APJ region. Unhappy with the changes they had experienced with their other incumbent infrastructure vendor, this customer decided to transition the portion of their estate served by this other vendor to the Nutanix cloud platform, enabling them to improve their total cost of ownership while also addressing their concerns about pricing and support. They also designated Nutanix as their preferred partner for future expansion opportunities. Finally, I’d like to highlight a significant new logo win with a National Health Ministry in the EMEA region that highlights our progress in supporting modern applications natively on our platform as well as our support for hybrid multi cloud environments. This customer was looking to deploy a national telemedicine platform using container based applications in a multi cloud environment including both private and public clouds. They chose the Nutanix Cloud platform including Nutanix cloud clusters or NC2 running on AWS. They also chose Nutanix Kubernetes Platform or NKP and Nutanix Cloud Manager for deploying and managing their container based applications in a standardized self service manner while also enabling centralized observability and policy management. In closing, I am pleased that the strength of our cloud platform and the solid execution of our team produced strong second quarter results and enable us to raise our outlook for our fiscal 2025 year. We remain focused on delivering on our vision of becoming the leading platform for running apps and managing data anywhere and capturing the multi year growth opportunity in front of us. And with that I’ll hand it over to Rukmini Sivaraman Rukmini
Rukmini Sivaraman — Chief Financial Officer
Thank you Rajiv and thank you everyone for joining us today. I will first discuss our Q2 fiscal 25 results followed by our guidance for Q3 fiscal 25 and an updated outlook for the full fiscal year. 2025 results in Q2 came in above the high end of our ranges across our guided metrics. In Q2 we reported record quarterly revenue of $655 million higher than the guided range of 635 to $645 million representing a year over year growth rate of 16% ARR. At the end of Q2. Was $2.06 billion, surpassing the 2 billion ARR mark and representing year over year growth of 19%. We continue to see strength in landing new customers onto our platform from the various programs we have put in place to incentivize new logos, from a general increase in engagement from customers looking at us as an alternative in the wake of industry M and A and helped by more leverage from our OEM and channel partners. Expand ACV bookings also improved in Q2 and relative to the challenging expansion we saw in Q1 renewals continue to perform well with improved on time performance and continued discipline on economics. NRR or net dollar based retention rate at the end of Q2 was 110% flat quarter over quarter in Q2. While we continue to see modestly elongated average sales cycles compared to historical levels as discussed previously, we believe this to be the continuing norm in the current macroeconomic environment with continued scrutiny on spend. We also continue to see more variability in timing, outcome and deal structure with the larger deals in our pipeline, but we did start to see more of These close in Q2. In Q2, average contract duration which we define in the aggregate across land expand and renewals was three years, slightly higher than our expectations and down slightly quarter over quarter. Non GAAP Gross margin in Q2 was 88.3%. Non GAAP operating margin in Q2 was 24.6% higher than our guided range of 20 to 21% due to higher revenue and slightly lower operating expenses. Non GAAP net income in Q2 was $165 million or fully diluted EPS of $0.56 per share based on fully diluted weighted average shares outstanding of approximately 293 million shares. GAAP net income and fully diluted GAAP EPS in Q2 were $56 million and $0.19 per share respectively. Free cash flow in Q2 was $187 million, representing a free cash flow margin of 29%. Moving to the balance sheet, we ended Q2 with cash cash equivalents and short term investments of $1.743 billion, up from $1.075 billion at the end of Q1. As announced in December, we completed the issuance of 862 point. Million dollars in convertible notes due 2029 with 50 basis points of coupon. The net proceeds from that transaction were used to 1 retire a portion of our outstanding 2027 convertible notes, 2 repurchase $200 million in shares and 3 add cash to our balance sheet for additional flexibility and general corporate purposes, including working capital, capital expenditures and potential acquisitions. We also closed earlier this month a $500 million revolving credit facility that was announced back in December and which provides us with additional flexibility. Moving to Capital Allocation in addition to the $200 million in shares that we repurchased using a portion of the net proceeds from the convertible notes offering, we used about $69 million of cash in Q2 to retire shares related to our employees tax liability for their quarterly RSU vesting. Moving to Q3 25 our guidance for Q3 is as follows. Revenue of 620 to $630 million non GAAP operating margin of 17 to 18% fully diluted weighted average shares outstanding of approximately 296 million shares moving to the full year the updated guidance for fiscal year 25 is as follows. Revenue of 2.495 to $2.515 billion, representing a year over year growth rate of approximately 17% at the midpoint and an increase from our previous guidance. Non GAAP operating margin of approximately 17.5 to 18.5% an increase from our previous guidance and free cash flow of 650 to $700 million, representing a free cash flow margin of approximately 27% at the midpoint and an increase from our prior guidance. I will now provide some commentary and assumptions regarding our updated fiscal year 25 guidance. First, the updated guidance assumes continued strength in landing new logo customers onto our platform, steady performance of our expansion into our existing customer base and continued good renewal performance. Second, we assume aggregate contract duration for the full year to be more or less flat relative to last year. Third, and as discussed in prior earnings calls, we expect to continue to increase our investment in sales and marketing. And research and development in the second half of the fiscal year. These investments are directed towards addressing our large market opportunity and are expected to continue to ramp in Q3 and Q4. In closing, we are pleased that our Q2 results exceeded the high end of our guidance ranges and to raise our full fiscal year guidance across all metrics, we would like to thank our employees, customers, partners, investors and stakeholders for their continued trust in us. We remain committed to continued progress aligned with our stated philosophy of sustainable, profitable growth both through durable top line growth and expanding margins with that operator, please open the line for questions.
Questions and Answers:
Operator
Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In the interest of time, we ask that you please limit your questions to one question and one follow up. Please stand by while we compile the Q and A roster. And our first question comes from Meta Marshall of Morgan’s family. Your line is open.
Meta A. Marshall
Great. Thanks and congrats on the really strong quarter. It seems like you’re finally starting to see some momentum kind of in customers kind of coming over from competitive platforms. Guess just getting a sense of that. Is that just time and it was going to always take time. Is that kind of targeting and kind of finding the right customer type? Is it finding the right use case? Just kind of what do you attribute to kind of more success there? And then I’ll just get in the second question now. Just kind of any commentary that you’re seeing kind of about the federal vertical. Thank you. Y
Rajiv Ramaswami
Eah, maybe I’ll take the first part. Rukmini, you can comment on the second part. I think the market continues to be quite dynamic in terms of your question on new logos and we still call this a multi year opportunity in terms of gaining share. Now clearly you’ve seen our new logos grow 50% year over year for the last couple of quarters now and it’s driven by, I would say a couple of things. Our pipeline has matured over time and we’ve seen the impact from some of our recent go to market initiatives seeing the benefit from our customer, our sales and partner incentive programs. We’re also seeing more leverage from our OEM and channel partners who are contributing to our new logo growth as well. So I’d say those are the factors. Now the overall dynamics haven’t changed much in the sense that it’s still a multi year opportunity. We still have from a competitive perspective to deal with the fact that many customers have multi year relays with VMware and hardware refresher are needed in many cases to convert them over. But you’ve seen the results in terms of the passage of time here with the pipeline and all these go to market efforts. Rukmini, you want to comment on the Federal
Rukmini Sivaraman
Yes. Hi Mita, so to your question on the US federal government. So in Q2 as expected, our US fed business did improve and returned to solid year over year growth. Now I should say that while we don’t report us federal separately as a percent over the last three fiscal years fed has been 10% or less of our annual revenue with seasonal strength seen in our fiscal Q1 which happens to coincide with the Fed’s fiscal year end. So just to give you a sense of relative magnitude there. But yeah, Q2 was an improved performance and then when I think about outlook for the balance of the year and what we’re seeing there, we currently have a good pipeline of opportunities, but it’s too early to tell if or how those opportunities may be affected by what’s happening within the US Government and the new administration, which remains quite dynamic. However, our platform is and always has been about modernization and helping to lower the total cost of ownership for our customers, which may make it attractive to those looking for productivity gains or efficiencies. So still pretty dynamic from a US Fed perspective. And we factored in this overall uncertainty into our updated fiscal year 25 guidance.
Rajiv Ramaswami
Great. Maybe I would also say that we don’t talk about how big federal is as a percentage of our business, but over the last three fiscal years it’s been 10% or less of our annual revenue with of course Q1 being the big quarter.
Meta A. Marshall
Thanks so much.
Rukmini Sivaraman
Thank you Mita.
Operator
Thank you. Our next question comes from Jim Fish of Piper Sandler. Your line is open.
James E. Fish
Hey guys, nice quarter, nice acceleration. Also working off Amita’s first question as it’s good to hear about some of these larger wins come in here just on some of these global 2000s that are out there. What’s given the confidence in the pipeline for the upper part of the market in particular? Is there any sense to how much of it is waiting for sort of that HV standalone readiness with the storage they have versus looking to move to hyperconverge? How’s the feedback been thus far on power flex and potential build up of other OEM relationships.
Rajiv Ramaswami
Yeah, Jim, I’ll take a crack at that one. So, yes, I think the G2 case, first of all, in many cases, It’s a second vendor opportunity for us versus the wholesale migration. And it’s a mix as you can imagine, right? There’s going to be some mix of three tier and hci. Some of the three tier we can convert to hci. We’ve talked about some large examples in the past of where we’ve done that, where customers have adopted a large financial services customer running all their database workloads, for example, that’s moving from legacy 3 tier to HCI, bringing us in as the second vendor in that kind of an environment. So it’s going to be a mix of HCI and CTR. Now to your question on the PowerFlex piece specifically we do expect that the PowerFlex solution will come to market in the second calendar quarter this year and we have some good early interest. And again I think we look at that as a market expansion opportunity for us the ability to insert faster into these existing environments rather than trying to wait to convert everything over. So I think it’s going to remain a mix Jim, and we continue to focus on our core motion of converting customers over to HCI and at the same time we also focus on expanding our market opportunity by being able to insert these existing accounts in three tier storage starting with Powerflex and hopefully over time to more arrays.
James E. Fish
Makes sense. And then Rufini maybe for you, you talked about seeing better renewals. Obviously I think mathematically that the dollar basis for the renewal piece moved up this quarter. But what’s given the confidence that that 110% net retention rate can be stable for the remainder of the year? And how do we think about the other aspects of net retention rate in terms of what you guys are trying to drive beyond just existing workload expansion?
Rukmini Sivaraman
Yeah, there’s a lot there Jim, so let me try and break that down. So first on Fed, I should clarify that when we were referring to Fed business performance improving in Q2 and with solid year over year growth, we were specifically talking about land and expand for Q2. So one I want to clarify that and then I think to your rest of your question was around NRR and how to think about that. So first NRR did stabilize a flat quarter over quarter at 110% and we did see some overall improvement in Q2 with both land and expand. A few things to note on just NRR and I’ll get to the last part of your question Jim after that. So as ARR grows every quarter the ACV dollars required to offset the same percentage churn does grow, which makes it increasingly challenging to achieve the same NRR just mathematically. And then over the last year, if you look at our expansion within existing customers, it has been affected, as we’ve discussed in previous quarters. By variability we’ve seen around timing and deal structures of these larger deals in the pipeline and the overall environment of elongated sales cycles. So that does have an effect on current period nrr as our NRR is a function of expansions over the past year with the same group of customers that we had at the beginning of the 12 month period. So just some mechanics there on NRR that I wanted to clarify for everybody and I think to the rest of your question, Jim, which is on what about the other aspects of expansion. So I would say we’ve talked about three vectors. One is selling more of the same workload to customers, selling more workloads and around selling more of the portfolio. So look, we think we remain focused on both retention and expansion across all of those three vectors, Jim. And we’ve said in the past that we hired more portfolio solutions specialists, for example, towards the end of last fiscal year and into this year. And those folks are ramping now. They wouldn’t call them fully ramped yet. And so some of that is still ongoing, but we remain focused on both retention and expansion with existing customers across all of those three vectors.
Operator
Thank you. And our next question comes from Pendulum Bora of JP Morgan. Your line is open.
Pinjalim Bora
Oh great. Thank you for taking the questions and congrats on a very solid quarter here. Rajiv, I wanted to, I think I heard a couple of instances where you’re talking about the Kubernetes platform, which I think is I guess not well understood by investors. I want to ask you if you if a VMware customer is kind of choosing not to stay on premise and kind of decide to move to the cloud, are they considering the Nutanix Kubernetes platform as a platform of choice when they kind of going through that app modernization journey? Is that coming up in those VMware related conversations at this point?
Rajiv Ramaswami
Oh yeah. I mean, I think first of all, there’s two parts to that answer there. If you look at migrating a VMware workload, one is, as you said, which is modernizing the workload itself onto Kubernetes. And we are very much a part of that equation, whether they’re choosing to run it on PREM or in the public cloud as part of the application modernization. Now there is one other option there too, Pendulum, which is for people who are looking to migrate workloads as is. In fact, we have a partnership with Amazon, for example, to help migrate those VMware workloads from on Prem to directly into the public cloud Access on our NC2 platform. And a lot of that migration is also automated. So we have two options for these customers. One is, of course, with our Kubernetes platform for workload modernization. If they’re going to redo the application, if they’re going to refer. Factor the application, then that’s an option. If they want to go run the application assets and migrate out, we can offer them a path to migrate it to the public cloud or run it on Prem. I would also say that our Kubernetes platform is fully standard compliant, right? It’s cloud native compute foundation, fully standard compliant and we offer a lot of flexibility with that too. The ability, for example, for a customer who’s modernizing their workload to be able to use say a native Kubernetes substrate on a public cloud, but also use us on top to be able to manage all their clusters wherever they may be sitting and simplify the orchestration of those clusters. So there’s many different options for customers here, but the NKP platform, the Kubernetes platform is very much in the center of modernization of the apps itself.
Pinjalim Bora
Understood. Very helpful one for Rukmini Rukmini specifically on federal would you say the underperformance that you had in federal last quarter, did you recover all of it or partial recovery there? Trying to understand obviously the guidance looks extremely solid, much more than the beat. I think if I did my math right, trying to understand what kind of gives you confidence in the guidance going forward for the rest of the year.
Rukmini Sivaraman
Yeah. Hi Pendulum. So on the Federal piece I would say that, you know, as we said in our last call, that we expect a good quarter for Fed in Q2 and we saw that while we didn’t say that it would necessarily be a catch up quarter, which I think is part of your question because you know, Q1 is our seasonally strongest quarter for Fed, as you would expect given the Fed fiscal year end in September. So that’s on Fed and then more generally I think to your point on the rest of the year and our updated outlook for the full year, look we think that we’re happy with the first half performance and certainly the Q2 performance and our increased outlook for the full year incorporates our current view, best view that we have at this time around a few things, continued strength in landing new logos, steady performance within our expansion into existing customers and continued good renewal performance. And specifically I think just to go back, I think part of your question is perhaps what are we assuming about Fed Punjab I think is embedded in your question and what I’d say is, as I said earlier, it is too early to tell what the impact is going to be of some of the actions that the new administration may choose to undertake. But we do think that there’s uncertainty out there. It could be a net positive for us because our platform is about modernization and reducing the total cost of owners. But it’s unclear in terms of what the overall approach might be of the new administration. So we have factored in some of that overall uncertainty into that. Updated fiscal year 25 guidance as well.
Pinjalim Bora
Understood. Thank you very much.
Rukmini Sivaraman
Thank you, Angela.
Operator
Thank you. And our next question comes from Ben Vollen of Cleveland Research Company. Your line is open.
Ben Bollin
Good afternoon everyone. Thank you for taking the question. Rukmina, you discussed variability of, of large deal timing. I’m interested in how you think about variability or flexibility of incentives that you’re offering to these larger projects. Could you talk about how you think about the willingness to maybe subsidize or discount for takeouts or offer flexibility around timing of billing? Just any high level thoughts or approach that you’re taking to these larger projects. And then I have a follow up for Rajeev.
Rukmini Sivaraman
Sure. Hi Ben. So, a few things. So we’ve talked about how in this moment we want to make sure that one, we are articulating our value proposition to customers, especially to new customers who are not our current existing customers, to make sure they understand the value proposition in a holistic way. So meaning they understand our approach around being a hybrid multi cloud platform, around our approach to both virtualized machines and containerized applications, around our philosophy around customer service and how we value that with our net promoter score being 90 for a decade now. So that’s always where we, where we start. Ben, and to your point on structure, yes, you’re right, we have talked about that and we have seen more variability with some of our larger transactions. So what we’ll continue to do there is to make sure that we’re being thoughtful about that. Right where people are looking to migrate, for example, you might give them some one time incentives to do so and things like that. And then more generally, I think your question around billings and things like that, our standard practice is to collect multiple years of cash upfront from our customers, as we mentioned before. And it’s worth noting that many of our customers we believe purchase our software along with third party hardware, which we believe is typically part of their capex plans, and therefore generally pay us for those multiple years upfront. However, we do make exceptions based on special circumstances. But all that said, we factored the anticipated impact of any of these deal structures and maybe non standard terms into our raise fiscal year 25 guidance, both across top line and bottom line.
Ben Bollin
Okay, that’s great. And Rajeev, bigger picture, when you think about the opportunity, historically you’ve, you’ve talked about more customers having spent in three tier overall and having kind of a bigger addressable opportunity there, hence some of these partnerships. But could you speak to what you’re seeing from customers and their willingness to migrate more towards hyperconvergent. You’re seeing more refresh, you’re talking about modernization. Does it feel like you’re seeing a bigger tipping point where they’re more willing to make this migration or how do you think about or what are they saying about the incremental cost and the willingness to make those transitions? That’s it for me. Thank you.
Rajiv Ramaswami
Yeah, Ben, that’s a very good question. In fact, I think what’s happening here with the competitive situation is that customers are now retaking the entire stack because if they’re being forced to look at an alternative and migration, it’s also a good time for them to re examine the overall stack. What do they want to do? And at a big picture that means okay, maybe I should take some of these applications, put them in the cloud, maybe I should modernize some portion of my estate and maybe I should move to a new stack. So it’s actually creating this bigger picture, longer term architectural mind shift as well. So what we see is as a result, customers are moving more towards, okay, I need a modern stack, I need something that can handle virtual machines and containers, I need something that can work on prem but also in the public cloud. And that’s the kind of platform that we are providing today in the market. Right. So from that perspective, if there’s an impetus for a customer to migrate away from VMware, then it’s also an impetus for them to look at what is their long term architectural endgame. And that’s exactly what we are positioning with them.
Ben Bollin
Thank you very much.
Rukmini Sivaraman
Thank you, Ben.
Operator
Our next question comes from Aaron Rakers of Wells Fargo. Your line is open.
Jake Wilhelm
Hi, this is Jake on for Aaron. Congrats on the quarter. I was just hoping you could maybe give an update on the momentum you’re seeing around GPT in a box. Any changes you seen in enterprise adoption there more broadly and maybe if there’s been any material change over the last quarter or two given the proliferation of reasoning models.
Rajiv Ramaswami
Yeah, let me cover that Jake. It’s a pretty broad question. Overall, as you know, today we have a solution for inferencing that makes inferencing very easy to deploy in the enterprise that’s on Nutanix AI platform, which by the way is a component in the overall GPT in a box solution. Now an interesting point here is with deepseaq coming on board, it shows that fairly powerful models can be trained and operated with a lot fewer resources than people previously thought. Now we think that this actually is going to lead to broader and more rapid adoption of gen AI in computer science. We have the Jevons paradox that says when you have increased efficiency of something, then that leads to increased consumption of that resource. And we think the same will happen here for AI because what happens here is now companies and organizations take. Can actually deploy more complex inferencing use cases more effectively and it will stimulate the demand for both compute and storage resources. Now, when it comes to us and our platform, we have been very focused on being the platform for inferencing in real world AI use cases. That’s what GPT in a box with an AI delivers. And with open reasoning models coming in, it makes this whole thing better and more broadly available. So what we are seeing at this point is we certainly seen a lot of our customers interested in looking at how they can get productivity efficiency gains out of deploying gen AI. In some cases they have to deploy where their data is present, which can be in the data centers or at the edges and sometimes in the public cloud as well. And we continue to see increasing adoption. For example, on this call we talked about how an EMEA based financial services provider is using us on top of the nutanix platform, adding anyi to their existing nutanix platform to help them do things like multilingual translation automatically and of course Chatbot, which is the most obvious use case. So we are seeing more of these develop across the enterprise and more and more companies looking at starting to go from say, initial experimentation with gen AI to driving towards real life production deployments. And I think that will happen over the next few years.
Jake Wilhelm
Great, thanks. And then maybe just a follow up, I was wondering if maybe you could add some color around the investment in sales and marketing and R and D in the back half of the year and just maybe some color around how that’s being allocated.
Rajiv Ramaswami
Yeah. Rukmini, do you want to take that?
Rukmini Sivaraman
Sure. Hi Jake. So as we said in our prepared remarks, we are continuing to increase our investment in both sales and marketing and R and D. And I will say that we do expect that to ramp here in Q3 and Q4. And then to your question on specifically where we’re investing it. So within sales, it’s across a few different areas, both frontline and inside sales. We’ve talked about how overall from our frontline sales rep headcount perspective, we’re fairly close to where we’d like to be, but we’ll probably add a few more folks here in the second half. And then it’s also the folks, everybody, the supporting team that surrounds the rep. So sales engineers, channel sales, customer success and so on. And then in marketing we’re spending more to drive increased awareness of our platform. And in R and D we’re investing across one, strengthening our core platform, but also supporting more modern applications and AI. Rajiv talked here about just how we think more about that. And then also supporting selected third party storage, which, as we’ve announced, PowerFlex will be the first platform that’s coming on board here in the second calendar quarter. So those are some of the areas we’re investing in and all of those we think. Of as directed and targeted towards addressing our large market opportunity and in areas where we see a line of sight to return on those investments.
Jake Wilhelm
Great. Thank you so much.
Rukmini Sivaraman
Thanks Jake.
Operator
Thank you. Our next question comes from Lance Mohan of Bank of America. User Line is open.
Ruplu Bhattacharya
Thanks. It’s Ruploo filling in for WAMI today. Two questions, one for Rajiv, one for Rukmini. Rajeev, you had strong revenue growth and you’re guiding higher for the year. Have you seen any quantifiable benefit from the partnership with AWS and then providing promotional credits to migrate customers to NC2? And how much are your partnerships with Cisco and Dell contributing to the strong new logo growth and revenue growth this year? Can I have a follow up?
Rajiv Ramaswami
Yeah. Great. Let me take each of those one at a time. Ruklu. So AWS we’ve seen early traction with some customers migrating already from VMware Cloud on AWS over to our offering and also sometimes from on Prem into the public cloud. And so we’ve seen some of these customers actually move fairly quickly from where they were to being able to be running on a nutanix platform within a matter of a month. Because one of the things that we don’t have to worry about in a cloud to cloud migration is the hardware refresh is not an issue anymore. Right. It works pretty much on the same hardware instances that AWS provides, whether it’s VMware or us. And so that portion of it actually is a much easier migration and our automated tooling helps. So we’ve seen examples of customers moving there. It’s still fairly early now, but we’re seeing more of Those public cloud VMware customers as well as some on prem to public cloud migration happening there. Cisco, Cisco has been a good contributor for us in new logos, especially this quarter as well as over the last couple of quarters and we expect to see that partnership continuing to grow and are working very closely with them as we go to market. Dell is still pretty early. There are two parts to that Dell relationship, Athena. The first one is them selling our Nutanix platform in the market. Now this is the second quarter they’ve had that in the market and we saw a small contribution from that. And the other big one of course is the Power Flex availability which Rukmini and I covered earlier, which will be available next calendar quarter and we’ll start to see customers trialing those and starting to adopt that. But that benefit for that will really only happen in the next fiscal year year.
Ruplu Bhattacharya
Got it. Thanks for the details there, Rukmini. As a follow up last quarter, you had expected the seasonality between 2Q and 3Q to be similar to fiscal 23, where revenue was down 8% sequentially. But your guidance for 3Q is much better than that. It’s about half. For that sequential decline. So what is driving that? And if the demand environment is improving and land and expand is also improving, should we take this seasonality change as permanent or is there something specific to this year that is driving better seasonality? Thank you.
Rukmini Sivaraman
Yeah, so I think on the seasonality comment for this Q3 I would say Q2 we did see good both land and expected and as we talked about and are happy to be able to guide to Q3 where we did. I think it’s too early for us to comment on how next year’s Q3 might be relative to Q2. Ruplo and as you know there’s also this mechanism of the renewals cohorts and how they spread out over the quarters and so yeah, I’m happy to guide Q3 to where we are guiding right now. We did see strength in both land and expand and renewals as we talked about in Q2, but I’d say it’s too early to maybe extrapolate anything beyond this fiscal year at this point. And of course we’ll make sure to update you all at the right time about seasonality for next fiscal year.
Ruplu Bhattacharya
Okay, thanks for all the details. Appreciate it.
Rukmini Sivaraman
Thank you. Rufflo
Operator
Thank you. Our next question comes from Mike Pico from Needham and Company. Your line is open.
Michael Cikos
Hey, thanks for taking the questions guys and congratulations on the strong quarter and raise to the guidance that we have today. Wanted to circle up on some of the go to market questions that have been asked here, but maybe from a different angle. When we think about the partners that you guys have run campaigns for and how they’re coming over to you potentially as a result of this industry M and A Can you provide some color or maybe qualitative commentary on the different size of these partners or maybe the different size deals that they’re originating on your behalf. Just wondering if we can get some sense of how they differ versus where Nutanix has historically been. M
Rajiv Ramaswami
Mike I think the way to think about it is if you look at our pyramid of customers, we have of course the very big customers at the top and we’ve got smaller customers, volume customers. What I will say is with these partners coming on board, the channel partners, they cover the entire spectrum all the way from the top to the bottom of the pyramid right across the board. Now at the very bottom of what we have is the lower portion of that tier is what we call channel LED where we let the channel do all the work there and we just support the channel. We don’t have direct sellers engaged in that area, and that’s seen a nice uptick over the last year or so. And again, that’s where some of the channel partners are doing most of the lifting. And we’re just supporting the channel partners. As you go to the top of the pyramid, what they do is they’re more helping. Right. It’s very. Much, much more of a co selling motion. There we are. Our folks are very much involved in these bigger accounts, bigger large enterprise accounts working with the customer with a partner being a big facilitator, helping. For example, we might do some proof of concepts with the partner. Right. They will bring us in, they will engage us, they have labs and they’re present in these accounts. So what I would say is the engagement varies depending on the kind of customer. For the large customer, that’s a co sell. For the smaller customer, there’s more these partners coming in and driving a good chunk of the business.
Michael Cikos
Excellent, thank you. And just another follow up with the success in that upper end of the pyramid, those Global 2000 new logo lands that you had cited earlier. Is there a way to think about maybe specific features or capabilities as part of the more mature Nutanix cloud platform that are resonating today versus where we were a year or two ago?
Rajiv Ramaswami
Definitely, Mike. I think we’ve been doing a lot of work on the core platform from a scalability perspective, from a broader support of the ecosystem perspective also in terms of integrating with some of these big customers in terms of how all the integrations they need within their own environments, whether security or automation platforms, we’ve been doing a lot of work along those over the last few years with the core platform itself. And so now when we go into a big ticket account, we are able to, you know, be we can get through all of those fairly quickly. The other, of course part of this is that we are also now used to very much how to prosecute this. This is not a product capability set, but it’s more about how we tackle these opportunities and we’ve gotten better at understanding the full picture of what’s needed here to go from the beginning to the end proof of concept to commercial negotiations at the end. But in between security qualification, being qualified as a vendor, all of those processes, we have these deal teams that are in place to handle those opportunities. So we become, I would say, more streamlined and efficient at being able to work with these larger customers even beyond having the product features.
Michael Cikos
Great, thank you again.
Operator
Our next question comes from Jason Ager of William Blair. Your line is open.
Jason Ader
Yeah, thanks. Good afternoon. In our channel checks, Rajeev, we heard from a few folks that your sales cycles have actually shortened by a little bit as customers feel greater urgency to get off the mware. And there’s a lot of aging, call it three tier hardware that’s been pushed out over the last couple of years because of the macro environment. First of all. I want to just get a sense is that not. Maybe that’s just sort of anecdotal, but is that something that you’ve heard from your reps at all? And then secondly, we also heard some more disillusionment from partners about Broadcom squeezing them on margins. So is it helping you sort of when you talked about channel engagement and channel leverage, is it helping you that channels are feeling squeezed a little bit there and make more money selling Nutanix?
Rajiv Ramaswami
Yeah, good question, Jason. So on the first one, I would say more anecdotal, I don’t think we can point to a systematic shortening of sales cycles at this point. In fact, what I would say is we saw some of the other end of that spectrum where maturing of the pipeline and some of these larger deals that we’ve been talking about in the pipeline for a while closing this quarter. So one of it is we’ve seen certainly more of those close and not necessarily with shorter sales cycles. So that maybe have been some anecdotal feedback that you heard on the second of the partner. I think that’s very real. It is absolutely true that we have, we are a very partner centric company. All our business pretty much goes through the partner community and we have continued to make enhancements to our channel programs. And the incentives, for example, we have new logo incentives for these partners to bring us business. They may not be new logos for them, but they’re new logos to Nutanix. And so we’ve been working very hard to make it worthwhile for the channel to do business with us. And that’s certainly helping and contributing.
Jason Ader
Okay, and then one quick follow up. Rukmini, I know you’re not giving guidance for FY26, but just given the strength in operating margins this year, non GAAP operating margins and I know that this particular quarter is probably not replicable, at least for the next couple quarters based on the guidance. But can you give us a sense of where you’re thinking about, do you think operating margins will expand next year or do you think that these levels are sort of appropriate right now?
Rukmini Sivaraman
Thank you, Jason. So first of all, you’re correct that Q2 we’re happy with the margin performance. But as you rightly point out, and as we said in the prepared remarks, we are investing more in the second half. So margins in second half are expected to be lower than the first half. And I’m just still happy to raise the full year off margin guide like we did for fiscal year 25. Now we are not guiding to fiscal year 26 at this point. Jason. Look, I will say that we have always said and been consistent about this idea that we are continuing to drive towards a sustainable rule of 40 plus and trading off growth and margins in a thoughtful and appropriate way. And that approach is still the case and expect to remain to be the case. So it’s. Yeah, I’ll leave it there, Jason. I think we’ll continue to watch that and of course we’ll update you when we do provide guidance for fiscal year 26.
Jason Ader
All right, thank you. Good luck. Thank you.
Operator
Thank you. And our next question comes from Param Singh of Oppenheimer and Company. Your line is open.
Param Singh
Great, thank you. And I really appreciate you taking my question. Firstly, wanted to get a sense if you were to break down the strength in the quarter, how much would you, if you wanted to quantify is coming from the share gain due to the price hikes at VMware versus increased spend in existing workloads or better penetration in customers across the board that would have come without the price hike. If there’s any way to disaggregate those, I’d really appreciate that. And then I have a follow up question
Rukmini Sivaraman
I can start. And Rajiv, I’d welcome you to add your thoughts as well. So, Param, it’s really hard to do that because as we’ve said before, we have competed with VMware for a long, long time, for many years. And of course with Broadcom’s acquisition of VMware, there’s certainly been some changes there and so on. So no, we actually don’t think of it that way internally either in terms of saying, well, can we parse this out the way you did? So we don’t think of it that way. We’ve talked about kind of how we run our go to market programs and some of the incentives we’ve put in place. And so those are all, as you saw here, some of those starting to pay off and bear fruit here. But yeah, short answer is we’re not able to kind of parse that out to that level of specificity. Rajiv, anything you would add to that?
Rajiv Ramaswami
No, I think you covered it.
Param Singh
Right. Maybe I can ask a different question then. As you look to more displacement of VMware and Cloud foundation, what are some of the challenges that your customers have come back to you with? Do they want more of a price Delta with VMware? Is it a better and easier ease of migration? Is it more integration with some of the legacy applications and operating systems? Because those are some of the challenges that the channel seems to talk about. But I want to understand from your perspective, what are some of the headwinds or issues that you’re facing now and that you hope to address in the back half with your R and D and sales and marketing spend?
Rajiv Ramaswami
Yeah. So that I can take that question. Param. It’s a good one. First of all, I think there’s the timing of the VMware license renewals. That’s of course a big factor. And in many cases, customers have signed these multi year contracts with VMware and so they’re not necessarily in an urgent situation where they have to migrate. So there’s a timing element of that. The hardware is certainly a key element of this, which is in many cases, in fact, in most cases today, while BroadCommerce selling VMware Cloud. Foundation really a lot of the customers are only using the hypervisor from VMware VSphere along with three tier storage. That’s what they have all right today. And so when they have to convert that over to a Nutanix, for the most part it’s a hardware refresh. And so if they’ve bought new hardware then we have to, they’re not typically ready to go replace that immediately. It’s going to take them a few years to depreciate that. And so there’s a timing of that hardware refresh cycle that comes into play when we are replacing or migrating. That’s the second. The third of course is something that we’ve gotten fairly good at. Right. Which is helping migrate reduce the risk. Do you have automation to migrate those things? I think we have actually gotten quite good at over the last many years of work in terms of VMware migration. So we have automated tooling a lot of the migration, actual migration work, along with some, in some cases professional services needed and whatever is needed to integrate with their current, you know, automation systems etc. Right. Those things we know how to do, they do require some work and they do require a proper project plan and timing and so forth. But we know how to do those things. And the last is just an overall thing around, I would just say inertia. Right. They have something in place and now, you know, should I keep that thing in place or should I move to something else? And so these are the challenges. They’ve actually been the challenges for quite a while. Nothing has really changed there, which is why we’ve always characterized this as a multi year journey. It’s going to be in a steady way. We do expect that we will win more customers and you’ve seen that now all these new customers coming to us over the last few quarters, as you can see, are partly a result of the Broadcom situation.
Param Singh
Got it. That’s just really helpful. Maybe one other quick one if I could. You mentioned M and A as part of the cash usage from the convert. Want to get a sense of where do you see technical gaps in your portfolio today and is it really to fill a technical gap or to expand into some of the newer opportunities here that you would consider an M and A with.
Rajiv Ramaswami
Yeah, I’ll just say historically we’re not going to comment on future M and A param. But. But historically what we’ve done is largely focused on smaller tuck ins and areas where either it’s complementing what we have or filling some gaps in terms of what we have in our portfolio and we will probably continue to do those as we go forward. And look at, for example, we did buy Day two iq, which used to be called mesosphere about a year ago, and that helped boost our kubernetes portfolio quite substantially. So those are the kind of acquisitions and that, you know, those, those are things that we’re always continuously looking at and will continue to do now.
Param Singh
That’s really helpful. Thank you, Reggie. Appreciate that.
Operator
Thank you. Our next question comes from Jeff Hickey of ups. Your line is open.
Jeff Hickey
Hi everyone. Thank you so much for taking the question. Building off of a lot of just questions here on just partners in general, really healthy, just new logo acquisition growth. And I’m thinking about just the comments on, you know, you just talked about a lot of customers on VMware that are really just using the hypervisor. As you put more R and D investments and you leverage more of these channel partners. How should we think about the potential for increased customer ads moving forward as more come online, as we get the Power Flex capabilities turned on? Is this something that we could actually see even further? Almost acceleration thinking into next year or any color commentary would be helpful.
Rajiv Ramaswami
Yeah, I think. Look, it’s hard for me to predict the future on these things but we are focused on expanding our overall ability to go after the broader portions of the tam. And some of these portions of the TAM are locked up with three tier, right? And the more three tier offerings that we bring to the table, the more we have the ability to easily insert ourselves in there. Now what I will say though is when we insert ourselves into a three tier environment, it’s going to be with a small portion of our portfolio, right? So from a revenue or a selling deal size perspective, we’re only selling a component of our portfolio rather than the full portfolio which we would sell if it was a wholesale modernization into hyperconverged. So there’s some puts and takes there. But it’s hard for us to talk about your new logos. We are happy with the success we are getting and we’ll continue to focus on growing those those comps.
Rukmini Sivaraman
The only thing I’d add there, sorry if I can add one thing, we are happy with our strong neural performance. The comparisons do got to do start to become a bit more challenging starting in Q4 just because last Q4 is when we saw the nice increase and so the comparisons do start to get tougher in Q4 of this year.
Jeff Hickey
Got it. Well keep that in mind and then one follow up for you. Rukmini is just is there anything we should be conscious about? Know you have flat NRR this quarter at 110%. Is there any color you could share? How we should think about maybe you know, just divergences and expansionary trends you see from customers that have migrated over from competitors like VMware versus ones that have been with Nutanix for a long time. Or is it such a broad customer set that there really isn’t a difference that we should see it that way.
Rukmini Sivaraman
Yes. Look, I’ll first say we don’t guide to nrr and we continue to be focused on driving expansion and retention. And to your question on divergence, I’d say, look, I think, as Rajeev said, we typically will land a new customer only. For a portion of that portfolio of their footprint or their wallet share, especially in the larger customers. Right now, if it’s a more mid sized customer, then they might just choose to come with us even early on whether they give us more or all of their footprint. But certainly in the larger customers we only get a portion and grow over time. So I think it’s not really any particular difference. Again, We’ve competed with VMware for a long time and so yes, we wouldn’t feel there’s been any difference in terms of the expansion potential necessarily other than what I said. I think in one of the earlier questions on the call with regard to just the mechanism of nrr.
Jeff Hickey
Got it. That’s very helpful. Thank you both and congrats. Thank you.
Operator
Thank you. Our next question comes from George Wang of Barclays. Your line is open. T
George Wang
Hanks for taking my question. Squeeze me just two quick ones. Rajiv, I just want to ask again, over the last three months, have you seen any pickup in private cloud repatriation?
Rajiv Ramaswami
I would not say so, George. I don’t think it’s a systematic trend in private cloud repatriation. There’s a lot of people talking about it and we see some examples of that happening, but I wouldn’t call it a trend. What I would say, George, is the trend I see is that people are being more careful about whether to go to the public cloud in the first place. There’s more, I would say, of a time to modernize their on prem infrastructure, be ready for the future, look at applications, including things like Gen AI running on prem and not just simply take everything to the public cloud. So that’s the trend that I see more of than people bringing back. There are examples of people bringing back workloads from the public cloud, but I would say there’s more of like let me take a much more measured approach to what I’m going to go put in the public cloud in the first place.
George Wang
Got it. Just a follow up, maybe you kind of talked briefly on it already just in terms of go to market kind of maybe hiring more technical sales versus generous sales kind of solution, origin sales. Can you kind of unpack, maybe give a little bit more color, just whether that’s more of the direction going forward in terms of kind of go to market approach.
Rajiv Ramaswami
Yeah, it’s always a balancing approach, George. We have to have both generalists from a sales perspective as well as technical engineers to support them. And in the bigger accounts, we need a higher ratio of technical engineers to sellers. Because our product is technical, it tends to require fairly technical selling help. And there’s proof of concepts involved, there’s understanding of the customer environment involved. So. So whenever we hire, say, a frontline salesperson, we also have to look at everything that it takes to make that successful, and that includes technical sellers, perhaps inside salespeople. We need to make sure there’s enough people to do adoption and renewals also along with that. So it’s a whole. We have to look at this holistically across the entire ecosystem. And then on top of that, for specialist special products like portfolio products. Some of the newer ones, like Kubernetes AI, these require some more specialized selling skills, too. So we have a small specialist team for some of these products as well. So we have to look at our sales investments across the entire lens and invest appropriately in all of these. Okay, great. Thank you.
Rukmini Sivaraman
Thanks, George.
Operator
Thank you. This concludes the question and answer session and also our conference today. Thank you for participating. And you may now disconnect. Thank you all.