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Nutanix CEO on the path to profitability

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Rajiv Ramaswami, Nutanix CEO, joined Yahoo Finance Live for an exclusive interview to talk the company's investor day and the path to profitability.

Video Transcript

SEANA SMITH: Computer software company Nutanix holding its investor day, and take a look at this chart. It looks like the announcements made today were well received from investors. You see shares closing up just around 7%, just shy of $39 a share. Well, we want to bring in Nutanix CEO Rajiv Ramaswami. We're also joined by Yahoo Finance's Brian Sozzi as well. Rajiv, there's a lot to talk with you about today. Let's just start with one of the big headlines that came out of Investor Day today, and that is the fact that you expect to be cash flow positive by the second half of 2022. So by the second half of next year. What's driving your growth at this point? And what's going to get you to profitability?

RAJIV RAMASWAMI: Yes, thank you. Seana. So first of all, we're in a very large market. We're addressing a $30 billion market, enabling our customers as they go digital to run all their applications on our platform. And also enable remote workers, which by the way, even as we start coming back into work, most workplaces are going to remain hybrid, a combination of people on site and people working remotely. And our technology enables that, as well as enabling our customers to go digital and run their apps everywhere.

Now as part of that, we've been making the journey to a subscription company. And what we see here is a combination of both new business and renewals starting to come in as we get through the subscription transformation. And that combination is driving 25% annual ACV, Annual Contract Value billings growth for the next several years, and helping us get to profitability, cash flow positive by the end of next year, as we said.

BRIAN SOZZI: Rajiv, one of the also too, one of the longer headlines here from a longer term perspective, looking for operating profits by 2025, fiscal year 2025 to hit $115 million to $315. That's a big jump. In fiscal 2001, your operating loss may be around $315 million. Is there a customer mix change here in your business?

RAJIV RAMASWAMI: No, it really is the completion of our business model, Brian. So we have transition from a selling, a perpetual life of device software, as we call it, to a subscription, what happens is that we see term compression. And term compression results in lower revenue coming in up front. But then as these contracts come up for renewal, we start seeing the renewal business come in.

And that renewal business can be transacted in a very efficient manner. We don't, the cost of acquiring new business is relatively high. The cost of getting a renewal is relatively low. You would almost think it is automatic, right? So it's about 80% lower cost than new business. And so it's that leverage as a renewal business builds up, is causing the great leverage down to our bottom line.

BRIAN SOZZI: Rajiv, I talked to you pretty much right when you took over as CEO in early December, maybe late December, somewhere around there. What is it, now that you're about six months into this job, seven months into the job, what has it been like taking on the CEO role, but continuing to work remotely?

RAJIV RAMASWAMI: Yes, indeed, Brian. I mean, this is, of course, my first experience of doing something like this, and it is completely remote. What I have to say is that it was much more seamless than I thought it would be. We've all grown used to doing things through Zoom and through other videoconferencing systems. And so for me, it had its pluses and minuses. The pluses were, I could interact with a lot more people in a lot more efficient way. I've seen and met hundreds of customers in the last six months all around the world without ever having to get on a plane. I met investors, I met partners, I met our employees. And all of this virtual. So it's been remarkably effective in terms of what technology's allowed us to do.

Now at the same time, I think you do miss the personal connection and the personal relationships and the cultural aspects of coming in. And so I've been trying to mix it up with doing one on one through walks together and actually now as we've started slowly coming back into the office, I'm looking forward to actually having dinner with my team for the first time since I joined the company as CEO. So it's been a great interesting ride, but one that's been quite effective.

ADAM SHAPIRO: I'm reading this from the profile on the Yahoo Finance page about your company. It's not that I'm smart enough to truly understand everything that you do. But the way you assist your clients is through Acropolis, the enterprise cloud platform, as well as through Prism, kind of control plane for all of this. As you've just described your experience coming back to the office, your clients are going through that same experience. So how do you help them balance the need for Acropolis and Prism without undermining what it is you are also selling to them?

RAJIV RAMASWAMI: Yes, I think one of the great things about where our customers are, as our customers embark on their digital journeys, the lifeblood of digital, going digital is their applications and their data. So they're going to be running their applications that enables them to go digital anywhere, and the data is going to be everywhere as well. Some located on prem, some located in the public clouds.

And with the platform that we provide, we call it now the Nutanix cloud platform. That includes all the stuff we talked about, Adam, in there. It enables them to run those applications and manage that data wherever it may fit. And so as our customers go digital in this new world, enabling all these remote workers as well, we provide the means to enable them to do that. So in some ways, I think their investment in going digital is going to be a tailwind for software companies like us.

SEANA SMITH: Rajiv, how are you thinking about the future of work going off of those lines for your company? Are you planning to bring workers back, are you planning a hybrid schedule? I guess, how are those plans developing at this point?

RAJIV RAMASWAMI: Yes. We're probably not going to be that different from many other tech companies. We expect a gradual return back to the office. Out here in California, September 1 is our reopening. Everywhere else around the world, it's depending on local regulations. We think, for example, India is going to be much delayed, probably sometime early next year given the pandemic that's going through over there. But once people do come back here, we do expect most employees to be coming in maybe two to three days a week.

But we're going to be somewhat prescriptive on which days, because the whole point of coming in for people is to interact with other people. And we want to make sure that team members are there together. And so we expect the world to be a hybrid world here in terms of workers. And this also gives us more flexibility to attract talent from wherever they are. We can be more flexible and not having necessarily everybody be a local at one of our sites. And it also helps us recruit and get a more diverse workplace over time, because we can go to where the talent is as opposed to having the talent come to where we are.

SEANA SMITH: Rajiv Ramaswami, great to speak with you. CEO of Nutanix. And of course, our thanks to Brian Sozzi as well.