Vice President of Investor Relations - Richard Valera
Chief Executive Officer - Rajiv Ramaswami
Chief Financial Officer - Rukmini Sivaraman
Operator: Thank you for standing by, and welcome to Nutanix' Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference to Rich Valera, Vice President of Investor Relations for Nutanix. Please proceed.
Richard Valera: Good afternoon, and welcome to today's conference call to discuss fourth quarter fiscal year 2026 financial results. Joining me today are Rajiv Ramaswami, Nutanix' CEO; and Rukmini Sivaraman, Nutanix' CFO. After the market closed today, Nutanix issued a press release announcing fourth quarter fiscal year 2026 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 be making 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 10-K and our subsequent quarterly reports on Form 10-Q as well as our earnings press release issued today. These forward-looking statements apply as of today, and we undertake no obligation to revise these statements after this call. As a result, you should not rely on them as 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 Goldman Sachs Communacopia + Technology Conference in San Francisco on September 8, and the Piper Sandler Growth Frontiers Conference in Nashville on September 15. We hope to see you at these events. Finally, our first quarter fiscal 2027 quiet period will begin on October 17. And with that, I'll turn the call over to Rajiv. Rajiv?
Rajiv Ramaswami: Thank you, Rich, and good afternoon, everyone. Our fourth quarter was a strong finish to our fiscal 2026 year. We saw strength across our business and are happy to have exceeded all of our guided metrics for the quarter. We saw strong uptake of our external storage offerings and Nutanix Cloud Clusters, or NC2, in the quarter, both of which are helping to mitigate the impact of ongoing supply chain challenges on our customers. We also saw good performance from our portfolio products with notable strength in our Kubernetes and database management offerings. Turning to our full year results. In our fiscal 2026, we demonstrated good progress on a number of fronts.
Despite increased hardware prices and supply shortages, we delivered solid top line performance, including revenue of $2.85 billion, up 12% year-over-year and ARR of $2.55 billion, which grew 16% year-over-year. We also saw strong new logo performance across all of our customer tiers, including the Global 2000, adding over 3,000 new customers. And finally, we generated free cash flow of $841 million, yielding a free cash flow margin of 29%. We are pleased to have delivered our third year in a row with a Rule of 40 score above 40. In FY '26, we also saw tangible progress on the product and partnership fronts, especially as it relates to AI and our support for external storage.
We delivered Nutanix Agentic AI, a full stack software solution designed to reduce complexity, optimize performance and security, and enable lower and more predictable total costs for agentic AI applications. On the partnership front, we signed a strategic agreement with AMD to deploy our agentic AI platform on AMD's GPU solutions. This partnership complements our existing integration with NVIDIA's GPU solutions. It also includes broadening our support for AMD CPUs, ensuring that our customers have maximum flexibility for both GPU- and CPU-based solutions. We also announced new capabilities for our agentic AI solution to support a new generation of AI cloud providers or neoclouds, opening up a new market opportunity for us.
Our partnership with ChronoScale announced last week represents some early success for us in this market. More recently, we have announced important new capabilities for our agentic AI solution. These include Nutanix Agent Gateway, which provides unified governance and cost control over AI spend to our customers and a model context protocol server for the Nutanix Cloud Platform, which brings secure natural language agentic AI automation to hybrid multi-cloud environments. Finally, we made good progress on our initiatives supporting the use of external storage with the Nutanix Cloud Platform. In FY '26, we added solutions supporting Dell PowerStore, which became generally available earlier this month and EverPure, which has been generally available for approximately 2 quarters.
We also announced agreements to support NetApp and Lenovo's storage platforms. Notably, our solution supporting NetApp is currently in limited availability and was instrumental in the signing of several large wins in Q4. I'd now like to highlight a few of our largest and most notable wins in Q4. These wins demonstrate the appeal of our platform to businesses that are looking to adopt hybrid multi-cloud operating models and deploy modern applications and AI and increasingly to deploy our cloud platform while retaining their existing hardware, including servers and external storage. We saw strong momentum with our initiatives to support external storage in Q4, which included a sharp quarter-over-quarter increase in bookings and the signing of several 7-figure ACV deals.
These included one of our largest wins in the quarter, a new logo with a Global 2000 aerospace, defense and security provider that was looking to modernize its IT environment. This customer chose the Nutanix Cloud Platform, along with Nutanix Cloud Manager based on its lower total cost of ownership, ease of migration and ability to utilize their existing NetApp storage. We also had a 7-figure new logo win with 1 of the premier hospital systems in North America that was unhappy with the renewal terms they received from their existing infrastructure provider. This customer chose the Nutanix Cloud Platform to run their business-critical applications and plans to utilize their existing Dell PowerFlex storage arrays going forward.
We are pleased with the progress we've seen to date with our offerings supporting external storage and expect continued momentum on this front in FY '27. Some of our marquee wins in the quarter also reflected the strength we saw with our portfolio products. An example is another one of our largest wins in the quarter with a Global 2000 financial services provider in the APJ region. With this multiproduct expansion, the customer now plans to use Nutanix Kubernetes platform to deploy and manage their container-based applications while continuing to run their VM-based applications on our cloud platform. They also plan to extend their use of Nutanix Database Service to automate the management of their Oracle databases.
And we continue to see adoption of our AI solution in Q4 with wins across a broad array of industry verticals in both civilian and government markets. Finally, in Q4, we saw continued momentum with NC2, our public cloud offering. This included a strong quarter-over-quarter increase in bookings and cores deployed. One 7-figure NC2 win was an expansion with a Global 2000 provider of financial services based in North America. This customer was already using the Nutanix Cloud Platform and Cloud Management to run some of their business-critical workloads on-prem. However, they were looking to shift a portion of their estate to the public cloud and automate the management of their SQL databases.
To address these requirements, they plan to deploy Nutanix Database Service on NC2 running on AWS. We also landed a new logo with an EMEA-based provider of automotive technology. This customer was looking to exit their data centers, avoid lock-in with their existing on-prem vendor and switch from a CapEx to an OpEx model. They plan to deploy our cloud platform on NC2 in OVH public cloud. In closing, we were pleased with the broad-based strength we saw in our business in Q4. Our opportunities with AI, modern applications, hybrid multi-cloud and support for external storage provide us with a strong foundation for long-term growth.
Finally, I would like to express my sincere gratitude to our investors, customers and partners for their trust in us and to our employees for their hard work that led to these results. And with that, I'll hand it over to Rukmini Sivaraman. Rukmini?
Rukmini Sivaraman: Thank you, Rajiv, and thank you, everyone, for joining us today. I will first cover our Q4 fiscal '26 results, followed by a review of our full fiscal year 2026 results and then discuss guidance for Q1 '27 and full year fiscal '27. In Q4, we reported results that were above the high end of the range for all guided metrics. Our team executed well to deliver a strong finish for the fiscal year despite a challenging supply chain environment and continuing uncertainty in the macro environment. In Q4, we reported record quarterly revenue of $757 million, higher than the guided range of $725 million to $745 million.
ARR at the end of Q4 was $2.549 billion, representing year-over-year growth of 16%, an increase in growth rate compared to the prior quarter. NRR or net dollar-based retention rate at the end of Q4 was 106%, flat quarter-over-quarter. In Q4, average billings contract duration was 3.3 years, slightly lower than our expectations. Non-GAAP gross margin in Q4 was 87.7%. Non-GAAP operating margin in Q4 was 26.2%, higher than our guided range of 21% to 23% due to lower operating expenses related to timing of hiring, among other factors, and higher revenue than expected.
Non-GAAP net income in Q4 was $175 million or fully diluted EPS of $0.60 per share based on fully diluted weighted average shares outstanding of approximately 293 million shares. GAAP net income and fully diluted GAAP EPS in Q4 were $1.27 billion and $4.34 per share, respectively. Note that Q4 GAAP net income benefited from a onetime $1.2 billion valuation allowance release related to our U.S. deferred tax assets. We had previously noted the potential for a tax valuation allowance release in our prior 10-Q filing. Excluding this nonrecurring benefit, GAAP net income and fully diluted GAAP EPS in Q4 would have been $61 million and $0.21 per share, respectively.
Free cash flow in Q4 was strong at $278 million, representing a free cash flow margin of 37%, benefiting from good bookings linearity and collection in the quarter. Moving to the balance sheet. We ended Q4 with cash, cash equivalents and short-term investments of $2.361 billion, up from $2.018 billion at the end of Q3. Moving to capital allocation. In Q4, we repurchased $50 million worth of common stock under our authorization. We also used about $26 million of cash to retire shares related to our employees' tax liability for their quarterly RSU vesting. Together, these actions help manage share dilution. Moving to a summary of our results for the full fiscal year 2026.
We were happy with our fiscal year '26 results, achieved while navigating an uncertain macroeconomic environment along with significant supply chain constraints related to the pricing and availability of servers on which our customers run our software. Fiscal year '26 revenue was $2.854 billion, higher than the most recent guidance of $2.82 billion to $2.84 billion and representing a year-over-year growth rate of 12%. As we have discussed in earlier calls, we believe it is important to put this revenue growth in the context of the overall growth of the business.
