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'This recession is about becoming a startup again,' as millions work from home

Dheeraj Pandey, Nutanix CEO & founder, joins Yahoo Finance's Alexis Christoforous and Brian Sozzi to discuss the cloud-computing company's latest earnings report, the future of work 'as a driver of business' and much more.

Video Transcript

ALEXIS CHRISTOFOROUS: All right. The cloud computing company Nutanix posted a pretty solid beat on revenue in its fiscal third quarter report, despite the pandemic. Joining us now is Nutanix CEO, Dheeraj Pandey. And Dheeraj, good to see you again. I know that your company has been undergoing this shift from hardware sales to services and subscriptions. In fact, I believe over 80% of your total revenue came from subscriptions last quarter. How much of that is because of this shift we're seeing in working from home?

DHEERAJ PANDEY: Thank you for having me on, Alexis and Brian. We had a very good quarter. Continued top line growth, despite the model transition, as you talked about. And despite a COVID impact. Our total contract value grew 70% to 80% year over year. And we feel that this subscription transition is really about the cloud. It's about making things smaller. Because in a recession, customers want to buy things smaller, especially the new customers. And the future of work is definitely one of the big drivers of our business in the last three months.

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You know, in the last couple of months, the way we've lived, Alex, has completely changed. And as we try to stream more desktops to our customers' homes, as we try to really go and make health care facilities open to patients who are actually doing remote discussions with doctors and nurse practitioners, and also as students try to do remote learning, I think this has changed dramatically. So you know, this notion that the future of work is going to change permanently, the future of health care is going to change permanently, the future of education is going to change permanently, it's driving a lot of the future of cloud, as well.

BRIAN SOZZI: Dheeraj, Salesforce made an interesting comment on their earnings call last night, noting that at the end of April, their deal pipeline started to pick up. Have you seen that in your business of late?

DHEERAJ PANDEY: You know, there's some puts and takes, Brian. On one side, some of the modernization projects, definitely people are being more cash prudent and conservative. But when it comes to keeping all the employees working, being able to save jobs and having them be able to be productive, this notion that they should be able to work from anywhere and everywhere, because now the enterprise really begins at home.

So those projects where you need to really be able to deliver the entire office environment from the home itself, applications, data, desktops, all these things have to be streamed directly from the home, those products absolutely have gone up in the last three months.

ALEXIS CHRISTOFOROUS: Dheeraj, this is your company's really first recessionary cycle, if you will. The company was founded in 2009 coming out of the Great Recession. You went public in 2016. How are you, or what are you learning from this pandemic? And how has this changed your company, which really in the scheme of things, is still a young company?

DHEERAJ PANDEY: That's a great question, Alex. You know, one of the things that we at least talk about, is that the crests and troughs of really becoming a large company over time. I heard you talk about FANG before this, and I was chuckling, because you know, one of those is A, is Amazon. People for the longest time were like, when it's going to make money, you know, are they going to go bankrupt the longest time. And I think we just have to go through the highs and lows of the recession to really come out to become one of these legendary companies out there.

For me, recessions are about what I call a kneeling process. You know, you really need to go through this [? recrystalization ?] and regrowth coming out of it. So for a lot of our employees, it's about becoming a startup again. What does it mean to be one of those companies that's extremely focused on expense management and cash? What does it mean to be even more efficient in thinking about productivity? But finally, being even more customer centric than before. Because we have technology and products that are really here to help our customers be in business, and their employees actually be employed.

ALEXIS CHRISTOFOROUS: I know that earlier this month you had to furlough about 25% of your workforce. I think that's roughly 1,500 workers. Are you confident that you will not have to outright lay off workers? And what other steps are you taking to increase the balance sheet and come out a stronger company?

DHEERAJ PANDEY: I'm very focused on expense and cash, as I mentioned. And furloughs are a good way, because it's a reversible process. As I was hearing you talk about, we have all sorts of data, Wall Street is a little bit ahead of Main Street. So what do you do? What kind of frameworks will you use to really keep a business going, and yet not forget about what is ahead of us outside of this, coming out of this in calendar '21 and calendar '22?

You want to make sure you're not really completely biasing towards the next three to six months itself. So in that vein, in that spirit, we had to really say, let's go to the right thing, not just for the next three and six months, but also for the next 12 and 24 months. Furloughs are reversible, as opposed to layoffs, where you're really going to lose that relationship with the employee itself. And we were doing things for the most good.

Rather than having some people take all the pain, we said, is there a way where we can have all the people take a little bit of the pain? I think it's been a great way to really embrace our employees and they being even more customercentric going forward. So we just did our Culture Amp surveys, which is a way to really understand the pulse of the employees, because we haven't seen them in months. And they're all working from home. And our engagement scores have come out even better than before. Our productivity is actually a little bit ahead, which is something that's a complete surprise to all of us, to all the managers as well.

ALEXIS CHRISTOFOROUS: All right. Dheeraj Pandey, CEO of Nutanix. Thanks for being with us this morning.

DHEERAJ PANDEY: Thank you.