Rajiv Ramaswami: Yes. So again, let me pass it out there. So Jim, first of all, yes, we have seen customer requests in the past for customers. There are many large customers with UCS deployments. They would like to see this joint solution from us and Cisco. So we’re happy that we’re able to announce that. Also importantly for us, the fact is Cisco has a go-to-market machine that’s much bigger than ours. We today have about 20 – call it about 25,000 customers roughly but our addressable market in terms of customers are at least 100,000. And so Cisco’s broad market reach could help us get those initial entries. And again, we’re going to work, co-sell with Cisco. Cisco is going to be the front in terms of selling this but we’re going to be helping them along the way.
And just I look at this as an expansion opportunity for us with a much larger customer base. Good for the customer in terms of them buying an integrated solution for everything they need in the data center, right? There’s a virtual platform, cloud platform from us, hardware from Cisco, both in terms of servers and storage as well as the networking features and the security aspects of this. So we are excited about this. Now in terms of the numbers, what we expect is we just literally announced it here. And we – there’s a whole process of training, enabling the fee etcetera. So we are factoring in a small amount in the later half of this year, like more likely in our Q4, but we certainly expect the momentum to build here over time.
Jim Fish: Congrats, guys. Thank you.
Operator: Thank you. [Operator Instructions] And our next question comes from Meta Marshall from Morgan Stanley. Your line is now open.
Meta Marshall: Great, thanks. Maybe just as a first question, understanding kind of the new customer cohort you guys have said is kind of a focus on higher quality and larger customers. Is there any way to quantify, just in terms of what that cohort – just in terms of kind of initial deal size or anything that kind of makes the point on that metric? And then just on kind of the re-acceleration and kind of general elongation of sales cycles right now, do you think that, that is kind of a the catalyst for that reverting in fiscal ‘25 is purely macro? Do you need to kind of see more multi-cloud spending? Like what is it, just a matter of macro? Or what kind of do you think is the main catalyst for that re-acceleration? Thanks.
Rajiv Ramaswami: Let me take a crack at the first part and Rukmini can add on. So our new ASP for these new logo ASPs are certainly up year-over-year for us given the focus. We haven’t put a number on it, but perhaps one of the things we could do, take that as an action for our Investor Day to come back to you with looking at, for example, how many customers we have with over $1 million, for example of ARR. So we – it’s a good question, we will come back to you with more color. But in general, yes, new logo ASPs have been going up as a result of our focus. Rukmini, do you want to take the rest?
Rukmini Sivaraman: Sure. Yes. Meta, thanks for the question. So I think you had a couple of things in the – woven into your question, Meta. So one was, I think, around just sort of sales cycles, right, which as we’ve talked about in the past, continues to – we continue to see a modest elongation there, and that is really affecting only our sort of new and expansion business, right? And so that’s sort of what we continue to see and some of those macro factors are factored into our ‘24 outlook in the new and expansion portion. Now – and then you referenced the acceleration that we talked about in ‘24 as it relates to our renewal ACV growth rate. So just again, to reemphasize, the renewals ACV will continue to grow year-over-year for a while as we’ve talked about in the past.
What we said was at ‘24, renewal ACV growth is at a slower pace than ‘23 because of the some timing variations between ‘23 and ‘24 due to some co-terming, but also largely due to just some timing as it relates to when customers choose to make their purchases because of their budget cycles and so on. And so we view that as effect in ‘24. But when we look at the available to renewal pool for ‘25, we see that reacceleration in ‘25. So that’s what we were referencing. And I just wanted to make sure I was clear on the new and expansion portion versus the renewals, which I hope that answers your question.
Meta Marshall: Yes. No, that’s perfect. Thank you.
Rukmini Sivaraman: Thank you.
Operator: And thank you. [Operator Instructions] And our next question comes from Mike Cikos from Needham. Your line is now open.
Mike Cikos: Thank you. Thanks for getting me on the line here. I did want to come back to the ACV billings for a second. And I know that – congrats on the outperformance on the guidance. I believe you guys have cited outperformance stemming from specifically renewals when I think about the ACV billings. What drove that outperformance? Can you put some finer parameters around it, whether it would be – it sounds like macro was relatively stable, but was it just better execution, potentially conservatism for the guide? Like how do we view the different pieces that contributed to the outperformance you guys were able to generate?
Rukmini Sivaraman: Hi Mike. Thanks for the question. So, there were maybe a couple of components that I will talk to, and I welcome Rajiv to add anything else that you would like. So, the first one is that around renewals, right, what we say when we mean renewals outperformed is that we see some core earnings, as we have talked about before, which is sometimes more difficult to forecast. And we are also seeing continued improving discipline around renewals economics, which is what we transact the renewals as compared to sort of what the original transaction was, right. So, those are the ones that are contributing to improvement in renewals outperformance. And so that was a big driver, I would say, Mike, the outperformance in ACV billings. So, that was really the largest driver of outperformance for Q4 ACV billings.
Mike Cikos: Great. And I guess a two quarter on a follow-up. One, kind of fees-up the ACV billings again. But if I think about the guidance that we have today for Q1 ACV billings, it’s actually down sequentially. And if I look over the most recent 2 years, you have gone up from Q4 to Q1. Can you help us think about why it would be down sequentially, maybe part of it has to do with this co-terming effect or maybe some of those deals that came in, in Q4 from let’s say, the VMware deal that we cited earlier, that can you guys – that’s the first question, as far as the ACV billing guide being down in Q1 sequentially. The second is gross margins. I know we cited a benefit from non-recurring savings and the timing of hiring.
Can you help us unpack what – or quantify what the non-recurring savings were or what that dollar figure was and then the timing of hiring, I guess we should expect for you guys to hire into that in the out year, or is this – this is hiring that’s been – you guys can actually prove more efficient versus what you had initially anticipated?
Rukmini Sivaraman: Okay. Thank you, Mike. Let me take that one-by-one. So, on the Q4 to Q1, our typical seasonality is actually Q1 being lower than Q4, Mike, typically, because Q4 is a seasonally high quarter for us given it’s the year-end, right. And it’s sort of – sellers are motivated, right, to go and have a good Q4. Last year was a bit of an anomaly, right. Because if you recall in Q4 ‘22, we saw some of this impact from supply chain disruptions that were affecting our partners and therefore, are also impacting us to some degree, right. So, the Q4 ‘22 number was actually probably artificially lower, which led to a sequential increase last year. This is more normal, is how I would characterize that, Mike. And then to your question on gross margin, so we said a few things there.
So, one was revenue higher than expected, I think that’s straightforward. And your question was on the other two. So, what we say when we mean timing of hiring is as sort of attrition happens, normal levels of attrition, but sometimes it takes time to backfill and so on, right. So, that can sometimes cross quarter boundaries. And so we saw some of that in Q4. Those people we would expect to be hired and backfill in short order here, right, so really probably in Q1. And the non-recurring savings were not huge amounts, Mike. But just remember that I think Q4 also is a high gross margin here as well because COGS and operating expenses don’t fluctuate as much over the year, but Q2 and Q4 are seasonally higher top line quarters for us, right.
So, you will see that those margins tick up higher in Q2 and Q4 and take a little bit lower in Q1 and Q3, which is why if you look at our overall fiscal year ‘24 guide, we are saying gross margin is approximately in that 84% range.
Mike Cikos: Thank you very much. I really appreciate all the color. Thank you.
Rukmini Sivaraman: Thank you, Mike.
Operator: Thank you. And one moment for our next question. And our next question comes from George Wang from Barclays. Your line is now open.
George Wang: Hey guys. Congrats on the quarter. I just want to ask about any update on the repatriation trends, especially given definitely macro, are you guys seeing sort of increased repatriation to on-prem, which may benefit your tenants?
