I would now like to turn the call over to your speaker today, Tonya Chin, Senior Vice President of Corporate Communications and Investor Relations. Please go ahead.

Tonya Chin - Vice President of Investor Relations and Corporate Communications

Good afternoon, and welcome to today's conference call to discuss the results of our fourth quarter and full year of fiscal 2020. This call is also being broadcast over the web and can be accessed in the Investor Relations section of the Nutanix website. Joining me today are Dheeraj Pandey, Nutanix's CEO; and Duston Williams, Nutanix's CFO.

After the market closed today, Nutanix issued a press release announcing financial results for its fourth quarter and fiscal year 2020. If you would like to read the release, please visit the Press Releases section of the Nutanix website.

During today's call, management will make forward-looking statements, including statements regarding our business plans and financial target and performance metrics in future periods, the timing and impact of our transition to a subscription business model, the factors driving our growth, the timing and impact of our announced CEO transition plan, the investment by Bain Capital, including the company's plans for the use of proceeds and the timing thereof, as well as any expected benefits thereof on the company's leadership and governance structure, and the current and anticipated impact of the COVID-19 pandemic. 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 detailed description of these factors, please refer to our SEC filings, including our most recent quarterly report on Form 10-Q as well as our earnings and other press releases issued today. These forward-looking statements apply as of today and we undertake no obligation to update these statements after this call. As a result, you should not rely on them as representing our views in the future.

Please note, unless otherwise specifically referenced, all financial measures we use on today's call 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 in the Investor Relations section of our website and in our earnings press release.

Lastly, Nutanix management will attend the Deutsche Bank 2020 Technology Virtual Conference on Monday, September 14, and we hope to connect with many of you there.

And with that, I'll turn the call over to Dheeraj. Dheeraj?

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Thank you, Tonya, and good afternoon, everyone. I hope that you and your loved ones are safe and healthy. I appreciate you joining us today on such short notice. I realize that we had a scheduled call next week, but with all the news we had to share, we thought it best to connect with you as soon as possible. As I speak with you today, I'm filled with a deep sense of gratitude and fulfillment about the year and the decade at large. Earlier this afternoon, in addition to our earnings release, we issued a press release announcing a succession plan around my role, along with news of a significant investment in our business by Bain Capital Private Equity.

Before we talk in detail about our results, I'd like to offer some perspective on these announcements. 2020 has been, for lack of a better word, an extraordinary year. For Nutanix, this has been a year marked by continued progress in our journey to become a pioneer in hybrid cloud infrastructure, a self fulfilling prophecy for a market category best known as HCI. We've also shown deep resilience in a business and an expanded value that our services provide to customers in a rapidly changing and uncertain world. With a focus on innovation and collaboration, we've expanded our customer base, launched a solution bare metal with AWS and successfully continued towards our transformation to a subscription-based business model. While our progress this year has not always come in a straight line due to the global pandemic, I'm extremely humbled by the execution and effort put forth by our more than 6,000 employees around the world to deliver a strong performance in our fiscal fourth quarter.

As the end of our fiscal year approached, I also had the opportunity to step back and consider all that we have achieved. When my cofounders and I started this company 11 years ago, Apple iOS, virtualization beyond test and development workloads and web scale infrastructure using commodity hardware were novel concepts in the enterprise. Thanks to the hard work of so many, both inside and outside the company, that vision to bring an Apple-like simplicity and consumer cloud-like scale to enterprise computing has become a reality. Nutanix has grown from a scrappy start-up to a company with $1.6 billion in annual software and support billings.

With our strong fourth quarter financial results, our future proof business model in subscription and a meaningful seeding of our hybrid cloud strategy, Nutanix is well positioned as a cloud software company in the era of invisible computing. In addition, the recent $750 million investment by Bain Capital, ensures a strong financial foundation to capitalize on the significant growth opportunities ahead. I'm confident, therefore, that there's no better time for a CEO succession plan than now to really shepherd this company through its next decade of growth and success.

I'm proud of all that we've accomplished at Nutanix. It's really been a labor of love. At the same time, getting to this point has meant putting everything else in life on the back burner. In recent months through the lockdown that we've all experienced, I've had the time to reflect and had many conversations with my wife as well as my fellow Board members. And what I have come to conclude is that I need to spend more time with my family and allow myself the space and flexibility to read and write and learn new domains. It simply hasn't been possible while I have been devoted 110% to this company. That being said, I will continue to lead Nutanix while the Board conducts the search for our next CEO. We'll take the time to find the right leader with a strategic vision, a track record of customer success and all the personal qualities we value at Nutanix. Given our robust people foundation and a very loyal customer base, we expect this succession plan to be a natural process of the company's evolution and therefore seamless for both Main Street and Wall Street.

Among other things, a strong balance sheet also ensures that we can cast a wide-enough net to search for a CEO, who can maximize long-term value. That is why I'm so excited to announce a meaningfully large $750 million investment from Bain Capital. This investment will provide us robustness to support and even accelerate our subscription transition, help us compete better and help us remain at the forefront of design and innovation in our industry. As part of this investment, David Humphrey and Max de Groen, Managing Directors of Bain, will join the Nutanix Board upon closing, and we look forward to this newly forged partnership.

Founding Nutanix and being subservient to our customers from day one has been my passion and the highlight of my professional career and I want to thank all the employees, past and present, for helping me bring this idea to life this last decade. I'd like to express my deepest gratitude to my wife and my fellow cofounders for giving me the courage to imagine and help create something out of nothing. As many of you know, Nutanix is coming second only to my family, and I'm extremely proud of what we have built with this monomaniacal focus on commodity powered innovation, from consolidating proprietary hardware with one-click HCI to consolidating data centers with one-click private cloud to now consolidating a myriad cloud with one-click hybrid cloud.

I was telling Max and Dave from Bain Capital these last several weeks of our financing discussions. We have a tremendous payload to deliver in the next one to three years, owing to both the subscription transition with its efficiency payoff and our product portfolio transition with its platform payoff. That payload in the next one to three years and Bain's extensive market due diligence is what drove their conviction for such a large investment. The new capital will give Nutanix the staying power to build on our success of hyperconverged infrastructure and extended to build a new HCI category, hybrid cloud infrastructure.

As we reflect back on the year, our narrative has three distinct and recurring pillars; growth, scale and cash. First, the global pandemic reaffirmed our premise that a lift and shift to cloud, both private and public, is more strategic than ever to businesses around the world. And this, in turn, will continue to drive growth for as long as we keep adding new customers to our flywheel. Second, our subscription transition at scale with our loyal customer base as proven by our industry-leading customer retention, is helping us grow meaningfully as evidenced in our run rate or book of business ACV. And finally, our execution on opex during COVID, both in marketing, sales and in overall expenses, has helped us with both operating margins and free cash flow. Between this opex discipline and the Bain investment, we feel very comfortable about cash for the future.

Speaking of the quarter, Q4 ACV billings grew 13% year-over-year to $140 million. Non-GAAP gross margin reached an all-time high at 83%, up 3 points from a year ago. For fiscal 2020 on a year-over-year basis, ACV billings grew 18% to $505 million. Run rate ACV or book of business grew 29% to $1.22 billion and deferred revenue grew 30% to $1.2 billion. This is a humbling and gratifying end to the fiscal year in a very difficult macro environment. In Q4, we also closed a record high of 68 deals worth over $1 million of TCV, up 19% year-over-year. 13 of these customers also spent at least $1 million with us last quarter. We now have a total number of 17,360 customers worldwide, 920 of which are Global 2000 customers. For Global 2000 customers who have been with us for at least 18 months, their repeat purchase multiple has expanded to nearly 14 times. We also have 1,207 customers with a lifetime spend of at least $1 million, up from 921 a year ago.

A highlight of the quarter, our largest deal with a subscription contract worth nearly $8 million with a global financial services organization headquartered in Australia. This organization selected Nutanix over the competition in their data center modernization journey off of legacy three-tier hardware several years ago. They're now running all of their critical and client-facing apps on Nutanix HCI. They love us because of our reliability and ease of use, and because our software helps them ensure regulatory compliance around disaster recovery. Another great example for company selecting Nutanix for its strategic IT initiative is an existing public sector customer in EMEA. This local government district authority in the UK, a long-time customer, purchased nearly $2 million of our software and services in Q4 to run all of their core applications and use our disaster recovery as a service, Xi Leap, to power their hybrid cloud infrastructure.

Speaking of software and services. Let me underscore our product portfolio and the role it continues to play in the infrastructure market. This month, Forrester once again recognized us as being a leader in the hyperconverged infrastructure wave, notably ahead of other players in the leader segment. Our customers vouch for us in such analyst research because we work the whole body of delivery. A reliable core product that is simple to use, a phenomenal customer service and an innovation engine that they can subscribe to as they consume a well-integrated platform. Because of this platform-driven solutions-focused approach, we continue to see momentum behind adoption of our entire product portfolio in Q4. Specifically, DR-as-a-service, Leap; desktop-as-a-service, Frame; and database-as-a-service, Era products, all had record quarters. In fact, our attach rate for data center, DevOps and desktop services, i.e., products beyond the HCI core, increased to 33% in Q4 from 26% a year ago and now account for 15% of new ACV, up from 12% a year ago.

A great example of a customer who purchased solutions on top of our core software this quarter is a state and local government organization in the United States that selected $1.5 million of our software in Q4 in a deal that included our core software, our invisible hypervisor AHV as well as Frame, Files, Flow and Era. This customer has a lifetime spend with us of $12.5 million and has grown their Nutanix footprint from three nodes in 2014 to over 400 nodes.

This quarter, we also reached significant milestones with our solutions, including our Xi Government Cloud solution achieving FedRAMP authorization, providing our customers with a uniform approach to risk based security management. We announced new capability for Xi Frame, providing strength in security, increased flexibility and broader regional availability for our multi-cloud desktop service. We also launched new solutions that allow IT teams to deploy, upgrade and troubleshoot their cloud infrastructure while working from anywhere, whether at home or from a central office location, something that is even more important now. And finally, we announced a milestone for our Files solution, having reached 2,500 customers globally.

During the quarter, we also reached a significant milestone in our journey to morph HCI from hyperconverged infrastructure to hybrid cloud infrastructure. A few weeks ago, we announced the general availability of Nutanix Clusters on AWS, which extends the simplicity and ease with use of our software to the public cloud. This is a significant step in realizing our vision to make computing invisible anywhere by delivering a singular experience across multiple clouds, public or private. This portability eliminates the complexity of multi-cloud environments with unified operations and seamless app mobility across locations, addressing the key technical and operational challenges of hybrid cloud computing.

Nutanix Clusters ease of use, license portability and networking and data locality architecture are its key differentiators. It allows organizations to build a hybrid cloud in under an hour, including disaster recovery sites, [Indecipherable] applications and data intensive workloads. This architecture and design simplicity make lift and shift of the enterprise's most mission critical workloads, for example, databases, latency sensitive applications and DR sites, imminently one-click. Nutanix Clusters provide customers with the flexibility to deploy any application in any cloud with the added benefit of license portability across public and private locations, which meaningfully protects our customers investment in software infrastructure.

Our subscription journey at scale is another important area that I'd like to highlight. In Q4, 88% of our billings were from term based subscription contracts. Starting Q1, this new fiscal, we began to align our sales forces incentives to ACV goals, similar to what we had done with TCV goals when we moved from hardware appliances to software. I'm very excited about the possibilities this new phase of our transition brings to our business model and our go-to-market efficiency. More on this from Duston later.

Another factor that drove our results for the quarter and throughout the year was continued focus on all things digital to help our opex. Like many technology companies, our global employee base is still largely sheltered in place due to the pandemic. As I mentioned last quarter, we have moved the marketing and sales efforts to be predominantly digital. We've doubled down on Test Drive, a seminal digital initiative within the company to enable our prospects to experience our entire solution portfolio with a zero-touch, self service, Google Cloud powered platform. The same low to no touch digital experience is showing in our ability to prospect and sell with virtual meetings throughout the world.

The ability to pull off an entirely virtual mega marketing event will be put to test between September 8 through the 11, when we'll have the biggest customer event of the year, our.NEXT event. I encourage all of you to join us remotely. A link to register for free can be found in our earnings press release..NEXT have been completely reinvented to provide an online interactive experience that includes the visionary keynotes our customers and partners have come to expect as well as hands-on technology sessions and the ability for attendees to interact and learn with us.

Before I turn over to Duston, I'd like to say that it's been an honor to lead this insurgent company over the past decade. Our people have built a unique company that is obsessed to our customers and demonstrated that operating system software can be built from scratch even in the presence of large well-funded incumbents. We've come to be known as one of the most customer-centric, design-oriented, empathy-driven cloud software companies in the world. I know that my legacy will continue as I pass the baton in the coming quarters. There's a mark of pride I feel in having led the team from $0 billion to $1.5 billion plus in annual billings in 10 plus years, and I'm very confident that we'll continue to build on this success this coming decade. With an envious customer loyalty scorecard, a delightful platform that will make hybrid clouds elegant and a strong balance sheet to fund our transition and navigate this upcoming economic recovery, Nutanix is a company to watch for this decade.

Now I'd like to turn this over to Duston for him to elaborate on how we plan to cautiously navigate this ACV transition during a highly uncertain macro environment, albeit as a fully capitalized company for the future. Duston?

Duston Williams - Chief Financial Officer

Thank you, Dheeraj. Despite Q4 being another quarter that was impacted by significant macro uncertainties, the Nutanix team delivered a very solid quarter that included all-time highs for ACV billings, gross margin, a number of $1 million deals, along with improved free cash flow usage related to a continued focus on operating expense controls. Although, we did not provide guidance for Q4, all operating metrics significantly exceeded the current street consensus based on 18 sell-side analyst estimates. Almost all of the business is now subscription based. Subscription billings now account for 88% of total billings, up from 84% in Q3, and subscription revenue now accounts for 87% of total revenue, up from 82% in Q3. On a billings basis, the average dollar weighted term length in Q4 '20, including renewals, was 3.8 years, same as in Q3 '20 and down from 3.9 years in the same quarter a year ago.

Now a few things on our ACV based focus going forward. As we enter our new fiscal year, as we have previously communicated, we will fully shift our goals and objectives from a TCV based focus to an ACV based focus in order to reduce average contract durations across our book of business. Our experience over the last few years has clearly shown that reduced contract durations enable us to achieve more attractive customer economics and reduced discounting without materially harmful effects in terms of churn.

As I'll discuss in more detail, there are some short-term trade-offs that we are going to have to make in order to achieve this ACV based focus. But ultimately, we believe these will be justified in the long-term in terms of growth and operating leverage. A few of the biggest changes associated with this ACV based focus will be, changing our top line guidance metrics from TCV to ACV billings, a renewed focus on run rate ACV representing our total book of business; and moving to an ACV based sales comp plan, reducing the incentive for our salespeople to sell long-term contracts that oftentimes come at the expense of higher discounts. We have spoken for quite some time that ACV billings as a metric is not impacted by change in term durations and therefore, along with run rate ACV, are the two most appropriate growth metrics to use to analyze the fundamental health of the business. Starting in Q1, we will only provide top line guidance based on ACV billed in the quarter. At some point in the future, it may be more appropriate to shift the focus of the guide to run rate ACV.

For definitional purposes, run rate ACV which would be analogous to ARR or annual recurring revenue metric if we were a completely ratable business, projects the book of business that would be realized in any upcoming 12 month period, assuming no new business, no upsell and no churn. In a subscription business with low churn like ours, run rate ACV is a book of business that grows with additional new business and compounds over time with strong upsell. Now that our subscription related billings have become almost all of our billings, we will renew our focus on run rate ACV. The shift to ACV billings guidance is very analogous to when we shifted from guiding to total billings and total revenue to guiding to TCV billings and TCV revenue. Total revenue in billings lost significance and became excessively volatile as we were eliminating hardware from our revenue stream. Similarly, now TCV billings and TCV revenue have lost significance and become excessively volatile as we intentionally look to reduce term duration across our book of business. TCV is impacted by term compression. ACV is not. Therefore, ACV billings is the appropriate guidance metric going forward.

And lastly, we are very excited about our move to ACV based sales compensation. On August 1, the start of our new fiscal year, we officially moved to an ACV versus TCV based sales compensation plan, where sales commissions are now tied to ACV amounts regardless of the length of the initial deal. We believe this is a very important milestone for the company based on the following factors. ACV based comp will enable the sales reps and the company to share similar objectives, maximizing ACV billings and minimizing discounts with no regard for contract duration. Under the prior TCV based compensation plan, which was appropriate for our previous non-subscription business model, the company wanted to minimize discounting while the reps were focused on maximizing TCV billings, often through longer term contract durations achieved through higher discounting and lower ACV billings. Going forward, under the ACV comp model, the reps will be incentivized to maximize ACV billings and minimize discounts, exactly what the company wants to.

The move to ACV based sales comp should improve discounting as a result of better deal terms on shorter term lengths, all of which maximizes ACV billings going forward. In addition, the gradual shift to shorter term one and three year deals will also put us in a better position to reap the efficiency benefits from the lower sales costs associated with renewals. Since we pay lower commission rate on renewals versus new ACV billings, we should benefit as a percentage of business coming from renewals increases significantly over time. And lastly, we believe the move to ACV based sales comp will create a renewed focus on the sales of our new products. Many of our new products have shorter term lengths, and were naturally disadvantaged in an environment that favored maximizing TCV. In an ACV world, new products should become sales reps new best friend. There are clearly significant benefits associated with the shift to ACV based comp plans and with our overall ACV focus. We believe that ACV billings growth will accelerate, discounting will improve and the efficiencies of renewals will happen sooner and more often, all eventually lead to increased sales and marketing leverage in the future. This is clearly the right business decision for the company.

Now as I've previously communicated, this focus on ACV will compress deal terms over time. During this period of term compression, investors should expect and model for negative impacts to billings and revenue, operating profit and free cash flow in the short-term with the benefit being maximizing ACV billings and strengthening the operating model in the future. From a modeling perspective, for every one-tenth of a year decrease in average term duration, you should expect about a $40 million annual decrease in billings and free cash flow in the year that follows. To help fund our move to an ACV first-based focus as well as significantly bolstering our overall liquidity position, we are thrilled to welcome Bain Capital as a significant new investor. We have discussed this model shift to ACV with Bain in great detail, and they are fully supportive of this approach and are excited to help support us in this transition.

Now a few specific Q4 financial highlights. ACV build in the quarter was $140 million, up 13% from the year ago quarter. Run rate ACV as of July 31, 2020 was $1.22 billion, up 29% from the year ago quarter. TCV revenue for the fourth quarter came in at $326 million, up 14% from year ago quarter, and TCV billings were $387 million, up 8% from the year ago quarter. We added to backlog during the quarter. New customer bookings, which continue to be impact by COVID-19 restrictions, represented 19% of TCV bookings in the quarter versus a similar amount in Q3 '20. TCV bookings from our international regions represented 48% of total bookings versus 45% in Q4 '19. It is important to note that the Americas region is now experiencing more negative impacts from COVID than our other regions. APAC and EMEA were hit hard by COVID earlier on and have progressed through the pandemic a bit quicker as of the end of July than what we are currently experiencing in the Americas region.

Our non-GAAP gross margin for Q4 was 83%. Operating expenses were $346 million. The downward trend in expenses are a result of an ongoing hiring pause, reduced travel, one week of furlough as well as overall expense management. Our non-GAAP net loss was $79 million for the quarter or a loss of $0.39 per share. For fiscal 2020, on a year-over-year basis, ACV billings were $505 million, up 18%, TCV billings were $1.56 billion, up 10%, and TCV revenue was $1.28 billion, up 14%. A few balance sheet highlights. We closed the quarter with cash and short-term investments of $720 million versus $732 million in Q3 '20. DSOs in Q4 were 67 days versus 67 days in Q3 '20. And free cash flow during the quarter was negative $14 million. This performance was positively impacted by $10 million of ESPP inflow in the quarter.

Now turning to our Q1 '21 guidance. It is important to note that our Q1 guidance, like many companies, is clearly impacted by the uncertain macro environment due to the ongoing pandemic. Additionally, this is our first quarter operating under ACV based sales compensation and ACV based sales quotas. It is also the first quarter that our sales personnel have provided their outlook on an ACV basis versus a TCV basis, which are two fundamentally different processes. Therefore, there are some sources of conservativeness built into our ACV billings guidance for the quarter.

The specific guidance for Q1 is as follows: ACV billings to be between $118 million and $121 million, gross margin of approximately 81%, operating expenses between $350 million and $360 million and weighted average shares outstanding of approximately 204 million. The ACV billings guidance shown above, when converted to total billings in combined with the gross margin and operating expense guidance, should result in an operating loss, which is meaningfully lower, i.e., better, than the current street consensus estimates of $125 million. Additionally, as mentioned previously, the run rate ACV grew 29% year-over-year in Q4 '20. We would expect run rate ACV to grow in excess of 20% year-over-year in Q1 '21. Due to the uncertain macro environment, we will not provide annual guidance at this time. And lastly, to help you with your modeling efforts, included in our earnings presentation on our IR website are historical trends for ACV build in the quarter, run rate ACV, billings term length and a bridge on how to model and convert our current and future ACV billings guidance to total billings.

With that, operator, you can now open the call up for questions. Thank you.

Question & Answers

Operator

[Operator Instructions] Your first question comes from the line of Jack Andrews with Needham. Your line is open.

Jon Andrews - Needham & Company - Analyst

Great. Thanks for taking the question and congratulations on all the news today. I wanted to zero in on the opportunity around Xi Clusters on AWS, if I could. Just maybe a two-part question around that. First, is this a move towards more of an elastic consumption model, perhaps for more of your offerings over time? And secondly, could you discuss what types of workloads you're targeting with this? Would this be Tier 1 workloads or perhaps things that are more ephemeral in nature?

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Thank you Jack. Great question. Yes. So on the first one, the idea is to really make our licenses portable. Just like we did on-prem. We said we could move licenses from one server to another, one hypervisor to another, so it could be cross-platform. And we're trying to apply the same concepts between on-prem and off-prem. So people can build like DR sites in less than an hour, can spill over the desktops, burst over their desktops into the other side. And it's not a separate silo of a spend. If they have gone from licenses that are, let's say, a year or two or three years, and they still have some terms left in that, they can just take that over to the public cloud as well. So that's very unique about the concept of portable licensing, which we think is one of the biggest differentiators of what we think hybrid cloud should be.

And to your second question. We are really focused on enterprise-grade workloads. Low latency, IO-intensive, things that IT ops have built over time in the last 10, 15, 20 years that shouldn't really be refactored or rewritten. Go back 15 years, the very value of virtualization was no change to the app, no change to the operating system. And that's what really made virtualization so successful. We want to be able to do the exact same thing, no change to the app, no change to the operating system. And many of these were really low latency, very high IO intensive workloads.

Jon Andrews - Needham & Company - Analyst

Great. Really appreciate the clarity around that. Just as a quick follow-up. Can I ask if there's any update you could share regarding the progression of your partnership with HP?

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Yes, quite a bit. I mean, last year, 1.5 years, I think we've done a really good job with them. There is a lot of progress that we have made in terms of diversifying our platform, not just Supermicro and Dell and Lenovo, but also HP. And I think in the last three months, we've been really going deeper on the GreenLake side where we would use the GreenLake offering for our disaster recovery as a service as well, which is our Leap offering. So I think all in all, everything looking really good with them, quality with them. And equally with Dell too actually, I think what we're doing with them on the OEM side has been very future - proof and future-looking. And finally, Lenovo has done a tremendous job with VDI and the desktop offering as well.

Jon Andrews - Needham & Company - Analyst

Great. Thanks and congratulations again.

Operator

Your next question comes from the line of Mehdi Hosseini with SFG. Your line is open.

Nicholas Ghattas - Susquehanna Financial Group - Analyst

Hi. Thank you for taking the question. This is Nick on for Mehdi. So just looking at the industry over the last quarter, I'm curious to hear about how conversations with customers focused in terms of thinking about business continuity issues versus the long-term digital transformation. I assume that business continuity continues to be a much more urgent topic of conversation, but also curious to see whether conversations have shifted to more long-term transition? And I have a follow-up.

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Yes. If I were to understand your question correctly, business continuity is the end, digital transformation is the means to that end. Like disaster recovery. If you can quickly spin it up in let's say, AWS, now you don't need to really own a site on the other side which is hardware, facility floor, all that stuff that people used to have, which was underutilized. Now if you want to just spin up a DR site, you can do this in AWS. And it's highly unpredictable workload. So why would you actually own that if you could rent it? So there's some great use cases to emerge from what we're doing with hybrid cloud infrastructure, the new HCI. And business continuity of end users is around desktops. Desktop-as-a-service is a huge promise over the next three to five years.

Enterprises woke up. They were not well-prepared for business continuity of the digital workload. There's business continuity issued in the factory side, too. I mean, there's a ton of work that we're doing with so many companies at the edge with SAP HANA and Rockwell, Honeywell, all sorts of Siemens, many different kinds of application rented [Phonetic] would there be edge as well. We're really trying to make a cloud-in-a-box possible with zero intervention, hands-free IT, everything being done centrally. And most importantly, if there's a thing to stream to a public cloud, like, for example, disaster recovery sites, you can do that as well.

Nicholas Ghattas - Susquehanna Financial Group - Analyst

Right. Maybe just to rephrase the question or to shift a little bit. Last quarter, VDI solutions made up about 27% of bookings. And obviously, due to the pandemic and everyone shifting to work-from-home, your suite of solutions catering to work-from-home has become a lot more necessary for business continuity. Maybe an update on VDI and what business continuity looks like in the - in terms of work-from-home and COVID?

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Yes. Absolutely, I think as I mentioned in the latter half of my answer, desktop-as-a-service is a big deal. Virtual desktop infrastructure, what we're doing with Citrix as well, I think has become very important, because people just want to plug and play and burst out their existing seats. I mean, the enterprise is only 30% penetrated before COVID when it came to virtual desktops. Virtual desktop before COVID used to be 18%, 19% of our business. Between last quarter and this, it's between 23% and 27% of our business. So it's definitely grown, and we feel like that's a great workload to go after, especially with new customers. Even in the commercial space, we are looking for business continuity as a competitive advantage.

Nicholas Ghattas - Susquehanna Financial Group - Analyst

Okay. Just to clarify, that is 23% of bookings in the quarter?

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Duston, can you please confirm?

Duston Williams - Chief Financial Officer

Yes. Yes, 23%. Historically, it's run 18% to 22%. Last quarter, 27%. So it's come down a little bit, but within kind of historical ranges.

Nicholas Ghattas - Susquehanna Financial Group - Analyst

Perfect. Thank you so much and congrats again.

Operator

Your next question comes from the line of Rod Hall with Goldman Sachs. Your line is open.

Rajagopal Kamesh - Goldman Sachs - Analyst

Hi. This is RK on behalf of Rod. Thank you for taking my question. Nice job on the results. And Dheeraj, congrats on building the company to where it is over the years. I wanted to ask about the Bain Capital investment. Could you talk about why now and why structure it in this particular way?

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Yes. First of all, great question. The way we look at it is that this ACV transition is a pretty big deal for the company in the next three years. And we definitely need to look at what does it mean to not borrow money from the customer, which is what long-term contracts, collecting all that from the customers upfront would mean. And also, at the same time, see - we could switch the renewals sooner because renewal's cost of sales is much, much lower. So we were going after the ACV transition. We were going after shortening term lengths. We would have collected less from our customers. And we needed to raise capital just for that alone. So with that, I would also like Duston to probably add some more to this, and we'll come back to the question of why it's structured like this.

Duston Williams - Chief Financial Officer

Yes. So I've been very vocal over the last, I think, couple of months as far as the power of this ACV focus and what it's going to do to cash and things like that and that we highly likely go do some type of financing vehicle in the next several months or somewhere around there. So that's exactly what we've done. And we had effectively two choices here. The conventional route would have been a convertible - public convertible in the market today. And we could have done that very quickly and raised a lot of money, but from our perspective, that would have been a bunch of effectively faceless investors that bought at instruments, but we really didn't have any contact or interaction with.

And going through this type of transition, I just think having somebody like Bain Capital involved in this, that obviously has been through an immense amount of detail of our business model. They understand the power of the model that we've done for subscription, the $2.2 billion that we've sold in subscriptions over the last two years that basically hasn't renewed yet and what that business model looks like and the power of the efficiencies and things like that. So now we have a partner that's going to help us through this transition and help us think through the transition and play that role. And I think we're very fortunate to have somebody step up with $750 million, putting their name down and believing in what we've done from a product perspective and what the business model can do.

Now one of the obvious questions is, this is so expensive, right? Why didn't you just do the public convert? And the reality is that the $27.75 conversion rate, compared to a competitive public convertible with 100% call spread, so double the premium, this transaction at $27.75 is roughly 3.5%, 4% more dilutive. And I think what we're getting with this investment, the folks at Bain Capital, which have come up on our model very quickly, they understand it inside and out, I think when it's all done, we'll be happy, very happy to take that additional dilution. And don't forget, they don't make money unless the stock goes up, and so we're all in this together. And I think, again, we're just fortunate to have the partnership.

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Thank you Duston. And I think the only last thing I'll add to this is that it also provides a great platform for searching for a great talent, great CEO, great leader for this company going forward.

Rajagopal Kamesh - Goldman Sachs - Analyst

That's very helpful color. And as a follow-up, Duston, I wanted to ask about ACV. I mean, it makes a lot of sense that you announced switching your focus to ACV. But just from a guidance point of view, could you give us some color on the term length so that we could use that to get into revenues for our models? And then along with that, could you also talk about - could you give an update on what's the difference in margin structure for new sale versus an upsell or a renewal contract?

Duston Williams - Chief Financial Officer

Yes. So on the modeling question, I would - I think it's actually Slide 11 in our earnings investor deck. I would highly suggest that you go take a look at that, all investors take a look at that. We've done kind of a one-time example that we've kind of opened up exactly with the terms, and we bucket it by TCV dollars and how do you go from TCV to ACV. All the terms are there, one year or less, through seven years, the conversion ratio. So it gives you a great starting point now that you can aid - not only understand the current quarter, but now you can kind of play with those buckets of terms and say, how - what do I think terms are going to go down? What's going to be the impact of TCV? And things like that. So I think that will be very, very helpful. So I think it's Page 11. It's 11 or 12 or something.

On the cost, I think the real question is what's the cost of a renewal. And again, today, we don't have much because we've averaged four year terms, as you'll see in that slide deck. We do, do one year terms. But the $2.2 billion that we've sold over the last two years has effectively not renewed. And so the question there is what does that renew at? What's the cost factor that renews at? And we believe and we need to work through this a little bit, and Chris is setting up a small structure of internal folks to go help sales reps and whatever look at this - it should be 85%, 90% more efficient certainly than new business. And don't forget today, so vast majority of our business since day one has always been new and upsell. And new and upsell, it's high cost and it's high risk. And over time, as these renewals start flowing in, the dependency on growth goes from that high risk, high cost new and upsell to low risk, low cost renewals. And that's the whole thesis here that we've been talking about, and those should come in at a pretty good efficiency factor.

Rajagopal Kamesh - Goldman Sachs - Analyst

Great. Thanks guys.

Operator

Your next question comes from the line of Simon Leopold with Raymond James. Your line is open.

Simon Leopold - Raymond James - Analyst

Great. Thank you. I appreciate you taking the question. You talked a little bit about the Bain deal so far, but I wanted to see if maybe you could dig into some of the history of this arrangement. Did you approach them or did they approach you? And maybe some of the background or backstory of what led up to this particular arrangement other than your respect for them as a private equity firm?

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Yes. I can take this, and Duston, you should please take it from me as well. So Duston had talked about this - started talking about this publicly, probably a quarter or two ago, about how we'll go and raise some money and we need to do this because we have to fund the transition. We are kind of two-thirds of the way, but we still have another third to go with the sales comp chain itself and shortening terms is an important piece of that.

So as part of that - and we know people know the value of Bain Capital, too, because they're a full-service organization, from venture capital and [Indecipherable] to all the way to private equity. And we felt comfortable when they reached out. They understand growth just as much. Max and Dave are phenomenal people. The more we got to know them, the more we gained their respect, that they're going to look at the thesis, and they embraced this quickly that we're going to take this from hyperconverged infrastructure to hybrid cloud infrastructure.

I think there was a meeting of the minds that happened over a matter of two months of just back and forth in Zoom. And obviously, we never shook hands ever. We haven't met in person, but what has come about virtually in this last two months has just been phenomenal. So we look forward to them as they look at their own spectrum of investment, all the way from [Indecipherable] investments and the value. Enrique is somebody that I've known for a while. So I have a ton of respect for Enrique. But meeting Max and Dave recently has just given me another level of expect for that firm as well.

Simon Leopold - Raymond James - Analyst

And just as a follow-up, perhaps if you could talk to how the sales force compensation, I understand it's changed. But as a salesperson, are they now making more money or making less money? Trying to get an appreciation for how your sales force is reacting to this change? Thank you.

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Yes. I think there was - sorry, go ahead. Yes, please. Go ahead now.

Duston Williams - Chief Financial Officer

Yes. You can chime in, too. Sorry. Effectively, they make the same more - they'll make more if they sell more, obviously. But I mean, right out of the shoe [Phonetic] we've just converted as far as what they've been doing on TCV terms and converting that to ACV. So the objective there was to keep everybody whole with this conversion from TCV to ACV. Now again, on the renewal flow, those will be comped at 90% more efficient than the initial transaction from a commission perspective, but it was set up so there would be no penalty from a comp perspective just because of this change. And I think there's probably more upside certainly than there is downside because now they've got more tools to play with. And again, a rep should be completely indifferent from selling a one year deal now as opposed to what they were trying to do to sell maximum TCV and term lengths. So now they can focus on one year deals if they want, they've got a good three year deal, etc. So I think there's a bunch more flexibility there from a selling approach. Dheeraj, maybe you want to add something?

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Yes. Yes, I mean, I guess we've gone through this when we went from hardware to software almost 2.5, three years ago, when the sales comp changed. And if anything, the other thing is that the market force is upon us. People have stopped doing five year cloud deals. Most good cloud deals are three year deals. So they are seeing this from their customers as well. So I think we couldn't have had this artificial thing about go sell - take TCV for five years or seven years if the market is moving to three years.

Duston Williams - Chief Financial Officer

And just one follow-up on the Bain question, stuff like that. I just want to make sure there's a clear understanding here. This is not a cost-cutting exercise. This is how do we partner up and scale the business in an efficient manner. That's what it is. It's not a cost-cutting. We'll keep the same focus on products and the customers and partners and things like that.

Operator

Your next question comes from the line of Matt Hedberg with RBC Capital Markets. Your line is open.

Daniel Bergstrom - RBC Capital Markets - Analyst

Yes. Thanks for taking our question. This is Dan Bergstrom for Matt Hedberg. You touched a little bit on this in the prepared remarks with the Americas lagging. But anything to note from a geography, customer size, vertical perspective as states and countries go through their various stages of lockdown and reopenings here?

Duston Williams - Chief Financial Officer

You want to take that, Dheeraj?

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Duston. Yes, go ahead, and I'll chime in later.

Duston Williams - Chief Financial Officer

So Americas is just - as you - as we all know here, it's a tough environment. And APAC was kind of first to go through this, and things have gotten certainly better there. There's some interesting potential deals brewing in APAC. We'll have to see how that goes. EMEA had a good quarter for us. Americas is doing fine, but again, it's mostly certainly around new customers. It's very difficult because, again, on existing customers, they know the product. They usually love the product. You've got established relationships. So that, in a virtual environment, is much easier than trying to establish relationships and knocking down new business. So - and probably some of the bigger deals, maybe they get cut down a little bit and things like that, but Americas is still a little tough, I think. From what you see now, it looks like cases are starting to come down and things like that, and people are getting a little smarter. So I think that opens up eventually here. But it's 60%, 65% of our business in a given quarter, so that puts a little constraint on things. But the product is doing well. It's not a product thing. It's not a sales execution thing at all.

Daniel Bergstrom - RBC Capital Markets - Analyst

Great. Helpful. Thanks.

Operator

Your next question comes from the line of Jason Ader with William Blair. Your line is open.

Jason Ader - William Blair - Analyst

Yes. Thank you. And Dheeraj, I'm sure this is bittersweet for you. I know you've always said you'd walk away at the right time. So kudos to you for keeping your word, and you should be proud of what you've built.

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Thank you. Thank you, Jason. I remember this question coming from you almost a year ago, and I'd given you some answer there. Thank you. Thank you for the praise, Jason.

Jason Ader - William Blair - Analyst

Yes. You kept your word. Duston, some fun guidance questions for you. Number one, will you be providing revenue guidance or just ACV billings?

Duston Williams - Chief Financial Officer

Just ACV billings because, again, revenue, you want to call it billings revenue, whatever you want to call it, it depends on terms, right? And ACV, again, doesn't care about terms. That we can go figure out easily, but I can't - I put it in the remarks there, I just can't tell you if terms are going to come down two-tenth this quarter, are they going to go up one-tenth or whatever. They're going to go down over time. I guarantee you that, but I can't give you an exact precision. I think, at some point, what we owe investors is a little bit longer term view of what we believe terms will do when that flushes and when it comes back and then the renewal flows and things like that because it's a very powerful story. It really is. So we need to think through that at some point in time, but now we're just going to stick. And again, I've shown you on that - in the earnings deck there how it works, and I think you guys can put a model together pretty easily.

Jason Ader - William Blair - Analyst

So the 3.8 years is where it is today, do you think that gets down to like, what, three years? I mean, like by the end of fiscal '21, can you give us some ballpark?

Duston Williams - Chief Financial Officer

Personally, we'll see because we're only one month into the comp here. But I think the important thing to understand here, and round maybe by one-tenth or so, but effectively, new customers and existing customers in aggregate have about the same term structure, okay? So that's one data point. And the other data point is, as you know, existing customers make up, call it, 80% of the total business. New customers make up 20% of the total business. So I can see - and we've done this in a matrix. I can see the new customer, potentially, those terms coming down faster than the 80% of an existing customer because, again, from an existing customer perspective, we can't go to an existing customer and say, hey, would you like to do a three year term for the same price? It doesn't work that way. So we have to go have a discussion with the reps, maybe you want to do three year deals, maybe you'd want to commit to five years. Maybe you'd only want it to pay for three years instead of five years and make that commitment. But by the way, with that three year term comes an uplift or uplift in your price and reduced discounting.So I don't - I think there's some natural governor there because of that structure. But again, we're one month into this. I do think, and we'll have to see how this plays out, newer products, whether it's Era, Flow, Calm, whatever, Files, tendency to have shorter terms. So can that drag terms down a little bit, the new product? I don't know. But I would be personally very surprised if they ended at three by the end of the year.

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Yes. I just want to say that…

Jason Ader - William Blair - Analyst

Sorry, Dheeraj. [Indecipherable]

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Yes. I think definitely, it's not going to come to three years, as Duston said. There's enough push and pull from the market forces, too. I mean, there's large customers who have a capex appetite. They want to flush their budgets to the end of the year. Infrastructure is probably the first layer of software above hardware. They want to sweat it out a little bit. So I think there's going to be a ying yang here where we believe that it won't really just go rock bottom to three or something right away. Gradually, this is going to happen. I think this was true for hardware to software. It's going to be true for - going from five years to three years as well. And none of our salespeople want to just go do negotiation every year with a one year contract. It's just horrible for them. I think they need a lot more of that trust commitment from our customers, which is why the cloud has landed at three year commits as opposed to monthly billing and one year kind of stuff.

Jason Ader - William Blair - Analyst

Got you. All right. Thank you.

Operator

Your last question comes from the line of Alex Kurtz with KeyBanc Capital. Your line is open.

Alexander Kurtz - KeyBanc Capital Markets - Analyst

Thanks for taking the question. And likewise, to what Jason just said, Dheeraj, it's been quite a run. I remember when I first met with you in your original office and busted into the room, it's been quite an accomplishment. And I'm sure we'll talk more as the months go on here. Duston…

Dheeraj Pandey - Founder, Chief Executive Officer & Chairman

Thank you.

Alexander Kurtz - KeyBanc Capital Markets - Analyst

Yes. Duston, just on the dollar based expansion rate that we see in the slide deck here, how much is that - the 133% to the 125% move have to do with the current macro? Are there other factors here which you're thinking about? And then I have another follow-up question.

Duston Williams - Chief Financial Officer

No. I mean, it's - I don't think many companies are even at 125%. That's the first thing. So 125% is really, really good. And there's no really other factors in there. Our churn, the way we calculate churn now with kind of a hybrid subscription base, it's 96% or so and things like that. So there's nothing else significantly going on in there.

Alexander Kurtz - KeyBanc Capital Markets - Analyst

Okay. So just the prior year as a whole, but I mean, yes, 125% is a great number. So the prior year is elevated for whatever reason.

Duston Williams - Chief Financial Officer

Yes.

Alexander Kurtz - KeyBanc Capital Markets - Analyst

You mentioned the $0.1 million to $40 million conversion, right, on the billings hit from the reduction in duration. Is that - can I back into that somewhere in the deck that you provided? Or what are the underlying assumptions on that? If there's a little more detail there.

Duston Williams - Chief Financial Officer

Yes. It's pretty easy. It's just in the following year. So that would be the full year impact. I can bring you through the math. It's relatively simple from that perspective. You got a top line and just play with the terms and things like that. So I think once you set up that model, based on our structure, it becomes pretty easy, but I'll be glad to spend some more time with you.

Alexander Kurtz - KeyBanc Capital Markets - Analyst

Okay. All right. Thank you.

Operator

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Q4 2020

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