Nutanix (NTNX) Posts Narrower Loss in Q2, Revenues Up Y/Y

Nutanix Inc. NTNX reported second-quarter fiscal 2018 loss of 14 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 21 cents and year-ago quarter’s loss of 16 cents.

Revenues surged 43.9% from the year-ago quarter to $286.7 million. The figure surpassed the Zacks Consensus Estimate of $283 million and also management’s guided range of $280-$285 million.

Product revenues surged 41.1% year over year to $223.2 million, while support & other services revenues jumped 55.1% to $63.6 million.

Notably, the company has stopped recognizing pass-through hardware related revenues. In the quarter, Nutanix didn’t recognize $14 million in pass-through hardware revenues.

Americas, Europe, Middle East & Africa (“EMEA”) and Asia-Pacific including Japan (“APJ”) contributed 61%, 18% and 21% of revenues, respectively.
 

Nutanix Inc. Price, Consensus and EPS Surprise

Nutanix Inc. Price, Consensus and EPS Surprise | Nutanix Inc. Quote

 

Billings were up 57% year over year to $355.9 million (29% from new customer, 71% from existing customers). Software accounted for 42%, Support 35% and the remaining 23% came from the hardware portion of the business. Software and support billings climbed 60% on a year-over-year basis.

Customer Base Expansion Continues

Nutanix added 1057 customers taking the total end-customer count to 8,870 at the end of the reported quarter. Number of deals, worth more than $1 million, jumped 104% year over year to 57.

The company booked 19 software and support deals worth more than $1 million. Of this, five were worth more than $3 million and three were worth more than $5 million. All three of these were Global 2000 (G2K) customers.

Notably, Nutanix’s number of G2K customers increased by 34 to 642. Moreover, 32 G2K customers are spending more than $1 million and five are spending more than $5 million. Further, 12 of the top 15 deals in the second quarter were with G2K customer base.

It now has 57 customers with over $5 million in lifetime bookings, 18 customers with over $10 million in lifetime bookings, and 10 customers with more than $15 million in lifetime bookings.

Bookings from international regions were 49% in the quarter, up from 48% in the year-ago quarter. New customer bookings represented 34% of total bookings.

Bookings were driven by strong contribution from Dell and Lenovo. Dell bookings were slightly less than 10% of total bookings in the quarter. Lenovo included four deals greater than $1 million.

Management stated that relationship with International Business Machines IBM is still in early stages and progressing within its expectations. The company booked first two initial IBM related deals during the quarter.

Cisco CSCO UCS related bookings increased over 40% sequentially and included deals worth $2.5 million and $1.5 million.

Product Release

During the quarter, Nutanix launched product version 5.5, biggest software release in its history. Noteworthy features include single node clusters, software based encryption, graphics and NUMA virtualization for the company’s native AHV hypervisor, real-time replication, self-service portal in Calm for DevOps, antivirus support in software-defined file services, AFS and cross-hypervisor migration.

Calm has gained significant traction within a short-span of time. In the second quarter, seven customer deals involved Calm, including one of the top deals of the quarter with a G2K customer.

Software-Centric Transition to Boost Gross Margin

Non-GAAP gross profit soared 44.6% year over year to almost $126 million. In second-quarter, non-GAAP gross margin expanded 30 basis points (bps) from the year-ago quarter to 63.5%. The figure matched the high end of management’s guided range of 62.5-63.5%.

Strong growth can be attributed to Nutanix’s focus on becoming an enterprise cloud operating systems company.

Notably, the company has stopped recognizing pass-through hardware related revenues. Per management, legacy appliance manufacturers are now able to directly sell the company’s branded hardware to distributors, without its involvement. This will eliminate almost 80% of pass-through hardware related revenues over the next 12 months.

Nutanix will now focus only on software portion of the business, which will positively impact gross margin.

Most operating expenses fell in the quarter. Research & Development (R&D) expenses, as percentage of revenues, declined 240 bps to 18.8%. Sales & Marketing (S&M) expenses and General & administrative (G&A) expenses, as percentage of revenues, fell 90 bps and 40 bps from the year-ago quarter to 47.1% and 4.7%, respectively.

As a result, operating loss narrowed to $20.2 million compared with a loss of $21.9 million in the year-ago quarter.

Acquisition

Nutanix announced that it has signed a definitive agreement to buy Minjar, the developer of Botmetric, an elegant service built for the AWS marketplace. Botmetric help customers with unified cost control and enhanced operational insights into their workloads running in public clouds.

The company expects Botmetric will enable customers to embrace multi-cloud architectures, giving cloud operators the freedom to choose the best environment for their business applications in data.

Moreover, management stated that Minjar strengthens Nutanix’s automation and lifecycle management offering Calm and Xi Cloud.

Balance Sheet

Nutanix exited the second quarter with cash and cash equivalents of $918 million, up from $366 million in the first-quarter. The cash balance includes approximately $509 million in net proceeds raised during the quarter through its five-year convertible senior notes offering.

Nutanix generated $46 million in cash flow from operations in the second-quarter, which was positively impacted by $12 million of ESPP funding. Management generated $32 million in free cash flow during the quarter.

Guidance

For third-quarter fiscal 2018, revenues are projected between $275 and $280 million, reflecting almost 35% growth on a year-over-year basis. The company will eliminate approximately $45 million of pass-through hardware revenues during the quarter.

Nutanix assumes a bill-to-revenue ratio of approximately 1.2.

Non-GAAP gross margin is projected between 67% and 68%. Management believes the best metric to measure progress during the transition period to a software centric model is gross profit dollars and growth in gross profit dollars.

Moreover, management forecasts operating expenses between $218 million and $220 million.

Nutanix forecasts non-GAAP net loss between 19 cents and 21 cents for the quarter.

Zacks Rank & Stocks to Consider

Currently, Nutanix has a Zacks Rank #3 (Hold).

DXC Technology DXC is a stock worth considering in the same sector carryng a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term growth rate for DXC Technology is currently pegged at 10.50%.

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