NTNX 3Q2018

Investment Analysis Clubs Saul’s Investing Discussions
21

NTNX took some unfair and uneducated flack for its operating income guidance next quarter which now I understand is for 2 very very positive reasons that are clear in this presentation:
https://seekingalpha.com/article/4177051-nutanix-2018-q3-res…

  1. Their operating cost base is not just bench pressing 41% of revenue growth but 50% growth in total billings and 67% in software and support billings (an acceleration from 30% growth a year ago), which has taken the deferred revenues amount to $540m up 62% YoY and up 13% sequentially - so their cost base is not just securing $289m in revenues (latest Q3) but a net additional $62m in deferred revenues

  2. The switch from hardware to software is accelerating next quarter from 25% of sales a year ago to 17% this Q and dramatically dropping to 9% next quarter. Hardware sales are zero margin which in a negative margin business actually improves the margin. If you take zero margin sales out in one go (next quarter) it will dilute the margin to a negative direction rather than positive direction - but this is a once off event as from there it tales off to 7 and then 5%

Next quarter is effectively the quarter that the Nutanix business model turns the corner at peak velocity which yes produces some skid marks but this isn’t looking like it will come off the road - it looks totally under control to me.

I topped up yesterday and with the 5% drop on the day am going to top up again Monday in all probability if it opens level or down.
Ant

15 Likes
22

Maybe I overlooked it, but did management give any update as to when they expect hardware to reach zero? Were they hoping by end of year?

Matt,

The answer is in their updated investor presentation:

http://ir.nutanix.com/company/financial/default.aspx

See slide #6. In 3 quarters they expect hardware to be down to 5% of revenue and stay at that level going forward.

Chris

5 Likes
23

See slide #6. In 3 quarters they expect hardware to be down to 5% of revenue and stay at that level going forward.

Hi Chris,

Thanks so much. Completely overlooked that.

Matt

24

which has taken the deferred revenues amount to $540m up 62% YoY and up 13% sequentially - so their cost base is not just securing $289m in revenues (latest Q3) but a net additional $62m in deferred revenues

Yes, their deferred revenue is enormous and growing. This is definitely a positive but it isn’t quite as good as it sounds because they also have deferred commissions on the balance sheet. These will partially offset the deferred revenue balances on the balance sheet:

Deferred Revenue: $539.9M
Deferred Commissions: $102.7M
“Net” Deferred Revenue: $437.2M

Chris

9 Likes