Following the other cc notes, NTNX!
I sold all of my NTNX at about $28, but they’re still on my watchlist. I assume no-one still owns them, but I think it’s necessary to my progress to not sweep my failures under the carpet 
Bert still likes them as well.
After this CC, NTNX went up 23% to $24, so still under my sale price.
What to think about NTNX?
Positives:
They seem to be selling:
- “Subscription revenue +16% from Q3, 71% of total billings (goal of 75% by end 2021).”
- “+990 new customers (highest customer increase in past 6 quarters)**. Including 31 Global 2000 (now 810 in total).”
Negatives:
- NTNX CC’s are tough to parse. Dheeraj is heavy on words, light on content IMO. It was a very unconvincing Q+A session from both Dheeraj and Dustin (“we’ll talk about that at the Investor Session”)
- Still very much in transition, pretty much everything negative is associated with this.
- Pricing changes
Ums:
- Never heard guidance compared to street estimates before?
For me, still in the way too hard basket due to my lack of confidence in management, transition FUD, and lack of clear comparisons.
cheers
Greg
Q4 2019
[GD: could this have gone either way? up 23% (was up 26%) day after earnings - but if this had been negative…?]
Good quarter, beat street expectations on billings and revenue.
Highlighted the need to rebuild our pipeline -
Q4 results → progress in:
- subscription transformation,
- pipeline funnel,
- sales re-enablement,
- simpler messaging on the platform vs new apps,
- hybrid cloud journey
Strong growth in deferred revenue balances in Q4 with +44% yoy.
RPO strong proxy for underlying health of business [GD: similarly to OKTA]. Shedding significant top line growth for software transition.
Positive customer response to transition.
Customers “will be able to buy portable software licenses that can run in private cloud and on bare-metal in public cloud”
[GD: so this is a change in the licensing model? sounds like it, portable licensing across private and public clouds]
Nutanix becoming a SaaS company.
Subscription revenue +16% from Q3, 71% of total billings (goal of 75% by end Fiscal 2021).
+990 new customers (highest customer increase in past 6 quarters). Including 31 Global 2000 (now 810 in total).
58 new deals >$1m. 11 spent $1m in Q3.
26 of these in G2000. 3 deals >$5m.
46 customers >$10m LTV (up from 26 FY2018)
16 customers >$20m LTV (up from 9 FY2018).
6 >$30m LTV.
Anecdotes
G500 holding company for insurance, investment - hybrid cloud - reset entire datacenter strategy using Nutanix.
“Files, Flow, PrismPro are becoming strong additions to our portfolio” [GD: evidence?]
[GD: some dodgy Dheeraj stuff about not selling vaporware. Doesn’t anyone proof his stuff?]
Fortune25 customer - Lifetime spend ~$30m (first purchase 18months ago)
Global 4 accounting firm (in Q3) - Calm and Core allowed us to make that win possible.
G2000 American Airline - replaced database system for ecommerce with Era backed by Core, running on commodity servers.
G2000 healthcare company - expand because of rich portfolio.
FedRAMP in-progress for Xi Government Cloud (significant step towards a full FedRAMP moderate authorization).
Sales pipeline
Strong pipeline creation in enterprise
Next 3 years - focus on selling to both enterprise and commercial mid-market at scale.
separating commercial and enterprise as segments, different leadership, sales org.
Xi Cloud Services generally available. Helped create significant opportunity in new and existing accounts.
Grew customers +34%.
Forbes Just 100 - companies doing right by America.
Finances
| | | |
|:---------------------------------|:-------------|:-------------------------------------------------|
| Revenue | $300m | -1% yoy, +4% Q3 (guided $280-310m) |
| --- Hardware | 4% | vs 8% Q3 |
| --- Software & support | $287m | +7%yoy, +8% Q3 |
| Total billings | $372m | -6%yoy, +7% Q3 (guided $350m-$380m) |
| --- software and support | $359m | +0%yoy, +11% Q3 |
| Bill to revenue ratio | 1.24 | 1.2 Q3 |
| New customer bookings | 26% total | vs 31% Q4 2018, 25% Q3 |
| International bookings | 45% total | vs 40% Q4 2018 |
| Subscription billings | 71% of total | up from 65% in Q3 |
| Subscription revenue | 65% of total | up from 59% in Q3 |
| Term-based subscription bookings | $150m | up from $90m in Q3 |
| Average duration new contracts | 3.7years | down from 3.9years in Q3. More 5yr deals -> 3yr. |
| non-GAAP gross margin | 80% | guided 77%|
| OpExp | $344m | |
| non-GAAP net loss | -$106m | 0.57/share|
| Cash and equiv | $909m| -$32m Q3|
| CFO | -$10m | (incl. +$12m ESPP inflow [GD: whats this?])|
| FCF | -$33m | (incl. +$12m ESPP inflow)|
“As a result of these trends, we’re now planning for a negative top line impact relating to the subscription transition to be approximately 20% (-$20-$25m) versus the prior assumption of 10%.”
Hardware insignificant percentage of total billings, so only guiding software+support revenue and billings.
| Guidance | ||
|---|---|---|
| Software & support billings | $360m-$370m | Current street: $355m |
| Software & support revenue | $290m-$300m | Current street: $290m |
| Hardware revenue & billings | <3% | |
| Gross margin | 80% | |
| OpExp | $385m-$390m | +$40-45m (headcount, sales training costs, .NEXT conference) |
| Loss/share | -$0.75 | weighted average shares: 190m |
| FY2020 | ||
| Software & support billings | $1.65b-$1.75b | +17%->24% Current street: $1.6b |
| Software & support revenue | $1.3b-$1.4bm | +15%->24% Current street: $1.3b |
| Hardware revenue & billings | <3% | |
| Cash usage | low to mid $200 million | Street estimate: $190m |
Assumptions:
- $25-$30m revenue compression related to subscriptions (FY2020 -20% -($170m → $190m))
- impacts yoy growth rate by ~7% (FY comparison ~8%)
- $10m less in hardware revenue “versus current Street estimates” [GD:never seen this called out before]
- Bill-to-revenue ratio of 1.23 “versus current Street estimates of 1.2” → -$10m revenue impact
- No material change to average subsc. term of 3.7years
Continuing transition to subscription. Targetting >75% billings from subscriptions end FY2020. Need to transition go-to-market cost structures to SaaS.
Bullish on several new products → significant costs.
FY2020 focus on growing commercial business.
Q and A
Q: Mentioned 2.5x on backlog vs Q3. What drove that?
A: Good execution. Knew it was going to rebound after 2 quarters “we weren’t particularly proud of”. Hope to do same in next quarter, we’ll see how it goes.
Q: For a company which has on-prem only, and wants to transition to HCI, and a public cloud strategy with Azure. Is the pitch: Stay with Azure and use Nutanix bare metal (ie, in the on-prem/private cloud)?
A: [GD: some fud from Dheeraj about data, control and management plans]. Think there will be a blurring between what they want from Azure versus Nutanix [GD: think this was a rubbish question, suggesting they want to move everything to Azure].
Q: Curious about your confidence (given macro, other companies misses in storage and server land)?
A: 2 macros, 1 is the macro, other is own subscription macro. We’re focussed on own subscription macro. If macro changes, we’ll adjust investments (S&M) accordingly.
No additional signs for future vs 3 months ago [GD: this is what ESTC and OKTA said…]
Q: Why is it the right time to balance enterprise vs US commercial?
A: Much better grasp of enterprise segmentation. Sales leadership believes we can focus on commercial. Digital delivery model is coming together, kick tires on Nutanix is a few clicks [GD: So more efficient]
Q: Newer products becoming a deciding factor in winning larger deals. Which products?
A: ‘Files’ has taken off in a big way. Flow more of a control plane, so less dollars, but Flow pulling AHV.
Engagement and Intelligence - Era and Calm. Era for dbase workloads, talking to devops about how they manage databases, which pulls Core along with it. So thinking about database workflows.
Calm is system of engagement that can integrate with Beam and Epoch => system of intelligence (multi-cloud workflows). So motion of apps across different clouds.
PrismPro - operations management, monitoring, alerting, machine learning [GD: had to be here!]
Q: Channel partners, deeper with smaller number of partners? Or wider with larger number?
A: Deeper with smaller number, more business.
Q: Margin trajectory. Software margins seem to dip quite a bit, support margin up a lot. Is that right?
A: We had a YTD adjustment [GD: huh? can you do that?]. COGS coming out of support and going into product. +4.5% to support margins, and 2.5% decline [GD: I think this means they decided that some COGS was actually product COGS]. One-off going forward. No impact total margins.
Q: You loaded the change for the year into 1 quarter? so will diminish going forward?
A: yes
Q: Rule of 40 - calculate a pretty low number. How are you thinking about rule-of-40?
A: Transition. See growth rates from guidance, (once we get to ACV, pro-forma at the moment). Lot of complexities, apples and oranges with the transition… Hard to govern to rule-of-40 now, lots of things to flush through.
Q: 2.5x increase in backlog - is that RPOs? Seems like a massive number…
A: Backlog is orders that have come in that we haven’t billed the customer or done anything with that order. Deferred revenue is $910m.
[GD: This was a very unconvincing answer].
Q: Guidance higher than Street. Path to profitability?
A: Work to do on that through transition. We will be investing for higher growth. new products represented ~10% of ACV in Fy 2019. No bundling, every product is being sold by itself. We’ll talk about this at the investor day.
Q: North American sales organisation, productivity across cohorts?
A: Still early, Chris and team have made some really good progress in short period of time. Has improved on rolling 2 quarters. Think we’ve got 3 great leaders (US, APAC, and EMEA). Q1 is always a tougher quarter.
Q: “Largest competitor” (VMWare) having their big event this week, lots of discussion around Kubernetes being integrated into core product. Your thoughts?
A: Our strength: foundationally based on Linux [VMWare not linux-based, proprietary. GD: is this true?]. Think we’re more aligned with cloud hypervisors.
Q: Slide 15: lifetime booking multiples - moved up over past 3 years. Q4 leveled off, why?
A: Top line compression (-%20 $20-$25m) [GD: taken offline… hmm]
Q: Other Apps driving engagement, revenue. Files and PrismPro contributing most now? Other apps going to contribute?
A: Yes. We’re looking at a pricing change for Era and Frame (based on sockets). Era, Calm and Frame could take off [GD: ie, everything except Xi?]
Q: 75% subscription revenue mix. Risk in duration?
A: Infrastructure still considered capex for many customers. Assume 3-4 horizon will continue, because CFOs are looking at it as CapExp.
Q: New sales group on enterprise, any income disruption around that?
A: Done a lot of segmentation in enterprise. Lot of the territories in commercial is white space.
Q: Operating Cash Flow in Fiscal 2020: you said -$200-$250m. Correct? Can you get cash flow neutral in 2021?
A: That was for Free Cash Flow, which includes CapExp. OCF would be better. Transition to subscription will reduce cash usage. Neutral Fiscal 2021…? talk about that at Investor Day.
Q: OpExp guide for Fiscal 2020. Beginning efforts to make sales structure more efficient, whats the vision for sales, to get OpExp more under control?
A: Similar to other Saas. Renewals, efficiencies, productivity. “Lot of things we need to look at… We’re in early stages honestly… need to do that… thinking through it”. Investor day [GD:!]