I have not seen the release on their IR website, much less the call which starts in 20 min and the stock is down 8%.
hmmmmm
wow… they crushed it.
All numbers we’re great IMO.
What I liked best were their acquisitions (increasing TAM) and how they’re set up for 2019: decreasing hardware revenue and making the transition to software faster than expected:
Q1 Fiscal 2019 Financial Outlook
For the first quarter of fiscal 2019, Nutanix expects:
Revenue between $295 and $310 million, implying software and support revenue growth of approximately 40-45% YoY;
Billings between $370 and $390 million, implying software and support billings growth of 50-55% YoY;
Bill-to-revenue ratio of approximately 1.26x;
Non-GAAP gross margin between 78% and 79%;
Non-GAAP operating expenses between $280 and $290 million;
Non-GAAP loss per share between $0.26 and $0.28, using approximately 176 million weighted shares outstanding
“First quarter guidance reflects a faster removal of pass-through hardware than originally anticipated, accelerating the reduction of zero margin billings and revenue with the benefit of improved gross margins. Additionally, the Q1 expected bill-to-revenue ratio of 1.26x is higher than street consensus of 1.21x, implying an approximate $12 million in deferred revenue that would have otherwise been in revenue and gross profit.”
22 Likes
Here is from a post I had at the beginning of August:
A way to look at the growth without the pass through hardware sales.
Gross Profit percent change for NTNX
2017 84.0 62.5 52.3 50.6
2018 40.5 45.6 58.2
This quarter gross profit was up 49%, very good.
It’s not surprising the stock would drop initially, because the computers don’t understand the removal of pass thru hardware sales so it looks like a slow down in revenue.
Jim
19 Likes
If you guys are right that the market is misjudging the slow down in HW then I’ll be adding to my position tomorrow.
2 Likes
Ok this was always going to be the quarter where the Nutanix business model was turning the corner at high speed and hoping the wheels would not come off even if it leaves a set of skid marks.
I think that’s pretty much is what has happened…
FWIW looking back at the Q3 deck and at the Q4 earnings decks:
https://seekingalpha.com/article/4177051-nutanix-2018-q3-res…
https://seekingalpha.com/article/4203268-nutanix-2018-q4-res…
What you can see is that:
- The elimination of hardware pass through at 0% for Q4 was bang on 9% of billings as predicted in Q3
- The planned elimination of more hardware pass throughs in Q1 has actually been accelerated from previously estimated 7% to a new estimate of 5-6% of billings which corroborates the guidance miss vs expectations - still they could have managed that for a beat maybe a little better.
The net net of this is:
- Overall revenue growth rate was reduced from my estimated 32% without the latest quarter’s 10% drop in hardware revenues to a reported 20% YoY both of which are down from 57% a year ago and 41% last quarter
- Overall billings growth rate was reduced from my estimated 47% without the latest quarter’s 8% drop in hardware billings to a reported 37% YoY both of which are down from 40% a year ago and 50% last quarter
- Reducing 0% margin business whilst loss making also hurts eps numbers as it removes the dilution of a negative business. This would improve eps if the company was profitable.
NB clearly whilst revenue growth is falling billings growth is rising which accounts for the massive amount of gains in deferred revenues short and long term. (Something I guess we should love but analysts will complain about in terms of this quarter’s revenue numbers).
Ok so what I love:
Maintaining high SW billings growth rates
Adding to the deferred revenues
Free Cash Flow positive
Progress in removing the HW business as planned or if not better
What I am not liking:
Declining revenue growth rates
The fact we are still unprofitable at a $1bn run rate (this seems to be the new norm but I don’t like it). By comparison $1bn was the point Pure Storage became profitable whilst managing a 37% revenue growth rate.
Looking forward to the transcript to parse more insights.
Ant
41 Likes
Ok here’s the transcript.
https://seekingalpha.com/article/4203320-nutanix-inc-s-ntnx-…
I’ve said it before. These guys are more on top of their business than any management team I recall in the tech space. The founder/CEO/Chairman is a genius at simplifying tech language into understandable english.
Basically the call covers the points mentioned previously in particular noting the H/W elimination shift in the Q1 plan vs prior estimates but also talks about the shift in the billings to revenue ratio.
Also noteworthy points are:
- New product lines (and new reporting intentions)
- Comments on seasonality shifts (again talking to the Q1 guidance)
- Differentiation in philosophy and Go To Market strategy vs VMWare
- Comments on flash storage architecture
- Account penetration trajectory
- Expenses and margins
Ant
11 Likes
Agree on management, Ant. Dheeraj is a superstar.
A few random thoughts from listening to the call (cross-post from another board):
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Dheeraj is one of my favorite CEOs to listen to. He is as honest as you get from a public CEO. Most people pivot and dodge tough questions, but he seems to dive right in (the good and bad).
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Wow. 78% non-gaap gross margins. Up from 63%. Software and support billings up 66%. Wow. Not sure investors fully recognize what they have in NTNX. It may take another quarter or two until the hidden growth is unveiled, but they are building a great company.
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Lots of innovation and products coming from NTNX. Dheeraj used analogy of iphone, and Apple’s need to build native apps to enhance the UX. Thought it was a cool parallel to their strategy of building multiple products to ensure the viability of their platform.
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Rule of 40 was 51 this q.
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Lastly, I normally don’t listen to conference calls, but happened to catch this one live today. There was a subtle inflection in Dheeraj and CFO’s voice when they said “at least” $3b by 2021. Just gave me added confidence that they have that number in the bag. Have also heard informally they are targeting $4b. Either way, that is serious growth from current $1.4 billings run rate. And billings are accelerating.
Stephen
33 Likes
- Lots of innovation and products coming from NTNX. Dheeraj used analogy of iphone, and Apple’s need to build native apps to enhance the UX. Thought it was a cool parallel to their strategy of building multiple products to ensure the viability of their platform.
Agree Stephen - that point stood out to me too. It got me thinking that this is more than a SAAS solution and instead they are building a PAAS and with Xi IAAS. I had been considering that I wasn’t invested enough in PAAS and IAAS and maybe I should take a ServiceNow or RedHat position but Nutanix could be transforming into this kind of play.
Ant
1 Like
I personally think the negative reaction to earnings last night was a miscalculation. I bought more after market and I have an order for more pre-market currently.
I read the earnings transcript and there is nothing that I do not like about the companies performance. I would highly recommend everyone read the transcript.
A couple of things from it:
It’s important to note that at a bill-to-revenue ratio of 1.25 to 1.3, Nutanix is on a net basis, deferring a greater percentage of billings than most SaaS companies, including Salesforce, Workday, ServiceNow, VMware, Splunk, and Tableau.
So its down after/pre market because of guidance. Here is guidance:
Now, I’ll turn to the guidance for the first quarter. On a non-GAAP basis, we expect the following for Q1; billings between $370 million and $390 million versus current consensus of $374 million, a bill-to-revenue ratio of approximately 1.26, revenue between $295 million and $310 million, gross margin between 78% and 79%, operating expenses between $280 million and $290 million, and a per share loss of between $0.26 and $0.28, using weighted average shares outstanding of 176 million.
Now, let me just share a little bit more color regarding the Q1 guidance. Our billings guidance assumes pass-through hardware to be 5% to 6% of total billings versus our previous estimate of 7%. This one to two percentage point reduction negatively impacts total billings and revenue by $4 million to $8 million, that otherwise would have been reflected as additional pass-through hardware billings and revenue.
The offset to the slightly reduced billings and revenue expectation is that we now expect higher gross margins, which will continue to run significantly ahead of our prior expectations.
We provided a bit wider guidance range this quarter to accommodate some potential fluctuation in the ultimate pass-through hardware percentage. And it’s also very important to note that the difference in the estimated bill-to-revenue ratio of 1.26 versus the current Street consensus of 1.21 results in upwards of $12 million more deferred revenue than otherwise, which would have been reflected in both revenue and gross profit. Our billings guidance also implies that software and support billings will grow between 50% and 55% from Q1 2018.
And one final comment on our Q1 guidance. Q4 was another strong quarter, which provided us with further conviction that our Q2s, the January quarter, and our Q4s, the July quarter, continue to get stronger while our Q1s, the October quarter and our Q3s, the April quarter are exhibiting a bit softer seasonal trend. We expect this pattern to continue into fiscal 2019 and this is reflected in our Q1 guidance.
Aaron Rakers
Yes, thanks for taking the question. I do have a follow-up as well. Just building on the last kind of thoughts there, when I think about your $3 billion of billings target looking out to fiscal 2021 or I even think about your outline of investment or capital allocation around 70/20/10, and you think about that 10% of new products and services that should be accretive to the platform. What is the goalpost for you guys in terms of the contribution from them? If I think about that $3 billion, how much of that business do you think could be driven by that new set of product or services?
Dheeraj Pandey
Yes. So, maybe I’ll take a stab and Duston, you should say the same actually. There’s a part of me as an entrepreneur that says, prepare for the worst, be paranoid, these products will help you get to $3 billion at least. And the side of me that’s optimistic that says, then if things are going well, then these new products will go and be accretive on top of the $3 billion. And so I think it’s very early right now. I would rather play the conservative game and say that we have to assume that in a more noisy landscape, the market, these things are actually going to help us get to at least $3 billion with a good amount of effort.
I know there are a lot of newbie investors lurking this board. Sometimes the market reacts to an earning report in a way that leaves you scratching your head trying to figure out why it reacted the way it did. Many times you do not want to buy into a falling after earnings price, that is catching the “falling knife”. However being successful in investing requires being able to go with what you know is correct. I do not see much of anything that is wrong with this earnings report. In fact I see a lot that I like.
Greater amount of deferred revenues, means more money later that is already secured. Seems that their expected revenue amounts are potentially growing as well. The way I read it basically they have so many avenues of growth, they are just building software solutions for their business model as fast as they can.
This seems like a buying opportunity. However stock could plunge another 20% over next few days, but the company seems to be performing very, very well.
Thanks to those on board that brought it to our attention!
20 Likes
There is no argument for “efficient markets” I’m convinced the proliferation of ML and algo trading gives us true investors who can understand words and context more than just numbers a true advantage.
This was an incredible quarter with the long term thesis fully intact but the shares traded down up to 8% due to misunderstandings (IMO).
Here’s Bert’s take “Should subscribers take advantage of this dip to acquire a position? I think so.”
Highly recommend people pay for the Ticker Targer Subscription. That plus Rule Breakers, this board, and our own research on these companies really sets us up for success.
28 Likes
Here’s Bert’s take “Should subscribers take advantage of this dip to acquire a position? I think so.”
I thought the title of his article on Ticker Target said it all, “Nutanix and the Art of reading”. Lol
5 Likes