Nutanix results

Investment Analysis Clubs Saul’s Investing Discussions
1

With all the excitement about Pure, it seems that one of my favorite companies, Nutanix, has been overlooked. Here are my notes on their report. Please keep in mind that they are eliminating their pass-through hardware sales from revenue over the year, and moving to a primary software as a service model. In other words, revenue was up 44% in spite of eliminating the $14 million in hardware revenue. Counting the hardware revenue, it would have been up 51%. the whole report is pretty impressive.

Saul

Nutanix Jan 2018 quarter results

Continued penetration in Global 2000 accounts, record number of new customers, and growing number of large deals drive 57% billings growth and 44% revenue growth.

Software and support billings up 60% as we ramp software business
Revenue up 44%
Billings up 57%
Gross profit up 45%
Deferred Revenue up 57%
Cash Flow from Operations up 135%

Second Quarter Fiscal Year 2018 Financial Highlights
• Revenue: $287 million, up 44% from $199 million a year ago, reflecting the elimination of approximately $14 million in hardware revenue in the quarter as we shift toward pure software revenue
• Billings: $355.9 million, up 57%
• Adj gross profit of $182 million, up 45% from $126 million
• Net Loss: Adjusted net loss of $23.2 million, compared to $23.0 million a year ago.
• Adjusted net loss per share of 14 cents, versus 16 cents a year ago
• Cash: $918 million, up 159% from a year ago, primarily as a result of $509 million in proceeds from our 0% 5-year Convertible Senior Notes issued in the quarter.
• Deferred Revenue: $478 million, up 57%
• Operating Cash Flow: $46.4 million, up from $19.8 million a year ago.
• Free Cash Flow: $32.4 million, up from $7.1 million a year ago

We had an outstanding quarter that demonstrated our strong execution across many business initiatives. Our shift toward a software-centric strategy is on track and we aligned our sales compensation to support this transition. Our continued success with Global 2000 customers, the strength of our large deal execution and record number of new customers prove that we are reducing friction for our customers and providing them with an unmatched consumer-grade experience.

We are proud of our performance in Q2. During the quarter, we saw record results across all geographies, with particularly strong performances from our EMEA and APJ regions. Our 57% billings growth and our 45% increase in adjusted gross profit drove a better than expected bottom line. Our software and support billings also rose significantly during the quarter as we transition to a software-centric business model. Our strong execution and our successful convertible debt offering keep us in a strong position for the future.

Company Highlights
• Continued customer growth: We finished the quarter with 8,870 end-customers, adding a record 1,057 new end-customers during the quarter.
• Accelerated number of million dollar deals: 57 customers with deals over $1 million in the quarter, up 104% from a year ago.
• Signed 5 Software and Support Deals Greater than $3 Million: We signed five software and support deals worth more than $3 million, of which three were worth more than $5 million.
• Named a Leader in the Gartner Magic Quadrant for hyperconverged infrastructure: Nutanix believes its placement in the Leaders quadrant is a strong validation of its vision to become the next-generation operating system for the enterprise cloud
• Released Version 5.5: Featuring Calm automation and orchestration, with new features and enhancements to the Nutanix Enterprise Cloud OS software
• Issued $575 million Zero Coupon Convertible Senior Notes:
• Signed definitive agreement to acquire Minjar
• Plans Inaugural Investor Day: Monday, March 12th at the Nasdaq Marketsite
Guidance for the quarter
• Revenues of $280 million; assuming the elimination of approximately $45 million in pass-through hardware revenue;
• Adj gross margin of 68%;
• Adj operating expenses of $219 million;

35 Likes
2

https://www.barrons.com/articles/nutanix-rising-this-is-how-…

5 Likes
3

Thanks Saul and yes, was a great quarter and the transition implementation seems to be going rather smoothly.

A few other interest points form their earnings call:

<>On a billings basis, our product mix for Q2 was 77% software and support and 23% pass-through hardware. On a product mix, on a revenue basis was 73% software and support and 27% pass-through hardware.

So they are successfully growing this business largely through software rather than expansion of hardware. Importantly, they noted that the deals have actually become LARGER with software only…wasn’t sure why this would be the case, but it was rather striking that their deal opportunity was almost unhinged by dropping hardware.

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

Again consistent with their cloud agnostic strategy. This agnostic strategy is crucial to NTNX’s quest to be the preferred platform regardless of cloud…a distinction that MSFT and AWS will have with their alignment or ownership issues…again not the case for NTNX that can thrive in any cloud environment or even multiple cloud environments.

Both Dell and Lenovo contributed nicely in Q2. Dell matched its best historical performance and Lenovo recorded its best performance, increasing almost 80% sequentially. Dell bookings came in slightly less than 10% of total bookings, and included deal sizes net to Nutanix of $3.5 million and two deals at $2.6 million each.

Interesting factoid since Dell has VMware! They will not report these breakout numbers in future. But many bears have been pointing out that DELL and VMware are one and therefore NTNX’s future would be in jeopardy. At this early going, the opposite seems to be the case.

we believe the best metric to measure our progress during this transition period to a software centric model is gross profit dollars and growth in gross profit dollars and not revenue or revenue growth as revenue and even gross margins could be somewhat fluid during this transition.

Furthermore, we also believe that anyone who casts a negative opinion on the company founded on slowing revenue growth during this period of transition is simply being disingenuous based on our strong gross profit growth. Lastly, this guidance assumes that we will eliminate approximately $45 million of our pass-through hardware revenue during the quarter.

They are a company in transition to software only…numbers may be a little challenging to compare to prior quarters but we should expect margins to expand, revenue to continue to increase alongside those improved margins and…that they will be the Switzerland of the on-prem-cloud operating system working in any cloud, on any hardware or simultaneously and/all various cloud formats.

9 Likes
4

Guys - glad you picked up on this. We have digested it to a degree over on NPI…

Ok a few observations:

  1. They are killing it on billings growth and deferred revenues. Whilst there might be a concern about lack of progress on NonGaap EPS growth, their quarterly cost base is not just supporting massive revenues and revenue growth but also a ton of future to be recognised revenues (deferred).

  2. In the call they literally smacked down any analyst thoughts of top line growth slowdown which doesn’t account for the hardware elimination transition
    “Furthermore, we also believe that anyone who casts a negative opinion on the company founded on slowing revenue growth during this period of transition is simply being disingenuous based on our strong gross profit growth”

  3. Not only is eliminating hardware transitioning Nutanix - it appears it could actually be the making of them. 2 clear points came through to me:- i) They are now completely agnostic and clients are enjoying the total freedom that Nutanix software attaches to any mix of hardware nodes is required and ii) It is enabling them to secure much larger deal sizes. I mean think about it - a client has $3m to spend. With hardware sucking up 25-50% the budget or whatever at zero margin, it didn’t leave as much left for Nutanix software. Now it’s all Nutanix software spend.

  4. The call was illuminating. It’s rare to find as rich and detailed discussion in a conference call - they are clearly on top of their business and on top of the sector.

  5. Stock hit a 52 week high on Friday

Overall - I’m glad I topped up recently during the Jan/Feb pull back.

Cheers
Ant

8 Likes
5

Okay,

PSTG is producing very exciting things, and yet, yet, yet…urrrrr, not my favorite company mostly because I don’t like the greater hyping that goes on with Nutanix management, but that could just be cultural to Nutanix as a company, and between the two, I have to lean to Nutanix as having a larger CAP. It does look as if PSTG is creating innovation that maybe cannot be equalled, but can be emulated. With Nutanix, no one but VMWare has any ability to compete with Nutanix. Between the two, I do not know who is the market leader. Really, I don’t know if anyone knows anymore. What is known is that it is a 2 company race, and the two companies are in-bred through DELL. And like many families, there is bitter squabbling. Nutanix is like the younger half-brother (through an affair that dad had) who moves in with the family, and Dad really takes too and prefers (Dell is dad), and VMWare is like the first born child that mom (EMC) tries to put on the throne despite dad really liking his paramour and their kid.

Who else is in the run to compete here? No one. Lots of huff and puff, but those are the only two players dominating the market.

Emulating them is not enough. It is a true duopoly.

I personally like PSTG better. I like following it better, understand it better, and like its corporate culture better, and that it is producing free cash flow.

But one cannot deny that NTNX is doing things above and beyond even this when one looks at the metrics, such as Ant is describing. Not bad getting 0% money either for a company that has never made a profit. Somebody sees something they like and feel their money is not at great risk.

Tinker

5 Likes
6

I personally like PSTG better. I like following it better, understand it better, and like its corporate culture better, and that it is producing free cash flow.

I think it is rare to see a tech company make their communications of their story as simple as Pure Storage. Just read their conf call slides. It’s beautiful in its simplicity!

https://seekingalpha.com/article/4152629-pure-storage-2017-q…

Now read their call transcript…
Total confidence! Total clarity.

https://seekingalpha.com/article/4152644-pure-storages-pstg-…

Jon and everyone else that topped up in this dip with Pure - well done.
Ant

2 Likes
7

<<<Then he added, “you could send small amounts of data, and then mash that up with another data set. We’re thinking about applications already where our operations center is sitting in our own cloud, and we have a lot of telemetry coming from customer machines, and that telemetry data is then put in this big data pipeline. Perhaps instructions in one cloud produce some intermediate results, and those are sent another cloud.”>>>

I do like this from the Barron’s article on Nutanix earnings interviewing the CEO. This is what Google talked about, using Nutanix on the edge. with IoT and 5G data can be obtained at the source and then it has to be shuttled to the proper repository. I cannot say I understand what exactly this might entail or why it might be a great thing, but it does sound as if it is such a thing.

Tinker

1 Like
8

I do like this from the Barron’s article on Nutanix earnings interviewing the CEO. This is what Google talked about, using Nutanix on the edge.

Totally - this is exactly why I like Nutanix, Nvidia and Micron. Memory, processing, storage optimisation are going to be done both in the cloud and at the edge in the future.

Ant

2 Likes