Nutanix Q2 results beat expectations despite flat revenues

Nutanix Q2 earnings beat expectations as its move to subscriptions showed positive results. Incoming CEO Rajiv Ramaswami said the company “delivered a strong quarter across the board, exceeding guidance on all metrics and continuing our momentum with key customer wins and solid execution.”

Revenues in the second 2021 quarter ended Jan 31 were flat at $346.4m ($346.8m a year ago) with a loss of $287m (-$217.6m a year ago.) The flat revenues were not helped by shorter average contract terms. ACV (Annual Contract Value) billings of $159.2m rose 14 per cent Y/Y, and the ACV run-rate of $1.38bn grew 28 per cent Y/Y.

Rajiv Ramaswami
Rajiv Ramaswami

William Blair analyst Jason Ader an email to his subscribers writes: “This was another confidence-building quarter, in our view. The company is successfully executing on a challenging business model transition, and the new CEO appears simultaneously focused on operational efficiency and continuing to invest in Nutanix’s portfolio of best-in-class products.”

CFO Duston Williams said Nutanix “delivered record ACV billings with growth of 14 per cent year-over-year, bolstered by the strength of our emerging products. We continued to make progress on our transition to subscription and maintained our disciplined approach to managing operating expenses, which were lower than expected this quarter.”

Nutanix customer count growth.

Customer count increased by 730 in the quarter to total 18,770. There are now 1,358 customers with lifetime bookings in excess of $1m – a 26 per cent increase Y/Y. Nutanix has 190 customers that have spent $3m-$5m on lifetime bookings, 136 that have spent $5m-$10m, and 77 that have clocked up more than $10m to date. 

Nutanix’s database management software Era and file storage Files product both had strong quarters, Ramaswami said on yesterday’s earnings call. “Era has become a competitive differentiator for us in the telco, finance, retail and manufacturing sectors in particular.”

Turning to Covid, he said: “A year into the pandemic, we continue to see various industries and verticals impacted differently, while some industries faced headwinds there are a number that have the resources to focus on innovation and transformation with IT as their enabler … we saw strength in demand from the financial services, healthcare and state and local government sectors in the quarter.”

Extending everything we do

On the earnings call, Ramaswami outlined his priorities for Nutanix. His overall aim is to lead the on-premises HCI market, “extending everything that we do into a hybrid and multi-cloud world.”

This is how he plans to go about it. “First, we will drive more simplification of our portfolio and how we take our solutions to market, including our products and packaging for the benefit of our customers.

“Second, we will focus on deepening our partnership to provide more impact and how we go to market, as well as create more opportunities within larger accounts.

“Third, we will continue our transformation of our business model to subscription with a significant focus on renewals and our path to cash flow possibility. And fourth, we will continue to nurture and grow our talent pool.”

And, we guess this is a fifth priority. Ramaswami wants to “really leverage our channel partners and strategic partnerships, because that’s what is going to give us leverage in the market.”

Driving cost efficiencies

He talked about a “disciplined focus on cost management and driving through free cash flow breakeven.”

Currently, Nutanix is doing mostly new ACV deals. As the renewals kick in, “the cost is going to be much lower than the cost of sale for new customer acquisition of new ACV.”

Nutanix marketing spend has moved from actual physical events and media to virtual events and digital media. This has made “our demand generation being more digital and therefore far more efficient and better ROI on our cost and what we spend there.” An example is its customer downloadable Test Drive software, which Ramaswami described as “a zero touch self service for prospective customers”.

In other words, profitability will come from increased ACV income and lower sales and marketing costs.  

Financial summary

No sign of any approaching profitability yet.
  • Gross margin 82.7 per cent (81 per cent a year ago)
  • Free cash flow -$28.5m
  • Headcount 6,210

Nutanix is forecasting ACV billings of $150m-$155m next quarter, up from last year’s $135m. The company does not provide revenue guidance.