Nutanix notched up yet another quarter of solid revenue, ARR and customer count growth in its latest SEC results report and signed a deal with Dell aimed at capturing displeased VMware customers.
Revenue generated in Nutanix’ Q3 of fiscal 2024, ended April 30, was $524.6 million, up 17 percent year-on-year and beating the consensus Wall St analyst estimates by $9 million. The company reported a $15.6 million net loss, much better than the year-ago loss of $70.8 million. The third quarter is seasonally lower than Nutanix’ second quarter, and the software biz has not yet reached a sustained profitability status after last quarter’s landmark first ever profit.
President and CEO Rajiv Ramaswami said in a statement: “We delivered solid third quarter results reflecting disciplined execution and the strength of our business model,” with CFO Rukmini Sivaraman adding: “Our third quarter results demonstrated a good balance of top and bottom line performance with 24 percent year-over-year ARR growth and strong year-to-date free cash flow generation. We remain focused on delivering sustainable, profitable growth.”
Nutanix added 490 new customers in the quarter, taking its total customer count to 25,860. Its Average Contract Value (ACV) billings rose 20 percent Y/Y to $288.9 million, and annual recurring revenue (ARR) increased 24 percent to $1.8 billion.
Financial summary
- Gross margin: 84.8% vs 81.6% last year
- Free cash flow: $78.3 million vs year-ago’s $52.7 million
- Operating cash flow: $96.4 million vs year-ago $74.5 million
- Cash, cash equivalents and short-term investments: $1.651 billion
William Blair analyst Jason Ader told subscribers: “The top-line outperformance was mainly driven by large wins with the Nutanix Cloud Platform (NCP) and consistent renewals performance from steady infrastructure modernization demand.”
Nutanix is involved in more large deals and these can come with their own challenges. The Blair analyst said: “The number of opportunities in the pipeline with ACV billings greater than $1 million has grown more than 30 percent over the last three quarters, while the total dollar value of those deals is up 50 percent over the same period.” But the deals can take longer to negotiate to a close and add variability to Nutanix’ income rate.
Ramswami said in an earnings call with financial analysts “Our largest new customer win of the quarter was an eight-figure ACV deal with a North American-based Fortune 50 financial services company that was looking to streamline and automate the deployment and management of their substantial fleet of databases. … This win was substantially larger than our typical land win and marks the culmination of an approximately two year engagement.”
Sivaraman expanded on this, saying: “The dollar amount of pipeline from opportunities greater than $1 million in ACV has grown at well over 50 percent and for each of the last three quarters compared to the corresponding quarters last year. These larger opportunities often involve strategic decisions and C-suite approvals, causing them to take longer to close and to have greater variability in timing, outcome and deal structure.”
Both Workday and Salesforce also recently noted an elongation of project approvals for enterprise software contracts.
Dell standalone AHV deal
Nutnix is trying to respond to Broadcom’s VMware acquisition by making it easier for dissatisfied VMare customers to migrate to Nutanix by being able to run Nutanix’ AHV hypervisor on existing Dell servers. That means decoupling its AHV hypervisor from its full software stack, which stack has to run on Nutanix-certified hardware. The Dell AHV server will connect to storage-only HCI nodes available in the next few months and then, in calendar 2025, to Dell’s PowerFlex-based storage systems using IP networking.
This enables legacy 3-tier architecture customers wanting to depart from VMware to do so immediately rather than waiting for a 3-year depreciation cycle for their hardware to end. Ramaswami said: “This gives us easier insertion into accounts where they’re not quite ready to go depreciate their hardware yet, allowing us to then over time convert them over to HCI.”
Nutanix will support AHV running stand-alone on other OEMs’ servers and various storage nodes, but IP-access storage, not Fibre Channel. Migration then to the full Nutanix stack would be a land-and-expand type opportunity.
Nutanix’ AHV already runs on Cisco UCS servers and the AHV/UCS server combo connects to Nutanix storage-only nodes. Ramswami said: “We expect to see a growing contribution from Cisco in and of course, into FY’25.”
The outlook for Nutanix’ final quarter of fiscal 2024 is for $535 million +/- $5 million, a 8.3 percent year-on-year rise. Ader’s at William Blair, said: “The current guidance includes impact from the increasing variability that management has seen from larger deals in the pipeline, reflecting new and expansion bookings tracking below management expectations. Full-year guidance assumes modest impact from the VMware displacement opportunity (which management continues to see as a multi-year tailwind) and developing OEM partnerships, both of which should have a more material impact in fiscal 2025.”
Since buying VMware, new owner Broadcom has made a number of sweeping changes to licences, products and worldwide channel programs that govern who can and can’t sell VMware.