Nutanix, Inc. Q1 FY2023 earnings

Nutanix reported first quarter fiscal 2023 results for the period ended October 31, 2022. Revenue rose 14.6% to $433.6 million. Gross profit rose 18.2% to $351.1 million. Gross margin was 81.0%, up 2.5 percentage points. The company still posted a GAAP operating loss, but it narrowed to $80.3 million, an improvement of 41.5%. Net loss narrowed to $99.1 million, an improvement of 76.4%. Diluted EPS was -$0.43, an improvement of $1.52. Operating margin was -18.5%, up 17.8 percentage points. The GAAP picture remains unprofitable, but the losses are smaller and margins are higher.

Cash generation improved sharply. Operating cash flow was $65.5 million, up 844.1%. Capital expenditures were $19.7 million, up 122.8%. Free cash flow was $45.8 million, compared with -$1.9 million in the prior-year quarter. Deferred revenue was $1.48 billion, up 11.1%. On a non-GAAP basis, Nutanix reached positive operating income for the first time. Non-GAAP operating income was $10.6 million, compared with a non-GAAP operating loss of $41.9 million in the prior-year quarter. Non-GAAP operating margin was 2.4%, compared with -11.1%. Non-GAAP gross margin was 83.4%, compared with 82.1%. ACV billings were $231.9 million, up 27% year over year. ARR was $1.28 billion, up 34%. Average contract term was 3.0 years, down 0.1 year from 3.1 years. Total billings were $469.7 million, compared with $398.0 million. Subscription billings were $441.4 million, compared with $359.3 million.

Operationally, Nutanix launched Nutanix Cloud Clusters on Microsoft Azure and expanded support for Kubernetes container platforms. It was named a Visionary in the 2022 Gartner Magic Quadrant for Distributed File Systems and Objects Storage for the second year. The company also adopted majority voting in uncontested director elections and eliminated the supermajority vote requirement in its bylaws. Customer metrics show a base of 23,130 end customers, up from 20,700. About 74% of end customers with 18 months or more of tenure made a repeat purchase. Their lifetime orders were more than 7.1 times their initial order on average, and that multiple was about 21.3 times for Global 2000 customers. As of October 31, 2022, 73% of the global sales team was fully ramped, while 27% was still ramping. In August 2022, Nutanix announced a 4% global headcount reduction, primarily in sales and marketing. Sales and marketing headcount fell 7% year over year, while research and development headcount rose 8% and general and administrative headcount rose 15%.

Guidance points to continued growth. For the second quarter of fiscal 2023, Nutanix expects ACV billings of $245 million to $250 million, non-GAAP gross margin of 82% to 83%, non-GAAP operating margin of 5% to 10%, and diluted shares of approximately 279 million. For the full fiscal year 2023, the company expects ACV billings of $895 million to $900 million, non-GAAP gross margin of 82% to 83%, and non-GAAP operating margin of 2% to 4%. Risks include an uncertain macro backdrop, the ongoing COVID-19 pandemic, supply chain delays, sales headcount below targets, higher-than-normal attrition among sales representatives, and longer ramp times for new sales staff. The subscription transition compresses average contract term, and customers may choose shorter subscription terms or pay only the initial year of a multi-year contract. Nutanix also faces the maturity of $145.7 million in principal amount of its 2023 Notes in January 2023. Management said it remains focused on sustainable, profitable growth.