Nutanix, Inc. Q1 FY2024 earnings

Nutanix reported FY2024 Q1 revenue of $511.1 million, up 17.9% from the prior-year quarter. Management said the quarter was a solid start against an uncertain macro backdrop. Gross profit rose 22.2% to $429.1 million, and gross margin reached 84.0%, up 3.0 percentage points. The operating loss narrowed to $5.7 million, and the net loss narrowed to $15.9 million. Diluted EPS narrowed to -$0.07. Operating margin was -1.1%, up 17.5 percentage points. Operating cash flow rose 122.1% to $145.5 million. Capital expenditures fell 33.9% to $13.0 million. Deferred revenue rose 11.0% to $1.65 billion. On a non-GAAP basis, operating income was $79.5 million, up from $10.2 million. Free cash flow was $132.5 million, up from $45.8 million. Non-GAAP gross margin was 85.9%, up from 83.4%. Non-GAAP operating margin was 15.6%, up from 2.4%.

Operational momentum showed in billings and recurring revenue. ACV billings were $287.2 million, up 24% year over year. ARR reached $1.66 billion, up 30%. Total billings were $561.1 million, up from $469.7 million. Average contract duration was 2.9 years, down from 3.0 years. Total end customers grew to 24,930 from 23,130. Nutanix counted approximately 1,020 Global 2000 enterprises. The company said 74% of end customers with 18 months or more of tenure made a repeat purchase. Lifetime orders for those customers were more than 8.0x their initial order on average, and the multiple was approximately 26.3x for Global 2000 customers. About 81% of the global sales team was fully ramped, with 19% still ramping. Nutanix also highlighted a Forrester Wave leader position for hyperconverged infrastructure, new ransomware detection and recovery features, and Micron Technology's selection of the Nutanix Cloud Platform for its manufacturing facilities globally. The company said its solutions are sold primarily through channel partners and OEMs.

Guidance points to continued growth. For the second quarter of fiscal 2024, Nutanix expects ACV billings of $295 million to $305 million. Non-GAAP gross margin is guided to 85% to 86%, and non-GAAP operating margin to 14% to 16%. Diluted weighted average shares are expected to be approximately 297 million. For the full fiscal year 2024, the company guides ACV billings of $1.08 billion to $1.10 billion. Full-year non-GAAP gross margin is guided to approximately 85%, non-GAAP operating margin to 11.5% to 12.5%, and free cash flow to $340 million to $360 million. Management said it remains focused on the targets shared at its recent Investor Day and on delivering durable growth and increasing profitability.

Risks remain. Nutanix described an uncertain macro backdrop. The company also disclosed a material weakness in internal control over financial reporting that has not been fully remediated. That weakness led to an error in prior-period software license and support expenses, and Nutanix prospectively corrected prior financial statements. The subscription transition creates exposure to shorter average contract durations, which can pressure revenue recognition. Supply chain delays, competition from public cloud providers, and the need to ramp sales personnel are other challenges. Nutanix also noted that its subscription transition may cause customer concerns about pricing changes and can slow adoption and renewal rates. The company plans to invest in sales and marketing and research and development, which may adversely affect near-term profitability. It maintains a full valuation allowance on U.S. federal and state deferred tax assets. The company also faces risks from the rapid evolution of its markets, including public cloud infrastructure, and from macroeconomic or geopolitical uncertainty. The company said its cash and short-term investments should be sufficient for at least the next 12 months. In August 2023, the board authorized up to $350.0 million of Class A common stock repurchases.