Nutanix, Inc. Q2 FY2024 earnings

Nutanix reported FY2024 second quarter revenue of $565.23 million, up 16.2% from the prior-year quarter. GAAP gross profit was $483.68 million, up 21.0%. Gross margin was 85.6%, up 3.4 percentage points. Operating income was $37.04 million, up 165.6% and swung to a profit from a prior-year operating loss. Net income was $32.80 million, up 146.3%, and diluted EPS was $0.12, up $0.43. The CFO said the company achieved GAAP operating profitability for the first time. For the six months, revenue was $1.08 billion, up 17.0%, and net income was $16.94 million, up 109.9%. Diluted EPS for the six months was $0.09, up $0.83. The company described the quarter as one of disciplined execution against an uncertain but stable macro backdrop.

Operating cash flow was $186.41 million, up 151.6% from the prior-year quarter. Free cash flow, a non-GAAP measure, was $162.6 million. Capital expenditures were $23.76 million, up 114.7%. Deferred revenue was $1.71 billion, up 11.9%. For the six months, operating cash flow was $331.88 million, up 137.7%. Free cash flow for the six months was $295.1 million, and capital expenditures for the six months were $36.78 million, up 19.5%. Operating margin was 6.6%, up 18.2 percentage points. For the six months, gross margin was 84.8%, up 3.2 percentage points, and operating margin was 2.9%, up 17.8 percentage points. The company said the increase in operating cash flow for the six months was due primarily to the increase in net income from operations.

The quarter showed growth in recurring revenue. Annual recurring revenue was $1.74 billion, up 26%, and ACV billings were $329.5 million, up 23%. Average contract duration was 2.8 years, down from 3.0 years, and the company said the year-over-year decline in average contract duration negatively impacted revenue. Non-GAAP gross margin was 87.3%, up 250 basis points from 84.8%. Non-GAAP operating margin was 21.9%, up 7.5 percentage points, and non-GAAP operating income was $123.9 million, up $53.9 million. Nutanix ended the quarter with 25,370 end customers, up from 23,620, and it said it had over 25,000 end customers as of January 31, 2024, including approximately 1,030 Global 2000 enterprises. About 87% of its global sales team was fully ramped, while about 13% was in the process of ramping up. The company noted that about 75% of end customers with 18 months or more of tenure made a repeat purchase, and that those customers had lifetime orders more than 8.2 times their initial order on average. For Global 2000 customers with 18 months or more of tenure, lifetime orders were approximately 28.0 times the initial order on average.

For the third quarter of fiscal 2024, Nutanix guided revenue to $510 million to $520 million, ACV billings to $265 million to $275 million, non-GAAP gross margin to about 85%, non-GAAP operating margin to 7.5% to 8.5%, and diluted weighted average shares to about 301 million. For the full fiscal year 2024, the company guided revenue to $2.12 billion to $2.15 billion, ACV billings to $1.09 billion to $1.11 billion, non-GAAP gross margin to 85% to 86%, non-GAAP operating margin to 12.5% to 13.5%, and free cash flow to $420 million to $440 million. Risks include macroeconomic and geopolitical uncertainty, supply chain issues, reliance on channel and OEM partners, the subscription model transition, shorter contract durations, competition, and the need to hire and ramp sales personnel. The company also disclosed a material weakness in internal control over financial reporting and said remediation efforts are ongoing. It plans to invest in sales and marketing and research and development while taking steps to increase go-to-market productivity and reduce sales and marketing spend as a percentage of revenue over time. The guidance and forward-looking statements depend on assumptions that may prove inaccurate.