Nutanix, Inc. Q3 FY2022 earnings

Nutanix reported revenue of $403.66 million for its fiscal 2022 third quarter, up 17.2% from $344.51 million a year earlier. Year-to-date revenue came to $1.20 billion, up 19.1% from $1.00 billion. Gross profit for the quarter was $323.81 million, up 19.9%, and gross margin climbed to 80.2% from 78.4%. The company remains unprofitable on a GAAP basis. Its operating loss of $92.35 million narrowed from $180.57 million, and its net loss of $111.64 million narrowed from $123.64 million. Diluted EPS was -$0.50 for the quarter and -$2.96 for the year to date.

The subscription transition continues to drive the top line. Annual contract value billings rose 28% to $204.7 million, while annual recurring revenue hit $1.1 billion, up 46% from $762.0 million. Total billings were $447.96 million. Deferred revenue stood at $1.43 billion, up 12.4% from $1.27 billion a year earlier. Non-GAAP gross margin was 83.3% for the quarter, up from 81.7% a year earlier. Average contract term slipped to 3.2 years from 3.3 years, a decline of 0.1 year. The company ties that shorter term to its subscription model shift, and it weighs on reported revenue because term-based licenses bring in less per period than the older life-of-device deals.

Cost discipline showed up in the numbers. Non-GAAP operating expenses fell to $341.7 million from $361.5 million, and sales and marketing headcount was down 9% from April 30, 2021 to April 30, 2022. Research and development headcount grew 13% and general and administrative headcount grew 14% over the same span. Operating margin improved to -22.9% from -52.4%. Cash generation improved but stayed thin. Operating cash flow was -$3.17 million for the quarter, compared with -$55.55 million a year earlier, and it was $29.54 million for the year to date versus -$75.18 million. Capital expenditures were $16.89 million in the quarter, up 5.9%, and $34.28 million for the year to date, down 16.6%. Free cash flow, a separate non-GAAP measure, was -$20.1 million for the quarter, an improvement of $51.4 million from -$71.5 million.

Management pointed to two problems that shaped the outlook. Supply chain delays with hardware partners pushed an increasing share of orders to future start dates, and some customers delayed software purchases until hardware was available. Higher-than-expected sales rep attrition also hurt. As of April 30, 2022, about 72% of the global sales team was fully ramped, with roughly 28% still ramping. For the fourth quarter of fiscal 2022, Nutanix guides to ACV billings of $175 million to $185 million, non-GAAP gross margin of about 79% to 80%, and non-GAAP operating expenses of $360 million to $365 million. For the full fiscal year 2022, the company guides to ACV billings of $735 million to $745 million, non-GAAP gross margin of about 82%, and non-GAAP operating expenses of $1.402 billion to $1.407 billion.

The customer base reached roughly 21,980 end customers as of April 30, 2022, including about 970 Global 2000 enterprises. Nutanix also named Rukmini Sivaraman as chief financial officer effective May 1, 2022, along with a new chief marketing officer and head of engineering. Management said it expects operating and free cash flow to keep fluctuating over the next 12 months as the subscription transition plays out. The company also flagged risks around that transition, including customers choosing shorter terms or paying only the initial year of multi-year contracts upfront, which can pressure billings, revenue and cash flow in a given period. The core question for the next few quarters is whether supply chain relief and sales hiring can restore billings momentum while the company keeps its cost base in check.