Nutanix, Inc. — Form 10-Q Summary
Business context and reporting period
Nutanix provides an enterprise cloud platform for private, hybrid and multicloud environments, primarily through channel partners and OEMs. This unaudited filing covers the first quarter of fiscal 2021, the three months ended October 31, 2020; comparisons are with the quarter ended October 31, 2019.
Key financial metrics
| Metric | Q1 FY2021 | Prior-year quarter |
|---|---|---|
| Total revenue | $312.8 million | $314.8 million |
| Gross profit / GAAP gross margin | $244.8 million / 78.3% | $242.6 million / 77.1% |
| Operating loss | $182.1 million | $220.3 million |
| Net loss | $265.0 million | $229.3 million |
| Net loss per share, basic and diluted | $1.31 | $1.21 |
| Operating cash flow | $(4.1) million | $(26.2) million |
| Free cash flow (non-GAAP) | $(16.3) million | $(44.4) million |
Revenue mix shifted toward subscriptions: subscription revenue rose 28% to $278.2 million, while product revenue fell 19% to $155.8 million. Support, entitlements and other services revenue increased 28% to $157.0 million. Total billings, a company-defined measure, declined 12% to $334.9 million; subscription billings increased 7% to $293.9 million. Deferred revenue was $1.206 billion at quarter-end.
Cash and cash equivalents were $504.5 million and short-term investments were $813.6 million, totaling $1.318 billion; restricted cash was a further $3.0 million. Current assets were $1.634 billion and current liabilities $779.6 million. Convertible notes had $1.325 billion aggregate principal outstanding: $575 million due 2023 and $750 million due 2026. Their combined net carrying value was $994.6 million; a separately recognized $295.7 million derivative liability related to the 2026 Notes.
Material changes versus the prior comparable period
- Total revenue was down 0.6%, despite subscription growth, as product revenue and hardware sales declined. Management attributed the product decline mainly to the shift to term-based subscription licenses and customers buying hardware directly from OEMs.
- Operating loss narrowed by $38.3 million, with operating expenses down 8% to $426.9 million. Sales and marketing expense fell 12%, primarily due to pandemic-related reductions and changes to sales compensation. Research and development expense decreased 2%.
- Net loss increased by $35.7 million, principally because other expense rose to $78.7 million. This included a $64.7 million non-cash fair-value loss on the 2026 Notes’ embedded derivative and additional note-related interest expense.
- Cash used in operations improved by $22.1 million year over year. Free cash flow remained negative. Investing cash outflow was $428.7 million, largely reflecting purchases of short-term investments, not solely operating investment.
- The company issued $750 million of 2.5% convertible notes due 2026 to a Bain Capital affiliate, receiving net proceeds of about $723.8 million. It repurchased 5.2 million shares for $125 million at an average $24.15 per share; the authorization expired with no remaining amount.
Outlook, commentary, risks and unusual items
The filing provides no numerical revenue or earnings guidance. Management expects operating and free cash flow to remain negative over the next 12 months, but believes cash, cash equivalents and short-term investments are sufficient for anticipated working-capital and capital-expenditure needs over that period. Management expects expenses to rise from pandemic-suppressed levels as hiring resumes and temporary salary, bonus and travel cost reductions expire.
COVID-19 created uncertainty around customer demand and IT spending, sales-cycle length, collections and payment terms, hardware supply and component costs, and the ability to deliver on-site services. The company also reported increased demand for virtual desktop and end-user computing products. Its subscription transition may affect the timing and amount of billings, revenue and cash flow; management noted that customer requests for shorter terms or lower upfront payments could add pressure.
Other notable items include $2.8 million of lease-related impairment charges in the quarter, with possible further impairments; up to $57.5 million of purchase obligations and other commitments and $63.5 million of OEM guarantees; and securities class-action litigation seeking unspecified damages. The court denied a motion to dismiss certain allegations, and the company said it could not determine any potential liability. The filing reports no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether subscription growth and rising deferred revenue translate into durable recognized revenue and improved cash generation, given lower total billings.
- How much of the larger GAAP net loss reflects the non-cash derivative remeasurement versus recurring operating and financing costs.
- The terms, conversion mechanics and potential dilution or cash obligations of both convertible note issues, including the 2026 Notes’ milestone-linked conversion-price adjustment.
- Whether operating cash burn and planned expense normalization remain consistent with management’s liquidity assessment.
- The impact of COVID-19, hardware availability and customer contract-term changes on sales cycles, collections and future results.
- Developments in the securities class action and any resulting financial exposure.