Nutanix, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended July 31, 2020. The filing is an annual report, not a standalone “2019 Q4” filing; it also reports the quarter ended July 31, 2020.
Business context
Nutanix sells enterprise cloud software and services for private, hybrid and multicloud environments. It is shifting from appliance and hardware-related sales toward software-only offerings and subscriptions. Most sales are made through channel partners and OEMs.
Key financial metrics
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $1.308 billion | $1.236 billion | +5.8% |
| Subscription revenue | $1.030 billion | $648.4 million | +58.9% |
| Gross profit / margin | $1.021 billion / 78.1% | $932.0 million / 75.4% | Margin +2.7 percentage points |
| Operating loss | $828.9 million | $598.0 million | Loss widened |
| Net loss | $872.9 million | $621.2 million | Loss widened |
| Operating cash flow | $(159.9) million | $42.2 million | Decreased |
| Free cash flow (non-GAAP) | $(249.4) million | $(76.3) million | More cash used |
| Total billings (non-GAAP) | $1.580 billion | $1.515 billion | +4.3% |
Subscription billings were $1.276 billion, up from $916.0 million; ACV billings were $505.2 million, up 17.9%. Deferred revenue reached $1.183 billion, compared with $910.0 million. Total end customers increased to approximately 17,360 from 14,180.
At July 31, 2020, cash, cash equivalents and short-term investments totaled $719.8 million. The balance sheet reported $490.2 million of net convertible notes and $1.183 billion of deferred revenue. Stockholders’ equity was negative $275.0 million. Management expected operating and free cash flow to remain negative over the next 12 months, but said available cash and investments should cover anticipated needs for at least that period.
For the July 2020 quarter, revenue was $327.9 million and net loss was $185.3 million, versus revenue of $299.9 million and net loss of $194.3 million in the comparable 2019 quarter.
Material changes and drivers
- Revenue growth slowed to 5.8% from 7.0% in FY2019, while the mix shifted substantially toward subscriptions and support.
- Product revenue declined 8% to $765.8 million, including lower hardware revenue as customers increasingly bought hardware directly from OEMs. Support, entitlements and other services revenue rose 34% to $541.9 million.
- Gross margin increased to 78.1%, largely reflecting a higher software mix. Operating expenses increased 21% to $1.850 billion; sales and marketing expense rose 28% to $1.160 billion.
- Subscription billings represented 80.8% of total billings, up 20 percentage points year over year. The average contract term declined to 3.8 years from 4.1 years.
- Cash from operations swung to an outflow, primarily reflecting the larger operating loss. Stock-based compensation was $352.0 million.
Outlook, commentary and risks
- The filing provides no numeric revenue or earnings guidance. Management expects continued investment in product development and growth over the longer term, while COVID-19 measures and expense controls may cause near-term spending to fluctuate or decline.
- COVID-19 created uncertainty around customer spending, sales-cycle length, collections, supply chains and hardware delivery. Remote-work demand supported virtual desktop and end-user computing offerings. The company implemented a hiring pause, executive salary reductions, paused merit increases and bonuses, and employee furlough or unpaid-leave periods.
- The subscription transition may weigh on reported revenue, billings and cash flow as contract terms shorten and some SaaS revenue is recognized over time. Beginning in FY2021, sales compensation shifted toward annual contract value, which management said could further shorten contract terms and adversely affect cash flows.
- Channel and distributor concentration is notable: Arrow represented 29% and Tech Data 14% of FY2020 revenue. The company also relies on OEMs and third-party manufacturers for appliance supply.
- In August 2020, Nutanix entered an agreement for a proposed $750 million, 2.5% convertible note issuance due 2026, subject to closing conditions. It also authorized a stock repurchase program of up to $125 million. These are post-year-end developments, not FY2020 operating results.
- CEO Dheeraj Pandey planned to retire after a successor was selected. The filing also describes securities and shareholder derivative litigation; outcomes and potential liabilities were not determinable.
Most important facts for investors to verify
- Whether subscription growth, renewals and ACV billings can offset shorter contract terms and slower reported revenue growth.
- The drivers and expected duration of negative operating and free cash flow, including the impact of customer payment terms and deferred revenue.
- Closing and final terms of the proposed $750 million 2026 notes, and resulting interest, conversion and dilution exposure.
- Exposure to major distributors and OEMs, including the ability to maintain sales and supply amid COVID-19 disruptions.
- Progress on CEO succession and the status and potential financial impact of the securities and derivative lawsuits.