Nutanix, Inc. — Q3 FY2024 Form 10-Q
Reporting period: Quarter and nine months ended April 30, 2024. Amounts are in U.S. dollars; financial statement figures are unaudited. Comparisons are with the same periods in 2023 unless noted.
Business context
Nutanix provides enterprise cloud software and services for on-premises, edge, hybrid- and multicloud environments. It primarily sells through channel and OEM partners and operates a subscription-based business. As of April 30, 2024, it reported 25,860 end customers, including approximately 1,040 Global 2000 enterprises.
Financial performance
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Revenue | $524.6m | $448.6m | $1,600.9m | $1,368.7m |
| Gross profit / margin | $445.0m / 84.8% | $366.2m / 81.6% | $1,357.7m / 84.8% | $1,117.0m / 81.6% |
| Operating income (loss) | $(11.6)m | $(58.6)m | $19.8m | $(195.8)m |
| Net income (loss) | $(15.6)m | $(71.0)m | $1.3m | $(241.3)m |
| Operating cash flow | $96.4m | $74.5m | $428.2m | $214.1m |
| Free cash flow (non-GAAP) | $78.3m | $52.7m | $373.4m | $161.5m |
- Q3 revenue increased 16.9%; product revenue rose 20% to $255.5m and support, entitlements and services revenue rose 14% to $269.1m. Subscription revenue was $486.6m.
- Q3 GAAP operating margin improved to (2.2)% from (13.1)%; non-GAAP operating income was $73.3m, versus $17.2m, and non-GAAP operating margin was 14.0%, versus 3.8%.
- Nine-month non-GAAP operating income was $276.6m, compared with $97.4m. Non-GAAP measures exclude specified items, including stock-based compensation; they are not substitutes for GAAP results.
- Q3 diluted loss per share was $0.06, compared with a $0.30 loss. Nine-month diluted earnings per share were $0.05, compared with a $1.04 loss.
Liquidity, debt and capital
- At April 30, 2024, cash and cash equivalents were $598.0m, short-term investments $1,053.4m, restricted cash $2.1m, and accounts receivable $225.3m. Cash, cash equivalents and short-term investments totaled $1,651.4m.
- Total liabilities were $3,394.4m, including $1,272.0m of convertible notes, net, and $1,747.5m of deferred revenue. Stockholders’ deficit was $619.5m.
- Operating cash flow for the nine months increased to $428.2m. Free cash flow, as defined by Nutanix, was $373.4m. Management stated that available liquidity and operating cash flow were expected to meet anticipated needs for at least 12 months, while noting cash flows may fluctuate.
- The company repurchased $106.1m of stock in the nine months under a $350m authorization; $243.9m remained available at April 30.
Changes, outlook and risks
- Growth and margins improved year over year, while GAAP profitability remained mixed: Q3 was still loss-making, but the nine-month period recorded slight net income. Higher revenue and improved gross margins contributed; sales and marketing and R&D expenses increased in dollars, while G&A expense declined, primarily reflecting lower litigation-related costs.
- ARR was $1,820.2m at April 30, up from $1,467.2m a year earlier. Q3 total billings were $557.3m and ACV billings $288.9m; the filing reports no formal financial guidance in the provided text.
- Management plans to invest in long-term growth and product development while improving cash generation through go-to-market efficiencies and expense management. It expects sales and marketing spending to decline over time as a percentage of revenue. Management warned that larger deal opportunities take longer to close and may increase variability in new and expansion business; sales productivity also depends on ramping newer sales staff.
- Material subsequent event: On June 6, 2024, the holder elected to convert all outstanding 2026 Notes, requiring $817.6m cash and approximately 16.9m shares, subject to regulatory approvals and expected settlement in the quarter ending July 31, 2024. Nutanix expects to fund the cash portion from existing liquidity. The company cautioned that the conversion will use a significant portion of liquidity and dilute existing holders.
- Controls: A previously identified material weakness in internal control over financial reporting had not been fully remediated as of April 30; disclosure controls were therefore deemed ineffective. Management said remediation measures were implemented but remained under testing. The related prior-period software-license expense error was assessed as immaterial and corrected prospectively.
- Other exposures: At April 30, purchase obligations and other commitments were up to $109.0m, with $76.7m of guarantees to contract manufacturers. Nutanix reported no legal proceedings it believed material at the filing date; a previously accrued $71m securities settlement was paid in October 2023. Foreign-exchange exposure and reliance on partners and suppliers are additional risks.
Key facts for investors to verify
- Completion and exact cash and share settlement of the 2026 Notes conversion, including the resulting liquidity and dilution.
- Whether revenue, ARR and billings growth continue, and how larger-deal timing affects renewals and new business.
- Progress in remediating and testing controls, and any further financial-statement corrections or disclosures.
- Cash generation after the conversion, alongside stock repurchases, capital spending and contractual commitments.
- GAAP profitability and the scale and persistence of stock-based compensation and other exclusions from non-GAAP results.