Nutanix, Inc. — Form 10-Q Summary
Period: The filing covers the quarter and nine months ended April 30, 2021, Nutanix’s fiscal 2021 third quarter. The request metadata says “2020 Q3,” which does not match the filing period.
Business context and reporting period
Nutanix provides enterprise cloud software and services for private, hybrid and multicloud environments. Sales are primarily made through channel partners and OEMs. The company continued shifting toward subscription software and away from appliance-linked, non-portable software and hardware sales.
Financial results and liquidity
| Metric | Three months ended Apr. 30, 2021 | Nine months ended Apr. 30, 2021 |
|---|---|---|
| Revenue | $344.5 million | $1,003.6 million |
| Gross profit / GAAP gross margin | $270.0 million / 78.4% | $790.3 million / 78.7% |
| Operating loss | $180.6 million | $518.9 million |
| Net loss | $123.6 million | $676.1 million |
| Net loss per share | $0.60 | $3.31 |
| Operating cash flow | $(55.6) million | $(75.2) million |
| Free cash flow (non-GAAP) | $(71.5) million | $(116.3) million |
Quarterly revenue increased 8% year over year; nine-month revenue increased 2%. Subscription revenue was $307.3 million for the quarter and $891.4 million for the nine months. Total billings, a non-GAAP performance measure, were $371.1 million for the quarter and $1,091.6 million for the nine months.
As of April 30, 2021, cash and cash equivalents were $274.7 million and short-term investments were $980.1 million, totaling approximately $1.255 billion. Current assets were $1.567 billion and current liabilities were $861.1 million. Convertible notes had a net carrying value of $1.038 billion; the balance sheet also reported a $312.3 million derivative liability. Stockholders’ deficit was $746.8 million.
Changes versus the prior comparable periods
- Quarterly revenue grew from $318.3 million to $344.5 million, while nine-month revenue grew from $979.8 million to $1,003.6 million. Product revenue fell 5% for the quarter and 14% for the nine months; support, entitlements and services revenue rose 25% and 27%, respectively.
- GAAP gross margin improved from 77.3% to 78.4% for the quarter and from 77.6% to 78.7% for the nine months, primarily reflecting a greater software mix and improved support-services margin.
- Quarterly operating loss narrowed from $230.2 million to $180.6 million; nine-month operating loss narrowed from $657.6 million to $518.9 million. Sales and marketing expense declined, reflecting lower travel and marketing costs, lower sales headcount and deferred commissions under revised sales compensation plans.
- Quarterly net loss narrowed from $240.7 million to $123.6 million. Other income included an $85.0 million favorable change in the 2026 Notes derivative liability fair value; over the nine-month period, the derivative remeasurement instead contributed $81.4 million of expense.
- Nine-month operating cash use improved from $163.5 million to $75.2 million, which management attributed mainly to lower operating expenses and billing-collection timing. The company issued $750 million principal amount of 2026 convertible notes in 2020 and repurchased $125.0 million of stock during the nine months.
Outlook, risks and unusual items
- Management expects operating and free cash flow to remain negative over the next 12 months, but believes cash, cash equivalents and short-term investments will cover anticipated needs for at least that period. No specific revenue or earnings forecast is provided in the supplied filing text.
- Management expects continued subscription-model transition. Shorter contract terms, changes in upfront payment behavior and the resulting timing of billings, revenue and cash flows may affect reported results. The weighted average contract term for period billings was 3.3 years for the quarter, versus 3.8 years in the prior-year quarter.
- COVID-19 created risks including reduced or delayed customer spending, longer sales cycles, supply-chain constraints, cybersecurity exposure and disruption to product delivery. It also supported demand for remote-work and end-user computing products. Management said some expense savings were temporary.
- Management cited higher-than-normal sales-representative attrition; about 75% of the global sales team was fully ramped at quarter-end. It also reported a 2.5% global headcount reduction, primarily in sales and marketing. Sales productivity and replacement/ramp timing remain risks.
- Two channel partners represented 33% and 15% of quarterly revenue, respectively, highlighting partner concentration. OEM commitments included approximately $66.4 million of non-cancelable purchase obligations and approximately $66.4 million of guarantees.
- A securities class action remains pending, alleging certain statements about new-customer growth and sales productivity; the company says it cannot determine any resulting liability. A separate options-related class action was filed on May 28, 2021. The filing reports no other legal proceedings believed material.
- The 2026 Notes’ conversion feature is accounted for as a derivative liability and is remeasured each reporting period, causing potentially significant non-cash earnings volatility. The 2023 Notes have $575 million principal due in January 2023; the 2026 Notes have $750 million original principal, plus accrued paid-in-kind interest, due in 2026.
- Operating lease-related impairment charges were $2.8 million in the first quarter of fiscal 2021. Management said further impairment charges may occur. The filing also describes a CEO transition during fiscal 2021.
Important facts for investors to verify
- Confirm the intended reporting period: this is the quarter ended April 30, 2021, not 2020 Q3.
- Track subscription revenue and billings alongside GAAP revenue, and assess the effects of contract length and upfront payment trends on cash conversion.
- Review the size and volatility of the 2026 Notes derivative liability, note interest costs, conversion terms and the 2023 Notes’ 2023 maturity.
- Assess whether negative operating and free cash flow improve as management expects, and monitor liquidity against debt, lease and OEM commitments.
- Monitor partner and OEM concentration, supply availability, sales-team attrition and productivity, and developments in the securities litigation.