Nutanix, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended October 31, 2022; comparisons are to the three months ended October 31, 2021. Financial statements are unaudited. Nutanix provides enterprise cloud software and services, primarily through channel and OEM partners, and continues its shift toward subscription-based sales.
Financial performance
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Revenue | $433.6 million | $378.5 million |
| Subscription revenue | $402.9 million | $337.9 million |
| Total billings | $469.7 million | $398.0 million |
| ARR | $1,280.6 million | $952.6 million |
| Gross margin (GAAP) | 81.0% | 78.5% |
| Operating loss (GAAP) | $80.3 million | $137.3 million |
| Net loss | $99.1 million | $419.9 million |
| Operating cash flow | $65.5 million | $6.9 million |
| Free cash flow (non-GAAP) | $45.8 million | $(1.9) million |
Revenue grew 14.6% year over year, versus 21.0% in the comparable quarter. Subscription billings were $441.4 million, up from $359.3 million. Non-GAAP operating income was $10.6 million, or a 2.4% margin, compared with a non-GAAP operating loss of $41.9 million, or an 11.1% negative margin. GAAP net loss per share was $0.43, compared with $1.95.
The much smaller net loss largely reflects prior-year unusual charges: a $198.0 million change in fair value of the 2026 Notes derivative liability and a $64.9 million debt-extinguishment loss. The derivative was reclassified to equity in September 2021; neither item recurred in the current quarter.
Liquidity, debt and balance sheet
- At October 31, 2022, cash and cash equivalents were $480.6 million and short-term investments were $907.4 million; restricted cash was $2.9 million. Cash, cash equivalents and short-term investments totaled $1.388 billion.
- Operating cash flow improved to $65.5 million. Capital expenditures were $19.7 million; free cash flow, as defined by Nutanix, was $45.8 million.
- Convertible notes had $1.508 billion aggregate principal outstanding: $145.7 million of 0% notes due January 2023, $750 million of 2.5% notes due 2026 (with paid-in-kind interest), and $575 million of 0.25% notes due 2027. Nutanix intends to settle the 2023 Notes’ principal in cash.
- Total assets were $2.357 billion, total liabilities $3.148 billion, and stockholders’ deficit $791.0 million. Deferred revenue was $1.482 billion.
- Management believes cash, cash equivalents and short-term investments will meet anticipated working-capital and capital-expenditure needs for at least 12 months, while noting cash flow may fluctuate.
Changes, outlook and risks
- Gross margin improved to 81.0%, supported by a higher mix of software-only sales and growth in support and services revenue. Product revenue rose 16%; support, entitlements and services revenue rose 13%.
- Revenue growth slowed year over year. Management attributed product growth to software renewals and adoption, partly offset by shorter average contract terms: approximately 3.0 years versus 3.1 years a year earlier.
- In August 2022, Nutanix announced a planned reduction of approximately 270 employees, about 4% of its workforce. It had recognized $17.0 million in total restructuring charges by October 31, including $5.8 million in the quarter; $5.8 million remained accrued. No material future charges were expected.
- Management cited sales-team attrition and staffing below target: approximately 73% of sales personnel were fully ramped. Hiring, training and productivity gains take time. The company plans to pursue profitable growth through go-to-market efficiencies while continuing longer-term investment in R&D.
- Supply-chain delays, macroeconomic uncertainty, customer spending and sales-cycle variability may affect orders and delivery. The subscription transition can shift the timing of billings, revenue and cash flows. The filing provides no specific numerical forward guidance.
- Contracted revenue not yet recognized was approximately $1.6 billion; Nutanix expects about 55% to be recognized within 12 months. Some contracted performance obligations are cancellable.
- Two securities class actions remain pending; defendants moved to dismiss in November 2022. Nutanix recorded an estimated-loss accrual based on a settlement offer and a corresponding estimated insurance recovery; both estimates may change.
- Purchase obligations and other commitments were up to $96.7 million, with up to $79.3 million of guarantees to contract manufacturers. A hypothetical 10% weakening of the U.S. dollar would have increased quarterly operating loss by approximately $19.0 million, according to the filing’s sensitivity analysis.
Important facts for investors to verify
- Whether billings, ARR and subscription growth continue, and how they translate into recognized revenue and cash flow as contract terms shorten.
- The cash funding and settlement of the $145.7 million 2023 Notes at maturity, alongside longer-dated convertible debt obligations.
- Execution of the workforce reduction and sales-team hiring and ramp plans, including restructuring costs and effects on growth.
- Customer and partner concentration: Partner A represented 32% of quarterly revenue; Partners B and C represented 13% and 17%, respectively.
- Developments in the securities litigation, the related estimated accrual and recovery, and the impact of supply-chain and macroeconomic conditions.