It has been about a month since the last earnings report for Nutanix (NTNX). Shares have lost about 15.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Nutanix due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Nutanix’s Q1 Earnings and Revenues Beat Estimates
Nutanix reported non-GAAP first-quarter fiscal 2023 earnings of 3 cents per share, significantly narrower than the Zacks Consensus Estimate of a loss of 12 cents and a year-ago quarter’s loss of 22 cents.
Nutanix reported revenues of $433.6 million, beating the Zacks Consensus Estimate of $413.1 million. The top line climbed 15% from the year-ago quarter’s figure of $378.5 million. NTNX noted that the average contract term length declined to 3.0 years from 3.1 years in the year-ago quarter, primarily due to higher federal businesses that usually have shorter contract term lengths.
During the fiscal first quarter, Nutanix’s Annual Contract Value (ACV) billings jumped 27% to $231.9 million.
Top-Line Details
Product revenues (48.1% of revenues) increased 15.8% year over year to $208.6 million. Support, entitlements & other services revenues (52 % of revenues) grew 13% to $225 million.
The top line was primarily driven by growth in NTNX’s core hyper-converged infrastructure software and the solid adoption of its new capabilities. Nutanix continues to witness a strong adoption of its hybrid multi-cloud solutions across Fortune 100 and Global 2000 companies.
Subscription revenues (92.9% of revenues) climbed 19% from the year-ago quarter’s figure to $402.9 million. However, professional services revenues (5.1% of revenues) declined 7.5% to $22.3 million.
Non-Portable Software revenues (1.8% of revenues) plunged 45.5% year over year to $7.8 million. Hardware revenues (0.1% of revenues) slumped 71.2% to $624 million.
Billings were up 18% year over year to $469.7 million. Annual Recurring Revenues climbed 34% to $1.28 billion.
During the fiscal first quarter, Nutanix added 530 customers, taking the total number of clients to 23,130.
Operating Details
During the fiscal first quarter, Nutanix’s non-GAAP gross margin expanded 130 basis points (bps) year over year and 80 bps sequentially to 83.4%.
Non-GAAP operating expenses decreased 0.4% year over year to $351.1 million.
Balance Sheet & Cash Flow
As of Oct 31, 2022, cash and cash equivalents plus short-term investments were $1.39 billion, up from $1.32 billion at the end of fourth-quarter fiscal 2022.
During the first quarter of fiscal 2023, cash utilized through operating activities was $65.5 million and free cash flow was $45.8 million.
Outlook
For the second quarter of fiscal 2023, Nutanix expects ACV billings between $245 million and $250 million. Revenues are estimated between $460 million and $470 million.
Non-GAAP gross margin is estimated to be in the 82-83% range. Non-GAAP operating margin is expected in the band of 5-10%.
For the full fiscal 2023, NTNX expects ACV billings between $895 million and $900 million. Revenues are estimated in the range of $1.77-$1.78 billion.
Non-GAAP gross margin is estimated to be 82-83% for fiscal 2023. Non-GAAP operating margin is projected in the range of 2-4%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 26.11% due to these changes.
VGM Scores
At this time, Nutanix has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Nutanix has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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