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Nutanix (NTNX) Q2 Loss Wider than Expected, View Disappoints
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Nutanix Inc. (NTNX - Free Report) share price fell 13.8% in after hour trading on Mar 2, after the company reported wider loss in second-quarter fiscal 2017. Moreover, the company’s third-quarter guidance failed to impress investors. Apart from facing seasonal impact, its results will be affected by higher memory costs and aggressive investments on product development.
Loss of 28 cents per share (excluding stock-based compensation) was wider than 26 cents reported in the year-ago quarter despite registering a strong top-line growth. However, the loss figure was much narrower than management’s guided range of 35–36 cents. Including stock-based compensation Nutanix reported loss of 65 cents per share.
Revenues surged 77.4% from the year-ago quarter to almost $182.2 million, driven by 70.5% and 103.5% growth in product and support & other services revenues to $138.5 million and $43.7 million, respectively.
Notably, since its Initial Public Offering (IPO) on Sep 30, the share price is down 17.8% as compared with the Zacks It-Services industry’s gain of 10.2%.
We expect the stock price to remain under pressure at least in the near term due to headwinds related to North American productivity issues, gross margin impact from increasing costs of NAND and DRAM along with intensifying competition from the likes of NetApp (NTAP - Free Report) and Hewlett Packard Enterprise in the hyper-converged market.
Quarter Details
Nutanix’s enterprise cloud platform “converges traditional silos of server, virtualization and storage into one integrated solution and can also connect to public cloud services.” The company’s offerings include two software products Acropolis and Prism, which are delivered on x86 servers.
Billings were up 58.6% year over year to $227.4 million (40% from new customers up from 35% in the previous quarter), reflecting strength in the company’s expanding product portfolio. The billings growth was negatively impacted by lesser-than-expected large deals (contract worth $500,000). Nutanix noted that North America productivity suffered due to realignment in the sales force.
Meanwhile, international bookings continued to remain strong representing a record 48% of total bookings in the quarter. The bill-to-revenue ratio was 1.25 in line with the normal range of 1.25 to 1.3, which the company expects to continue, going forward.
Acropolis Hypervisor (AHV) continued to gain strong adoption, with AHV nodes as a percentage of total nodes improving to 21% compared with 17% in the previous quarter. Management noted that certifications from Oracle (ORCL - Free Report) , SAP and Citrix are helping AHV to penetrate the enterprise market.
Based on the Dell partnership, Nutanix continues to add "Global 2000" customers. Moreover, the company’s software supports Cisco’s (CSCO - Free Report) Unified Computing System (UCS) servers, which is helping it to win more of these kinds of customers. Notably, penetration into total "Global 2000" surged 68% from the year-ago quarter to 473 at the end of the second quarter.
Nutanix added 200 new customers during the quarter bringing total end-customer count to 5,300 at the end of the reported quarter.
Operating Details
Gross margin (including stock-based compensation) contracted almost 500 basis points (bps) from the year-ago quarter to 58%. This was primarily due to higher memory costs (DRAM and NAND) in the quarter.
As percentage of revenues, Sales & Marketing (S&M) expense decreased 350 bps from the year-ago quarter. However, this was fully offset by higher Research & Development (R&D) and General & administrative (G&A) expenses.
R&D as percentage of revenues surged to 38.9% as compared with 25.3% from the year-ago quarter. Similarly, G&A expense as percentage of revenues increased 70 bps on a year-over-year basis.
As a result, operating loss (including stock-based compensation) widened to $91.4 million as compared with a loss of $35.2 million in the year-ago quarter.
Balance Sheet & Cash Flow
At the end of the quarter, Nutanix had cash & cash equivalents of $355 million, up from $347 million in the prior quarter. The company generated $20 million of cash flow from operations and free cash flow was $7 million during the quarter.
Guidance
For third-quarter fiscal 2017, revenues are anticipated to be in the range of $180–$190 million. The Zacks Consensus Estimate is pegged at $187.4 million for the quarter.
The third quarter is a seasonally slow quarter for Nutanix and management believes that the rebound in North American sales productivity will take some time. Moreover, DRAM prices are expected to increase 30% to 40%, which has forced the company to raise product prices recently. Given the uncertain impact of these increases, management now expects non-GAAP gross margin to be in the range of 57–58%.
Management expects lower gross margin forecast along with higher operating expenses to impact the bottom line. Loss is now anticipated to be in the range of 45–48 cents per share. The Zacks Consensus Estimate is currently pegged at a loss of 75 cents per share.
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Nutanix (NTNX) Q2 Loss Wider than Expected, View Disappoints
Nutanix Inc. (NTNX - Free Report) share price fell 13.8% in after hour trading on Mar 2, after the company reported wider loss in second-quarter fiscal 2017. Moreover, the company’s third-quarter guidance failed to impress investors. Apart from facing seasonal impact, its results will be affected by higher memory costs and aggressive investments on product development.
Loss of 28 cents per share (excluding stock-based compensation) was wider than 26 cents reported in the year-ago quarter despite registering a strong top-line growth. However, the loss figure was much narrower than management’s guided range of 35–36 cents. Including stock-based compensation Nutanix reported loss of 65 cents per share.
Revenues surged 77.4% from the year-ago quarter to almost $182.2 million, driven by 70.5% and 103.5% growth in product and support & other services revenues to $138.5 million and $43.7 million, respectively.
Nutanix Inc. Price, Consensus and EPS Surprise
Nutanix Inc. Price, Consensus and EPS Surprise | Nutanix Inc. Quote
Notably, since its Initial Public Offering (IPO) on Sep 30, the share price is down 17.8% as compared with the Zacks It-Services industry’s gain of 10.2%.
We expect the stock price to remain under pressure at least in the near term due to headwinds related to North American productivity issues, gross margin impact from increasing costs of NAND and DRAM along with intensifying competition from the likes of NetApp (NTAP - Free Report) and Hewlett Packard Enterprise in the hyper-converged market.
Quarter Details
Nutanix’s enterprise cloud platform “converges traditional silos of server, virtualization and storage into one integrated solution and can also connect to public cloud services.” The company’s offerings include two software products Acropolis and Prism, which are delivered on x86 servers.
Billings were up 58.6% year over year to $227.4 million (40% from new customers up from 35% in the previous quarter), reflecting strength in the company’s expanding product portfolio. The billings growth was negatively impacted by lesser-than-expected large deals (contract worth $500,000). Nutanix noted that North America productivity suffered due to realignment in the sales force.
Meanwhile, international bookings continued to remain strong representing a record 48% of total bookings in the quarter. The bill-to-revenue ratio was 1.25 in line with the normal range of 1.25 to 1.3, which the company expects to continue, going forward.
Acropolis Hypervisor (AHV) continued to gain strong adoption, with AHV nodes as a percentage of total nodes improving to 21% compared with 17% in the previous quarter. Management noted that certifications from Oracle (ORCL - Free Report) , SAP and Citrix are helping AHV to penetrate the enterprise market.
Based on the Dell partnership, Nutanix continues to add "Global 2000" customers. Moreover, the company’s software supports Cisco’s (CSCO - Free Report) Unified Computing System (UCS) servers, which is helping it to win more of these kinds of customers. Notably, penetration into total "Global 2000" surged 68% from the year-ago quarter to 473 at the end of the second quarter.
Nutanix added 200 new customers during the quarter bringing total end-customer count to 5,300 at the end of the reported quarter.
Operating Details
Gross margin (including stock-based compensation) contracted almost 500 basis points (bps) from the year-ago quarter to 58%. This was primarily due to higher memory costs (DRAM and NAND) in the quarter.
As percentage of revenues, Sales & Marketing (S&M) expense decreased 350 bps from the year-ago quarter. However, this was fully offset by higher Research & Development (R&D) and General & administrative (G&A) expenses.
R&D as percentage of revenues surged to 38.9% as compared with 25.3% from the year-ago quarter. Similarly, G&A expense as percentage of revenues increased 70 bps on a year-over-year basis.
As a result, operating loss (including stock-based compensation) widened to $91.4 million as compared with a loss of $35.2 million in the year-ago quarter.
Balance Sheet & Cash Flow
At the end of the quarter, Nutanix had cash & cash equivalents of $355 million, up from $347 million in the prior quarter. The company generated $20 million of cash flow from operations and free cash flow was $7 million during the quarter.
Guidance
For third-quarter fiscal 2017, revenues are anticipated to be in the range of $180–$190 million. The Zacks Consensus Estimate is pegged at $187.4 million for the quarter.
The third quarter is a seasonally slow quarter for Nutanix and management believes that the rebound in North American sales productivity will take some time. Moreover, DRAM prices are expected to increase 30% to 40%, which has forced the company to raise product prices recently. Given the uncertain impact of these increases, management now expects non-GAAP gross margin to be in the range of 57–58%.
Management expects lower gross margin forecast along with higher operating expenses to impact the bottom line. Loss is now anticipated to be in the range of 45–48 cents per share. The Zacks Consensus Estimate is currently pegged at a loss of 75 cents per share.
Zacks Rank & Key Picks
Currently, Nutanix carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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