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Why Is Nutanix (NTNX) Up 20% Since Last Earnings Report?

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A month has gone by since the last earnings report for Nutanix (NTNX - Free Report) . Shares have added about 20% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Nutanix due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Nutanix Q1 Earnings & Revenues Surpass Estimates

Nutanix incurred first-quarter fiscal 2021 adjusted loss of 44 cents per share, beating the Zacks Consensus Estimate by 22.8%. Moreover, the figure was narrower than the year-ago quarter’s adjusted loss of 71 cents.

Revenues decreased 0.6% year over year to $312.8 million but beat the consensus mark by 4.8%.

Top-Line Details

Product revenues (49.8% of revenues) fell 19.1% year over year to $155.8 million. Support, entitlements & other services revenues (50.2% of revenues) grew 28.3% to $157 million.

Subscription revenues (88.9% of revenues) rose 27.7% from the year-ago quarter to $278.2 million. Professional services revenues (4.4% of revenues) grew 44.3% to $13.8 million.

The top line was primarily driven by growth in the company’s core hyperconverged infrastructure software and strong adoption of its new capabilities. The company also benefited from the strong adoption of its hybrid cloud solution on Amazon’s cloud platform, Amazon Web Services (AWS).

Non-Portable Software revenues (6.4% of revenues) plunged 74.2% year over year to $20 million. Moreover, hardware revenues (0.2% of revenues) plummeted 92.5% to $0.7 million.

Billings were down 11.9% year over year to $334.9 million. However, Annual Contract Value (ACV) billings were $137.8 million, up 9.8% year over year. Moreover, Nutanix’s run-rate ACV grew 29% year over year to $1.3 billion.

During the fiscal first quarter, the company added 680 new customers, bringing the total number of clients to 18,040.

Notable customer wins in the reported quarter included members of the Global 2000 companies, such as Allianz (China) Insurance Holding, HCL Technologies Limited, CaixaBank, Nomura Research Institute, Teleperformance Colombia, Royal Vopak, and more.

Moreover, the company partnered with Microsoft to deliver hybrid cloud solutions and unified management across on-premises and Azure environments, using Nutanix HCI (Hybrid Cloud Infrastructure) on Azure.

Further, Nutanix added several new capabilities to its hyperconverged infrastructure software. The new additions are expected to speed up the performance by up to 50% and deliver simplified Zero-Trust security along with enhanced cloud services.

The company also introduced enhancements to the Database-as-a-Service Solution (Era) and launched the Kubernetes-based PaaS solution (Karbon Platform Services). It also revealed Elevate, a new global cloud partner program, which uses a consistent set of tools and resources across its entire partner base.

Operating Details

In the fiscal first quarter, Nutanix’s non-GAAP gross margin expanded 180 basis points (bps) year over year to 81.9%.

Sales & marketing, on a non-GAAP basis and as a percentage of revenues, declined to 71.8% from 83.7% in the year-ago quarter. Research & development expenses, as a percentage of revenues, fell 150 bps to 30.5%. Moreover, general & administrative expenses, as a percentage of revenues, declined 20 bps to 6.9%.

Operating expenses, on a non-GAAP basis and as a percentage of revenues, declined to 109.1% from 122.7% in the year-ago quarter.

As a result, the non-GAAP operating loss narrowed from $134.2 million to $85.2 million in the reported quarter.

Balance Sheet & Cash Flow

As of Oct 31, 2020, cash and cash equivalents plus short-term investments were $1.3 billion compared with $719.8 million as of Jul 31, 2020.

Cash used in operating activities was $4.1 million, significantly lower than $26.2 million in the year-ago quarter.

Free cash outflow was $16.3 million compared with the prior quarter’s $44.4 million.

Guidance

For second-quarter fiscal 2021, ACV billings are expected between $145 million and $148 million. Non-GAAP gross margin is expected to be around 81.5%. Further, non-GAAP operating expenses are expected between $360 million and $370 million.

Management expects the top line to be driven by increased demand for its hyperconverged solutions and automation services. Also, the ongoing shift to cloud solutions due to the coronavirus-induced remote working environment is expected to serve as a key catalyst.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Nutanix has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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. Notably, Nutanix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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