It has been about a month since the last earnings report for Nutanix (NTNX - Free Report) . Shares have lost about 9.7% in that time frame, outperforming 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 catalysts.
Nutanix Reports Q1 Results
Nutanix incurred first-quarter fiscal 2019 loss of 13 cents per share, narrower than the Zacks Consensus Estimate of 27 cents and the year-ago quarter’s loss of 16 cents.
Revenues increased 13.7% from the year-earlier quarter to $313.3 million and also beat the Zacks Consensus Estimate of $305 million. This top-line improvement can be attributed to growth in Software and support business.
Product revenues climbed 2.41% year over year to $224.35 million. Support, entitlements & other services revenues soared 57.42% to $88.94 million.
Total software and support revenues surged 44% from the year-ago quarter to $280.7 million.
During the reported quarter, about $104 million in pass-through hardware revenues were eliminated as a result of the company’s nearly-complete transition toward increasing software revenues.
Billings were up 21.7% year over year to $383.6 million. Software and Support billings rose 50% from the prior-year quarter to $351 million.
New customer bookings represented 24% of total bookings compared with 29% in the year-ago period. Software related bookings from the company’s international regions were 31% of the total software and support bookings compared with 28% in the year-ago quarter.
The bill to revenue ratio in the quarter under review was 1.22, lower than the company’s previous estimate of approximately 1.26 due to a change in product mix.
Nutanix sealed key deals with the likes of ABN AMRO Clearing Bank, AccorHotels, Airbus, Inchcape plc, JSE Limited, Shinsei Bank among other notables, thereby exiting the quarter with 11,490 end-customers.
Nutanix added 63 deals worth more than $1 million in the quarter under consideration, of which, three were above $5 million.
During the quarter under discussion, Nutanix’s Xi Leap Disaster Recovery Service hit the market.
The company also introduced the Nutanix Customer Journey, which starts with Nutanix Core to deliver a cloud-like experience within the customers’ datacenters, then moves to Nutanix Essentials, which utilizes its Core HCI offering to deliver an improved automation and IT efficiency, and finally, ends in Nutanix Enterprise to help customers migrate to hybrid and multicloud deployments with the company’s services.
Nutanix also added new features to its Beam platform including improved cost visibility and optimization capabilities to lend customers a better view of the entire infrastructure environment comprising public and private clouds, enabling them to choose the cloud that suits their needs best.
In the fiscal first quarter, the company reported non-GAAP gross margin of 78.6% compared with 61.9% in the year-ago quarter.
Research & Development (R&D) expenses as percentage of revenues increased 760 basis points (bps) to 25.4%. While Sales & Marketing (S&M) expenses also grew 760 bps to 55.3% and general & administrative (G&A) expenses rose 170 bps to 6.1%.
Operating loss widened to $25.9 million from a loss of $22.1 million in the year-ago quarter.
Balance Sheet & Cash Flow
As of Oct 31, 2018, cash and cash equivalents and short-term investments were $965 million, up from $934.3 million in the preceding quarter.
Cash flow from operations was $49.8 million compared with $22.7 million in the previous quarter.
Free cash flow was $20 million compared with a flow of $6.5 million in the prior quarter.
Deferred revenues jumped 72% year over year to $701.8 million in first-quarter fiscal 2019.
For the second quarter of fiscal 2019, revenues are projected between $325 million and $335 million.
Nutanix anticipates billings to be in the range of $410-$420 million.
Non-GAAP gross margin is predicted between 78% and 79%. Moreover, management forecasts operating expenses to be in the $300-$310 million band.
Nutanix forecasts non-GAAP loss per share to be 25 cents.
In the fiscal second quarter, the company intends to begin the transition process of its non-portable software sales to a recurring subscription-based licensing model, thus replacing the current licensing structure.
The company remains positive about the transition to software-based revenues as that is likely to expand its margins significantly, going forward.
However, insignificant changes in the pass-through hardware mix are anticipated in the forthcoming quarters for about a year. Nonetheless, the expected increase in gross margin might remain unaffected by the same.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Nutanix has a great Growth Score of A, 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 lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
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.