Release Date: May 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nutanix Inc (NTNX, Financial) delivered a solid third quarter with results exceeding guidance across all metrics.
- Quarterly revenue reached $525 million, representing a year-over-year growth of 17%.
- Annual Recurring Revenue (ARR) grew 24% year-over-year to $1.82 billion.
- The company generated a strong free cash flow of $78 million, representing a 15% free cash flow margin.
- Nutanix Inc (NTNX) announced significant partnerships, including expanded collaborations with Dell and NVIDIA, enhancing their cloud platform and AI capabilities.
Negative Points
- The company continues to experience elongated sales cycles, particularly for larger deals, which can impact the timing and outcome of revenue recognition.
- Despite a strong pipeline, the new and expansion ACV and ARR performance year-to-date have been below initial expectations.
- The competitive landscape remains aggressive, with competitors like Broadcom displaying flexibility in pricing and packaging to retain customers.
- The transition to net share settlement for employee tax liabilities on RSU vesting has required significant cash outflows, totaling over $111 million year-to-date.
- The company's guidance for Q4 fiscal 2024 indicates a potential slowdown in non-GAAP operating margin compared to Q3, with a range of 9% to 10%.
Q & A Highlights
Q: Rajiv, can you discuss the decision to extend AHV to support compute-only nodes and its potential impact on customer decisions and investments?
A: Rajiv Ramaswami, President, CEO & Director: The rationale is to allow faster entry into accounts by supporting existing storage arrays, enabling customers to transition to HCI architecture over time. This decision is factored into our current run rate and ongoing R&D expenses.
Q: Can you provide more details on the size of the 8-figure deal and its impact on free cash flow guidance?
A: Rukmini Sivaraman, Principal Accounting Officer & CFO: We are not commenting on the specific size beyond stating it is an 8-figure ACV deal. The total contract value was larger than expected, contributing to our raised free cash flow guidance of $520 million to $540 million for the full year.
Q: How is the partnership with Cisco progressing, and what traction are you seeing?
A: Rajiv Ramaswami, President, CEO & Director: We saw additional wins in Q3 and expect growing contributions from Cisco in Q4 and FY '25. Cisco's specialist sales team is familiar with the Nutanix offering, and we are encouraged by the partnership.
Q: How will you price AHV in environments with third-party storage, and does this open up opportunities for VMware customers to move to Nutanix?
A: Rajiv Ramaswami, President, CEO & Director: Pricing will be determined to facilitate the transition to HCI. Initially, we are supporting Dell PowerFlex, with plans to add other IP-based storage arrays over time, opening opportunities for VMware customers.
Q: How has the pipeline for new and expansion business fared relative to expectations, given the longer sales cycles?
A: Rukmini Sivaraman, Principal Accounting Officer & CFO: The pipeline is strong, with significant growth in opportunities greater than $1 million in ACV. However, these larger deals are taking longer to close, affecting near-term performance.
Q: Given the longer time to close deals, does this change your outlook for FY '25?
A: Rukmini Sivaraman, Principal Accounting Officer & CFO: While we are not commenting on FY '25 today, we remain committed to driving top-line growth and strong free cash flow generation. We will provide initial FY '25 guidance on our next earnings call.
Q: What is driving the higher mix of larger deals, and has the demand environment changed materially?
A: Rajiv Ramaswami, President, CEO & Director: The larger deals are driven by broader market opportunities, an evolved platform, and competitive dynamics, including the Broadcom acquisition. The demand environment has seen increased engagement from large companies and partners.
Q: How are enterprise AI efforts influencing refresh activities and win opportunities?
A: Rajiv Ramaswami, President, CEO & Director: AI is part of new initiatives, with most customers in early proof-of-concept stages. Investments are more for validation rather than volume production, with a focus on modernizing on-prem infrastructure.
Q: Are there any changes in incentives for the channel to attract new logos?
A: Rajiv Ramaswami, President, CEO & Director: We incentivize channels for new logos, whether on-prem or in the public cloud. Our licensing and products are neutral to deployment location, focusing on new business acquisition.
Q: How are you addressing the variability in timing of larger deals in your guidance?
A: Rukmini Sivaraman, Principal Accounting Officer & CFO: We are putting more scrutiny on pipeline opportunities and their quality, closely monitoring duration and conversion rates. Our guidance philosophy remains unchanged, but we are adding more rigor to forecasting processes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
