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Nutanix (NTNX) Q3 Loss Narrower than Expected, Stock Up

Nutanix Inc. NTNX reported loss of 77 cents per share (including stock-based compensation) in the third quarter, which was narrower than the Zacks Consensus Estimate of a loss of 86 cents.

The company reported loss of 42 cents per share (excluding stock-based compensation), which was wider than 33 cents reported in the year-ago quarter. However, the loss figure was much narrower than management’s guided range of 45–48 cents.

Revenues surged 67.2% from the year-ago quarter to almost $191.8 million, driven by 59.1% and 96.6% growth in product and support & other services revenues to $143.1 million and $48.6 million, respectively. The revenue figure was better than management’s guided range of $180–$190 million.

Shares surged more than 16% in after-hour trading. Notably, since its Initial Public Offering (IPO) on Sep 30, 2016, the share price has declined 47.1% as compared with the Zacks It-Services industry’s gain of 5.5%.



We expect the stock price to rebound driven by recovery in North American sales productivity, growing global 2000 customer base, solid bookings and strong adoption of Acropolis Hypervisor (AHV).

The company’s continues to ink partnerships and license agreements with established players like Cisco CSCO, Hewlett Packard HPE and International Business Machines IBM, which is a key growth driver in the long haul.
 

Nutanix Inc. Price, Consensus and EPS Surprise

 

Nutanix Inc. Price, Consensus and EPS Surprise | Nutanix Inc. Quote

North American Sales Productivity Improves

Billings were up 46.8% year over year to $234.1 million (29% from new customer, 71% from existing customers), reflecting strength in the company’s expanding product portfolio as well as recovery in North American sales productivity.

The billings growth was positively impacted by higher-than-expected large deals (contract worth $500,000). The company noted that two deals were greater than $5 million and 34 deals were bigger than $1 million in the quarter.

Meanwhile, international bookings declined 38% of total bookings in the quarter as compared with 48% in the previous quarter. The bill-to-revenue ratio was 1.22 lower than the normal range of 1.25 to 1.3.

Dell OEM business accounted for over 20% of the company’s ending backlog. The company also noted that the Lenovo business increased sharply in the reported quarter.

Based on the Dell partnership, Nutanix continues to add Global 2000 customers. Notably, penetration into total Global 2000 climbed 10% from the previous quarter to 521.

Partnerships, License Agreements Key Catalyst

AHV continued to gain strong adoption, with AHV nodes as a percentage of total nodes improved to 23% compared with 21% in the previous quarter. The company’s solutions are now available on Hewlett Packard ProLiant servers and Cisco UCS B-Series blade servers.

Moreover, the combination of Nutanix’s enterprise cloud operating system with IBM’s power systems will deliver the industry’s first non-x86 hyperconverged solution, which aims cognitive applications and big data workloads in large enterprises.

The company noted that almost 50% of the new customer workloads are considered tier-1 business-critical applications. This includes Microsoft’s SQL server, Oracle, SAP, Microsoft Exchange, Hadoop and Splunk.

Nutanix added 790 new customers during the quarter bringing total end-customer count to 6,170 at the end of the reported quarter.

Higher DRAM, NAND Price Hurts Gross Margin

Gross margin (including stock-based compensation) was 56.8%. Excluding stock-based compensation gross margin     contracted 560 basis points (bps) from the year-ago quarter to 56.6%. This was primarily due to higher memory costs (DRAM and NAND) in the quarter.

Research & Development (R&D) as percentage of revenues surged to 38.9% as compared with 27.4% from the year-ago quarter, reflecting continued investments on product development.

Sales & Marketing (S&M) and General & administrative (G&A) expenses as percentage of revenues increased 60 bps and 50 bps from the year-ago quarter to 66.8% and 8.1%, respectively.

As a result, operating loss (excluding stock-based compensation) widened to $59 million as compared with a loss of $44.7 million in the year-ago quarter. Including stock-based compensation, operating loss was $109.4 million.

Cash Burn Continues

At the end of the quarter, Nutanix had cash & cash equivalents of $350.3 million, down from $355 million in the prior quarter.

Nutanix continued to burn cash in the quarter with outflow of $16 million. Free cash outflow was $29.2 million during the quarter.

Guidance

For fourth-quarter fiscal 2017, revenues are anticipated to be in the range of $215–$220 million. The Zacks Consensus Estimate is pegged at $187.4 million for the quarter.

Non-GAAP gross margin is expected to be almost 58%. Higher DRAM prices will continue to hurt margin expansion. Moreover, management forecasts operating expenses to increase by at least $10 per quarter over the next few quarters due to anticipated headcount increases.

Management forecasts non GAAP net loss of 38 cents per share for fourth-quarter fiscal 2017.

Zacks Rank

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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