Nutanix’s Subscription Model Delivers Results

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Enterprise cloud computing player Nutanix (Nasdaq: NTNX) recently announced its fiscal year results that outpaced market expectations. The company’s strong performance helped drive the stock 21% higher in the after-hours trading session.

Nutanix’s Financials

For the fourth quarter, revenues fell 1% to $385.5 million, but were significantly ahead of the market’s forecast of $356.14 million. ACV billings grew 10% to $193.2 million. Net loss per share was $0.17, compared with the Street’s forecast of a loss of $0.39 per share.

By segment, Nutanix’s Product revenues grew 20.3% to $202.94 million while revenues from support, entitlements and other services fell 13.4% to $187.8 million.

For the full fiscal year, revenues grew 13% to $1.58 billion, and net loss was $0.46 per share.

For the current quarter, Nutanix forecast revenues of $410-$415 million compared with the market’s estimates of $374.84 million. For the fiscal year, it forecast revenues of $1.77-$1.78 billion compared with the market’s estimates of $1.65 billion.

Nutanix’s Cloud Expansion

Over the last few years, Nutanix has focused on transitioning from a hardware company into a software company and now to a subscription software company. I recently met with Dheeraj Pandey, Nutanix’s founder, who shared the very inspirational story behind the founding of Nutanix. You can read the interview here.

Nutanix appears to be reaping the long-term benefits of its subscription business model transition. It expects these benefits to continue into the coming years as renewals become a bigger share of its business. Its gross renewal rate is above 90%. During the last fiscal, it saw progress on its subscription model with 27% year-over-year ACV billings growth and achievement of positive free cash flow. A greater percentage of its growth is coming from renewals, which also improves profitability, while making revenue growth more predictable. Nutanix is focusing on driving profitability, and is aiming for a 10%-15% free cash flow margin by fiscal 2025. To help achieve this target, it is taking some cost control measures, including laying off of 4% of its workforce.

Meanwhile, the company continues to remain committed to the hybrid cloud model. Earlier this year, it released its latest upgrade to the core Nutanix hyperconverged infrastructure (HCI) software. The AOS 6.5 release provides improved performance, security, and integrated data services required for demanding database workloads and business critical applications. Nutanix AOS 6.5 incorporates a simplified packaging solution that can ease the process of ordering of its hybrid cloud infrastructure, multi-cloud management, unified storage, database, and desktop services solutions. Customers will now have access to integrated solutions with common per core licensing typical of modern cloud offerings. Additionally, licenses are fully portable for deployment at the edge, in the datacenter, or in AWS.?

As part of its cloud expansion, it also announced the release of Nutanix Cloud Clusters (NC2) on Microsoft Azure to public preview. The integration with Azure will expand its usage within the Microsoft cloud platform as well.

Its stock is currently trading at $22.47 with a market capitalization of $5.03 billion. It was trading at a 52-week high of $44.50 in August last year. It fell to a 52-week low of $13.44 in June.

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