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A month has gone by since the last earnings report for Nutanix (NTNX). Shares have lost about 10% in that time frame, underperforming 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 drivers.
Nutanix’s Q2 Earnings Surpass Estimates
Nutanix incurred second-quarter fiscal 2021 adjusted loss of 37 cents per share, beating the Zacks Consensus Estimate by 21.28%. Moreover, the figure was narrower than the year-ago quarter’s adjusted loss of 60 cents.
Revenues decreased 0.3% year over year to $346 million but beat the consensus mark by 5.26%.
Nutanix's ongoing transition to a subscription-based business model led to a year-on-year decline in the average contract term. This, in turn, adversely impacted the top line.
Product revenues (50.5% of revenues) fell 18.1% year over year to $174.8 million. Support, entitlements & other services revenues (49.5% of revenues) grew 28.8% to $171.6 million.
Subscription revenues (88.4% of revenues) rose 14.8% from the year-ago quarter to $305.9 million. Professional services revenues (5.1% of revenues) grew 38.9% to $17.5 million.
The top line was primarily driven by growth in the company’s core hyper-converged infrastructure software and the strong adoption of its new capabilities. The company also benefited from the strong adoption of its hybrid cloud solution on Amazon’s (AMZN) cloud platform, Amazon Web Services (AWS).
Non-Portable Software revenues (6.3% of revenues) plunged 63.3% year over year to $21.7 million. Moreover, hardware revenues (0.4% of revenues) plummeted 84.7% to $1.3 million.
Billings were down 10% year over year to $385.5 million. However, Annual Contract Value (ACV) billings were $159.2 million, up 14% year over year. Moreover, Nutanix’s run-rate ACV grew 27.8% year over year to $1.38 billion.
During the fiscal second quarter, the company added 730 customers, bringing the total number of clients to 18,770.
The company added 20 Global 2000 customers during the quarter. Notable customers include 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’s partnership with Microsoft (MSFT), to deliver hybrid cloud solutions and unified management across on-premises and Azure environments, is a positive.
In the fiscal second quarter, Nutanix’s non-GAAP gross margin expanded 130 basis points (bps) year over year to 82.7%.
Operating expenses declined 11% year over year to $354 million.
Balance Sheet & Cash Flow
As of Jan 31, 2021, cash and cash equivalents plus short-term investments were $1.29 billion, flat sequentially.
Cash used in operating activities was $15.6 million, significantly lower than $52.5 million in the year-ago quarter.
Free cash outflow was $28.5 million compared with the prior quarter’s $16.3 million.
For third-quarter fiscal 2021, ACV billings are expected between $150 million and $155 million. Non-GAAP gross margin is expected to be around 81%. Further, non-GAAP operating expenses are expected between $365 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, estimates review have trended upward during the past month. The consensus estimate has shifted 16.5% due to these changes.
Currently, Nutanix has a nice Growth Score of B, a grade with the same score on the momentum front. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been 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.