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Why Is Nutanix (NTNX) Up 24.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Nutanix (NTNX). Shares have added about 24.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Nutanix due for a pullback? 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 Q3 Loss Narrower Than Expected, Revenues Beat

Nutanix incurred third-quarter fiscal 2021 adjusted loss of 41 cents per share, significantly narrower than the Zacks Consensus Estimate loss of 47 cents per share. Moreover, the figure is narrower than the year-ago quarter’s adjusted loss of $1.22.

Revenues increased 8% year over year to $344.5 million and surpassed the consensus mark $336.6 million. However, the company noted that the ongoing transition to a subscription-based business model led to a decline in the average contract term to 3.3 years from 3.4 years in second-quarter fiscal 2021. This, in turn, adversely impacted the top-line performance.

Top-Line Details

Product revenues (50% of revenues) fell 4.7% year over year to $172.3 million. Support, entitlements & other services revenues (50% of revenues) grew 25.2% to $172.2 million.

Subscription revenues (89.2% of revenues) rose 17.8% from the year-ago quarter to $307.3 million. Professional services revenues (5.6% of revenues) jumped 67.7% to $19.5 million.

The top line was primarily driven by growth in the company’s core hyper-converged infrastructure software and the solid adoption of its new capabilities. The company also benefited from the strong adoption of its hybrid cloud solution on Amazon’s cloud platform, Amazon Web Services (AWS).

Non-Portable Software revenues (4.9% of revenues) plunged 60% year over year to $16.7 million. Moreover, hardware revenues (0.3% of revenues) plummeted 74.2% to $0.98 million.

Billings were down 3.2% year over year to $371.1 million. However, Annual Contract Value (ACV) billings were $159.9 million, up 18% year over year. Moreover, Nutanix’s run-rate ACV grew 25% year on year to $1.45 billion.

During the fiscal third quarter, the company added 660 customers, bringing the total number of clients to 19,430.

Apart from the U.S. Air Force, the company added some notable Global 2000 customers, including India-based ICICI Bank Limited, Alimentation Couche-Tard (operator of the Circle K brand), NTT Communications Corporation, and Sony Device Technology (Thailand) Co., Ltd.

Apart from this, the company’s partnership with Microsoft, to deliver hybrid cloud solutions and unified management across on-premises and Azure environments, is a positive.

Operating Details

During the fiscal third quarter, Nutanix’s non-GAAP gross margin expanded 100 basis points (bps) year over year to 81.7%.

Operating expenses declined 7.4% year over year to $361.5 million.

Balance Sheet & Cash Flow

As of Apr 30, 2021, cash and cash equivalents plus short-term investments were $1.25 billion, down slightly from $1.29 billion at the end of second-quarter fiscal 2021.

Cash used in operating activities was $55.6 million, significantly lower than $84.9 million in seen the year-ago quarter. Free cash outflow was $71.5 million compared with the prior quarter’s $117.5 million.

During the first nine months of fiscal 2021, the company used $75.2 million cash in operational activities and has a free cash outflow of $116.3 million.

Guidance

For fourth-quarter fiscal 2021, ACV billings are projected between $170 million and $175 million. Non-GAAP gross margin is estimated to be in the range of 81.5% to 82%. Further, non-GAAP operating expenses are expected between $380 million and $385 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Nutanix has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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.


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