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Why Is Nutanix (NTNX) Down 6.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Nutanix (NTNX). Shares have lost about 6.7% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Nutanix Q4 Loss Narrower Than Estimated, Revenues Beat

Nutanix reported fourth-quarter fiscal 2021 non-GAAP loss of 26 cents per share, significantly narrower than the Zacks Consensus Estimate of a loss of 43 cents per share. The figure was narrower than the year-ago quarter’s loss of 39 cents per share.

Nutanix reported revenues of $390.7 million beating the Zacks Consensus Estimate of $363.5 million. The top line improved 19% from the year-earlier quarter’s $327.9 million. The company noted that the ongoing transition to a subscription-based business model led to a decline in the average contract term to 3.4 years from 3.8 years in the year-ago quarter.

During the fourth-quarter fiscal 2021, the software company’s Annual Contract Value (ACV) billings jumped 26% to $176.3 million. New ACV bookings witnessed the highest year-over-year growth rate over the past two years.

Top-Line Details

Product revenues (51.9% of revenues) increased 13.3% year over year to $202.9 million. Support, entitlements & other services revenues (48.1% of revenues) grew 26.2% to $187.8 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. It benefited from the strong adoption of its hybrid cloud solution on Amazon’s cloud platform, Amazon Web Services (AWS). Nutanix continues to witness strong adoption of its hybrid multi cloud solutions across Fortune 100 and Global 2000 companies.

Subscription revenues (90% of revenues) rose 23.7% from the year-ago quarter to $352.2 million. Professional services revenues (6% of revenues) jumped 84% to $22.4 million.

Non-Portable Software revenues (3% of revenues) plunged 56.2% year over year to $12.9 million. Hardware revenues (1% of revenues) soared 130.5% to $3.2 million.

Billings were up 10.6% year over year to $429 million. The company’s run-rate ACV grew 26% year on year to $1.54 billion. Annual Recurring Revenue (ARR) climbed a whopping 83% to $878.7 million.

During the fiscal fourth quarter, the company added 700 customers, bringing the total number of clients to 20,130.

New ACV bookings from Emerging Products witnessed year-over-year growth of 100%. Geography wise, 65% of ACV bookings stemmed from America, 22% from Europe, Middle East and Africa, and 13% from Asia-Pacific and Japan.

Operating Details

During the fiscal fourth quarter, Nutanix’s non-GAAP gross margin contracted 10 basis points (bps) year over year to 82.9%.

Non-GAAP operating expenses increased 8% year over year to $372.5 million.

Balance Sheet & Cash Flow

As of Jul 31, 2021, cash and cash equivalents plus short-term investments were $1.21 billion, down slightly from $1.25 billion at the end of third-quarter fiscal 2021.

Cash used in operating activities was $24.6 million in the fourth quarter and $99.8 million in fiscal 2021. Free cash outflow for the fourth quarter and fiscal 2021 were $42.2 million and $158.5 million, respectively.

In fiscal 2021, Nutanix repurchased shares worth $125.1 million.

Full-Year Highlights

Nutanix reported revenues of $1.39 billion in full fiscal 2021, up 7% year over year. ACV billings stood at $594.3 million, reflecting 18% year-over-year rise.

Non-GAAP gross margin expanded 100 basis points to 82.3%. Non-GAAP operating expenses were $1.43 billion from $1.52 billion reported a year ago.

Non-GAAP loss per share was $1.48 compared to loss of $2.39 per share reported a year ago.

The dollar-based net retention rate (including Life of the Device – non-portable software) was 124% at the end of fiscal 2021.

However, the company noted that the ongoing transition to a subscription-based business model led to a decline in the average contract term in fiscal 2021. This, in turn, adversely impacted the top-line performance.

Outlook

For first-quarter fiscal 2022, Nutanix expects ACV billings between $172 million and $177 million. Non-GAAP gross margin is estimated to be approximately 81.5.

Non-GAAP operating expenses are expected in the range $365 million to $370 million.

Nutanix did not provide any outlook for the full fiscal 2022. However, management announced that it expects the company’s growing base of low-cost renewals to drive the top and bottom-line growth.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 6.94% due to these changes.

VGM Scores

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 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. It comes with little surprise Nutanix has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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