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Nutanix (NTNX) Down 5.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Nutanix (NTNX). Shares have lost about 5.5% in that time frame, outperforming 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 Q4 Loss Narrower Than Estimated, Revenues Beat

Nutanix reported a non-GAAP fourth-quarter fiscal 2022 loss of 17 cents per share, significantly narrower than the Zacks Consensus Estimate of a loss of 39 cents. The figure was narrower than the year-ago quarter’s loss of 26 cents per share.

Nutanix reported revenues of $385.5 million, beating the Zacks Consensus Estimate of $353.9 million. The top line dropped 1% from the year-ago quarter’s figure of $390.7 million. NTNX noted that the average contract term length declined to 3.2 years from 3.4 years in the year-ago quarter, primarily due to higher federal businesses that usually have shorter contract term lengths.

During the fiscal fourth quarter, Nutanix’s Annual Contract Value (ACV) billings jumped 10% to $193.2 million.

Top-Line Details

Product revenues (43.8% of revenues) decreased 16.8% year over year to $168.8 million. Support, entitlements & other services revenues (56.2 % of revenues) grew 15.5% to $216.8 million.

The top line was primarily driven by growth in NTNX’s core hyper-converged infrastructure software and the solid adoption of its new capabilities. Nutanix continues to witness a strong adoption of its hybrid multi-cloud solutions across Fortune 100 and Global 2000 companies.

Subscription revenues (91% of revenues) declined 0.5% from the year-ago quarter’s figure to $350.6 million. However, professional services revenues (6% of revenues) jumped 3.4% to $23.1 million.

Non-Portable Software revenues (3% of revenues) plunged 11.6% year over year to $11.4 million. Hardware revenues (0.1% of revenues) slumped 89.5% to $340 million.

Billings were down 7.3% year over year to $398.1 million. Nutanix’s run-rate ACV grew 17% year over year to $1.8 billion. Annual Recurring Revenues climbed 37% to $1.2 billion.

During the fiscal fourth quarter, Nutanix added 620 customers, taking the total number of clients to 22,600.

Operating Details

During the fiscal fourth quarter, Nutanix’s non-GAAP gross margin contracted 30 basis points year over year to 82.6%.

Non-GAAP operating expenses decreased 4% year over year to $355.8 million.

Balance Sheet & Cash Flow

As of Jul 31, 2022, cash and cash equivalents plus short-term investments were $1.32 billion, up from $1.30 billion at the end of third-quarter fiscal 2022.

During the fourth quarter of fiscal 2022, cash utilized through operating activities was $38 million and free cash flow was $23.2 million. During fiscal 2022, Nutanix generated $67.5 million of cash from operating activities and a free cash flow of $18.5 million.

Full-Year Highlights

Nutanix reported revenues of $1.58 billion in full fiscal 2022, up 13% year over year. ACV billings stood at $756.3 million, reflecting a 27% year-over-year rise.

Non-GAAP gross margin expanded 70 basis points to 83%. Non-GAAP operating expenses were $1.40 billion compared with $1.43 billion reported a year ago.

Non-GAAP loss per share was 46 cents compared with a loss of $1.48 per share reported a year ago.

The dollar-based net retention rate (including Life of the Device – non-portable software) was 125% at the end of fiscal 2022. 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 2022.

Outlook

For the first quarter of fiscal 2023, Nutanix expects ACV billings between $210 million and $215 million. Revenues are estimated between $410 million and $415 million.

Non-GAAP gross margin is estimated to be approximately 82%. Non-GAAP operating expenses are expected in the range of $360-$365 million.

For the full fiscal 2023, NTNX expects ACV billings between $895 million and $900 million. Revenues are estimated in the range of $1.77-$1.78 billion.

Non-GAAP gross margin is estimated to be 82% for fiscal 2023. Non-GAAP operating expenses are projected in the range of $1.41 billion to $1.42 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

The consensus estimate has shifted 16.67% due to these changes.

VGM Scores

Currently, Nutanix has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been broadly 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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