It has been about a month since the last earnings report for Nutanix (NTNX). Shares have lost about 24.4% 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 catalysts.
Nutanix's Q2 Earnings and Revenues Beat Estimates
Nutanix incurred second-quarter fiscal 2020 loss of 60 cents per share, beating the Zacks Consensus Estimate by 13%. However, the figure was wider than the year-ago loss of 23 cents.
Revenues increased 3.4% year over year to $346.8 million and also beat the consensus mark by 1.4%.
Product revenues (61.6% of revenues) fell 9.9% year over year to $213.5 million, primarily due to 77.5% decline in hardware revenues, partially offset by 3% growth in software revenues.
Support, entitlements & other services revenues (38.4% of revenues) surged 35.3% to $133.2 million.
Total Contract Value (TCV) revenues increased 13.7% year over year to $338.2 million.
Subscription revenues (76.9% of revenues) jumped 69.4% from the year-ago quarter to $266.5 million. Professional services revenues (3.6% of revenues) grew 48.3% to $12.6 million.
Non-Portable Software revenues (17.1% of revenues) plunged 55.1% year over year to $59.1 million. Moreover, hardware revenues (2.5% of revenues) were $8.5 million.
Billings were up 3.5% year over year to $428.1 million. Software and Support billings were $419.5 million, up 11.7% year over year.
TCV billings increased 11.7% year over year to $419.5 million. Subscription billings accounted for 79% of total billings, up from 73% in the previous quarter.
At the end of the quarter, Nutanix had 15,880 customers. The company added 920 customers in the reported quarter.
The company’s hypervisor, AHV, experienced a 47% increase in adoption on a rolling four-quarter basis.
In the fiscal second quarter, the company’s non-GAAP gross profit of $257.5 million was down 8.8% year over year. Non-GAAP gross margin was 74.3%, down from 84.2% reported in the year-ago quarter.
Operating expenses on a non-GAAP basis jumped 25.2% year over year to $296.5 million. Sales & marketing, research & development and general & administrative expenses increased 30.6%, 11.8% and 19.5% on a year-over-year basis, respectively.
Operating loss on a non-GAAP basis narrowed to $39 million from $113.9 million loss in the year-ago quarter.
Balance Sheet & Cash Flow
As of Jan 31, 2020, cash and cash equivalents plus short-term investments were $819 million compared with $889 million as of Oct 31, 2019.
Cash outflow from operations was $52.5 million compared with an outflow of $26.2 million in the previous quarter.
Free cash outflow was $73.7 million compared with $44.4 million in the prior quarter.
Deferred revenues surged 35% year over year to $1.06 billion at the end of the reported quarter.
For the third quarter of fiscal 2020, software and support (TCV) revenues are projected between $300 million and $320 million. Nutanix anticipates software and support (TCV) billings of $365-$385 million.
Non-GAAP gross margin is anticipated to be around 80%. Moreover, management forecasts operating expenses within $420-$430 million.
Nutanix estimates non-GAAP loss of 89 cents per share. The Zacks Consensus Estimate for loss is pegged at 74 cents per share.
For the current fiscal year, Nutanix now expects software and support (TCV) billings between $1.60 billion and $1.67 billion. Moreover, software and support (TCV) revenues are anticipated between $1.29 billion and $1.36 billion.
Non-GAAP gross margin of approximately 80% and non-GAAP operating expenses between $1.63 billion and $1.65 billion are expected for the full fiscal.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -15.38% due to these changes.
Currently, Nutanix has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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