Nutanix raises revenue notwithstanding large deal pushout – Blocks and Files

Nutanix beat the street with its latest results driven by a strong contract renewals performance and increased sales in its customer base, despite large deals taking longer to close.

Revenues in its fourth fiscal 2024 quarter, ended July 31, were $548 million, a 21 percent annual increase, and a loss of $126.1 million mainly due to a $106.4 million expense item. Full year revenues were $2.15 billion, up 15 percent from fy 2023’s $1.86 billion, and beating its guidance, but with a loss of $124.8 million. There was 22 percent year-over-year annual recurring revenue (ARR) growth in the quarter to $1.91 billion, strong free cash flow generation and a first full year of positive GAAP operating income ($8 million).

President and CEO Rajiv Ramaswami stated: “Our fourth quarter was a solid finish to a fiscal year that showed good progress on our financial model with solid top line growth and sharp year-over-year improvement in profitability.” That is the non-GAAP profitability of $8 million, which Nutanix called an “important milestone.” 

The revenue increase happened despite a problem, as Ramaswami explained: “Our land and expand business underperformed related to our internal expectations due to the longer-than-expected sales cycles.”

Financial summary:

• Gross margin: 85.2% vs 83.7% last year
• Free cash flow: $224.3 million vs year-ago’s $45.5 million
• Operating cash flow: 244.7 million compared to $58.3 million a year ago
• Cash, cash equivalents and short-term investments: $994 million compared to $1.7 billion at the end of the prior quarter

CFO Rukmini Sivaraman said: “The primary reason for the reduction in our cash balance was Bain Capital’s conversion of the 2026 notes, which we announced in June. We settled the conversion in Q4 by paying $817.6 million in cash and delivering approximately 16.9 million shares of common stock.”

The company gained 670 new customers in the quarter, its highest number for 3 years, attributed to new partners and sales programs. That means it now has 26,530 customers. It signed partnership deals with Dell, Cisco and Nutanix during fy2024. Ramaswami said: ”We see these partnerships as both expanding our addressable market and providing us with meaningful go-to-market leverage.”

William Blair analyst Jason Ader told subscribers that the current Nutanix-Cisco OEM partnership (Cisco Compute HyperConverged) contributed to significant new logo additions in the second half of fiscal 2024 with expectations for solid growth in revenue contribution in fiscal 2025.

Nutanix is finding that large deals are taking longer to close, Ader telling subscribers: “Nutanix’s largest win in the fourth quarter was a multimillion-dollar deal with a Fortune 100 financial services company that took 18 months to close, not unlike the eight-figure win announced last quarter that took over two years to close.”

Ader pointed out that: “While moving upmarket is a top go-to-market priority, Nutanix stressed that it remains very active in its traditional sweet spot at the lower end of the enterprise market. This segment of the market is particularly ripe for displacement of VMware as many of these smaller accounts have seen their VMware bills skyrocket under the new Broadcom pricing scheme.”

Nutanix noted that, where VMware is running on a 3-tier architecture, a switch to Nutanix and its hyper-converged infrastructure (HCI) necessitates a hardware refresh and this can push deals out to a scheduled hardware refresh date.

Ader also said: “Nutanix reached a Rule-of-40 score of 43 in fiscal 2024 (defined as revenue growth plus free cash flow margin), boosted by stellar free cash flow generation of $598 million.” 

Ramaswami was asked about progress with AI and Nutanix’ GPT-in-a-box Gen AI offering in the earnings call. He replied: “I think a lot of initial interest in Gen AI has been in creation and training of LLMs, large language models, and a lot of that is being done in the public cloud and massive GPU farms. And we don’t play there fully. 

“But on the other hand, we think the bulk of the enterprise opportunity in terms of how companies are actually going to use it, is potentially going to be on-prem because, at the end of the day, the Gen AI workloads, applications have to run wherever the customer data is. And in a lot of cases, sensitive customer data is either inside data centers or at the edges, and so a platform like our GPT-in-a-Box provides a very simple, easy-to-use, secure, way of running Gen AI applications.”

It is still early days for GPT-in-a-box adoption but the opportunity “for fine tuning, RAG (Retrieval, Augmented Generation) and for inferencing in terms of running these AI workloads close to the data in a private and secure way” is coming.

The outlook for the next quarter is $570 million +/- $5 million, meaning an 11.5 percent increase on the year-ago quarter. Nutanix is guiding full fy2024 revenues of $2.45 billion +/-$15 million in revenues; a 14 percent Y/Y increase.