Nutanix's (NTNX) Q1 Loss Narrower Than Expected, Stock Up

Nutanix Inc. (NASDAQ:NTNX) reported first-quarter fiscal 2018 loss of 16 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 26 cents and year-ago quarter’s loss of 20 cents.

Revenues surged 46.1% from the year-ago quarter to $188.6 million. Product revenues soared 42.7% year over year to $153.5 million, while support & other services revenues jumped 61.3% to $35 million.

Billings were up 31.5% year over year to $239.8 million (29% from new customer, 71% from existing customers). Software accounted for 74%, while the remaining 26% came from the hardware portion of the business.

Shares increased almost 3% in after-hours trading. Nutanix’s shares have returned 23.5% year to date, underperforming the 33% rally of the industry.

Customer Base Expansion Continues

Nutanix added 760 customers taking the total end-customer count to 7,813 at the end of the reported quarter. Number of deals, worth more than $1 million, jumped 36% year over year to 49.Top three deals were all in the federal vertical and accounted for more than $15 million in billings. Among these three deals two customers selected the company’s AHV hypervisor.

Healthcare vertical performed favourably in the quarter, as the company reported seven deals greater than $1 million. Notable customers were Baylor Scott & White Health and an S&P 500 company that operates one of the largest clinical laboratory networks in the world.

Nutanix booked 15 deals worth more than $2 million. Bookings from international regions were 37% in the quarter, up from 34% in the year-ago quarter.

Management stated that 478 customers have purchased more than $1 million lifetime to date (at the end of first-quarter) and have collectively spent nearly $1.4 billion in life-time bookings. Moreover, 206 customers have purchased more than $2 million, 47 customers have purchased over $5 million and 16 customers have purchased $10 million lifetime to date (at the end of first quarter).

Prism Pro adoption increased 40% sequentially. The company had 16 Prism Pro deals in excess of $100,000 in the quarter.

Software-Centric Transition to Boost Gross Margin

In first-quarter, non-GAAP gross margin contracted 360 basis points (bps) from the year-ago quarter to 61.9%.

Nutanix’s focus on becoming an enterprise cloud operating systems company is likely to boost gross margin in the long haul. The company has stopped recognizing pass-through hardware related revenues. Per management, legacy appliance manufacturers are now able to directly sell the company’s branded hardware to distributors, without its involvement. This will eliminate almost 80% of pass-through hardware related revenues in the next one year.

Nutanix will now focus only on software portion of the business, which will positively impact gross margin.

Most operating expenses fell in the quarter. Research & Development (R&D) expenses, as percentage of revenues, declined 410 bps to 17.8%. Sales & Marketing (S&M) expenses and General & administrative (G&A) expenses, as percentage of revenues, fell 250 bps and 90 bps from the year-ago quarter to 47.7% and 4.4%, respectively.

As a result, operating loss narrowed to $22.1 million compared with a loss of $22.5 million in the year-ago quarter.

Guidance

For second-quarter of fiscal 2018, revenues are projected between $280 and $285 million. The Zacks Consensus Estimate for revenues is pegged at $282.6 million for the quarter.

Non-GAAP gross margin is projected between 62.5% and 63.5%. Moreover, management forecasts operating expenses of approximately $210 million.

Nutanix forecasts non-GAAP net loss between 20 cents and 22 cents for the quarter.

Zacks Rank & Key Picks

Currently, Nutanix carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the same sector include DXC Technology (NYSE:DXC) , Fair Issac Corporation (NYSE:FICO) and Acxiom Corporation (NASDAQ:ACXM) . While Acxiom holds a Zacks Rank #2 (Buy), both DXC and Fair Issac sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for DXC, Fair Issac and Acxiom are currently pegged at 10.50%, 10% and 15%, respectively.

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