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Nutanix Reports Second Quarter Fiscal 2018 Financial Results

March 1, 2018 4:05 PM

Continued Penetration in Global 2000 Accounts, Record Number of New Customers and Growing Number of Large Deals Drive 57% YoY Billings Growth and 44% YoY Revenue Growth

Software and Support Billings Grow 60% YoY as Company Ramps Software Business

SAN JOSE, Calif.--(BUSINESS WIRE)-- Nutanix, Inc. (NASDAQ: NTNX), a leader in enterprise cloud computing, today announced financial results for its second quarter of fiscal year 2018, ended January 31, 2018.

This press release features multimedia. View the full release here: http://www.businesswire.com/news/home/20180301006323/en/

Nutanix Q2 FY18 Highlights (Graphic: Business Wire)

Nutanix Q2 FY18 Highlights (Graphic: Business Wire)

Second Quarter Fiscal Year 2018 Financial Highlights

Reconciliations between GAAP and non-GAAP financial measures and key performance measures are provided in the tables of this press release.

“We had an outstanding quarter that demonstrated our strong execution across many business initiatives. Our shift toward a software-centric strategy is on track and we aligned our sales compensation in February to support this transition,” said Dheeraj Pandey, Chairman, Founder and CEO of Nutanix. “Our continued success with Global 2000 customers, the strength of our large deal execution and record number of new customers prove that we are reducing friction for our customers and providing them with a consumer-grade experience that is unmatched.”

“We are proud of our performance in Q2. During the quarter, we saw record results across all geographies, with particularly strong performances from our EMEA and APJ regions. Our 57% billings growth year-over-year and our 45% increase in non-GAAP gross profit year-over-year drove a better than expected bottom line,” said Duston Williams, CFO of Nutanix. “Our software and support billings also rose significantly during the quarter, demonstrating our progress as we transition to a software-centric business model. Our strong execution on our strategic initiatives, together with our successful convertible debt offering, put us in a strong position for the future.”

Recent Company Highlights

Q3 Fiscal 2018 Financial Outlook

For the third quarter of fiscal 2018, Nutanix expects:

*The elimination of hardware revenue is based on the estimated cost of hardware in transactions where our customers purchase such hardware directly from our contract manufacturers.

Supplementary materials to this earnings release, including the company’s second quarter fiscal 2018 investor presentation, can be found at http://ir.nutanix.com/company/financial/.

1 Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

All forward-looking non-GAAP financial measures contained in this section titled "Q3 Fiscal 2018 Financial Outlook" exclude stock-based compensation expense and amortization of intangible assets and may also exclude, as applicable, other special items. The company has not reconciled guidance for non-GAAP gross margin and non-GAAP loss per share to their most directly comparable GAAP measures because such items that impact these measures are not within its control and are subject to constant change. While the actual amounts of such items will have a significant impact on the company’s non-GAAP gross margin and non-GAAP loss per share, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.

Webcast and Conference Call Information

Nutanix executives will discuss the company’s fiscal second quarter financial results on a conference call at 4:30 p.m. Eastern time/1:30 p.m. Pacific time today. To listen to the call via telephone, dial 1-833-227-5841 in the United States or 1-647-689-4068 from outside the United States. The conference ID is 1984527. This call will be webcast live and available to all interested parties on our Investor Relations website at ir.nutanix.com. Shortly after the conclusion of the conference call, a replay of the audio webcast will be available on the Nutanix Investor Relations website. A telephonic replay will be available for one week following the conference call at 1-800-585-8367 or 1-416-621-4642, conference ID 1984527.

New Accounting Standard

The Company adopted ASC 606, the new standard related to revenue recognition effective August 1, 2017. Prior period information has been adjusted to reflect the adoption of this new standard.

Non-GAAP Financial Measures and Other Key Performance Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial and other key performance measures: billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP net loss, pro forma non-GAAP net loss per share, and free cash flow. In computing these non-GAAP financial measures, we exclude certain items such as stock-based compensation and the related income tax impact, costs associated with our acquisitions (such as amortization of acquired intangible assets, revaluation of contingent consideration, income tax-related impact, and other acquisition-related costs), loss on debt extinguishment, amortization of debt discount and debt issuance costs and changes in the fair value of our preferred stock warrant liability. Billings is a performance measure which our management believes provides useful information to investors because it represents the amounts under binding purchase orders received by us during a given period that have been billed, and we calculate billings by adding the change in deferred revenue between the start and end of the period to total revenue recognized in the same period. Free cash flow is a performance measure that our management believes provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures, and we define free cash flow as net cash (used in) provided by operating activities less purchases of property and equipment. Non-GAAP gross profit, adjusted gross margin and non-GAAP operating expenses are performance measures which our management believes provide useful information to investors because they provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures such as stock-based compensation expense that may not be indicative of our ongoing core business operating results. We use these non-GAAP financial and key performance measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. However, these non-GAAP financial and key performance measures have limitations as analytical tools and you should not consider them in isolation, or as substitutes for, analysis of our results as reported under GAAP. Billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP net loss, pro forma non-GAAP net loss per share, and free cash flow are not substitutes for total revenue, gross profit, gross margin, operating expenses, net loss, net loss per share, or net cash (used in) provided by operating activities, respectively. In addition, other companies, including companies in our industry, may calculate non-GAAP financial measures and key performance measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures and key performance measures as tools for comparison. We urge you to review the reconciliation of our non-GAAP financial measures and key performance measures to the most directly comparable GAAP financial measures included below in the tables captioned “Reconciliation of Revenue to Billings,” “Reconciliation of GAAP to Non-GAAP Profit Measures,” and “Reconciliation of GAAP Net Cash (Used In) Provided By Operating Activities to Non-GAAP Free Cash Flow,” and not to rely on any single financial measure to evaluate our business.

Forward-Looking Statements

This press release contains express and implied forward-looking statements, including but not limited to statements relating to our competitive differentiation, our plans and expectations relating to product sales and shifts in the mix of whether our solutions are sold as an appliance or as software-only, our plans and expectations regarding product features and technology that are under development or in process, and capabilities of such product features and technology, the impact of the Minjar acquisition to our business, our plans to introduce product features in future releases, including the integration of Botmetric into our offerings, and anticipated future financial results, including but not limited to our guidance on estimated revenues, non-GAAP gross margin, non-GAAP operating expenses and non-GAAP net loss per share for future fiscal periods. These forward-looking statements are not historical facts and instead are based on our current expectations, estimates, opinions, and beliefs. Consequently, you should not rely on these forward-looking statements. The accuracy of such forward-looking statements depends upon future events and involves risks, uncertainties, and other factors beyond our control that may cause these statements to be inaccurate and cause our actual results, performance or achievements to differ materially and adversely from those anticipated or implied by such statements, including, among others: failure to develop, or unexpected difficulties or delays in developing, new product features or technology on a timely or cost-effective basis; delays in or lack of customer or market acceptance of our new product features or technology; the failure of our software to interoperate on different hardware platforms; delays in the formation of new strategic partnerships and the possibility that we may not receive anticipated results from forming such strategic partnerships; our ability to successfully integrate acquired companies, employees and intellectual property; delays in the transition to focus primarily on software-only transactions; the rapid evolution of the markets in which we compete; our ability to sustain or manage future growth effectively; factors that could result in the significant fluctuation of our future quarterly operating results, including, among other things, anticipated changes to our revenue and product mix which will slow revenue growth during such transition and make forecasting future performance more difficult, the timing and magnitude of orders, shipments and acceptance of our solutions in any given quarter, our ability to attract new and retain existing end-customers, changes in the pricing of certain components of our solutions, and fluctuations in demand and competitive pricing pressures for our solutions; the introduction, or acceleration of adoption of, competing solutions, including public cloud infrastructure; and other risks detailed in our Quarterly Report on Form 10-Q for the quarter ended October 31, 2017, filed with the SEC on December 13, 2017. Additional information will also be set forth in our Form 10-Q that will be filed for the quarter ended January 31, 2018, which should be read in conjunction with these financial results. Our SEC filings are available on the Investor Relations section of the company’s website at ir.nutanix.com and on the SEC's website at www.sec.gov. These forward-looking statements speak only as of the date of this press release and, except as required by law, we assume no obligation to update forward-looking statements to reflect actual results or subsequent events or circumstances.

About Nutanix

Nutanix is a global leader in cloud software and hyperconverged infrastructure solutions, making infrastructure invisible so that IT can focus on the applications and services that power their business. Companies around the world use Nutanix Enterprise Cloud OS software to bring one-click application management and mobility across public, private and distributed edge clouds so they can run any application at any scale with a dramatically lower total cost of ownership. The result is organizations that can rapidly deliver a high-performance IT environment on demand, giving application owners a true cloud-like experience. Learn more at www.nutanix.com or follow us on Twitter @nutanix.

© 2018 Nutanix, Inc. All rights reserved. Nutanix and the Nutanix logo are registered trademarks or trademarks of Nutanix, Inc. in the United States and other countries. All other brand names mentioned herein are for identification purposes only and may be the trademarks of their respective holder(s).

NUTANIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
As of
July 31, January 31,
2017 2018
Assets
Current assets:
Cash and cash equivalents $ 138,359 $ 610,446
Short-term investments 210,694 307,809
Accounts receivable—net 178,876 179,241
Deferred commissions—current 23,843 33,508
Prepaid expenses and other current assets 28,362 31,547
Total current assets 580,134 1,162,551
Property and equipment—net 58,072 69,074
Deferred commissions—non-current 49,684 66,120
Intangible assets—net 26,001 23,539
Goodwill 16,672 16,672
Other assets—non-current 7,649 7,240
Total assets $ 738,212 $ 1,345,196

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable $ 73,725 $ 56,270
Accrued compensation and benefits 57,521 75,310
Accrued expenses and other current liabilities 9,707 11,241
Deferred revenue—current 170,123 231,731
Total current liabilities 311,076 374,552
Deferred revenue—non-current 198,933 246,269
Convertible senior notes-net — 415,651
Early exercised stock options liability 851 430
Other liabilities—non-current 10,289 7,815
Total liabilities 521,149 1,044,717
Stockholders’ equity:
Common stock 4 4
Additional paid-in capital 948,134 1,156,282
Accumulated other comprehensive loss (106 ) (720 )
Accumulated deficit (730,969 ) (855,087 )
Total stockholders’ equity 217,063 300,479
Total liabilities and stockholders’ equity $ 738,212 $ 1,345,196

NUTANIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data, unaudited)
Three Months Ended Six Months Ended
January 31, January 31,
2017 2018 2017 2018
Revenue:
Product $ 158,213 $ 223,170 $ 311,749 $ 442,222
Support and other services 41,001 63,574 76,026 120,074
Total revenue 199,214 286,744 387,775 562,296
Cost of revenue:
Product (1)(2) 58,403 83,217 110,613 168,379
Support and other services (1) 18,443 25,311 35,995 48,771
Total cost of revenue 76,846 108,528 146,608 217,150
Gross profit 122,368 178,216 241,167 345,146
Operating expenses:
Sales and marketing (1)(2) 111,374 151,201 239,999 296,606
Research and development (1) 70,914 70,924 146,195 135,436
General and administrative (1) 15,481 15,948 44,853 32,000
Total operating expenses 197,769 238,073 431,047 464,042
Loss from operations (75,401 ) (59,857 ) (189,880 ) (118,896 )
Other expense—net (421 ) (861 ) (26,133 ) (1,050 )
Loss before provision for income taxes (75,822 ) (60,718 ) (216,013 ) (119,946 )
Provision for income taxes 547 1,913 658 4,172
Net loss $ (76,369 ) $ (62,631 ) $ (216,671 ) $ (124,118 )
Net loss per share attributable to Class A and Class B common stockholders—basic and diluted

$

(0.54

) $ (0.39 ) $ (2.00 ) $ (0.78 )
Weighted-average shares used in computing net loss per share attributable to Class A and Class B common stockholders—basic and diluted 141,996,600 161,737,428 108,185,194 159,251,964

(1) Includes the following stock-based compensation expense:

Three Months Ended Six Months Ended
January 31, January 31,
2017 2018 2017 2018
(in thousands)
Product cost of sales $ 848 $ 684 $ 1,814 $ 1,254
Support cost of sales 2,389 2,133 5,739 4,205
Sales and marketing 15,528 15,942 49,419 29,708
Research and development 28,759 17,023 62,785 32,565
General and administrative 5,083 6,229 23,578 9,794
Total stock-based compensation expense $ 52,607 $ 42,011 $ 143,335 $ 77,526

(2) Includes the following amortization of intangible assets:

Three Months Ended Six Months Ended
January 31, January 31,
2017 2018 2017 2018
(in thousands)
Product cost of sales $ 360 $ 1,164 $ 598 $ 2,059
Sales and marketing 248 192 415 403
Total amortization of intangible assets $ 608 $ 1,356 $ 1,013 $ 2,462

NUTANIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Six Months Ended
January 31,
2017 2018

Cash flows from operating activities:

Net loss $ (216,671 ) $ (124,118 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 18,172 23,015
Stock-based compensation 143,335 77,526
Loss on debt extinguishment 3,320 —
Change in fair value of convertible preferred stock warrant liability 21,133 —
Change in fair value of contingent consideration 472 (3,955 )
Amortization of debt discount and issuance cost — 738
Other 457 141
Changes in operating assets and liabilities:
Accounts receivable—net (39,730 ) (490 )
Deferred commission (8,071 ) (26,101 )
Prepaid expenses and other assets (2,707 ) (2,842 )
Accounts payable 11,342 (16,560 )
Accrued compensation and benefits 11,811 17,789
Accrued expenses and other liabilities 1,677 2,415
Deferred revenue 79,372 108,944
Net cash provided by operating activities 23,912 56,502
Cash flows from investing activities:
Purchases of property and equipment (24,616 ) (31,993 )
Purchases of investments (117,550 ) (183,102 )
Maturities of investments 41,200 84,927
Sale of investments 32,640 —
Payments for business acquisitions, net of cash acquired (184 ) —
Net cash used in investing activities (68,510 ) (130,168 )
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes-net — 564,219
Proceeds from issuance of warrants — 87,975
Payments for the cost of convertible note hedges — (143,175 )
Proceeds from initial public offering, net of underwriting discounts and commissions 254,455 —
Proceeds from sales of shares through employee equity incentive plans, net of repurchases 2,180 36,819
Repayment of senior notes (75,000 ) —
Debt extinguishment costs (1,580 ) —
Payments of offering costs (1,609 ) (85 )
Payment of debt in conjunction with a business acquisition (7,124 ) —
Other 73 —
Net cash provided by financing activities 171,395 545,753
Net increase in cash and cash equivalents 126,797 472,087
Cash and cash equivalents—beginning of period 99,209 138,359
Cash and cash equivalents—end of period $ 226,006 $ 610,446
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 2,344 $ 4,077
Cash paid for interest $ 1,271 $ —
Supplemental disclosures of non-cash investing and financing information:
Purchases of property and equipment included in accounts payable $ 6,983 $ 4,673
Vesting of early exercised stock options $ 920 $ 435
Convertible notes issuance costs included in accounts payable and accrued liabilities $ — $ 707
Offering costs included in accounts payable $ 51 $ —
Conversion of convertible preferred stock to common stock, net of issuance costs $ 310,379 $ —
Reclassification of convertible preferred stock warrant liability to additional paid-in capital $ 30,812 $ —
Issuance of common stock for business acquisitions $ 27,063 $ —

Reconciliation of Revenue to Billings
(In thousands, unaudited)
Three Months Ended Six Months Ended
January 31, January 31,
2017 2018 2017 2018
Total revenue $ 199,214 $ 286,744 $ 387,775 $ 562,296
Change in deferred revenue, net of acquisitions (1) 28,166 69,156 79,372 108,944
Billings $ 227,380 $ 355,900 $ 467,147 $ 671,240

(1) Six months ended January 31, 2017 excluded approximately $6.0 million of deferred revenue assumed in the PernixData acquisition.

Reconciliation of GAAP to Non-GAAP Profit Measures
(In thousands, except share and per share data, unaudited)
GAAP Non-GAAP Adjustments Non-GAAP
Three Months Three Months
Ended Ended
January 31, January 31,
2018 (1) (2) (3) (4) (5) (6) 2018
Gross profit $ 178,216 $ 2,817 $ 1,164 $ — $ — $ — $ — $ 182,197

Gross margin

62.1 % 1.0 % 0.4 % — — — — 63.5 %
Operating expenses:
Sales and marketing 151,201 (15,942 ) (192 ) — — — — 135,067
Research and development 70,924 (17,023 ) — — — — — 53,901
General and administrative 15,948 (6,229 ) — 4,237 — (528 ) — 13,428
Total operating expenses 238,073 (39,194 ) (192 ) 4,237 — (528 ) — 202,396
Loss from operations (59,857 ) 42,011 1,356 (4,237 ) — 528 — (20,199 )
Net loss $ (62,631 ) $ 42,011 $ 1,356 $ (4,237 ) $ 738 $ 528 $ (940 ) $ (23,175 )
Weighted-shares outstanding, basic and diluted 161,737,428 161,737,428
Net loss per share, basic and diluted $ (0.39 ) $ 0.26 $ 0.01 $ (0.03 ) $ 0.01 $ 0.01 $ (0.01 ) $ (0.14 )
(1) Stock-based compensation expense
(2) Amortization of intangible assets
(3) Change in fair value of contingent consideration assumed in the PernixData acquisition
(4) Amortization of debt discount and debt issuance costs
(5) Acquisition-related costs
(6) Income tax effect primarily related to stock-based compensation expense

GAAP Non-GAAP Adjustments Non-GAAP
Three Months Three Months
Ended Ended
January 31, January 31,
2017 (1) (2) (3) (4) 2017
Gross profit $ 122,368 $ 3,237 $ 360 $ — $ — $ 125,965
Gross margin 61.4 % 1.6 % 0.2 % — — 63.2 %
Operating expenses:
Sales and marketing 111,374 (15,528 ) (248 ) — — 95,598
Research and development 70,914 (28,759 ) — — — 42,155
General and administrative 15,481 (5,083 ) — (286 ) — 10,112
Total operating expenses 197,769 (49,370 ) (248 ) (286 ) — 147,865
Loss from operations (75,401 ) 52,607 608 286 — (21,900 )
Net loss $ (76,369 ) $ 52,607 $ 608 $ 286 $ (172 ) $ (23,040 )
Weighted-shares outstanding, basic and diluted

141,996,600

141,996,600
Net loss per share, basic and diluted $ (0.54 ) $ 0.37 $ 0.01 $ — $ — $ (0.16 )
(1) Stock-based compensation expense
(2) Amortization of intangible assets
(3) Change in fair value of contingent consideration assumed in the PernixData acquisition
(4) Income tax effect primarily related to stock-based compensation expense

GAAP Non-GAAP Adjustments Non-GAAP
Six Months Six Months
Ended Ended

January 31,

January 31,

2018 (1) (2) (3) (4) (5) (6) 2018
Gross profit $ 345,146 $ 5,459 $ 2,059 $ — $ — $ — $ — $ 352,664

Gross margin

61.4 % 1.0 % 0.3 % — — — — 62.7 %
Operating expenses:
Sales and marketing 296,606 (29,708 ) (403 ) — — — — 266,495
Research and development 135,436 (32,565 ) — — — — — 102,871
General and administrative 32,000 (9,794 ) — 3,955 — (528 ) — 25,633
Total operating expenses 464,042 (72,067 ) (403 ) 3,955 — (528 ) — 394,999
Loss from operations (118,896 ) 77,526 2,462 (3,955 ) — 528 — (42,335 )
Net loss $ (124,118 ) $ 77,526 $ 2,462 $ (3,955 ) $ 738 $ 528 $ (1,072 ) $ (47,891 )
Weighted-shares outstanding, basic and diluted 159,251,964 159,251,964
Net loss per share, basic and diluted $ (0.78 ) $ 0.49 $ 0.02 $ (0.02 ) $ — $ — $ (0.01 ) $ (0.30 )
(1) Stock-based compensation expense
(2) Amortization of intangible assets
(3) Change in fair value of contingent consideration assumed in the PernixData acquisition
(4) Amortization of debt discount and debt issuance costs
(5) Acquisition-related costs
(6) Income tax effect primarily related to stock-based compensation expense

GAAP Non-GAAP Adjustments Non-GAAP
Six Months Six Months
Ended Ended
January 31, January 31,
2017 (1) (2) (3) (4) (5) (6) (7) 2017
Gross profit $ 241,167 $ 7,553 $ 598 $ — $ — $ — $ — $ — $ 249,318
Gross margin 62.2 % 1.9 % 0.2 % — — — — — 64.3 %
Operating expenses:
Sales and marketing 239,999 (49,419 ) (415 ) — — — — — 190,165
Research and development 146,195 (62,785 ) — — — — — — 83,410
General and administrative 44,853 (23,578 ) — (672 ) (472 ) — — — 20,131
Total operating expenses 431,047 (135,782 ) (415 ) (672 ) (472 ) — — — 293,706
Loss from operations (189,880 ) 143,335 1,013 672 472 — — — (44,388 )
Net loss $ (216,671 ) $ 143,335 $ 1,013 $ 672 $ 472 $ 21,133 $ 3,320 $ (2,281 ) $ (49,007 )
Weighted-shares outstanding, basic and diluted 108,185,194 108,185,194
Pro forma adjustment 26,960,697 26,960,697
Pro forma weighted-shares outstanding, basic and diluted 135,145,891 135,145,891
Net loss per share, basic and diluted $ (2.00 )
Pro forma net loss per share, basic and diluted * $ (1.60 ) $ 1.06 $ 0.01 $ 0.01 $ — $ 0.16 $ 0.02 $ (0.02 ) $ (0.36 )
(1) Stock-based compensation expense
(2) Amortization of intangible assets
(3) Acquisition-related costs
(4) Change in fair value of contingent consideration assumed in the PernixData acquisition
(5) Change in fair value of preferred stock warrant liability
(6) Loss on debt extinguishment
(7) Partial release of valuation allowance from the PernixData acquisition and the tax effect of stock-based compensation expense

*Pro forma non-GAAP basic and diluted net loss per share was computed to give effect to the conversion of all outstanding convertible preferred stock upon closing of our initial public offering on October 5, 2016, as if the conversion had occurred at the beginning of the period.

Reconciliation of GAAP Net Cash Provided By Operating Activities to Non-GAAP Free Cash Flow
(In thousands, unaudited)
Three Months Ended Six Months Ended
January 31, January 31,
2017 2018 2017 2018
Net cash provided by operating activities $ 19,752 $ 46,395 $ 23,912 $ 56,502
Purchase of property and equipment (12,701 ) (14,028 ) (24,616 ) (31,993 )
Free cash flow $ 7,051 $ 32,367 $ (704 ) $ 24,509

Nutanix, Inc.

Investor Contact:

Tonya Chin, 408-560-2675

[email protected]

or

Media Contact:

Kate Reed, 973-534-9292

[email protected]

Source: Nutanix, Inc.

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