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Nutanix Reports First Quarter Fiscal 2019 Financial Results

November 27, 2018 4:02 PM

--Software and Support Billings Grow 50% YoY to $351 Million

--Company Evolves Toward a Recurring Revenue Model with 51% of Billings from Subscriptions--Up from 31% in the Year-Ago Period

--Subscription Revenue Up 104% YoY to $127 Million

SAN JOSE, Calif.--(BUSINESS WIRE)-- Nutanix, Inc. (NASDAQ: NTNX), a leader in enterprise cloud computing, today announced financial results for its first quarter of fiscal 2019, ended October 31, 2018.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20181127005687/en/

(Graphic: Business Wire)

(Graphic: Business Wire)

Q1 Fiscal 2019 Financial Highlights

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

“Our results this quarter prove that our core business continues to grow strongly and put us on a solid path to meet our goal of at least $3 billion in software and support billings by 2021,” said Dheeraj Pandey, Chairman, Founder and CEO of Nutanix. “51% of our billings in our first quarter were derived from subscriptions, up from 31% in the same quarter last year, and our subscription revenue grew 104% year-over-year. As we look ahead, we expect to continue this shift towards subscription, driving a cloud-like, pay-as-you-grow business model.”

Recent Company Highlights

Q2 Fiscal 2019 Financial Outlook

For the second quarter of fiscal 2019, Nutanix expects:

1The 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 first quarter fiscal 2019 investor presentation, can be found at https://ir.nutanix.com/company/financial.

All forward-looking non-GAAP financial measures contained in the section titled "Q2 Fiscal 2019 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, non-GAAP operating expenses 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, non-GAAP operating expenses 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 first quarter fiscal 2019 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 7496942. 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 by calling 1-800-585-8367 or 1-416-621-4642, and entering the conference ID 7496942.

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 margin, non-GAAP operating expenses, non-GAAP net loss, pro forma non-GAAP net loss per share, free cash flow, software and support revenue, software and support billings, and subscription and professional services billings. In computing these non-GAAP financial measures and key performance 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), amortization of debt discount and issuance costs, other non-recurring transactions and the related tax impact and the revenue and billings associated with pass-through hardware sales. 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 margin, non-GAAP operating expenses, non-GAAP net loss, and pro forma non-GAAP net loss per share are financial 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. Software and support revenue and software and support billings are performance measures that our management believes provide useful information to our management and investors as it allows us to better track the true growth of our software business by excluding the amounts attributable to the pass-through hardware sales that we use to deliver our solutions. Subscription and professional services billings are performance measures that our management believes provide useful information to our management and investors as it allows us to better track the growth of the subscription-based portion of our business, which is a critical part of our business plan. 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 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 margin, operating expenses, net loss, net loss per share, or net cash (used in) provided by operating activities, respectively, software and support revenue and software and support billings are not substitutes for total revenue, and subscription and professional services billings are not a substitute for subscription and professional services revenue. 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,” “Disaggregation of Revenue and Billings,” “Reconciliation of Subscription and Professional Services Revenue to Subscription and Professional Services Billings,” “Reconciliation of Software and Support Revenue to Software and Support 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 regarding our business plans and objectives, long-term financial model targets and our plans to achieve those targets, product features, services and technology that are under development or in process and capabilities of such product features, services and technology, our total addressable market, our continued investment in talent and technology, plans and timing for, and the impact of, our transition to a software-defined and subscription-based business model, and anticipated future financial results, including but not limited to our guidance on estimated revenues, billings, 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 products, services, product features or technology in a timely or cost-effective basis; delays in or lack of customer or market acceptance of our new products, services, product features or technology; delays in the transition to focus primarily on software-only transactions and a subscription-based business model; 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, unanticipated challenges in the integration of recently acquired companies, 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 annual report on Form 10-K for the fiscal year ended July 31, 2018, filed with the SEC on September 24, 2018. Additional information will also be set forth in our Form 10-Q that will be filed for the quarter ended October 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 platform 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, the Nutanix logo, Xi, and all product and service names mentioned herein 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
(Unaudited)
�
As of
July 31, � � October 31,
2018 2018
(in thousands)
Assets
Current assets:
Cash and cash equivalents $ 305,975 $ 399,786
Short-term investments 628,328 565,189
Accounts receivable, net 258,289 237,682
Deferred commissions—current 33,691 34,742
Prepaid expenses and other current assets 36,818 � 39,621 �
Total current assets 1,263,101 1,277,020
Property and equipment, net 85,111 104,750
Deferred commissions—non-current 80,688 87,365
Intangible assets, net 45,366 79,830
Goodwill 87,759 184,994
Other assets—non-current 37,855 � 39,127 �
Total assets $ 1,599,880 � $ 1,773,086 �
�
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 65,503 $ 69,474
Accrued compensation and benefits 85,398 65,709
Accrued expenses and other current liabilities 31,682 28,552
Deferred revenue—current 275,648 � 307,195 �
Total current liabilities 458,231 470,930
Deferred revenue—non-current 355,559 394,605
Convertible senior notes, net 429,598 436,745
Other liabilities—non-current 29,713 � 39,487 �
Total liabilities 1,273,101 � 1,341,767 �
Stockholders’ equity:
Common stock 4 4
Additional paid-in capital 1,355,907 1,554,878
Accumulated other comprehensive loss (1,002 ) (1,168 )
Accumulated deficit (1,028,130 ) (1,122,395 )
Total stockholders’ equity 326,779 � 431,319 �
Total liabilities and stockholders’ equity $ 1,599,880 � $ 1,773,086 �
�

� �
NUTANIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
�
Three Months Ended
October 31,
2017 � � 2018
(in thousands, except share and per share data)
Revenue:
Product $ 219,052 $ 224,346
Support, entitlements and other services 56,500 � 88,937 �
Total revenue 275,552 � 313,283 �
Cost of revenue:
Product (1)(2) 85,162 39,261
Support, entitlements and other services (1) 23,460 � 34,845 �
Total cost of revenue 108,622 � 74,106 �
Gross profit 166,930 � 239,177 �
Operating expenses:
Sales and marketing (1)(2) 145,405 196,497
Research and development (1) 64,512 110,531
General and administrative (1) 16,052 � 27,339 �
Total operating expenses 225,969 � 334,367 �
Loss from operations (59,039 ) (95,190 )
Other expense, net (189 ) (2,703 )
Loss before provision for (benefit from) income taxes (59,228 ) (97,893 )
Provision for (benefit from) income taxes 2,259 � (3,628 )
Net loss $ (61,487 ) $ (94,265 )
Net loss per share attributable to Class A and Class B common stockholders—basic and diluted $ (0.39 ) $ (0.54 )
Weighted average shares used in computing net loss per share attributable to Class A and Class B common stockholders—basic and diluted 156,780,631 � 175,445,969 �
�

_____________________

(1) � � Includes the following stock-based compensation expense:
� �
Three Months Ended
October 31,
2017 � � 2018
(in thousands)
Product cost of revenue $ 570 $ 698
Support, entitlements and other services cost of revenue 2,072 3,157
Sales and marketing 13,766 22,606
Research and development 15,542 31,009
General and administrative 3,565 � 8,455
Total stock-based compensation expense $ 35,515 � $ 65,925
�

_____________________

(2) � �

Includes the following amortization of intangible assets:

� �
Three Months Ended
October 31,
2017 � � 2018
(in thousands)
Product cost of sales $ 895 $ 3,168
Sales and marketing 211 � 550
Total amortization of intangible assets $ 1,106 � $ 3,718
�

� �
NUTANIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
�
Three Months Ended
October 31,
2017 � � 2018
(in thousands)
Cash flows from operating activities:
Net loss $ (61,487 ) $ (94,265 )
Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

11,333 16,183
Stock-based compensation 35,515 65,925
Amortization of debt discount and debt issuance costs — 7,148
Change in fair value of contingent consideration 282 (799 )
Other 131 (759 )
Changes in operating assets and liabilities:
Accounts receivable, net 7,326 23,497
Deferred commissions (8,457 ) (7,728 )
Prepaid expenses and other assets (1) (316 ) (3,812 )
Accounts payable (6,504 ) 1,292
Accrued compensation and benefits (7,220 ) (19,689 )
Accrued expenses and other liabilities (293 ) (7,442 )
Deferred revenue 39,788 � 70,273 �
Net cash provided by operating activities (1) 10,098 � 49,824 �
Cash flows from investing activities:
Maturities of investments 35,920 143,409
Purchases of investments (59,108 ) (79,766 )
Purchases of property and equipment (17,965 ) (29,832 )

Payment for a business combination, net of cash and restricted cash acquired

— � (18,662 )
Net cash (used in) provided by investing activities (41,153 ) 15,149 �
Cash flows from financing activities:
Proceeds from sales of shares through employee equity incentive plans, net of repurchases 25,231 29,890
Payment of debt in conjunction with a business combination — (991 )
Payment of convertible notes issuance cost — (75 )
Payment of offering cost (85 ) — �
Net cash provided by financing activities 25,146 � 28,824 �
Net (decrease) increase in cash, cash equivalents and restricted cash (1) $ (5,909 ) $ 93,797
Cash, cash equivalents and restricted cash—beginning of period (1) 139,497 � 307,098 �
Cash, cash equivalents and restricted cash—end of period (1) $ 133,588 � $ 400,895 �
Restricted cash (1) (2) 1,129 � 1,109 �
Cash and cash equivalents—end of period $ 132,459 � $ 399,786 �
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 2,066 $ 3,910
Supplemental disclosures of non-cash investing and financing information:
Issuance of common stock for business combinations $ — $ 102,978
Purchases of property and equipment included in accounts payable and accrued liabilities $ 7,084 $ 15,717
Vesting of early exercised stock options $ 249 $ 70
�

_____________________

(1) � � During the first quarter of fiscal 2019, we adopted Accounting Standards Update (ASU) No. 2016-18, which requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash. We adopted the standard retrospectively for the prior period presented. Our adoption of ASU 2016-18 did not have any significant impact on our consolidated statement of cash flows.
(2) Included within other assets—non-current in the condensed consolidated balance sheets.

� �
NUTANIX, INC.
Reconciliation of Revenue to Total Billings
(Unaudited)
�
Three Months Ended
October 31,
2017 � � 2018
(in thousands)
Total revenue $ 275,552 $ 313,283
Change in deferred revenue, net of acquisitions (1) 39,788 � 70,273
Total billings $ 315,340 � $ 383,556
�

_____________________

(1) � � Amount for the three months ended October 31, 2018 excludes approximately $0.3 million of deferred revenue assumed in the Frame acquisition.
� �
Disaggregation of Revenue and Billings
(Unaudited)
�
Three Months Ended
October 31,
2017 � � 2018
(in thousands)
Disaggregation of Revenue:
Non-portable software $ 126,897 $ 146,570
Subscription 62,376 126,976
Hardware 80,838 32,547
Professional services 5,441 � 7,190
Total revenue $ 275,552 � $ 313,283
�
Disaggregation of Billings:
Non-portable software $ 126,897 $ 146,570
Subscription 98,902 194,764
Hardware 80,838 32,547
Professional services 8,703 � 9,675
Total billings $ 315,340 � $ 383,556
�

Non-portable software — Non-portable software revenue includes sales of our software operating system when delivered on a configured to order appliance by us, or one of our OEM partners. The software licenses associated with these sales are typically non-portable and have a term equal to the life of the appliance it is delivered on. Revenue from our non-portable software products is generally recognized upon transfer of control to the customer.

Subscription — Subscription revenue is generated from the sales of software entitlement and support subscriptions, separately purchased software term-based licenses and cloud-based Software as a Service, or SaaS offerings. We recognize revenue from software entitlement and support subscriptions and SaaS offerings ratably over the contractual service period, while revenue from our separately purchased software term-based licenses is generally recognized upon transfer of control to the customer, which is when we make the software available to our customers.

Hardware — In transactions where we deliver the hardware appliance, we consider ourselves to be the principal in the transaction and we record revenue and costs of goods sold on a gross basis. We consider the amount allocated to hardware revenue to be equivalent to the cost of the hardware procured. Hardware revenue is generally recognized upon transfer of control to the customer.

Professional services — We also sell professional services with our products. We recognize revenue related to professional services as they are performed.

� �
NUTANIX, INC.
Reconciliation of Subscription and Professional Services Revenue to Subscription and Professional Services Billings
(Unaudited)
�
Three Months Ended
October 31,
2017 � � 2018
(in thousands)
Subscription revenue $ 62,376 $ 126,976
Change in subscription deferred revenue, net of acquisitions (1) 36,526 � 67,788
Subscription billings $ 98,902 � $ 194,764
�
Professional services revenue $ 5,441 $ 7,190
Change in professional services deferred revenue 3,262 � 2,485
Professional services billings $ 8,703 � $ 9,675
�

_____________________

(1) � � Amount for the three months ended October 31, 2018 excludes approximately $0.3 million of deferred revenue assumed in the Frame acquisition.
� �
Reconciliation of Software and Support Revenue to Software and Support Billings
(Unaudited)
�
Three Months Ended
October 31,
2017 � � 2018
(in thousands)
Software revenue $ 138,214 $ 191,799
Hardware revenue 80,838 � 32,547
Product revenue 219,052 224,346
Support, entitlements and other services revenue 56,500 � 88,937
Total revenue $ 275,552 � $ 313,283
�
Total software and support revenue (2) $ 194,714 $ 280,736
Change in software and support deferred revenue, net of acquisitions (1) 39,788 � 70,273
Software and support billings (2) $ 234,502 � $ 351,009

_____________________

(1) � � Amount for the three months ended October 31, 2018 excludes approximately $0.3 million of deferred revenue assumed in the Frame acquisition.
(2) Software and support revenue and billings include software and support, entitlements and other services revenue and billings.

� � � � � �
NUTANIX, INC.
Reconciliation of GAAP to Non-GAAP Profit Measures
(Unaudited)
�
GAAP Non-GAAP Adjustments Non-GAAP
Three Months � � � � � Three Months
Ended October Ended October
31, 2018 (1) � (2) � (3) � (4) � (5) � (6) 31, 2018
(in thousands, except share and per share data)
Gross profit $ 239,177 $ 3,855 $ 3,168 $ — $ — $ — $ — $ 246,200
Gross margin 76.3 % 1.2 % 1.1 % — — — — 78.6 %
Operating expenses:
Sales and marketing 196,497 (22,606 ) (550 ) — — — — 173,341
Research and development 110,531 (31,009 ) — — — — — 79,522
General and administrative 27,339 (8,455 ) � — � � 799 � � (481 ) � — � � — � 19,202 �
Total operating expenses 334,367 (62,070 ) (550 ) 799 (481 ) — — 272,065
Loss from operations (95,190 ) 65,925 3,718 (799 ) 481 — — (25,865 )
Net loss $ (94,265 ) $ 65,925 $ 3,718 $ (799 ) $ 481 $ 7,148 $ (5,860 ) $ (23,652 )
Weighted shares outstanding, basic and diluted 175,445,969 175,445,969
Net loss per share, basic and diluted $ (0.54 ) $ 0.38 $ 0.02 $ — $ — $ 0.04 $ (0.03 ) $ (0.13 )
�

_____________________

(1) � � Stock-based compensation expense
(2) Amortization of intangible assets
(3) Change in fair value of contingent consideration assumed in the PernixData acquisition
(4) Acquisition-related costs
(5) Amortization of debt discount and issuance costs
(6) Partial release of valuation allowance from acquisition

� � � � � �
GAAP Non-GAAP Adjustments Non-GAAP
Three Months � � � Three Months
Ended October Ended October
31, 2017 (1) � (2) � (3) � (4) 31, 2017
(in thousands, except share and per share data)
Gross profit $ 166,930 $ 2,642 $ 895 $ — $ — $ 170,467
Gross margin 60.6 % 1.0 % 0.3 % — — 61.9 %
Operating expenses:
Sales and marketing 145,405 (13,766 ) (211 ) — — 131,428
Research and development 64,512 (15,542 ) — — — 48,970
General and administrative � 16,052 � (3,565 ) � — � � (282 ) � — � 12,205 �
Total operating expenses 225,969 (32,873 ) (211 ) (282 ) — 192,603
Loss from operations (59,039 ) 35,515 1,106 282 — (22,136 )
Net loss $ (61,487 ) $ 35,515 $ 1,106 $ 282 $ (132 ) $ (24,716 )
Weighted shares outstanding, basic and diluted 156,780,631 156,780,631
Net loss per share, basic and diluted $ (0.39 ) $ 0.23 $ — $ — $ — $ (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

� �
NUTANIX, INC.
Reconciliation of GAAP Net Cash Provided by Operating Activities to Non-GAAP Free Cash Flow
(Unaudited)
�
Three Months Ended
October 31,
2017 � � 2018
(in thousands)
Net cash provided by operating activities $ 10,098 $ 49,824
Purchases of property and equipment (17,965 ) (29,832 )
Free cash flow $ (7,867 ) $ 19,992 �
�

Investor Contact:

Tonya Chin

408-560-2675

[email protected]

Media Contact:

Kate Reed

973-534-9292

[email protected]

Source: Nutanix, Inc.

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