Nutanix(NTNX) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Nutanix reported a 17% year-over-year growth in ACV billings for Q3 2023, reaching $240 million, exceeding guidance of $220 million to $225 million [23] - Revenue for Q3 was $449 million, an 11% year-over-year growth, also above the guidance of $430 million to $440 million [23] - ARR at the end of Q3 was $1.467 billion, reflecting a 32% year-over-year growth [23] - Non-GAAP gross margin for Q3 was 84%, with non-GAAP operating margin at 2%, which would have been approximately 6% excluding one-time items [25] - Free cash flow for Q3 was $42 million, resulting in a free cash flow margin of 9% [26] Business Line Data and Key Metrics Changes - The renewals business continued to perform strongly, contributing to the overall growth in ACV billings [9] - Notable deals included a Fortune 500 semiconductor provider and a leading payment solutions provider in the EMEA region, both leveraging Nutanix's cloud platform for cost optimization and operational efficiency [12][13] Market Data and Key Metrics Changes - Supply chain constraints with server partners have normalized, having minimal impact on business operations [10] - The company observed increased scrutiny in deal inspections by customers, elongating sales cycles modestly due to macroeconomic uncertainties [9] Company Strategy and Development Direction - Nutanix is focused on enhancing its hybrid multi-cloud platform, with new product innovations announced at the .NEXT user conference, including Nutanix Data Services for Kubernetes and Project Beacon [17][18] - The company aims to decouple applications from underlying infrastructure, allowing for greater flexibility in deployment across various environments [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the uncertain macro environment, citing strong demand for digital transformation and data center modernization [9] - The company raised its fiscal year topline and bottom line outlook, indicating optimism despite ongoing economic challenges [18] Other Important Information - The Audit Committee investigation into third-party software usage concluded with minimal impact on historical financials, and the company is implementing remedial measures to address identified weaknesses [10][20] - The company expects ongoing annual impacts from the third-party software usage issue to be in the low single-digit millions [22] Q&A Session Summary Question: Impact of elongated sales cycles on expansion rates - Management noted that while renewals remain solid, elongated sales cycles are affecting both new logos and expansion business, with net retention rates remaining in the 121% to 125% range [35][37] Question: Competitive landscape and acquisition impacts - Management indicated that while there is increased engagement due to competitor acquisitions, the sales cycles remain lengthy, and customers are more cautious about public cloud adoption [39] Question: Linear progression of the quarter's performance - Management confirmed that the quarter's performance was consistent with expectations, with no unusual trends in linearity [42] Question: Gross margin sustainability - Management stated that gross margins are expected to remain in the low 80s range, driven by efficiency and professional services attachment [43] Question: Demand trends by vertical - Management reported no significant changes in demand patterns across key verticals such as financial services and healthcare, with continued engagement from larger banks [79]