Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nutanix Inc (NTNX, Financial) exceeded all guided metrics for Q4 2024, with revenue of $548 million, up 11% year over year.
- The company saw strong free cash flow generation, with $224 million in Q4 and $598 million for the full fiscal year, almost three times higher than the previous year.
- Nutanix Inc (NTNX) achieved significant new or enhanced partnerships with Cisco, Dell, and NVIDIA, expanding their addressable market.
- The company launched innovative products like GPT-in-a-Box and Nutanix Data Services for Kubernetes, enhancing their cloud platform.
- Nutanix Inc (NTNX) reported a Rule of 40 score of 43 for fiscal year 2024, indicating strong growth and profitability.
Negative Points
- The land and expand business underperformed relative to internal expectations due to longer-than-expected sales cycles.
- Average sales cycles have modestly elongated compared to historical levels, impacting deal closures.
- The company faces challenges in migrating customers from three-tier infrastructure to HCI, often requiring hardware refreshes.
- There is variability and unpredictability in the timing and outcome of larger deals, which can affect revenue recognition.
- Nutanix Inc (NTNX) expects a $20 million to $25 million headwind in operating expenses for fiscal year 2025 due to payments related to a partnership agreement.
Q & A Highlights
Q: Can you provide an update on the Broadcom trend and its impact on your business?
A: Rajiv Ramaswami, President and CEO: The multi-year opportunity to gain share remains largely unchanged. While sales cycles have been longer than anticipated, we haven't seen meaningful changes in win or loss rates. We are seeing increased engagement and opportunities, especially in mid-size and smaller customer segments, which are generally less competitive.
Q: How does the partnership with Dell impact the need for hardware refreshes?
A: Rajiv Ramaswami, President and CEO: For customers already on HCI, like the financial services example mentioned, we can run our software on existing hardware, eliminating the need for a hardware refresh. For three-tier infrastructure, a hardware refresh is still required. Our partnership with Dell, including support for external storage like Dell PowerFlex, aims to ease insertion into three-tier deployments without changing out hardware.
Q: Are you seeing any trends of repatriation of workloads back to private cloud, especially for AI?
A: Rajiv Ramaswami, President and CEO: For steady-state workloads, it's more cost-effective to run them on-prem in a private cloud environment. For GenAI workloads, while initial interest is in public cloud, we believe the bulk of enterprise opportunities will be on-prem due to data sensitivity. Our GPT-in-a-Box provides a secure way to run GenAI applications close to the data.
Q: How do you balance share gain versus margins, especially in the context of hardware refresh cycles?
A: Rajiv Ramaswami, President and CEO: We offer promotions and work with hardware partners to mitigate hardware refresh costs. We are aggressive in landing new customers while protecting margins. We are also broadening our insertion points to include existing HCI environments and third-party storage support.
Q: Can you provide more details on the free cash flow guidance for fiscal '25?
A: Rukmini Sivaraman, CFO: The free cash flow guidance for fiscal '25 is strong, above our prior guidance. The quarterly cadence can vary due to larger deals and upfront cash collections. Operating expenses will increase gradually over time, factoring in salary raises and investments in sales and marketing and R&D.
Q: How do you view the VMware displacement opportunity in the context of your go-to-market strategy?
A: Rajiv Ramaswami, President and CEO: We are targeting larger enterprises where the maximum dollar opportunity lies, despite the longer sales cycles. We continue to focus on our historical sweet spot in the mid-market while also pursuing larger opportunities at the top of the pyramid.
Q: What is the impact of the eight-figure deal announced last quarter on revenue recognition?
A: Rukmini Sivaraman, CFO: The revenue recognition for the eight-figure deal will occur over multiple years, starting in fiscal year '25. Only a small portion related to professional services was recognized in Q4.
Q: How do you view the renewals opportunity in fiscal '25?
A: Rukmini Sivaraman, CFO: Our available to renew pool continues to grow year-over-year. Fiscal Q2 and Q4 tend to have higher renewal opportunities due to calendar year-end budgets and fiscal year-end incentives.
Q: How do you view the economics of transitioning from VMware to Nutanix AHV?
A: Rajiv Ramaswami, President and CEO: Transitioning from VMware to Nutanix AHV can save customers 30-40% in TCO costs. The migration is easier for existing VMware HCI customers, as they don't need to change out their hardware.
Q: Can you provide more details on the non-recurring payments from a partner and its impact on free cash flow?
A: Rukmini Sivaraman, CFO: We received about $30 million in non-recurring payments in fiscal year '24 and expect another $30 million in fiscal year '25. This benefit will taper off towards the end of fiscal year '25.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
