Nutanix, Inc. (NTNX) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals strong financial metrics, optimistic guidance, and strategic partnerships with Pure Storage and Google Cloud. New product innovations and strong new logo growth further bolster the outlook. Although management provided unclear responses on some metrics, the overall sentiment remains positive, with potential for stock price increase.

Key Financial Performance

Quarterly Revenue $653 million, up 19% year-over-year. Reasons for change: Strong free cash flow generation and exceeding guided metrics.

Annual Revenue $2.54 billion, up 18% year-over-year. Reasons for change: Solid top-line performance and strong new logo performance across customer tiers.

Annual Recurring Revenue (ARR) $2.22 billion, up 17% year-over-year. Reasons for change: Strong customer acquisition and retention.

Free Cash Flow (Annual) $750 million, up 26% year-over-year. Reasons for change: Improved free cash flow margin of 30% and operational efficiency.

Non-GAAP Gross Margin (Annual) 88.1%, up 140 basis points year-over-year. Reasons for change: Industry-leading software gross margins and favorable revenue mix.

Non-GAAP Operating Margin (Annual) 21.1%, up approximately 5 percentage points year-over-year. Reasons for change: Improved operational efficiency and cost management.

Net Income (Non-GAAP, Annual) $476 million, first full year of positive GAAP net income. Reasons for change: Sustainable profitable growth and improved financial model.

Rule of 40 Score 48, second consecutive year above 40. Reasons for change: Combination of revenue growth and free cash flow margin.

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Operating Highlights

GPT-in-a-Box 2.0: Enhanced genAI capabilities of the platform.

Nutanix Enterprise AI: Delivered an enhanced version with deeper integration with NVIDIA AI Enterprise.

Hybrid multi-cloud capabilities: Extended by adding support for Google Cloud, now in public preview.

Nutanix Cloud Platform: Supports both HCI and external storage, with new capability supporting Dell PowerFlex and partnership with Pure Storage for FlashArray.

New customer acquisition: Added over 2,700 new customers, including over 50 Global 2000 accounts, the highest in 4 years.

Significant deals: Secured major deals with Finanz Informatik and a global financial services provider, showcasing the platform's appeal for modern applications and trusted partnerships.

Revenue growth: Achieved $2.54 billion in revenue for FY 2025, up 18% year-over-year.

Free cash flow: Generated $750 million, a 26% increase year-over-year, with a free cash flow margin of 30%.

Rule of 40 score: Achieved a score of 48 for the second consecutive year.

Partnerships: Announced collaboration with Pure Storage and Dell PowerFlex to enhance external storage support.

Industry recognition: Named a Leader in Gartner Magic Quadrant for Distributed Hybrid Infrastructure and Forrester Wave: Multicloud Container Platforms.

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Risk or Challenges

Macroeconomic Uncertainty: The company anticipates continued uncertainty in the overall macro environment, including areas such as U.S. federal government spending and currency fluctuations, which could impact financial performance and operations.

Renewals Growth Deceleration: The renewals ACV cohort is expected to grow year-over-year but at a slower pace than in fiscal year 2025, as the overall renewal base gets larger over time, potentially impacting revenue growth.

Contract Duration Decline: The company expects a slight year-over-year decline in aggregate average contract duration, which may affect revenue recognition and cash flow timing.

Delayed Hiring Expenses: Delayed hiring from fiscal year 2025 is expected to add approximately $25 million in expenses in fiscal year 2026, increasing operational costs.

Nonrecurring Partner Payments Tapering Off: Nonrecurring partner payments, which have been accounted for as contra expenses, are expected to taper off, causing a $10 million to $15 million headwind to operating expenses in fiscal year 2026.

Deferred License Provisioning: The company anticipates more large customers may look for deferred license provisioning over time, which could impact the timing of revenue and cash collection.

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Guidance & Outlook

Q1 Fiscal 2026 Revenue Guidance: Revenue of $670 million to $680 million.

Q1 Fiscal 2026 Non-GAAP Operating Margin Guidance: 19.5% to 20.5%.

Full Year Fiscal 2026 Revenue Guidance: Revenue of $2.9 billion to $2.94 billion, representing a year-over-year growth rate of 15% at the midpoint of the range.

Full Year Fiscal 2026 Non-GAAP Operating Margin Guidance: 21% to 22%, an increase from fiscal year 2025 at the midpoint.

Full Year Fiscal 2026 Free Cash Flow Guidance: $790 million to $830 million, representing a free cash flow margin of 27.7% at the midpoint.

Customer Growth Expectations for Fiscal 2026: Expect to land mid- to high 3 digits of new logos per quarter.

Macro Environment Assumptions for Fiscal 2026: Continued uncertainty in areas such as U.S. federal government spending and currency fluctuations.

Renewals ACV Cohort Growth for Fiscal 2026: Expected to grow year-over-year but at a slower pace than in fiscal year 2025.

Average Contract Duration for Fiscal 2026: Assumes a slight year-over-year decline in aggregate average contract duration.

Dell PowerFlex Contribution to Fiscal 2026 Revenue: Expected to have a small but growing contribution to fiscal year 2026 revenue.

Land-and-Expand ACV Contributions from Partners: Contributions from partners such as Cisco and Dell expected to grow year-over-year into fiscal year 2026.

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Shareholder Return Plan

Share Repurchase Authorization: In Q4, Nutanix repurchased $50 million worth of common stock under its existing share repurchase authorization and used about $44 million of cash to retire shares related to employees' tax liability for their quarterly RSU vesting. Additionally, the Board of Directors approved a $350 million increase to the existing share repurchase authorization, which is in addition to the $111 million remaining under the prior authorization as of July 31, 2025. There is no expiration date for these authorizations, and the company intends to continue repurchasing shares over time to manage share count dilution.

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Key Q&A

Q:Can you talk about the FI win and the size of the deal? Are there other similar opportunities in the pipeline?

A:The FI win in Germany is significant, involving IT infrastructure migration for 50 million customers of German Savings Banks. The deal is a long-term partnership and a marquee win, though the size is not quantified. There are other large deals in the pipeline, but their timing and outcomes are unpredictable.

Q:NRR was down a couple of points sequentially. Can you explain why?

A:NRR and net new ARR were affected by the net impact of ARR contributions from prior and current quarter deals. In Q4, this dynamic was a net headwind. Other factors include larger initial deal sizes for new logos and the increasing ACV dollars required to offset churn as ARR grows. NRR may continue to vary quarter-to-quarter.

Q:How should we think about Dell PowerFlex customers compared to traditional Nutanix customers?

A:Dell PowerFlex customers are at the top of the pyramid, typically large Global 2000 companies with significant deployments. Nutanix sees this as an opportunity to land and expand in these accounts. The PowerFlex business is expected to grow over time.

Q:What is the updated commentary on the U.S. federal government business?

A:The U.S. federal business had a good Q4, but personnel changes and additional reviews have led to longer deal cycles and increased variability. The business remains under 10% of annual revenue, with seasonal strength in fiscal Q1. These factors are included in the fiscal year '26 guidance.

Q:Where do you think we are in terms of enterprise AI maturity, and how does it benefit Nutanix?

A:Enterprise AI maturity is still in early stages, with some initial production use cases like fraud detection and document summarization. Nutanix expects AI inferencing adoption to grow over the next couple of years, potentially reaching an inflection point.

Q:How is Nutanix derisking the multiyear deal activation piece for fiscal year '26?

A:Nutanix has visibility into transactions scheduled for fiscal year '26 and has made assumptions about bookings with future deployment dates. These are embedded into the fiscal year '26 guidance.

Q:What are the puts and takes on fiscal '26 guidance, particularly regarding new ACV growth and ARR?

A:The renewal cohort is growing year-over-year but at a slower pace, impacting revenue. ARR growth depends on land and expand, price increases, and timing of deals. Nutanix does not guide to ARR but notes that timing and deal size dynamics can affect it.

Q:How should we think about the VMware replacement opportunity?

A:The VMware replacement opportunity is still in early stages, with most of the market opportunity ahead. Migration timelines vary by customer size, with smaller customers migrating faster. It is a multiyear journey.

Q:What were the expectations for PowerFlex wins, and how did these deals come together?

A:The PowerFlex wins came earlier than expected, involving large Global 2000 customers. These deals were collaborative efforts with Dell, and Nutanix provided direct support to the customers.

Q:What is the impact of average contract duration on fiscal year '26 revenue?

A:Average contract duration is expected to decline slightly in fiscal year '26, impacting revenue as license revenue is recognized upfront. Renewals, which have shorter durations, are increasing as a percentage of billings.

Q:How is the customer engagement with the Google Cloud platform expansion?

A:There is initial interest from customers who have chosen Google as their cloud provider. The offering is in public preview, with general availability expected by the end of the year, depending on Google's Bare Metal availability.

Q:What is the status of the Pure Storage partnership?

A:The Pure Storage partnership is in early access with beta testing. General availability is expected by the end of the calendar year. The partnership targets customers using Pure Storage with VMware, offering Nutanix as an alternative platform.

Q:What are the factors impacting fiscal year '26 free cash flow guidance?

A:Free cash flow is impacted by contract duration, as Nutanix collects multiple years of cash upfront. The expected decline in average contract duration year-over-year affects free cash flow.

Q:Why is fiscal year '26 operating margin improvement modest?

A:Operating margin improvement is modest due to delayed hiring in fiscal year '25, nonrecurring partner payments, and annualized costs of new hires. Incremental investments in R&D and sales and marketing also contribute.

Q:What is the pricing environment, and how does it impact ARR and NRR?

A:The pricing environment is dynamic, with inflation-based price increases on renewals. Competitive pricing varies by customer and deal size. Larger initial deal sizes for new logos may impact future expansion and NRR.

Q:What are the competitive opportunities with the Pure Storage partnership?

A:The partnership targets customers using Pure Storage with VMware, offering Nutanix as an alternative platform. Nutanix provides the hypervisor, networking, security, and operations management, while Pure provides storage.

Q:Review of Unclear Management Responses

A:Management avoided directly quantifying the size of the FI deal and provided vague responses about the timing and predictability of large deals in the pipeline. They also did not provide specific ARR guidance or quantify the impact of average contract duration on revenue. Additionally, the response to the pricing environment and its impact on ARR and NRR lacked detailed clarity.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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