Nutanix, Inc. (NTNX) Q1 2026 Earnings Call Transcript

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

Overview

The earnings call summary presents a mixed sentiment. While there is optimism in product development and shareholder returns, concerns arise from lowered revenue guidance and uncertainties in the macro environment. The Q&A section reveals management's evasiveness on specifics, raising caution. Despite positive aspects like capturing VMware migrations, the overall sentiment remains balanced, justifying a neutral rating.

Key Financial Performance

Quarterly Revenue $671 million, within the guided range of $670 million to $680 million, representing a year-over-year growth rate of 13%. The growth was impacted by a larger-than-expected proportion of land and expand bookings with future start dates late in the quarter, resulting in a shift of some revenue from Q1 into future periods.

Annual Recurring Revenue (ARR) $2.284 billion, representing year-over-year growth of 18%. This growth reflects the company's success in maintaining customer retention and expanding its customer base.

Net Dollar-Based Retention Rate (NRR) 109%, flat quarter-over-quarter. This indicates consistent customer retention and expansion within the existing customer base.

Non-GAAP Gross Margin 88%. This reflects the company's efficiency in managing costs relative to revenue.

Non-GAAP Operating Margin 19.7%, towards the lower end of the guided range of 19.5% to 20.5%, primarily due to lower revenue.

Non-GAAP Net Income $121 million or fully diluted EPS of $0.41 per share. This reflects the company's profitability after excluding certain charges.

GAAP Net Income $62 million or fully diluted GAAP EPS of $0.21 per share. This represents the company's profitability under generally accepted accounting principles.

Free Cash Flow $175 million, representing a free cash flow margin of 26%. This indicates strong cash generation relative to revenue.

Cash, Cash Equivalents, and Short-Term Investments $2.062 billion, up from $1.993 billion at the end of Q4. This increase reflects the company's strong cash position and liquidity.

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Operating Highlights

Nutanix Cloud Platform: Highlighted as a key solution for businesses modernizing IT, deploying modern apps, and adopting hybrid multi-cloud models. Examples include a North American agricultural provider and a European government agency leveraging its capabilities.

Nutanix Kubernetes Platform: Adopted by customers for modern workloads and applications, including AI and GenAI applications.

Nutanix Unified Storage: Chosen for managing unstructured data and supporting cybersecurity solutions.

Nutanix Enterprise AI: Used by a U.S. federal agency to enhance infrastructure and AI capabilities.

Geographic Expansion: New customer wins in North America, Europe, and EMEA, including government agencies and GLOBAL 2000 companies.

Sector Expansion: Expanded presence in agriculture, energy, and federal sectors with significant new logo wins.

Revenue Recognition Timing: Shift in revenue recognition due to increased bookings with future start dates and growing business through third-party OEM partners.

Free Cash Flow: Increased guidance for FY '26 free cash flow to $800M-$840M, representing a margin of 28.9%.

ARR Growth: Annual Recurring Revenue grew 18% YoY to $2.28 billion.

Partnerships with Dell and Pure Storage: Progress in supporting external storage solutions, including Dell's PowerFlex and PowerStore, and Pure Storage FlashArray.

Recognition in Gartner Magic Quadrant: Named a leader in the 2025 Gartner Magic Quadrant for distributed hybrid infrastructure, reflecting its evolution to a hybrid multi-cloud platform.

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Risk or Challenges

Revenue Timing and Recognition: The company experienced a shift in revenue recognition due to a larger-than-expected proportion of bookings with future start dates. This timing issue has led to a reduction in full-year revenue guidance for fiscal year 2026, even though the total revenue expected over time remains unchanged.

Customer Demand for Flexibility: Increased customer demand for licenses aligned with their adoption timelines has resulted in more bookings with future start dates, delaying revenue recognition.

Third-Party OEM Partner Dependency: A growing proportion of business through third-party OEM partners has introduced delays in revenue recognition, as revenue is only recognized when partners ship appliances.

Operating Margin Pressure: Non-GAAP operating margin in Q1 was at the lower end of the guided range due to lower revenue, indicating potential challenges in maintaining profitability under evolving revenue dynamics.

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Guidance & Outlook

Full Year Revenue Guidance: Updated to $2.82 billion to $2.86 billion, representing a year-over-year growth rate of 12% at the midpoint of the range. This is a reduction due to timing of revenue recognition, with more revenue expected to shift into future periods.

Free Cash Flow Guidance: Increased to $800 million to $840 million, representing a free cash flow margin of 28.9% at the midpoint.

Q2 Fiscal 2026 Revenue Guidance: Projected to be $705 million to $715 million.

Non-GAAP Operating Margin Guidance: For Q2 Fiscal 2026: 20.5% to 21.5%. For the full year Fiscal 2026: 21% to 22%, unchanged from prior guidance despite lower revenue guidance.

Bookings Growth Expectations: Remain unchanged for fiscal year 2026.

Revenue Timing: More revenue is expected to shift from fiscal year 2026 into future periods due to increased customer demand for flexible license start dates and a growing proportion of business through third-party OEM partners.

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Shareholder Return Plan

Share Repurchase: In Q1, Nutanix repurchased $50 million worth of common stock under its existing share repurchase authorization. Additionally, the company used about $89 million of cash to retire shares related to employees' tax liability for their quarterly RSU vesting. Both actions were aimed at managing share dilution.

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Key Q&A

Q:Why was the Net Revenue Retention (NRR) flat quarter-over-quarter, and how should we think about new logos versus expansions this quarter and throughout 2026?

A:NRR was flat quarter-over-quarter due to a balance of factors. New logos generally do not directly affect NRR as they contribute to ARR growth through retention, expansion, and new customer additions. Larger deal sizes for new logos sometimes involve complete migrations to the Nutanix platform upfront, but this is not always the case. Overall, NRR for Q1 stabilized and was flat quarter-over-quarter.

Q:How did the U.S. Federal (Fed) business perform relative to expectations 90 days ago, and what was the impact of the government shutdown?

A:The U.S. Fed business saw double-digit year-over-year growth in Q1, benefiting from seasonal strength and an easy comparison to the prior year. However, variability is expected going forward due to personnel and policy changes, as well as the recent government shutdown. This variability has been factored into the updated fiscal year 2026 guidance.

Q:Why did RPO bookings decline slightly, and why does it seem that so much is pushed into fiscal Q4?

A:RPO bookings declined slightly due to seasonality and a small decline in the backlog component. The overall year-over-year growth in RPO was 26%. The revenue mix for fiscal year 2026 is expected to be slightly more weighted towards the second half, similar to fiscal year 2025.

Q:What are the similarities and differences between the current pushout time frame and the supply chain issues experienced a few years ago?

A:The current pushout time frame is primarily due to Broadcom migrations, where customers need flexibility to match license deployments with migration timelines. Additionally, a growing proportion of business is coming through third-party OEM partners, where revenue is recognized only when partners ship appliances. Supply chain shortages were not a meaningful factor in Q1 but could impact the business going forward. Nutanix has taken steps to mitigate supply chain issues, such as adding server partners and expanding hardware compatibility.

Q:How much of the revenue that slipped from Q1 into future periods was tied to customer-requested future start dates versus OEM shipment timing versus deal slippage?

A:The revenue performance in Q1 was primarily related to the proportion of orders with future start dates. Bookings in Q1 were slightly ahead of expectations, and the primary factor for the revenue shift was customer-requested future start dates rather than OEM shipment timing or deal slippage.

Q:How should we think about the duration and timing of deal recognition given the commentary on delayed revenue recognition?

A:Revenue growth in fiscal year 2027 will depend on deferred business from fiscal year 2026, new bookings in fiscal year 2027, and the net effect of bookings deferred into future years. More color on fiscal year 2027 will be provided during the Investor Day in April.

Q:Does increased hardware costs impact customer spending on IT, and how does this affect the fiscal year 2026 guidance?

A:Increased hardware costs have not led to a drop in demand. Nutanix provides flexibility by supporting multiple hardware platforms and expanding hardware compatibility. The fiscal year 2026 guidance was adjusted to account for timing issues, with the updated range being $2.82 billion to $2.86 billion, down from $2.90 billion to $2.94 billion.

Q:Has there been any increased competitiveness in the market over the last 90 days?

A:There has been no major change in the competitive dynamics. Nutanix continues to see migrations staged over time, with customers requiring flexible start dates for license activations.

Q:What is the pipeline of large deals for the rest of fiscal year 2026, and what percentage of revenue is coming from third-party OEMs?

A:Nutanix has a good mix of large deals in the pipeline, with more million-dollar deals expected this year. The percentage of revenue from third-party OEMs is growing, with Cisco and Dell continuing to ramp up. However, the exact percentage has not been disclosed.

Q:Is the shift to more bookings with future start dates a structural change, and does investing less now risk future revenue growth?

A:The shift to more bookings with future start dates is driven by Broadcom migrations and is expected to continue as these migrations are a multiyear journey. Nutanix is balancing prudent investments for growth with a focus on margins, and free cash flow guidance has been slightly increased. Cash is collected upfront on bookings, mitigating risks to free cash flow.

Q:What market share is Nutanix capturing from VMware migrations, and are organizations increasingly looking for container-only solutions?

A:Nutanix is capturing a significant portion of VMware migrations, particularly against Red Hat, which focuses on containerization. Most organizations are adopting a mixed environment with the majority of their estate being virtual machine-based and new workloads being containerized.

Q:Why did the pushout issue related to Broadcom migrations not appear sooner, and is it tied to budget or macro issues?

A:The pushout issue has been seen in the past but was less pronounced. It has become more significant due to the growing number of Broadcom migrations, which require flexibility to align with customer migration timelines. It is not tied to budget or macro issues.

Q:Should Nutanix be more aggressive on upfront pricing to win business from Broadcom, and how does hardware pricing impact this?

A:Nutanix aims to be competitive with Broadcom on pricing, especially for new customers. The need for new hardware can be a barrier, but Nutanix is working to reduce this by supporting existing hardware and external storage options. Moving from 3-tier storage to HCI offers significant TCO benefits, which can offset hardware costs.

Q:How is Nutanix improving the migration process for large customers transitioning from Broadcom?

A:Nutanix is addressing migration challenges by supporting existing hardware, expanding hardware compatibility, providing professional services for migration, and offering flexible licensing options. For very large customers, Nutanix focuses on specific workloads or use cases rather than complete Broadcom takeouts.

Q:How are enterprise investments in AI influencing Nutanix's opportunity to capture a larger footprint?

A:While AI is a priority for many enterprises, most Nutanix customers are still in the experimental phase and have not diverted significant spending to AI. This has not impacted Nutanix's ability to capture a larger footprint.

Q:Why has RPO not shown a more positive impact from VMware migrations, and will revenue accelerate into fiscal year 2027?

A:RPO growth has been significant year-over-year, but the impact of VMware migrations is balanced by the timing of revenue recognition. Revenue growth in fiscal year 2027 will depend on bookings growth and the net effect of deferred revenue. More details will be provided during the Investor Day.

Q:Should Nutanix be more aggressive in targeting VMware's stand-alone virtualization market?

A:Nutanix is expanding support for third-party storage and focusing on major players like Dell and Pure. However, it is balancing these investments with future-focused areas like Kubernetes, cloud-native solutions, and AI.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the year-over-year bookings growth rate, the exact percentage of revenue from third-party OEMs, and the quantification of market share captured from VMware migrations. Additionally, they deferred providing detailed guidance for fiscal year 2027, stating that more information would be shared during the Investor Day in April.

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Earnings Word Cloud

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

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