Nutanix Inc Q1 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Pinjalim Bora - JPMorgan - Analyst : Rajiv, one for you. Maybe can you talk about what are you hearing from customers around the VMS offering? Trying to understand if this new partnership with AWS. It might act as a catalyst to kind of convince people to move to NC2 or are you seeing any signs of that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, NTNX.OQ - Q1 2025 Nutanix Inc Earnings Call

Question: Pinjalim Bora - JPMorgan - Analyst : Correct. VMC, correct.

Question: Pinjalim Bora - JPMorgan - Analyst : Yes. Understood. One for Rukmini. Rukmini, I'm trying to understand the guidance. It seems like a very solid Q1 beat. You took the Q2 numbers up, but the second half seems like it's an implied guide down because you didn't take the full year number up. So I'm trying to understand, is that just prudent caution around what you're seeing on the sales cycles, Were there any deals that mkind of moved from the second half into the first half that changed the seasonality a bit? And lastly, do you think we're close to a trough on NRR?

Question: Meta Marshall - Morgan Stanley - Analyst : Great. Maybe following up on the federal piece. You noted in the script that you expected kind of fiscal Q2 to be better. I would expect you would need the administration change, so maybe you wouldn't expect kind of federal to improve until fiscal Q3, but just wanted to kind of listen about what went into that commentary or you could explain that more. And then maybe just a second question. Just any update on timing of Dell PowerFlex kind of integration? Just anything there would be helpful.

Question: James Fish - Piper Sandler Companies - Analyst : I did want to build off of Meta's question and Pinjalim there a little bit. Can you just remind us how big this federal vertical can be for you guys here in fiscal Q1 versus kind of what you saw here? And what the actual impact net retention rate was? Like are we talking about a point or two difference that we would have seen versus the 110% or how to kind of quantify that?

Question: James Fish - Piper Sandler Companies - Analyst : Got it. And Rajiv, maybe for you. I think we're all kind of anxious to hear about when we could see more stand-alone into other storage arrays. Obviously, you just talked about the calendar first half of '25 seeing Dell PowerFlex. But how should we start thinking about Nutanix's relationships of getting stand-alone AHV integration into some of the other providers out there? And why we wouldn't start to see that AHV attach go from 7% today to faster to 100?

Question: Jason Ader - William Blair & Company - Analyst : So when I look at the second half and you gave basically guidance revenue per quarter for the second half. But then looking at the operating margin for the year, you raised that only slightly after having pretty significant outperformance in Q1 and also guiding to a pretty robust operating margin in Q2. So that implies the second half is going to be kind of weigh down on the operating margin. And I know you said you're going to be ramping expenses, but I just want to make sure that there's nothing kind of idiosyncratic to the second half that we're not thinking about. And then can you talk about where that ramp up in spending is going to come. You said sales and marketing and R&D, but could you be more specific within those buckets.

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : It's Ruplu filling in for Wamsi today. Rukmini, the renewals business has been strong. How should we think about the growth in available to renew pool in fiscal '25 versus fiscal '24? And is there any danger that renewals kind of fall off a cliff in fiscal '26? Or is REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, NTNX.OQ - Q1 2025 Nutanix Inc Earnings Call there a large enough cohort of customers who are going to renew in fiscal '26 that strong growth in renewals continues and it grows as a mix of the business. So just your thoughts on available to renew pool and how you see that business continuing to grow?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Okay. And maybe for my follow-up, I'll ask you another question. Free cash flow in fiscal 1Q was very strong. It was $152 million, which I don't think, over the last three, four years, you've had such a strong 1Q. Were there any one-time items? I know last quarter, you had said that you might get from a partner, I think you had said $30 million benefit for the full year in terms of free cash flow. So any guidance on how we should think about the progression of free cash flow first half versus second half in this year?

Question: Michael Cikos - Needham & Company Inc. - Analyst : I'm going to ask a boring one on guidance and build on some of the line of questioning that Mr. Rader was going after on the operating margin and the operating profit. But I just wanted to get a better understanding congratulations on the 20% operating margin we're seeing here in Q1. Is the view for full year in any way informed like are we potentially behind on hiring versus where we expected to be exiting Q1? Or are you potentially increasing your view of additional investments in sales and marketing and R&D? Because I know that's something that we had flagged on the previous quarter. Just wanted to wrestle those two items.

Question: Michael Cikos - Needham & Company Inc. - Analyst : Got it. And then just one other, if I could. I know that we're -- and I appreciate the commentary here as well as far as the Q2 versus 3Q seasonality on revenue. I just wanted to make sure I'm thinking about this properly, even if I go back beyond last year, two years ago, we tend to see coal at a 7% to 8%, 7% feels about right as far as a sequential decline in revenue from Q2 to Q3. And I appreciate your qualitative comments, but if you could further elaborate on that. What is driving that seasonal component? Is it really tied to year-end in Q2 and then maybe the sales incentive comp for your sales force in Q4? Is that why we should be thinking about that Q2 to Q3 sequential movements that we're talking to?

Question: Ben Bollin - Cleveland Research - Analyst : Rajiv, I wanted to get your perspective a bigger picture on enterprise refresh behavior, in particular, around how you see customers

Question: Ben Bollin - Cleveland Research - Analyst : That's great. And Rukmini, if I could. In the past, you had provided some perspective on the growth of $1 million-plus deals in your pipeline relative to the remainder of the business. Curious if you have any updates on that metric exiting the quarter?

Question: Victor Chiu - Raymond James - Analyst : This is Victor Chiu in for Simon Leopold. I wanted to drill into your commentary around the increased customer engagement from VMware Basin. Maybe help us understand if this was an incremental acceleration relative to what you were previously observing? If so, maybe help us understand what's driving that and if you expect that to continue?

Question: Victor Chiu - Raymond James - Analyst : Okay. And if the organization decides that they wanted to move away from VMware kind of, on average, how long is that transition typically? And kind of what are the steps involved that required for a customer to do something like that?

Question: Victor Chiu - Raymond James - Analyst : Do you have maybe kind of a general ballpark kind of estimation of what percentage is the easy kind of low-hanging fruit? And what --?

Question: Matthew Hedberg - RBC Capital Markets - Analyst : I just wanted to ask, obviously, it sounds like the federal business had some headwinds. Maybe just a simple question, but Rajiv, did the enterprise business, do you think it deteriorated from a demand perspective versus last quarter? Just because it seems like good revolve, but just trying to get a kind of finer point on sort of like your thought on enterprise spending today versus maybe many days ago?

Question: Matthew Hedberg - RBC Capital Markets - Analyst : Got it. That's very clear. And then maybe another sort of, I guess, macro question for Rukmini. Obviously, it's not your year-end, but do you typically see a December budget flush from an enterprise percent? I can't imagine you're baking that into guidance. Just kind of curious on historically, do you see customers kind of spend it or lose it mentality when it comes to December, your calendar year end? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 26, 2024 / 9:30PM, NTNX.OQ - Q1 2025 Nutanix Inc Earnings Call

Question: Nehal Chokshi - Northland Securities - Analyst : Congrats on the really strong new logo up to 2% year-over-year. That's really impressive. I'm trying to put though, why is ARR decelerating given the strong land that you're seeing? And then if I look at the incremental ARR, i.e., the change quarter-over-quarter or October quarter, relative to the year ago quarter, that was down a lot as well. So thoughts on why are there such a weak incremental ARR characteristics, especially given the backdrop that you're having such strong WAN metrics?