Nutanix Inc Q2 2025 Earnings Call Transcript

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

Question: Meta Marshall - Morgan Stanley - Analyst : Great. Thanks and congrats on the really strong quarter. It seems like you're finally starting to see some momentum kind of in customers kind of coming over from competitive platforms. I guess just getting a sense of that, is that this time and it was going to always take time. Is that kind of targeting and kind of finding the right customer type, is it finding the right use case? Just kind of what do you attribute to kind of more success there? And then I'll just get into the second question now. Just kind of any commentary that you're seeing kind of about the federal vertical? Thank you.

Question: James Fish - Piper Sandler - Analyst : Hey guys, nice quarter. Nice acceleration. Also working off of Meta's first question as it's good to hear about some of these larger wins come in here. Just on some of these Global 2000 that are out there, what's given the confidence in the pipeline for the upper part of the market, in particular? Is there any sense of how much of it is waiting for sort of that AHV stand-alone readiness with the storage they have versus looking to move to hyperconverged? How's the feedback been thus far on PowerFlex and potential buildup of other OEM relationships?

Question: James Fish - Piper Sandler - Analyst : Makes sense. And then Rukmini, maybe for you. You talked about seeing better renewals. Obviously, I think mathematically, the dollar basis for the renewal piece moved up this quarter. But what's given the confidence that, that 110% net retention rate can be stable for the remainder of the year, and how do we think about the other aspects of net retention rate in terms of what you guys are trying to drive beyond just existing workload expansion?

Question: Pinjalim Bora - JPMorgan - Analyst : Oh great, thank you for taking the questions and congrats on a very solid quarter here. Rajiv, I wanted to -- I think I heard a couple of instances where you're talking about the Kubernetes Platform, which I think is, I guess, not well understood by investors. I want to ask you if you -- if a VMware customer is kind of choosing not to stay on-premise and kind of decide to move to the cloud, are they considering the Nutanix Kubernetes Platform as a platform of choice when they're kind of going through that app modernization journey, is that coming up in those VMware related conversations at this point?

Question: Pinjalim Bora - JPMorgan - Analyst : Understood. Very helpful. One for Rukmini. Rukmini, specifically on federal, would you say the underperformance that you had in Federal last quarter, did you recover all of it or partial recovery there? Trying to understand, obviously, the guidance looks extremely solid, much more than the beat, I think, if I did my math right. Trying to understand what kind of gives you confidence in the guidance going forward for the rest of the year?

Question: Ben Bollin - Cleveland Research Company - Analyst : Good afternoon, everyone. Thank you for taking the question. Rukmini, you discussed variability of large deal timing. I'm interested in how you think about variability or flexibility of incentives that you're offering to these larger projects. Could you talk about how you think about the willingness to maybe subsidize or discount for takeouts or offer flexibility around timing of billings. Just any high-level thoughts or approach that you're taking to these larger projects? And then I have a follow-up for Rajiv.

Question: Ben Bollin - Cleveland Research Company - Analyst : Okay. That's great. And Rajiv, bigger picture, when you think about the opportunity, historically, you've talked about more customers having spent in three tier overall and having kind of a bigger addressable opportunity there and some of these partnerships. But could you speak to what you're seeing from customers and their willingness to migrate more towards hyperconverged? You're seeing more refresh, you're talking about modernization. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 9:30PM, NTNX.OQ - Q2 2025 Nutanix Inc Earnings Call Does it feel like you're seeing a bigger tipping point where they're more willing to make this migration? Or -- how do you think about -- or what are they saying about the incremental costs and the willingness to make those transitions?

Question: Jacob Wilhelm - Wells Fargo - Analyst : This is Jake on for Aaron. Congrats on the quarter. I was just hoping you can maybe give an update on the momentum you're seeing around GPT-in-a-Box. Any changes you seen an enterprise adoption there more broadly? And maybe if there's been any material change over the last quarter or two, given the proliferation of reasoning models?

Question: Jacob Wilhelm - Wells Fargo - Analyst : Great. And then maybe just a follow-up. I was wondering if maybe you could add some color around the investment in sales and marketing and R&D in the back half of the year. And just maybe some color around how that's being allocated?

Question: Ruplu Bhattacharya - Bank of America - Analyst : It's Ruplu filling in for Wamsi today. Two questions, one for Rajiv one for Rukmini. Rajiv, you had strong revenue growth, and you're guiding higher for the year. Have you seen any quantifiable benefit from the partnership with AWS and then providing promotional credits to migrate customers to NC2? And how much are your partnership with Cisco and Dell contributing to the strong new logo growth and revenue growth this year? And I have a follow-up. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 9:30PM, NTNX.OQ - Q2 2025 Nutanix Inc Earnings Call

Question: Ruplu Bhattacharya - Bank of America - Analyst : Got it. Rukmini, as a follow-up, last quarter, you had expected the seasonality between 2Q and 3Q to be similar to fiscal '23. Where revenue was down 8% sequentially, but your guidance for 3Q is much better than that. It's about half of that sequential decline. So what is driving that? And if the demand environment is improving and land and expand is also improving, should we take the seasonality change as permanent? Or is there something specific to this year that is driving better seasonality?

Question: Michael Cikos - Needham & Company - Analyst : Congratulations on the strong quarter and released to the guidance that we have today. I wanted to circle up on some of the go-to-market questions that have been asked here, but maybe from a different angle. When we think about the partners that you guys have run campaigns for and how REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 9:30PM, NTNX.OQ - Q2 2025 Nutanix Inc Earnings Call they're coming over to you potentially as a result of this industry M&A, can you provide some color or maybe qualitative commentary on the different size of these partners or maybe the different sized deals that they're originating on your behalf? Just wondering if we can get some sense of how the -- big differ versus where Nutanix has historically been?

Question: Michael Cikos - Needham & Company - Analyst : Excellent. And just another follow-up. With the success in that upper end of the pyramid, those Global 2000 new logo lands that you had cited earlier. Is there a way to think about maybe specific features or capabilities as part of the more mature Nutanix Cloud Platform that are resonating today versus where we were a year or two ago?

Question: Jason Ader - William Blair - Analyst : In our channel checks, Rajiv, we heard from a few folks that your sales cycles have actually shortened by a little bit. As customers feel greater urgency to get off VMware. And there's a lot of aging, call it, three-tier hardware that's been pushed out over the last couple of years because of the macro environment. First of all, I wanted to just get a sense, is that not -- maybe that's just sort of anecdotal, but is that something that you've heard from your reps at all? And then secondly, we also heard some more [disillusion] from partners about Broadcom squeezing them on margins. So is it helping you sort of when you talked about channel engagement and channel leverage, is it helping you that channels are feeling squeezed a little bit there and make more money selling Nutanix?

Question: Jason Ader - William Blair - Analyst : Okay. And then one quick follow-up. Rukmini, I know you're not giving guidance for FY26, but just given the strength in operating margins this year, non-GAAP operating margins, and I know that this particular quarter is probably not replicable at least for the next couple of quarters based on the guidance. But can you give us a sense of where you're thinking about? Do you think operating margins will expand next year? Or do you think that these levels are sort of appropriate right now.

Question: Param Singh - Oppenheimer & Company - Analyst : Great. And I really appreciate you. Firstly, I wanted to get a sense if you were to break down the front in the quarter, how much would you -- if you wanted to quantify is coming from the share gain due to the price hikes at VMware versus increased spend in existing workloads or better penetration in customers across the board that would have come without the price hike. If there's any way to disaggregate those? I'd really appreciate that. And then I have a follow-up question.

Question: Param Singh - Oppenheimer & Company - Analyst : Right. Maybe I can ask a different question then if -- as you look to more displacement of VMware and Cloud Foundation, what are some of the challenges that your customers have come back to you with? Do they want more for price delta with VMware? Is it a better and easier ease of migration, Is it more integration with some of the legacy applications and operating systems because those are some of the challenges that the channel seems to talk about, but I want to understand from your perspective, what are some of the headwinds or issues that you're facing now and that you hope to drive in the back half with your R&D and sales and market expand?

Question: Param Singh - Oppenheimer & Company - Analyst : Got it. That's really helpful. Maybe one other quick one, if I could. You mentioned M&A as part of the cash usage from the convert. I want to get a sense of where do you see technical gaps in your portfolio today? And is it really to fill a technical gap or to expand into some of the newer opportunities here that you would consider an M&A with?

Question: Jeff Hickey - UBS - Analyst : Building off a lot of just questions here on just partners in general, really healthy just new logo acquisition growth and I'm thinking about just the comments on -- you just talked about a lot of customers on VMware that are really just using the hypervisor. As you put more R&D investments and you leverage more of these channel partners, how should we think about the potential for increased customer adds moving forward as more come online as we get the PowerFlex capabilities turned on? Is this something that we could actually see even further almost acceleration, thinking into next year? Or any color or commentary would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 9:30PM, NTNX.OQ - Q2 2025 Nutanix Inc Earnings Call

Question: Jeff Hickey - UBS - Analyst : Got it. We'll keep that in mind. And then one follow-up for you Rukmini. Just is there anything that we should be conscious about is you have flat NRR this quarter at 110%. Is there any color you could share how we should think about maybe just divergences and expansionary trends you see from customers that have migrated over from competitors like VMware versus ones that have been with Nutanix for a long time? Or is it such a broad customer set that there really isn't a difference that we should see it that way?

Question: George Wang - Barclays - Analyst : Just two quick ones. Rajiv, I just want to ask again over the last three months, have you seen any pickup in private cloud repatriation? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 26, 2025 / 9:30PM, NTNX.OQ - Q2 2025 Nutanix Inc Earnings Call

Question: George Wang - Barclays - Analyst : Got it. Just a follow-up. Maybe you kind of talked briefly on it already. Just in terms of go-to-market, kind of maybe hiring more technical sales versus generous sales, the kind of solution original sales. Can you kind of unpack maybe give a little bit more color just whether that's certainly