After the close last night, Nutanix (NTX), a developer of cloud-based storage software and technology, posted strong upside 1Q18 results, while also providing upside Q2 EPS guidance with an inline revenue outlook. Since going public back on September 30, 2016, the company has made it a habit of exceeding analysts' expectations. In fact, NTNX has topped EPS and revenue estimates in every quarter so far, spanning five straight quarters. And this quarter is perhaps its strongest yet, in terms of outperforming expectations.
For those unfamiliar with NTNX, the company is the developer of next-generation storage technology which makes it easier and more cost-effective for companies to run servers. The technology it uses is called "hyperconverged", a cloud platform that converges traditional silos of servers, virtualization, and storage into one integrated system. Its platform is comprised of two software product families: Acropolis and Prism.
Here is a closer look at each.
- Acropolis: This software delivers distributed storage, application mobility capability, and a built-in "hypervisor", which is software that allows multiple operating systems to share a single hardware host.
- Prism: Prism provides integrated virtualization and infrastructure management, operational analytics, and administrative capabilities.
NTNX's platform is much more agile since it converges silos, virtualization, and storage infrastructure into one system. To put that benefit into some context, an IDC study indicated that customers can deploy its technology in up to 85% less time than traditional infrastructure. Additionally, with NTNX's application, infrastructure can be provisioned in minutes with one click by a single IT administrator.
Its platform is also a money saver. According to that same IDC report, its solution can reduce total cost of ownership by up to 60% for a broad set of workloads, and up to 30% compared to public cloud offerings. And, with Acropolis, its customers can benefit from application mobility, simplicity of use, resulting in an 80% reduction in virtualization costs.
Now, circling back to its Q1 results. EPS came in at ($0.16), good for a $0.10 beat -- marking its widest beat as a public company. Revenue increased by a solid 46% to $275.6 million, also comfortably beating the $267 million consensus. That is a deceleration from recent growth rates (62% in Q4, 67% in 3Q17, 77% in 2Q17), but, as the company grows in size and scale, a slowdown in the growth rate should be expected. Also, while NTNX is not yet profitable, it achieved positive cash flow of $10.1 million, representing year/year growth of 140%.
There are a number of factors that drove NTNX's impressive performance. For instance, the company continues to add new customers at a fast clip. It ended Q1 with 7,813 total customers, adding 760 during the quarter. But, not only is it adding a significant number of new customers, it is also adding many larger customers. Some of the wins in Q1 included ConocoPhillips, Toyota Motor North America, and Trek Bicycle Corporation, among others. To put this success in better context, it landed 49 deals worth $1 million or more in Q1, up 36% year/year.
Additionally, the company launched a few new features to help run more workloads. For example, the new Acroplois Object Storage Service, Acropolis Compute Cloud, and Nutanix App Marketplace all were unveiled, helping drive higher adoption from both new and existing customers.
Going forward, management says its strategy will be to focus even more intently on selling higher margin software, as opposed to the hardware equipment. In its earnings press release, management stated that had it chosen not to bill any pass-through hardware-related transactions, it would have recorded nearly $800 million in pure software related billings over the past twelve months, and would have delivered gross margin above 80% (Q1 gross margin was 60.6%).