What happened
Shares of Nutanix (NTNX) were moving higher this week after the hyperconverged infrastructure specialist offered strong guidance in its fiscal third-quarter earnings report for the period ended April 30.
According to data from S&P Global Market Intelligence, the stock was up 15.8% for the week as of Thursday's close.
So what
Nutanix underwent a multiyear transition to a subscription software company and a change in the way it measures and incentivizes sales, shifting its focus from total contract value to annual contract value. Those moves finally seem to be paying off.
Revenue in the quarter rose 11% to $448.6 million, which missed the consensus at $468.9 million. However, the company posted stronger results from annual contract value billings, which were up 17% to $239.8 million, and annual recurring revenue jumped 32% to $1.47 billion.
Because of a decline in the length of contract, revenue growth under generally accepted accounting principles (GAAP) at Nutanix tends to lag behind annual recurring revenue. https://ir.nutanix.com/news-releases/news-release-details/nutanix-reports-third-quarter-fiscal-2023-financial-results
Non-GAAP gross margin in the quarter was strong at $83.8% and it cut its GAAP operating loss from $92.7 million to $68.9 million. On an adjusted basis, the company posted a profit of $7 million, which compared to a loss of $5.8 million in the quarter a year ago.
On the bottom line, it reported adjusted earnings per share of $0.04. which missed expectations at $0.12.
CEO Rajiv Ramaswami said, "Our business performed well in the third quarter against an uncertain macro backdrop as the value of our cloud platform continued to resonate with customers."
The company also concluded an audit committee investigation, finding that some evaluation software was used in a non-compliant manner, which resulted in an immaterial understatement of operating expenses before August 2014.
Now what
Nutanix also delighted investors with its fourth-quarter guidance, calling for annual contract value billings of $240 million to $250 million and revenue of $470 million to $480 million, representing 23.2% growth, which was much better than expectations at $432.9 million.
It also forecast an adjusted operating margin of 9% to 10%, showing profitability is rapidly improving as well.
Several analysts raised their price targets on the news, cheering the strong results and guidance and the completion of the audit investigation.
Investors can look forward to the company's next analyst day on Sept. 26, which could serve as a catalyst for another leg up in the stock.
